INTERVIEW-Cloud computing chance for Chinese software market

* Cloud computing offers way out of piracy predicament

* Chinese business software market 3 percent of world total

* Salesforce.com-scale company seen in China in 5 years

By Georgina Prodhan

ABU DHABI, March 11 (Reuters) - Cloud computing, a fast-growing way of selling services via the Web without physical software, offers a chance for China finally to develop a software market, according to a Chinese industry veteran.

Kai-Fu Lee, who recently resigned as head of Google China, said the kind of piracy that has hobbled Chinese IT was near-impossible in a cloud-computing model, in which companies or individuals pay to access services that are hosted elsewhere.

"China has been plagued by piracy for the last 20 years and that unfortunately has caused China not to have a software industry," Lee told Reuters in an interview at the Abu Dhabi Media Summit.

"But it's irrelevant now, because software distribution is shifting from packaged software, from end user licence, to cloud Internet distribution. and when you're on the cloud you gotta pay," he said.

Lee resigned from Google last year, a few months before the company reported a large-scale hacking incident that caused it to threaten to withdraw from China. Google is in talks with the Chinese government and expects an outcome soon.

Lee, who also previously headed Microsoft's Chinese operations, has now started a $115 million venture-capital fund, Innovation Works, that aims to foster Chinese entrepreneurs in the areas of mobile Internet, e-commerce and cloud computing.

China's business software industry will make revenues of $6.2 billion this year, analysts at IT research firm Gartner estimate, dwarfed by the United States' $99.2 billion and less than 3 percent of the world's total.

Microsoft's chief operating officer said last week the company would be cautious about investing in China until it improved intellectual property rights, and said China would not achieve its potential until that happened.

Cloud computing, or software as a service, is still a young industry and was pioneered by Salesforce.com, which centres around offering Web-hosted customer relationship-management (CRM) software for sales people.

Lee said cloud computing had already revived China's online gaming industry, which seemed moribund 10 years ago but is now thriving, thanks to micropayments that gamers make for virtual weapons or other props that improve their performance or status.

"If you don't pay, you can't log in. If you log in, we're gonna charge you. If you don't give me your credit card, you can't use our product," he said.

"That's going to enable the next Salesforce.com, the next CRM, the next whatever company, because now the software companies can charge."

Lee estimated it would take about five years before China would produce a company of the scale of Salesforce, which made sales of $1.3 billion last year and has a market capitalisation of $9.4 billion. (Editing by David Cowell)