• English Site
• > SPIEGEL Magazine

China's High-tech Offensive

From Sweatshop to Laboratory

By Wieland Wagner

Part 2: Continue to Page 2 to read about the dizzyzing pace of change in China.

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.

Translated from German by Christopher Sultan