ANALYSIS-Looking for China's Infosys

By Joseph Chaney and Sumeet Chatterjee

HONG KONG/BANGALORE, May 12 (Reuters) - China's software sector is booming as it taps global firms looking to cut costs, but its small size and lack of experience mean it will be years before it threatens Indian rivals such as Infosys (INFY.BO: Quote, Profile, Research).

For now, Chinese firms are attracting venture funding and expanding staff in an industry Beijing views as strategic for the country's future growth.

Analysts are bullish on the sector and say that scale, client lists, and quality of management are the key factors that distinguish the players.

The total value of software and services exported from China was an estimated $1.8 billion in 2006, according to analyst estimates, paltry compared with India's estimated $41 billion export revenue in the year to March 2008 in a sector that has thrived by tapping its large pool of English speaking graduates and engineers.

But the value of software and services exported from China is forecast to grow at a compound annual growth rate of nearly 38 percent through 2011, while India's is expected to jump to $60 billion by March 2010, according to industry estimates.

Chinese IT outsourcing firms, unlike their export-orientated Indian rivals, mainly serve the local arms of domestic and foreign companies and this could shield them from the worst impact of a U.S. recession.

Most of the software work is, however, less sophisticated than that done by Indian firms such as Tata Consultancy (TCS.BO: Quote, Profile, Research) and Infosys, which are fast chasing consulting revenue.

"The Chinese firms have still not moved up to the top of the IT outsourcing value chain and are still doing 'lights on' types of work such as application maintenance, patches, or upgrades for software," said Timothy Bush, an analyst at Merrill Lynch.