Tiny Chinese tech sector has big potential
By Michael Mackey
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China developing niche technology markets
Such a potentially gloomy picture is complicated and contradicted by the emergence of Chinese high-tech global leaders in niche markets as well as precedents showing how inhibitions on the sector can be overcome to produce companies and products that, if not yet world beaters, have a commanding presence in the world's largest market.
Four firms are usually cited in this category: HealthDigit, InnoST, Tsinghau Solar and YuanDe. Of these, three were founded in the autumn of 2000, the exception being Tsinghua Solar, which was founded in the late 1980s. Three of the firms are in Beijing, the fourth being Shanghai-based HealthDigit.
Health Digit is not alone in its field, state-of-the-art biochip technology and cancer-detecting protein chips, where it is said to be one or two years ahead of its nearest US rivals. Scientists at the Chinese Academy of Sciences decoded the rice genome first.
It was also Chinese who first decoded severe acute respiratory syndrome (SARS) first, although a hierarchy problem meant it was not allowed to be publicized. The decoding achievement gives the lie to the old notion that Chinese and other Asians cannot think creatively. However, it also shows how how political problems in a closed society can make valid research difficult.
But this cuts both ways, according to one observer who spoke on condition that he not be identified. China's different ethical standards and generally acknowledged lax regulation with regard to intellectual property rights, experiment approval, oversight and other issues mean it is significantly ahead on stem-cell research, he said. "There's been a little bit too much creativity" in the field, he said, suggesting that all experiments were not up to strict ethical standards.
What also distinguishes HealthDigit is that it has successfully commercialized its work with sales of 420 million yuan ($50.8 million) for production of 1.5 million biochips, although in this respect it falls far behind Tsinghua Solar, which specializes in solar-energy collection techniques and products, and had a staggering 3 billion yuan worth of business in 2000.
Strong international ties contribute to success
Several factors explain the success of these companies, says Dr Ming Zeng, professor of strategy at the Beijing-based Cheung Kong Graduate School of Business. Ming, who has studied the four companies extensively, says that what they all have in common are their strong links to the international community.
Of the four companies, he pointed out that two of them, HealthDigit and InnoST, were founded by returning Chinese who had gone abroad for study and research, including one to a laboratory in Denmark and one to the Massachusetts Institute of Technology (MIT). HealthDigit's founder and chief executive officer, Dr Genxi Hu, came from MIT's laboratories. This is on top of a large pool of skilled and cheap local labor as well as strong basic research capabilities left over from China's pre-reform era of central economic planning.
In another aspect of the international equation, YuanDe had an influx of funds from General Electric Medical Systems, which bought 30 percent of the company. One of the biggest problems the high-technology sector faces in China is accessing funds cheaply and quickly; reform of China's venture-capital industry could do more to expand the sector than the geek entrepreneurs, say industry insiders.
Dr Ming also cited two other important factors, dynamic organization and management sophistication, although he conceded this made creating a successful high-tech company a tall order. "These [the four companies] are the exceptions that prove the rules ... I did dig hard for these examples," he said. "But you can also say that it [this limited number of successful examples] foretells the potential of the industry."
There is anecdotal evidence that this process of creating dynamic organization and management sophistication is under way. Some people are changing jobs to position themselves better to take advantage of what they know will be further development of China's indigenous technology industries. Some universities are commercializing their research on fourth-generation (4G) telecom technologies, and one of the aviation-industry supply bodies, Aviation Industries Corp, is branching out into building plane engines rather than procuring other companies' engines.
Typically a number of factors support this view of expansion and improved development, and a number also constrain development.
Beijing spends on big-bang projects, not tech
On the plus side, the government is very committed to spending on research and development, even if some private-sector sources and observers have been less than convinced that this was the best use of funds. Figures from the Ministry of Science and Technology show that China allocated 0.6 percent of its gross domestic product (GDP) for research in 1995 - and a decade later that had risen to 1.6 percent. That's not much, but despite the hoopla about furious economic growth, China is still a poor country that spends a lot on big-bang projects such as the Olympics, its space program, and the Three Gorges Dam.
Two aspects are significant. The first is that China's indigenous technology at this stage is comparable to US technology development in the 1950s; the second is that the emphasis is on commercial development, as opposed to research. "I think that's quite sensible," said Kroeber.
Another factor is the enormous and compelling size of the China market, which means multinationals have to be there and, while they fret about unauthorized technology transfer and infringement on intellectual property rights, they do bring about change that helps Chinese companies, as noted by Dr Ming.
For example, he said, a decade ago local brands had only a tenth of the local DVD market, but five years later that had risen to a staggering 93 percent. Multinationals had 7 percent.
Nor is this a solitary example: in the personal-computer (PC) market, local manufacturer Legend now has about a third of the market, with most foreign firms being in single digits, and it took only four years for local mobile-phone makers to storm from 3 percent of the market to around 60 percent. More than patriotism is at play here in what is a dramatic and repeated story of catch-up.
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