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  China's High-tech Offensive: From Sweatshop to Laboratory

China's High-tech Offensive 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.

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."

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.