Didn't know that China will become very competitive in IT
industry too. I'm totally fasinated by what China has achieved economically over a decade. Anyone has any recommended free english website so I can learn more about China as I believe it will become a next economic boom.
JULY 27 - AUGUST 3, 2001
The Next Tech Super Power
With brains, bodies and backing from the top, China is not only creating a domestic I.T. boom, it is getting ready to be a global player
By JIM ERICKSON
ALSO
Code Red :Beijing plans to beat Bangalore for software supremacy
Beg, Borrow And Steal :China's plans to catch up with the tech-savvy West includes a surefire shortcut: industrial espionage
Lou Linwei – Sinopix
Huge, barely tapped domestic markets for high-tech gizmos will help China's I.T. ambitions.
From a distance, the assembly lines at Shenzhen's Huawei Technologies could be mistaken for hundreds of others in southern China that churn out toys, Christmas ornaments, clothes and other consumer staples for world markets. Row after row of Chinese workers sit at benches diligently carrying out their tasks while waiting for the long day to end. Zoom in, however, and you'll discover Huawei employees aren't painting lips on the heads of Barbie dolls. They are crafting precision components, including tiny crystalline filters and prisms, that are the guts of cutting-edge optical switching equipment — the building blocks of superfast fiber-optic telecommunications networks.
With sales 0f $2.7 billion last year, Huawei may not yet be a match for Cisco Systems or Nortel Networks in international markets. But the gap is closing fast. "Their learning curve has become logarithmic in the last 18 months," says Ian Johnston, Asia-Pacific technology director for U.S.-based Agilent Technologies, a maker of testing equipment used in optical-switch manufacture. "Huawei's software and R&D skills are getting much, much better. They aren't copycatting the multinationals or just buying optical subassemblies from overseas — they are making their own subassemblies. I've been telling [Western companies] they better get their thinking caps on. These guys are sawing away right quick and, sooner or later, you'll just drop through the floor."
Not long ago, China's information technology position was neatly summarized in an oft-reprinted photograph depicting a sweaty peasant carting a personal computer on the back of his bicycle. For a more up-to-date view, go to your PC keyboard and press "Control," "Shift," "Enter [the Dragon]." The Middle Kingdom, like every other country with an electricity grid, is trying to develop its information technology sector. Unlike most, however, China has in the past several years made a rapid ascent up the I.T. food-chain, driven by leaders who won't accept a future where the country's critical infrastructure — the telecommunications systems, microchips, computers, software programs — carry labels that read "Invented in the U.S.A."
A nation that has not produced a noteworthy technology since the abacus wants to become the cradle of powerhouse hardware and software companies. To challenge the I.T. might of the U.S. and Japan, China will have to surmount many barriers, among them corruption, a decrepit banking system, lack of innovation and disregard for intellectual property rights. But China is wealthy in many of the economic and societal raw materials considered essential to a vibrant tech industry. Among them:
GIANT MARKETS: The rapid adoption of new technology by millions of Chinese consumers and businesses is an antidote to slowing I.T. sales growth in the West. By 2004, the country is expected to be the largest market in the world for mobile phones and digital cameras, and the second-largest for personal computers, behind only the U.S.
MODERN NETWORKS: While many nations have dithered over telecommunications deregulation, China has gone from having a monopoly carrier to seven licensed competitors in less than three years. And Beijing this month allowed cable-TV companies into the local phone business. Competition is resulting in the rapid wiring of cities with the latest broadband telecommunications technology. The mainland is being crisscrossed with fiber-optic cable.
MANUFACTURING BASE: Taiwan, the main source of many of the components that go into personal computers, has shifted tens of thousands of jobs to the mainland, helping China become the third-largest I.T. producer in the world. China's high-tech exports were $37 billion in 2000, up 50%, according to China's trade ministry. Exports are expected to grow by nearly 40% this year despite the global slump in info-tech spending. China will likely displace Japan next year as the second-largest producer behind the U.S.
MANPOWER AND BRAINPOWER: A cheap, deep and motivated workforce has drawn high-tech manufacturing to the mainland. China is also marketing its engineering and research talent to the world. Software giant Microsoft set up a major customer support facility in Shanghai because "there's a fantastic talent pool," says Todd Main, the facility's regional technical account manager.
While the rest of the world frets over the tech wreck, unabated I.T. growth trends in China have dissipated much of the dot-gone gloom. In the southern coastal city of Shenzhen, which along with the Pudong district in Shanghai and Beijing's Zhongguancun Hi-Tech Development Zone is a greenhouse for info-age industries, youthful computer programmers and technopreneurs still carry themselves with Silicon Valley swagger. "The future in China is high tech and we are making the future," says Jason Zeng, an engineer-turned-Internet-entrepreneur. "Everyone is facing the same direction. The government, the market and the consumer all want to see China making its own high-tech products. If you work in high tech in Shenzhen, you feel you control the scene, like the U.S.A. five years ago. There is everything to play for."
China's chief competitive advantage is scale. The growing purchasing power of the country's 1.3 billion people is creating a massive platform on which to build domestic tech industries. For example, the nation's 29 mobile-phone manufacturers are expected to turn out 200 million handsets this year, more than any other country — yet less than 7% of Chinese have bought cellphones to date.
Meanwhile, millions of cheap workers and tens of thousands of new engineers pouring out of Chinese universities pose a major threat to the I.T. aspirations of other Asian countries. An Indian industry trade group recently identified China as likely to eclipse the subcontinent as the world's largest software programming contractor. Export-driven economies such as Malaysia and Singapore, which include large info-tech sectors, are losing manufacturing jobs to the mainland at a quickening pace. Merrill Lynch analyst Dan Heyler says some Chinese plants today "are competing on a global scale with best-in-class parameters."
The dragon is inhaling foreign investment capital, too — a lot of it channeled into technology industries. In a report issued earlier this month, Dutch bank ABN Amro said China's willingness to tackle structural reform is giving it the edge over Southeast Asian countries in attracting funds. China is expected to garner $43 billion this year, according to the Institute of International Financing, a U.S. consultancy. In Southeast Asia, there's capital flight: The region will lose $3.5 billion this year. The Chinese "are definitely going to attract foreign investment and it's going to be substantive and will cost us in Southeast Asia," says Malaysian Prime Minister Mahathir Mohammad.
Smaller nations are simply overmatched. While tech laggards such as Vietnam have one or two high-tech industrial parks, China has 53 — and plans to link them together with a dedicated broadband network by 2003. Every year, 20,000 mainland students enter top-notch overseas universities. Increasingly they return home to help build a modern economy, a phenomenon the government is trying to foster. Part of a $120 million Technology Innovation Fund launched by Beijing last year is earmarked for tech start-ups founded by returning students. China at the end of 1998 had more than 70,000 small- and medium-sized high-tech businesses. The port city of Dalian alone has 600 software companies.
Nevertheless, a lot of newcomers are failing. Qualified management is in short supply, as is private venture funding. Stock exchanges, while large, remain underdeveloped, corrupt and unfriendly to start-ups. China's I.T. market was $16.2 billion last year, but most of the revenue flows to multinational giants such as Microsoft, Oracle, NEC and IBM operating on the mainland through joint ventures. China can't go it alone. It needs overseas know-how to set up factories and research facilities. The country is producing microchips, the grist of all digital products; yet every one of 13 mainland semiconductor facilities is a foreign joint venture employing technology that is a generation behind.
China's indigenous I.T. research has pockets of excellence, such as in optical physics. But intellectual property rights are neither respected nor given much legal protection, which stunts the country's advance in key areas such as software and networking technologies. "In terms of original research and intellectual property, I don't see them being a big threat to the West for at least five years," says Edmond Wong, an Internet consultant and author of a new book, The Rise of Digital China.
That process is accelerated by foreign companies willing to transfer knowledge to mainland enterprises in exchange for lower trade barriers and taxes — and access to that burgeoning market. China's imminent entry into the World Trade Organization promises a more level playing field. The big corporations hope to dig in deep enough to compete with cheaper domestic brands.
China has yet to launch an I.T. company capable of competing globally. Huawei sells telecommunications equipment outside of China, but mostly in developing countries where its less-costly gear is a welcome alternative. Legend Computer, perhaps China's best-known tech company, has global aspirations. The computer maker is launching a line of laptop computers in Europe and recently partnered with U.S. media giant AOL Time Warner (owner of ASIAWEEK).
Even so, Legend officials say they will concentrate on the China market for now, where they are already the best-selling brand. Even after China enters the WTO, U.S. brands like IBM and Compaq will have a tough time dislodging it. Ken Xie, executive analyst for IDC research in Beijing, laughs at the suggestion that Legend can be out-marketed on the mainland. "If you said five years ago that Legend had a long way to go, you would have been right," says Xie. "But they've been No. 1 for the past three years. They are much better than Compaq." That's not a statement usually heard about Chinese tech companies. Get used to it.
With reporting by ALLEN CHENG and SHAI OSTER |
