Premier's Visit Strengthens China's Software Outsourcing Ties With Japan

China's growing software outsourcing trade with Japan is expected to rise even faster after Premier Wen Jiabao's "ice-melting" visit to Japan.

"China accounted for more than 60 percent of Japan's outsourced software trade in 2006 and has become the country's biggest software outsourcing base," said Mine Shentaro of the Japan External Trade Organization, based in Dalian, northeast China's Liaoning Province.

Dalian Hi-Think Computer Technologies (DHC) is one of China's leading software outsourcing firms. Manager Liu Jun is proud of its big-name customers, including technology giants Hitachi (NYSE: HIT) , Sony (NYSE: SNE) , Mitsubishi and NEC (Nasdaq: NIPNY) .

Continued Growth

"DHC started outsourcing computer software from Japan in 1996, a time when Sino-Japanese relations were at low ebb. Political hindrances have not impeded our business," said Liu.

DHC's business with Japan has grown 30 percent annually since 1996 and now employs 2,000 people. Last year, the company exported software worth US$50 million to Japan.

"More than 60 percent of China's software trade is Japan-oriented," said Jin Guowei, deputy director of the Dalian Information Technology Bureau.

Skilled Labor

Dalian, a Japanese colony for 40 years before the end of World War II, became the outsourcing center of information technology to Japan due to its geographical proximity and its skilled labor force.

The city's software industry sales last year set a new record at 10 billion yuan ($1.23 billion), maintaining a 60 percent annual rise in the past six years.

Of the sales, processing outsourced software contributed 3.7 billion yuan ($456 million), of which at least 80 percent was for Japanese companies.

The city has 20,000 people working in the software outsourcing sector and 70 percent of them speak Japanese.

According to a government plan for the development of software and information services, China aims to generate $168 billion from the software sector and export $12.5 billion worth of software services in 2010.

'An Irreversible Trend'

Jin is confident in the future. "With the improvement of bilateral ties, I believe the industry will become more prosperous.

"The friendship between China and Japan is an irreversible trend. Premier Wen Jiabao's visit to Japan is good for the two countries. I hope after the visit more Japanese can put away misgivings and start cooperating with Chinese firms in the software industry. It will be a win-win solution," said Jin.

"While European and American companies are choosing India as an outsourcing base, Japanese firms prefer China because we are close neighbors and have similar cultural backgrounds." said Noshiro Yasuo, president of Fujitsu System Engineering in northwest China's city of Xi'an.

"Premier Wen's visit to Japan will give us more confidence to expand our business in China," he added.