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China's small and medium-sized enterprises (SME) are likely to spend 500 billion yuan on IT products in the next two years, according to a report released by a research company.

The IT expenditure by the companies is expected to grow 16.5 percent this year over last year to 142.77 billion yuan.

Expenditure will likely rise to 186.92 billion yuan in 2008, said the report released by the China Center for Information Industry Development Consulting.

Spending on computer hardware accounted for 67.6 percent in last year's IT spending by SMEs but its rate of growth is lower than that of the IT market as a whole. IT services grew by 20 percent last year, said the report.

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