China's 8.4 million medium and small businesses spent more than $16bn on IT last year, and plan to increase their hardware spending by a further 18 per cent this year, according to a newly published survey.

While PC and other hardware sales will continue to increase this year, Chinese firms that already own PCs will try to make the most of them by spending more on software, services and connectivity, reported US-based research firm AMI Partners. 

The $16.7bn spent by China's SMEs on IT in 2005 was split roughly equally between hardware, software and services.

AMI Partners predicted an 18 per cent growth in the hardware sector this year, accompanied by increases in software and services.

Illustrating the size of the market, local firm Lenovo was able to offset heavy losses from its absorption of IBM's global PC business last year with strong sales in the Chinese SME space. 

Lenovo, the Chinese market leader, estimated that 30 to 40 per cent of its $1.5bn quarterly turnover in the country comes from small firms. 

However, IT spending by China's SMEs still has plenty of room for growth and will top $28bn as early as 2009, according to the Center of Information Industry Development, a government-owned think-tank. 

"As it stands now, about two-thirds of SMEs in China are still operating without a PC," said Jackie Chan, senior analyst at AMI Partners.

"But many of these businesses have realised that IT implementation starting with PC deployment can really help them stay competitive in the increasingly global marketplace."