China's software and IT services sector is on track to catch the UK's output in as little as five years, according to a new report.
China's strength comes from robust software engineering programmes for students, according to Developing the Future 2007, a series of essays and reports on the U.K.'s IT industry.
The country is also proving to be a cheaper location than India, where software development costs are rising 15% to 20%, Sally Ernst, chief executive at outsourcer Sinocode International, wrote in the report.
"All evidence points to China developing its own national software industry even faster than was the case in India," she noted.
India also faces the challenges of a rising currency and a change in tax regulations.
About 40% of the UK’s gross domestic product is dependent on "knowledge-based" services, a term encompassing financial and IT services. The report concludes that the UK will need to invest more in education and skills or face falling behind.
China's 35 national training schools are producing 800,000 software engineering graduates annually from a population of 1.3bn. By comparison the UK, with a population of about 60m, turned out around 27,000 graduates with IT-related degrees in 2001, but that figure dropped to 14,700 in 2005.
Adjusted for population size, China still produces more than twice as many software engineers than the UK a year.
The problem is that while software engineers have well-paid careers, UK students "see this world as filled with problematic stereotypes, career dead ends and dull office work", wrote Peter McOwan, an academic at the University of London.
However, much of the future prosperity of the UK depends upon the health and growth of the IT sector, the report said.
The report was sponsored by Microsoft, the British Computer Society, City University London and Intellect, a UK high-tech trade group.