http://service.spiegel.de/cache/international/spiegel/0,1518,393615,00.html
From Sweatshop to Laboratory
By Wieland Wagner
China may still be the world's cut-rate factory for cheap goods, but the giant country is devoting considerable energy to developing its own innovative industries. With Chinese research budgets steadily on the rise, it could soon pose a threat to western high-tech dominance.
A Chinese worker checks mobile phone circuit boards at the Austria Technology and Systems (AT&S) plant in Shanghai.
A Chinese worker checks mobile phone circuit boards at the Austria Technology and Systems (AT&S) plant in Shanghai.
Even giants have to start with baby steps. A few years ago, Dongfang Electrical Machinery sent three freighters loaded with soybeans halfway around the world -- as payment for German tool-making machines that the Chinese urgently needed to build turbines. When Dongfang sends its ships abroad today, they're loaded with China's own state-of-the-art power plant technology.
Zhang Tiande, Dongfang's 52-year-old chief engineer, walks enthusiastically toward the company's large production building. Zhang frequently takes the highest-ranking members of China's government and Communist Party elite on tours of the firm's production facilities near Chengdu, the bustling capital of Sichuan province. At the plant, hundreds of workers are busy welding, stamping and screwing together parts for giant turbines destined for the Three Gorges Damn on the Yangtze River, but also for machines that will end up in thermal power plants and nuclear facilities.
As the builder of more than a third of China's new hydroelectric power plants, Dongfang has no shortage of work. The energy-hungry country plans to increase its power generation capacity by 50 percent by 2010. But Dongfang, one of China's three industry giants, has long since set its sights beyond the rapidly-expanding domestic market. With their inexpensive products, the Chinese plan to penetrate the European market and outbid competitors like Germany's Siemens and France's Alstom. "We consider ourselves among the world's best when it comes to our technology," boasts chief engineer Zhang. "And we're making tremendous strides in terms of research and development."
The game of catch-up comes easy to the Chinese. After all, they acquire most of their know-how legally -- from western or Japanese companies. In order to land government power plant contracts in China, foreign companies must often operate as subcontractors to local manufacturers and provide them with important, cutting-edge technology. As a result, western companies are gradually making themselves redundant over the long-term. This large-scale transfer of technology from the West is enhanced further by joint ventures with western companies -- and often simply by brazen imitation. Chinese companies are increasingly even starting to buy up western companies, complete with their knowledge and expertise.
However, Chinese strategists are also beginning to focus on development from within. China is putting tremendous effort behind its plan to transform itself from the world's factory into an innovative high-tech laboratory. The country and its 1.3 billion people seem ambitious beyond compare, as shown by China's recent second manned space mission. The collective goal -- accompanied by a healthy dose of propaganda -- is clear: China, the land that once enriched the world with inventions such as the compass, book printing and gunpowder, intends to reclaim the luster of its bygone golden age.
Rich in people
The country is using its most ample resource to achieve its lofty goal, that is, its people. China's universities educate 440,000 new engineers each year. Because Chinese engineers' salaries are often about a fifth of those of their western counterparts, more and more foreign companies are moving their research and development capacities to global factory China. The professional world in the West is already beginning to pay attention to new products and innovations coming out of the giant country. In February, China announced that it plans to build the world's first commercial pebble-bed nuclear reactor. This new type of atomic power plant is considered especially safe, since uranium oxide is no longer enclosed in fuel rods, but rather in graphite spheres the size of tennis balls.
China is also pushing for state-of-the-art technology in automobile manufacturing. Shanghai's Tongji University, for example, plans to develop a fuel-cell vehicle together with domestic auto giant Shanghai Automotive Industry.
Representing China's shining hope in the highly competitive field of information technology (IT) is Huawei -- a brand name that means as little to consumers in the West, despite the fact that its products are already relatively commonplace in America and Europe. Though largely inconspicuous in daily life, the devices the electronics giant produces have become indispensable, because they control telephone and computer data transmission. Armed with its intelligent and inexpensive equipment, Huawei has turned itself into a feared competitor for top western brands like US manufacturer Cisco.
The realm of Chinese IT mogul Ren Zhengfei lies on the outskirts of Shenzhen, a business center in southeastern China. He founded Huawei 17 years ago. Although the company's employees own the majority of its shares, Ren, a media-shy former officer in the National Liberation Army, determines Huawei's visions -- and they're as colossal as the company's Shenzhen headquarters.
A dedicated highway exit leads into Huawei's industrial park, a one-and-a-half square kilometer site where China's future has already begun. Huawei's sleek glass and concrete buildings, filled with modern laboratories and expensive testing equipment, flank elegant, tree-lined boulevards named after Nobel prize winners and renowned scientists, while employees live in an idyllic residential area complete with parks and athletic centers.
Huawei has been awarded contracts to build mobile wireless networks in the Netherlands, France and Britain because it delivers custom-tailored technology less expensively and often more quickly than the competition. According to Huawei, the company has already filed about 8,000 patent applications, of which 3,000 have been filed this year alone, including 500 filed abroad. The company claims that it invests about ten percent of its sales in research and development.
Chinese innovation
He Tingbo, the company's vice president of R&D and a mother of two, is constantly in a hurry. Like a teacher searching for her own classroom, she hurries through the enormous test center, a monumental low building with Greek columns, spacious foyers and high ceilings. She is constantly pressing her chip card against locked doors as she moves through the building, each time producing a beep and causing a door to open, revealing yet another laboratory filled with engineers working quietly away at their flickering computers. He says that she and her colleagues have developed more than a hundred chips in much the same fashion, including a special chip used to transmit optical data, which she says enabled Huawei to achieve an innovative technical breakthrough.
But what exactly does the term "innovative" mean in an industry that frequently refines existing technologies or tailors them to the specific needs of major customers? It's a question that has produced occasional controversies between the Chinese newcomer and its competitors. Two years ago, US firm Cisco sued Huawei for its alleged infringement of Cisco's patents for router products. In response, Huawei promptly removed its devices from retail shelves. Nevertheless, Huawei's growth has encouraged countless smaller Chinese startups to emulate its approach, especially in Shenzhen. The days when factories in the region produced nothing but cheap plastic toys for export to Hong Kong and Taiwan are long gone. New research facilities seem to be sprouting from the ground all across the region to add to 53 already existing, government-owned research parks. "We must acquire as many key technologies as possible, as well as more intellectual property," says China's Science and Technology Minister Xu Guanhua, explaining the reason behind the gigantic construction boom.
The Chinese are making the Americans and, increasingly, the Europeans nervous with their ambitions. European Union Commissioner for Science and Research Janez Potocnik darkly warns that within five years, China will be spending a larger percentage of its gross domestic product on research and development than the EU. According to Potocnik, China's expenditures on R&D are growing annually at double-digit rates. "If current trends continue," says Potocnik, "Europe will miss out on the opportunity to become a leading global, knowledge-based economy."
Factory workers in China.
Whatever happened to the notion of Europe as a sparkling high-tech laboratory and China as a sweating factory to the world? It's obvious to anyone who visits Beijing today that such conceptions have long since become outdated. The Life Science Park, a jewel of China's state-driven promotion of research and development glistens on the outskirts of the Chinese capital. Biotech firm CapitalBio inaugurated its new headquarters at the facility last year. Company head Cheng Jing, 42, proudly presents visitors with his two business cards, one identifying him as an executive and the other as a professor at Beijing's well-known Tsinghua University. Six years ago, Cheng, a biologist who had returned to China from the United States, launched the company in a basement at the university with a handful of colleagues. Now CapitalBio and its 400 employees occupy a gleaming glass office building with a panoramic view of the mountains surrounding Beijing.
The Chinese government awarded Cheng about $10 million in state funding, money that was apparently well invested. A scanner developed by CapitalBio for analyzing viruses or biochips is now being successfully sold in Europe. The company already holds six US patents, and CapitalBio has filed another 64 patent applications worldwide. "Our country is rapidly elevating itself from the low level of the cheap manufacturer," says a clearly pleased Cheng.
Managers like him are the pride of China's government and party leadership, as show by the fact that the serious professor was recently asked to give a presentation on biochip technology to Chinese President Hu Jintao. With the party's blessing, Cheng plans an initial public offering of CapitalBio's shares on New York's high-tech stock exchange, the NASDAQ. CapitalBio wants to reserve about 20 percent of its shares for its employees, allowing it to use stock options to entice overseas Chinese like Cheng to return home. The incentive is necessary, because even high-tech executives in China earn only a fraction of salaries considered customary in the West. But what China lacks, says Cheng, are talented managers to market Chinese inventions. Cheng believes China's ascendancy won't happen overnight: "It will take our country another 30 to 40 years to become a major high-tech nation."
For that transition, China needs men like the 41-year-old Wang Wenjing. After working for the tax authorities in Beijing, Wang, together with a partner, a personal computer and a loan of about €5,000, founded UFSoft, a maker of accounting software now known as Ufida, in 1988. Today, Wang heads a 5,000-employee company, China's largest manufacturer of business software -- but he wants his company to continue growing. A model of his plans for a new software park in the northern section of the Chinese capital stands in the company's headquarters building. Wang plans to move into a section of the 45-hectare site by the end of next year and future plans call for 12,000 employees working at the headquarters. Wang, a restless man who is constantly moving his knees or sending out urgent text messages with his mobile phone, is aiming high: He wants Ufida to be one of the world's 50 largest software manufacturers by 2010.
The pace of change in China is dizzying in many respects. Ten years ago, buffalo were still grazing on the site where Shanghai's new software park is now being built in the city's Pudong district, where a miniature Silicon Valley made up of elegant brick buildings is gradually taking shape. Sculptures with high-tech motifs adorn the park. One stone figure depicts a man showing a child how to use a laptop. Symbols of the world's leading electronics brand names -- Sony, Motorola, Infosys -- shine from the park's rooftops.
In this environment, Zhao Qiang and Hu Hefu are busy helping build the Chinese software industry. The two managers gave up lucrative carriers in Japan for the chance to start a new business at home. Their company, Codeasy, develops software platforms for mobile phone games, as well as control programs for high-speed trains. Codeasy is still in its infancy, little more than a startup. The company managed to obtain an attractive lease on its large, sparsely furnished office, where 74 software developers work in austere cubicles. The government pays for the company's expensive testing equipment. Initial talks with western mobile wireless operators have been very encouraging, says Zhao, whose company can offer its software for about 20 percent less than Japanese companies.
But low software prices alone aren't enough, a lesson the Chinese have learned when attempting to copy India's approach to convincing western companies to outsource the development of entire software systems to China. Until now, considerable drawbacks have prevented China from developing its potential for outsourcing: poor English skills, lack of protection of intellectual property and the Chinese government's pervasive monitoring of the Internet.
Despite these problems, more and more western companies are overcoming their reservations, at least when it comes to labor-intensive applications and outsourcing some of their software development needs to China, says Andreas Schallwig of Avenit Software in Shanghai. According to Schallwig, German specialists are increasingly traveling to China to train local personnel on-site.
Although this is certainly a beginning, the strategists in Beijing insist that China should not be satisfied with the role of cheap subcontractor for western companies. This is why the government is urging foreign companies that have already sent millions of low-paying jobs to China to start outsourcing research and development to the country. And its efforts are beginning to pay off. About 600 foreign companies -- from Siemens to Microsoft -- have already built research centers in China, and about 200 more will follow suit each year.
Helping the domestic industry
Beijing is also pushing for the transfer of know-how in the mobile wireless industry. With about 380 million users, China is already the world's biggest market for mobile phones, and foreign manufacturers have invested billions in the country since 2000. But despite the successful efforts of Chinese manufacturers like Ningbo Bird to catch up with western competitors, companies like Nokia and Motorola continue to dominate the market. To help the domestic industry gain a foothold, Beijing is promoting the future mobile wireless generation 3G. By introducing its own Chinese 3G standard, "TD-SCDMA," the Chinese government hopes to force western companies to join forces with local manufacturers like Huawei, which it envisions developing products for the standard. German electronics giant Siemens has already formed a joint venture with Huawei, while competitor Ericsson has formed an alliance with Chinese firm ZTE.
The Chinese also plan to deprive foreigners of their hold over the enormous Chinese market for entertainment electronics by developing their own standard for the DVD of the future. The man spearheading China's efforts to transform itself into a sovereign high-tech nation is named Lu Da. His research institute at Beijing's elite Tsinghua University co-developed the new standard, which is in fact little more than a minor variation on the HD-DVD standard used abroad. But when Lu Da gazes at the Chinese capital from his 28th-floor office, he is less interested in technical details than in his country's industrial policy. The 2008 Olympic Games are set to take place down below in smog-covered Beijing, and China plans to take advantage of that symbolic date to introduce its new standard -- and thereby supposedly liberate itself from the dominance of foreign electronics companies. "We'll finally be able to have some say in the production of DVD devices, an area that's been monopolized by other countries until now," says Lu, beaming.
But don't Chinese manufacturers already dominate the market for DVD players, which are also sold at deep-discount prices in China itself? He concedes that is true, but counters that foreign companies hold the patents for the devices' underlying technology, forcing the Chinese to pay about $20, or about 40% of their production costs, to foreign licensors. Despite massive government support, the Chinese have made little headway with their current attempt to introduce their own DVD standard, known as EVD. But the planners in Beijing refuse to give up. According to their next five-year plan, the Chinese will endeavor to achieve their "own intellectual property and brand ownership."
The state supports the domestic industry's efforts to catch up with the West wherever it can. For example, Beijing is in the process of writing new legislation that requires state-owned institutions and businesses to use domestic Chinese software. But is it even possible to make up for western high-tech's head start by decree from above? Not even Beijing's planners are convinced that it is, and as a result they are increasingly searching for technological niches that the West has tended to neglect in the past.
Filling a niche
Mao Guojun and his company, Junduoli, occupy just such a niche. The 45-year-old Mao greets visitors to the company's headquarters in Shenzhen in a room furnished with green-and-white plastic sofas, and with a lighting setup reminiscent of a nightclub. The ceiling lights fade seamlessly across the color spectrum, from violet to green. The walls are covered with flickering light panels used in advertising, highlighting Junduoli's role as one of about 600 manufacturers of luminous diodes (LEDs).
Mao holds up one of the lights, which consists of tiny diodes. These types of lights use up to 80 percent less energy than conventional light bulbs, an important feature for China, which uses 12 percent of its electricity for lighting. LED technology comes from Japan and the United States. LEDs were initially used in only a few products, such as traffic lights. But now Beijing is heavily promoting the new, energy-saving technology by funding is own research. Mao also expects to be ahead of the game when it comes to the further development and marketing of LED technology.
Mao's 600 employees can hardly keep up with the pace of production in his plant. They sit in rows at microscopes, plugging the tiny glass diodes onto printed circuit boards that will later become giant billboards or luminous strips. The devices have already made an imprint on the skyline in cities like Shanghai. With the help of colorful LED panels, gray concrete office towers and bridges are transformed at night into magical fantasy structures. "LED helps China shine," wrote the official state-backed business magazine "Zhongguo Keji Caifu" in a recent cover story.
If Junduoli director Mao has his way, German cities will soon glitter more colorfully as well. His engineers are already developing products for German customers, and Mao plans to begin exploring his new market in the spring.
From Sweatshop to Laboratory
By Wieland Wagner
China may still be the world's cut-rate factory for cheap goods, but the giant country is devoting considerable energy to developing its own innovative industries. With Chinese research budgets steadily on the rise, it could soon pose a threat to western high-tech dominance.
A Chinese worker checks mobile phone circuit boards at the Austria Technology and Systems (AT&S) plant in Shanghai.
A Chinese worker checks mobile phone circuit boards at the Austria Technology and Systems (AT&S) plant in Shanghai.
Even giants have to start with baby steps. A few years ago, Dongfang Electrical Machinery sent three freighters loaded with soybeans halfway around the world -- as payment for German tool-making machines that the Chinese urgently needed to build turbines. When Dongfang sends its ships abroad today, they're loaded with China's own state-of-the-art power plant technology.
Zhang Tiande, Dongfang's 52-year-old chief engineer, walks enthusiastically toward the company's large production building. Zhang frequently takes the highest-ranking members of China's government and Communist Party elite on tours of the firm's production facilities near Chengdu, the bustling capital of Sichuan province. At the plant, hundreds of workers are busy welding, stamping and screwing together parts for giant turbines destined for the Three Gorges Damn on the Yangtze River, but also for machines that will end up in thermal power plants and nuclear facilities.
As the builder of more than a third of China's new hydroelectric power plants, Dongfang has no shortage of work. The energy-hungry country plans to increase its power generation capacity by 50 percent by 2010. But Dongfang, one of China's three industry giants, has long since set its sights beyond the rapidly-expanding domestic market. With their inexpensive products, the Chinese plan to penetrate the European market and outbid competitors like Germany's Siemens and France's Alstom. "We consider ourselves among the world's best when it comes to our technology," boasts chief engineer Zhang. "And we're making tremendous strides in terms of research and development."
The game of catch-up comes easy to the Chinese. After all, they acquire most of their know-how legally -- from western or Japanese companies. In order to land government power plant contracts in China, foreign companies must often operate as subcontractors to local manufacturers and provide them with important, cutting-edge technology. As a result, western companies are gradually making themselves redundant over the long-term. This large-scale transfer of technology from the West is enhanced further by joint ventures with western companies -- and often simply by brazen imitation. Chinese companies are increasingly even starting to buy up western companies, complete with their knowledge and expertise.
However, Chinese strategists are also beginning to focus on development from within. China is putting tremendous effort behind its plan to transform itself from the world's factory into an innovative high-tech laboratory. The country and its 1.3 billion people seem ambitious beyond compare, as shown by China's recent second manned space mission. The collective goal -- accompanied by a healthy dose of propaganda -- is clear: China, the land that once enriched the world with inventions such as the compass, book printing and gunpowder, intends to reclaim the luster of its bygone golden age.
Rich in people
The country is using its most ample resource to achieve its lofty goal, that is, its people. China's universities educate 440,000 new engineers each year. Because Chinese engineers' salaries are often about a fifth of those of their western counterparts, more and more foreign companies are moving their research and development capacities to global factory China. The professional world in the West is already beginning to pay attention to new products and innovations coming out of the giant country. In February, China announced that it plans to build the world's first commercial pebble-bed nuclear reactor. This new type of atomic power plant is considered especially safe, since uranium oxide is no longer enclosed in fuel rods, but rather in graphite spheres the size of tennis balls.
China is also pushing for state-of-the-art technology in automobile manufacturing. Shanghai's Tongji University, for example, plans to develop a fuel-cell vehicle together with domestic auto giant Shanghai Automotive Industry.
Representing China's shining hope in the highly competitive field of information technology (IT) is Huawei -- a brand name that means as little to consumers in the West, despite the fact that its products are already relatively commonplace in America and Europe. Though largely inconspicuous in daily life, the devices the electronics giant produces have become indispensable, because they control telephone and computer data transmission. Armed with its intelligent and inexpensive equipment, Huawei has turned itself into a feared competitor for top western brands like US manufacturer Cisco.
The realm of Chinese IT mogul Ren Zhengfei lies on the outskirts of Shenzhen, a business center in southeastern China. He founded Huawei 17 years ago. Although the company's employees own the majority of its shares, Ren, a media-shy former officer in the National Liberation Army, determines Huawei's visions -- and they're as colossal as the company's Shenzhen headquarters.
A dedicated highway exit leads into Huawei's industrial park, a one-and-a-half square kilometer site where China's future has already begun. Huawei's sleek glass and concrete buildings, filled with modern laboratories and expensive testing equipment, flank elegant, tree-lined boulevards named after Nobel prize winners and renowned scientists, while employees live in an idyllic residential area complete with parks and athletic centers.
Huawei has been awarded contracts to build mobile wireless networks in the Netherlands, France and Britain because it delivers custom-tailored technology less expensively and often more quickly than the competition. According to Huawei, the company has already filed about 8,000 patent applications, of which 3,000 have been filed this year alone, including 500 filed abroad. The company claims that it invests about ten percent of its sales in research and development.
Chinese innovation
He Tingbo, the company's vice president of R&D and a mother of two, is constantly in a hurry. Like a teacher searching for her own classroom, she hurries through the enormous test center, a monumental low building with Greek columns, spacious foyers and high ceilings. She is constantly pressing her chip card against locked doors as she moves through the building, each time producing a beep and causing a door to open, revealing yet another laboratory filled with engineers working quietly away at their flickering computers. He says that she and her colleagues have developed more than a hundred chips in much the same fashion, including a special chip used to transmit optical data, which she says enabled Huawei to achieve an innovative technical breakthrough.
But what exactly does the term "innovative" mean in an industry that frequently refines existing technologies or tailors them to the specific needs of major customers? It's a question that has produced occasional controversies between the Chinese newcomer and its competitors. Two years ago, US firm Cisco sued Huawei for its alleged infringement of Cisco's patents for router products. In response, Huawei promptly removed its devices from retail shelves. Nevertheless, Huawei's growth has encouraged countless smaller Chinese startups to emulate its approach, especially in Shenzhen. The days when factories in the region produced nothing but cheap plastic toys for export to Hong Kong and Taiwan are long gone. New research facilities seem to be sprouting from the ground all across the region to add to 53 already existing, government-owned research parks. "We must acquire as many key technologies as possible, as well as more intellectual property," says China's Science and Technology Minister Xu Guanhua, explaining the reason behind the gigantic construction boom.
The Chinese are making the Americans and, increasingly, the Europeans nervous with their ambitions. European Union Commissioner for Science and Research Janez Potocnik darkly warns that within five years, China will be spending a larger percentage of its gross domestic product on research and development than the EU. According to Potocnik, China's expenditures on R&D are growing annually at double-digit rates. "If current trends continue," says Potocnik, "Europe will miss out on the opportunity to become a leading global, knowledge-based economy."
Factory workers in China.
Whatever happened to the notion of Europe as a sparkling high-tech laboratory and China as a sweating factory to the world? It's obvious to anyone who visits Beijing today that such conceptions have long since become outdated. The Life Science Park, a jewel of China's state-driven promotion of research and development glistens on the outskirts of the Chinese capital. Biotech firm CapitalBio inaugurated its new headquarters at the facility last year. Company head Cheng Jing, 42, proudly presents visitors with his two business cards, one identifying him as an executive and the other as a professor at Beijing's well-known Tsinghua University. Six years ago, Cheng, a biologist who had returned to China from the United States, launched the company in a basement at the university with a handful of colleagues. Now CapitalBio and its 400 employees occupy a gleaming glass office building with a panoramic view of the mountains surrounding Beijing.
The Chinese government awarded Cheng about $10 million in state funding, money that was apparently well invested. A scanner developed by CapitalBio for analyzing viruses or biochips is now being successfully sold in Europe. The company already holds six US patents, and CapitalBio has filed another 64 patent applications worldwide. "Our country is rapidly elevating itself from the low level of the cheap manufacturer," says a clearly pleased Cheng.
Managers like him are the pride of China's government and party leadership, as show by the fact that the serious professor was recently asked to give a presentation on biochip technology to Chinese President Hu Jintao. With the party's blessing, Cheng plans an initial public offering of CapitalBio's shares on New York's high-tech stock exchange, the NASDAQ. CapitalBio wants to reserve about 20 percent of its shares for its employees, allowing it to use stock options to entice overseas Chinese like Cheng to return home. The incentive is necessary, because even high-tech executives in China earn only a fraction of salaries considered customary in the West. But what China lacks, says Cheng, are talented managers to market Chinese inventions. Cheng believes China's ascendancy won't happen overnight: "It will take our country another 30 to 40 years to become a major high-tech nation."
For that transition, China needs men like the 41-year-old Wang Wenjing. After working for the tax authorities in Beijing, Wang, together with a partner, a personal computer and a loan of about €5,000, founded UFSoft, a maker of accounting software now known as Ufida, in 1988. Today, Wang heads a 5,000-employee company, China's largest manufacturer of business software -- but he wants his company to continue growing. A model of his plans for a new software park in the northern section of the Chinese capital stands in the company's headquarters building. Wang plans to move into a section of the 45-hectare site by the end of next year and future plans call for 12,000 employees working at the headquarters. Wang, a restless man who is constantly moving his knees or sending out urgent text messages with his mobile phone, is aiming high: He wants Ufida to be one of the world's 50 largest software manufacturers by 2010.
The pace of change in China is dizzying in many respects. Ten years ago, buffalo were still grazing on the site where Shanghai's new software park is now being built in the city's Pudong district, where a miniature Silicon Valley made up of elegant brick buildings is gradually taking shape. Sculptures with high-tech motifs adorn the park. One stone figure depicts a man showing a child how to use a laptop. Symbols of the world's leading electronics brand names -- Sony, Motorola, Infosys -- shine from the park's rooftops.
In this environment, Zhao Qiang and Hu Hefu are busy helping build the Chinese software industry. The two managers gave up lucrative carriers in Japan for the chance to start a new business at home. Their company, Codeasy, develops software platforms for mobile phone games, as well as control programs for high-speed trains. Codeasy is still in its infancy, little more than a startup. The company managed to obtain an attractive lease on its large, sparsely furnished office, where 74 software developers work in austere cubicles. The government pays for the company's expensive testing equipment. Initial talks with western mobile wireless operators have been very encouraging, says Zhao, whose company can offer its software for about 20 percent less than Japanese companies.
But low software prices alone aren't enough, a lesson the Chinese have learned when attempting to copy India's approach to convincing western companies to outsource the development of entire software systems to China. Until now, considerable drawbacks have prevented China from developing its potential for outsourcing: poor English skills, lack of protection of intellectual property and the Chinese government's pervasive monitoring of the Internet.
Despite these problems, more and more western companies are overcoming their reservations, at least when it comes to labor-intensive applications and outsourcing some of their software development needs to China, says Andreas Schallwig of Avenit Software in Shanghai. According to Schallwig, German specialists are increasingly traveling to China to train local personnel on-site.
Although this is certainly a beginning, the strategists in Beijing insist that China should not be satisfied with the role of cheap subcontractor for western companies. This is why the government is urging foreign companies that have already sent millions of low-paying jobs to China to start outsourcing research and development to the country. And its efforts are beginning to pay off. About 600 foreign companies -- from Siemens to Microsoft -- have already built research centers in China, and about 200 more will follow suit each year.
Helping the domestic industry
Beijing is also pushing for the transfer of know-how in the mobile wireless industry. With about 380 million users, China is already the world's biggest market for mobile phones, and foreign manufacturers have invested billions in the country since 2000. But despite the successful efforts of Chinese manufacturers like Ningbo Bird to catch up with western competitors, companies like Nokia and Motorola continue to dominate the market. To help the domestic industry gain a foothold, Beijing is promoting the future mobile wireless generation 3G. By introducing its own Chinese 3G standard, "TD-SCDMA," the Chinese government hopes to force western companies to join forces with local manufacturers like Huawei, which it envisions developing products for the standard. German electronics giant Siemens has already formed a joint venture with Huawei, while competitor Ericsson has formed an alliance with Chinese firm ZTE.
The Chinese also plan to deprive foreigners of their hold over the enormous Chinese market for entertainment electronics by developing their own standard for the DVD of the future. The man spearheading China's efforts to transform itself into a sovereign high-tech nation is named Lu Da. His research institute at Beijing's elite Tsinghua University co-developed the new standard, which is in fact little more than a minor variation on the HD-DVD standard used abroad. But when Lu Da gazes at the Chinese capital from his 28th-floor office, he is less interested in technical details than in his country's industrial policy. The 2008 Olympic Games are set to take place down below in smog-covered Beijing, and China plans to take advantage of that symbolic date to introduce its new standard -- and thereby supposedly liberate itself from the dominance of foreign electronics companies. "We'll finally be able to have some say in the production of DVD devices, an area that's been monopolized by other countries until now," says Lu, beaming.
But don't Chinese manufacturers already dominate the market for DVD players, which are also sold at deep-discount prices in China itself? He concedes that is true, but counters that foreign companies hold the patents for the devices' underlying technology, forcing the Chinese to pay about $20, or about 40% of their production costs, to foreign licensors. Despite massive government support, the Chinese have made little headway with their current attempt to introduce their own DVD standard, known as EVD. But the planners in Beijing refuse to give up. According to their next five-year plan, the Chinese will endeavor to achieve their "own intellectual property and brand ownership."
The state supports the domestic industry's efforts to catch up with the West wherever it can. For example, Beijing is in the process of writing new legislation that requires state-owned institutions and businesses to use domestic Chinese software. But is it even possible to make up for western high-tech's head start by decree from above? Not even Beijing's planners are convinced that it is, and as a result they are increasingly searching for technological niches that the West has tended to neglect in the past.
Filling a niche
Mao Guojun and his company, Junduoli, occupy just such a niche. The 45-year-old Mao greets visitors to the company's headquarters in Shenzhen in a room furnished with green-and-white plastic sofas, and with a lighting setup reminiscent of a nightclub. The ceiling lights fade seamlessly across the color spectrum, from violet to green. The walls are covered with flickering light panels used in advertising, highlighting Junduoli's role as one of about 600 manufacturers of luminous diodes (LEDs).
Mao holds up one of the lights, which consists of tiny diodes. These types of lights use up to 80 percent less energy than conventional light bulbs, an important feature for China, which uses 12 percent of its electricity for lighting. LED technology comes from Japan and the United States. LEDs were initially used in only a few products, such as traffic lights. But now Beijing is heavily promoting the new, energy-saving technology by funding is own research. Mao also expects to be ahead of the game when it comes to the further development and marketing of LED technology.
Mao's 600 employees can hardly keep up with the pace of production in his plant. They sit in rows at microscopes, plugging the tiny glass diodes onto printed circuit boards that will later become giant billboards or luminous strips. The devices have already made an imprint on the skyline in cities like Shanghai. With the help of colorful LED panels, gray concrete office towers and bridges are transformed at night into magical fantasy structures. "LED helps China shine," wrote the official state-backed business magazine "Zhongguo Keji Caifu" in a recent cover story.
If Junduoli director Mao has his way, German cities will soon glitter more colorfully as well. His engineers are already developing products for German customers, and Mao plans to begin exploring his new market in the spring.
