Small and medium-sized businesses (SMBs) in China will invest over US$28 billion to boost their IT infrastructure and applications in 2007, says AMI-Partners.

In a report Monday, the research house said SMB IT spending will increase by 19 percent over last year. China's medium-sized companies--defined as having between 100 and 999 employees--will account for the lion's share of 70 percent, and the bulk of these investments will be fuelled by the country's manufacturing sector.

According to the AMI-Partners study, most Chinese midsize businesses still rely on retail stores for the bulk of their IT hardware and software purchases.

"This is largely because a big part of their total IT spending still goes toward basic computing hardware," James Cheng, a Singapore-based analyst at AMI-Partners, said in a statement.

"China-based medium-sized businesses see retail outlets as their channel of choice for buying a wide range of IT products--from PCs and servers, to printers and software.

"As medium-sized businesses mature in their understanding of IT infrastructure, system/network integrators and value-added resellers (VARs) will increase in importance in the channel space," he added.

With over 60 percent of medium-sized businesses preferring to buy technology from the local computer retail store, Cheng said, vendors cannot afford to ignore the retail channel as a partner.

However, as these midsize businesses move further up the IT adoption cycle, they are less likely to be influenced by the retailers when making purchase decisions, the report noted.

According to Cheng, spending on basic computing infrastructure continues to dominate the bulk of IT spending. "However, we are likely to see this decrease over time as more medium-sized businesses focus on leveraging their existing infrastructure to maximize business value," he said.

IT services spending is expected to increase to 20 percent of the total IT expenditure in the medium-sized businesses space this year. Investment priorities in the next 12 months will "center on maximizing their past IT spending by integrating their hardware and software to enhance productivity, as well as keep up with rapid business expansion", said AMI-Partners.