China's nascent IT outsourcing industry appears to be weathering the downturn well, although there could be storm clouds ahead.

Despite the financial crisis that descended on much of the world in late 2008, official figures show that contracted value of China's software exports — one half of the IT outsourcing pie — grew at an annual rate of 22% in the first five months of 2009 to reach $2.5bn.

Services outsourcing — the other half — grew slightly faster, up 26% to $2.6bn .

Back in 2008, full-year growth rates were 80% for software exports and an astonishing 160% for services outsourcing, so clearly there has been quite a significant slowdown in the rate of growth in the last six to nine months. Presumably the full-year figures for 2009 will look pretty anaemic when compared with the go-go growth rates achieved in the year of the Olympics.

Nevertheless, many western software and services companies who would be more than happy to be reporting year-on-year growth rates of over 20% today — or any growth, for that matter.

Software exports and outsourcing is a strategic industry for China and the country seems relatively cushioned from the full effect of the global recession by its relatively low labour costs and its focus on serving Japanese rather than western companies.

Speaking at a software fare in Dalian (pictured) China's best-know outsourcing base, Wang Chao, assistant minister of commerce, nevertheless cautioned that some of the country's smaller outsourcing firms might go to the wall, particularly those that were dependent on financial services sector.

That seems a coded message calling on China's fragmented outsourcing players — there are more than 1000 –.to consolidate and achieve the critical mass necessary to compete for multinational outsourcing deals against bigger and better-known Indian outsourcing firms.

China wants to double the export value of its outsourcing industry by 2010 and aims to woo around 100 multinationals to transfer part of their service outsourcing industry to China by building 10 cities with international standards.

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