Amid calls for tech self-reliance, China “home-brewed” database files for IPO

Ongoing competition with the U.S. has fueled China’s pursuit of technological autonomy. The latest listing application of a Chinese software business has provided a more optimistic outlook for the future of technical independence.

Last week, Dameng Database (达梦数据库) filed for an initial public offering (IPO) on the Science and Technology Innovation Board in China, raising 2.35 billion yuan ($372.69 million). The Wuhan-based company is valued at 50 billion yuan despite only generating 743 million yuan in revenue in the past year.

According to the company’s prospectus issued to the Shanghai Stock Exchange, the company’s primary income sources include software services, data and industrial solutions, and DevOps-related services. Over the previous two years, more than 80% of the company’s revenue has been generated by software services.

Support from the government and state-owned industries like energy and banking has been crucial to Dameng’s development. Some of its clients are the Ministry of Commerce; the Ministry of Foreign Affairs; the Ministry of Finance; China Construction Bank; Bank of Communications; China Merchants Bank; Shenzhen Stock Exchange; State Grid, etc.

Dameng is frequently referred to as China’s first homegrown database due to the fact that its core products were built in-house without recourse to open-source databases. This is inextricably linked to the company’s R&D commitment. Over the past three years, the company has spent a total of 277 million yuan on research and development, or 18.53 % of its entire operating income.

Since some Chinese tech giants such as Huawei, ZTE, and SenseTime were placed on the Trump administration’s Entity List to prevent U.S. companies from exporting key technologies to them, China’s top-down focus has shifted to pursuing technological self-reliance in semiconductors, operating systems, databases, etc.

Due to the high cost of R&D, the U.S. has historically dominated the market for operating systems, databases, and middleware, with few Chinese competitors. “In recent years, with the support of policies, China-made products have progressively evolved from the stage of “usable” to “easy to use,” Yin Yanji, Director and Chief Analyst of Strategic Technology at Hua An Securities Research Institute, told Chinese financial media Yicai.

As a result of government support, years of R&D investment, and the accumulation of expertise, the market share of local database enterprises has increased. According to iiMedia Research, in China’s database market, the share of foreign companies represented by Oracle, Microsoft, and IBM dropped to 52.6% in 2020, while the share of Chinese companies climbed to 7.1%.

While Chinese-made databases currently lag behind their international counterparts in terms of technology and market dominance, they have become the best choice for China in the event of any future external crisis.

This has occurred previously. To comply with U.S. government restrictions, San Francisco-based prototyping tool Figma announced on March 12 that it had barred Chinese drone manufacturer DJI from accessing its services. In response, a number of Figma’s Chinese competitors promptly pledged to assist DJI in transferring designs to their platforms in order to mitigate the impact of the access ban.

According to IDC, the Chinese market for relational database software, which climbed 34.9% year-over-year to almost $1.6 billion in the second half of 2021, is projected to reach nearly $9.6 billion by 2026, a CAGR of 28.1% over the next five years.

Local enterprises such as Dameng Database and KingBase of Renmin University (人大金仓) will be able to acquire more clients from their foreign competitors as a result of the initiative to achieve technological independence.

In China’s 14th Five-Year Plan, which outlines broad goals for China’s economic and social growth for the next five years and until 2035, the need to shield China from foreign vulnerabilities through achieving scientific and technological independence is emphasized.

At the end of June, during a visit to Wuhan, the capital city of central China’s Hubei Province, Chinese President Xi Jinping reiterated keeping the lifeline of science and technology firmly in China’s own hands and making the country’s development more independent, self-reliant and secure, Chinese state-owned media CGTN reported.

As the nation seeks for complete autonomy in its core technology sector, domestic software is gradually replacing foreign software.

According to Yin, homegrown software has been mostly deployed in the security, banking, and government industries. In the meantime, the proportion of foreign-made GIS (geographic information system) software, ERP (enterprise resource planning) software, and industrial software remains significant.

Photo by Leif Christoph Gottwald on Unsplash