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The country’s domestic market will also see continued growth, fueled by a boom in mobile and cloud computing.

By Phil Muncaster on January 7, 2013

According to the 12-year cycle of the Chinese zodiac, those born in the year of the Dragon are blessed with power and good fortune. 2012 was certainly an auspicious year for the country’s technology industry, as China’s rise to become the planet’s preëminent technology producer and consumer continued apace.

The past 12 months saw China reach and surpass milestones across the technology firmament. For example, by most reckonings, it has already overtaken the United States as the world’s biggest smartphone market. Chinaalso passed the magic figure of one billion mobile subscribers early in the year. The country now has over 500 million  Internet users, according to the government-affiliated China Internet Network Information Center.

So what can we expect from China and its growing rank of world-class technology companies in 2013, as it enters the year of the Snake?

Needless to say, the Chinese government is keen to keep pushing growth forward, and it has a plan to increase the country’s online population to 800 million by 2015, and to expand Web sales to reach to 18 trillion yuan ($2.9 trillion) by 2015—taking the top spot in global e-commerce.

Gartner is predicting enterprise IT spending alone in China will grow from $117.8 billion in 2013 to $172.4 billion by 2016, representing a compound annual growth rate of 8 percent, compared to a global growth rate of just 3 percent over the same period. As elsewhere in the world, cloud, mobile, and hardware and software virtualization will be the main spurs to growth.

When it comes to cloud computing, China will continue to benefit from huge regional government investments and the fact that most organizations are unencumbered by legacy IT systems, enabling them to leap straight to cutting-edge deployments. Although only 10 percent of conventional systems in the country are currently virtualized, this will jump to 70 percent by 2016, according to Gartner.

IDC meanwhile forecasts that despite suffering a four-point dip in annual growth in 2013 to 10 percent, due to falling demand from Europe and elsewhere, China will lead the charge to account for over a quarter of spending from emerging markets, including Latin America and Eastern Europe.

In its new 2013 predictions report, IDC writes: “As an example of this impact, we are predicting that China’s ZTE will leap from fourth to third position in smartphone shipments—riding an astounding 80 percent plus growth rate and driven in large part by its emerging market roots and focus on low-cost smartphones.”

Chinese firms are likely to have the biggest impact in the mobile and PC spaces globally in 2013. Gartner predicts that both ZTE and its Shenzhen neighbor Huawei will continue their rise up the mobile handset rankings, and will be joined in the top five by Lenovo, which this year surpassed HP for the first time to become the world’s number one PC vendor.

These three in particular will benefit from success in their domestic market in the low to mid-end, where most growth will come as China’s huge pool of feature phone users gradually transition to the smartphone age. It’s an area where Lenovo in particular has flourished. Gartner expects the company to reach the top spot in China, at least in terms of unit sales, by next year.

Canalys analyst Nicole Peng believes that many Chinese smartphone vendors—“large and more resourceful ones and small or even non-brands”—will push for overseas growth in 2013.

“Vendors such as Gionee and K-Touch have already been using their existing feature phone channels for smart phones and Yulong has managed to reach the carrier channel in the U.S. with their low-cost LTE device shipping with MetroPCS,” she says. “Chipset vendors like Qualcomm and [Taiwan-based] MediaTek are providing technical, market, and business support to more Chinese vendors, allowing them to expand internationally, particularly into emerging markets.”

Despite success in the handset space, ZTE and Huawei will likely continue to struggle in the international telecom equipment market due to national security concerns. The U.S. and Australia have blocked the firms from competing in their domestic markets, while Canada, India, and even the U.K. are investigating the firms’ links to the Chinese government.

Experts also argue that the unique, highly regulated and semi-closed nature of the Chinese Internet makes it difficult for new local Web firms to survive and thrive to the point where they can make the jump into overseas expansion. To an extent that’s going to remain true in 2013, but some of China’s biggest and more innovative Web platform providers are likely to begin dipping their toes in international waters.

However, Google rival Baidu, whose Q3 net income surged 60 percent compared to the same period in 2011, recently added Sydney, Australia, to its international offices (along with Hong Kong, Taiwan, London, and San Francisco). The past year has seen it introduce localized services in Vietnam, Thailand, and Egypt with mixed results, although it has already announced a Singapore-based research lab on natural language processing for Thai and Vietnamese and is currently building a new international headquarters in Shenzhen.

Alibaba’s e-commerce platform, Taobao, often dubbed the eBay of China, was recently taken off the U.S. government’s Notorious Markets blacklist of sites which play host to pirated content, which will help its expansion efforts. The firm has hinted that its recent move into Hong Kong and Taiwan could be followed by modest growth elsewhere.

Web giant Tencent is also likely to increase its international user numbers for the Whatsapp-like WeChat (Weixin) service. Most of its 200 million users—more than double its numbers of users from six months ago—are still China-based, but the firm has said this is rapidly changing, and it has just released a BlackBerry app which will appeal to users in overseas markets like Indonesia.

Frost & Sullivan analyst Peng Zhai believes that China’s Web giants will struggle to succeed in mature overseas markets. “Baidu is the number one Chinese Internet company in size and revenue. It has the technology and a mature business model and maybe it can enter other countries successfully, but in the U.S. and Europe, it will be difficult with Google already there,” he says. “Taobao could be successful, but credibility is important, and it isn’t well known outside of China. Plus in the U.S. and Europe, you have eBay and Amazon, which makes it tough to compete.”

However, the Chinese tech market is still one of the fastest-growing IT markets in the world, according to Forrester. It accounts for $105 billion of annual technology spending, which places it third after the U.S. and Japan, but per-capita IT spending in China is only 4 percent of Japan’s and 3 percent of that in the U.S., pointing to huge long-term potential. So while commentators often focus on the potentially disruptive impact of Chinese tech vendors overseas, as the country’s IT appetite grows, the opportunities for foreign firms to sell their goods and services into the People’s Republic could become even more compelling.