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Posted: 12/17/2005 6:49:53 AM EST

Posted on Wed, Aug. 17, 2005

China's technological capacity beginning to climb
By Tim Johnson
Knight Ridder Newspapers

SHENZHEN, China - Perhaps as soon as October, a Long March rocket will thrust a spaceship into Earth's orbit carrying two Chinese astronauts for a five-day mission.

The launch will mark the latest feat for China's space program, which first shot a man into brief orbit in 2003, and will highlight the country's newfound technological prowess.

It's a far cry from the common global image of China as low-cost factory to the world. Others invent technologies, such as the DVD player. China churns them out for as low as $29 each. Yet that image is a little stale.

A look around China shows a handful of surprising advances in scientific niches, such as gene research, biomedicine and certain aspects of electronics. China's technological capacity is beginning to climb.

Whether, and how quickly, China scales the technological ladder is no small matter for the United States, which holds a quantum lead in matters of science and engineering. If China were to gain ground, that would have a major impact on consumer products it can make as well as the ways in which its huge military could conduct modern warfare.

China has almost no companies with global name recognition, but observers say some Chinese companies are rising, moving significantly faster than neighboring Japan and South Korea did.

"The speed at which this is happening is catching other companies off-guard," said Joe Abelson, the vice president of emerging markets at iSuppli, a global market-research firm in El Segundo, Calif. He noted rapid advances in mobile-telephone, network and appliance engineering as well as semiconductor design.

At a showroom in its landscaped headquarters in the southern coastal city of Shenzhen, a representative for Huawei Technologies shows off streaming video on a tiny cellular handset. The networking company, which makes routers and telecom gear, is taking on global giants, competing with Cisco, Alcatel and Lucent.

"We have recruited a lot of young talent," said Edward Deng, the vice president for global marketing. "We've applied for over 6,500 patents worldwide."

Much hampers China's technological development, though. The government meddles incessantly in private business. Research links between universities and private companies, such as those that gave birth to Silicon Valley, are feeble. Many companies rely on low-cost labor and razor-thin margins to survive. They have few incentives to spend on research when they can pirate technology and operate sweatshops.

"Chinese companies are not going to be leading the way in product innovation," asserted Arthur R. Kroeber, the managing editor of the China Economic Quarterly. "What they are good at is making products cheaper. What Chinese companies are able to do is take things and turn them into commodities faster than ever before."

Much of China's technological development is led and financed by the central government, a vestige of the nation's centrally planned economy. Government cadres still choose "pillar" industries - and the "information industry" is one of them - and throw heaps of bank financing at them. Recently, a state-controlled Chinese bank offered Huawei and its clients an astounding $10 billion line of credit.

As the space program attests, China has the resources to mount major drives in high-tech research. Experts say the Shenzhou VI spaceship that will go into orbit this fall is sharply upgraded from old Soviet technology. China is following the United States and the former Soviet Union in sending humans into space.

Spraying a torrent of cash, China seeks to nurture homegrown technologies and shape global standards for wireless communications, software applications, satellite positioning and even radio-frequency ID tags to track merchandise.

How far China will prevail in imposing its own standards is yet to be seen. Last year, it told foreign vendors they'd have to cooperate in adopting a homegrown standard for wireless communication. When the companies balked, China backed down.

Some of those same foreign companies are helping China climb the high-tech ladder, setting up research and development centers here as a way to get a foot in the door to a huge consumer market.

High-speed computers were once rare here. Not anymore. Even city governments own them, seeking to give local businesses a leg up.

At a high-tech industrial park in the Pudong district of Shanghai, Wang Puyong explained what hummed behind closed doors in his building.

"It is the fastest computer with commercial applications in China," Wang said.

The Chinese-made Dawning 4000A Opteron at the Shanghai Supercomputer Center was ranked the 18th fastest in the world until earlier this year, able to spin out 11 trillion calculations per second, or 11 teraflops. Financed by the city of Shanghai, the center offers computing power to local companies in genetic and pharmaceutical research and major engineering projects, Wang said.

Blocking China from obtaining such technology remains a goal for Washington. In 1989, after the Chinese army's massacre of hundreds, if not thousands, of pro-democracy protesters in Beijing, the U.S. government slapped sharp restrictions on high-tech exports to China, such as supercomputers, that can be used for weapons design and communications decryption.

Given China's technological advances, though, some U.S. business leaders argue that the restrictions may be irrelevant.

Indeed, officials at a company here, Galactic Computing Shenzhen, have boasted to local media that they will build the world's fastest supercomputer. Its Taiwan-born, U.S.-educated founder, Steve Chen, declined requests for an interview.

China is skirting U.S. restrictions in other ways. In a snub to the Pentagon's control of the Global Positioning System, which allows tracking of any object on Earth, China recently joined Europe's Galileo system, a move with geopolitical and military significance. Plans call for building 30 positioning satellites. Galileo may prove a counterweight to GPS, which allows pinpoint accuracy for weapons guidance.

In many ways, China seems to have many conditions that would allow rapid technological advancement. After all, its universities pump out 219,000 engineers annually, compared with 59,000 in the United States.

But an examination of the growing high-tech portion of China's exports shows that a huge percentage came not from Chinese companies but from foreign-invested companies, primarily American, such as Motorola, or Taiwanese.

"About 85 percent of high-tech products are actually exported by foreign-invested companies," said Kroeber, the managing editor of the economics publication.

Promising research often comes from foreign-educated scientists. Foreign-trained experts have turned Nanjing in eastern China into a hotbed of stem-cell research, saying China has none of the ethical qualms about such study that roil the United States. A scientist in China, for example, is placing human genetic material into the cells of other mammals in an effort to learn how to repair damaged organs.

Others are examining other technologies that promise to improve human health.

After returning from postdoctoral studies at the Massachusetts Institute of Technology, Hu Gengxi founded the company Shanghai HealthDigit, which makes state-of-the-art protein chips that can provide early detection of up to 12 common cancers when exposed to patients' blood.

"This is a very effective way to test tumors at an early stage. It's easy to operate. ... It's non-invasive," said Yu Tijun, the executive director of the Shanghai office of Ming Yuan Holdings, a Hong Kong company that bought HealthDigit last year.

Small private companies may hold promise for China's high-tech advancement.

"The real competitors from China are companies that we don't even know about yet. They are companies with $3 million to $5 million in sales now, which are growing very fast. When they finally show up in your radar screen, it will almost be impossible to stop them," said Ming Zeng, an expert at China's Cheung Kong Graduate School of Business.

Others are far less sanguine, saying the government meddles too much in companies once they grow, leading them into areas with no commercial appeal.

For example, seeking to reduce the country's reliance on foreign technology, the government asked China's household appliance company Haier Group to replicate a power-conservation electronic chip, worth about 10 cents, that goes in washing machines, said Anne Stevenson-Yang, an American and a longtime resident of China who's followed technology developments.

"Why would you spend $5 million learning how to make a chip worth 10 cents?" she asked.

Stevenson-Yang said she wasn't worried that China was building technological competence that could threaten U.S. dominance.

"I'm sorry for China that its political system makes it so hard for its scientists to excel," she said. "All of these really cool technologies that I've seen here just never go anywhere because of the political-economic structure of the country."

Link Posted: 12/17/2005 7:09:25 AM EST

Posted on Mon, Jul. 18, 2005
A 21st century powerhouse: China rising
By Tim Johnson
Knight Ridder Newspapers

WUHU, China - If the 20th was the American century, the 21st may belong to China.

Just five years into it, China has become the world’s third-largest trader, one of its fastest-growing economies, a rising military power in Northeast Asia and a global player extending its influence in Africa, the Middle East and Latin America.

Americans and people around the globe can feel the effects of China's voracious appetite for resources and the enormous output of its factories, staffed by an endless stream of migrants who toil for $2 a day churning out low-cost goods, undercutting foreign competitors and upending the low-end global work force.

The world has never seen a nation as big as China rise as far and as fast as China has in the last 20 years. Its ascent, like those of the United States, Germany and Japan before it, is challenging more established powers. Its continued progress depends on harmony with these and other nations.

Whether China’s rise lifts all the world’s boats or sinks some of them will depend, first, on whether its rapid economic development continues. There’s no certainty. Most of the country is backward and poor. Small-scale rural protests erupt with growing frequency, and leaders fear a spark that could set off wider turmoil. Corruption erodes the credibility of the country’s communist rulers. Citizens have huge expectations about rising standards of living.

It would be unwise, however, to bet against China. With the exception of India, no other country has such enormous scale, including such a huge pool of highly educated people. And in an age of globalization, no country has been better able than China to swallow the innovations of others and leap ahead of them.

In coming months, Knight Ridder will examine important parts of the story of China’s rising power, including its mounting demand for energy, its military buildup, the degradation of the environment and the growing political and economic “soft power” it wields abroad. Other stories will describe how China has largely tamed the Internet, and how U.S. companies have succeeded _ or failed _ at cracking the Chinese market.

China’s conglomerates are on the prowl. Following a path Japan once took, Chinese firms are scouring the globe. But instead of buying trophy buildings and movie studios, they’ve bought IBM’s personal computer business, and they're looking at Maytag and Unocal, the oil company.

Economist Nick Lardy, an expert on China, said its economy was likely to grow rapidly over the next five to 10 years because of its openness to foreign business, high savings rate and huge pool of underemployed rural workers who are eager to work in factories, even for low wages.

Although much of China’s production is still low-tech, the government is pushing innovation and research into areas that have both civilian and military high-tech potential.

American analysts figure it will be years before China’s military is on par with America’s. But it doesn’t have to be an even match to pose a serious threat. China’s submarines soon will acquire supersonic missiles that could slow or damage U.S. aircraft carriers if they moved to defend Taiwan.

In its quest, China has extended its influence to Africa, the Middle East and Latin America. Its “see-no-evil” foreign policy sometimes puts it at odds with the U.S. interest in promoting democracy, human rights and nuclear security. With investment and diplomatic support, for example, China bolsters oil-rich Iran and Sudan.

China’s Communist Party _ authoritarian and pro-business _ has had a monopoly on power since it won a civil war in 1949. Opposition is banned. While communist ideology has faded, the party stakes its legitimacy instead on its ability to meet rising expectations with rapid economic development.

China’s global ambitions _ and the hopes of many Chinese for a freer society _ rest on the prospect of sustained growth. In the long run, economic openness might lead to greater political freedom, as it has in Taiwan and South Korea. As people get richer, they tend to want to join groups of people with similar interests, they seek to protect their rights in court and, finally, they want a say in how they're governed.

But China’s gap between rich and poor yawns ever wider, fueling frustration and resentment.

Other potential obstacles:

_ China’s banking and financial systems are in serious need of reform.

_ Years of rapid growth with little concern for the environment have taken a heavy toll on the land, the air and the health of many people.

_ China needs far more energy than it can supply.

_ A protectionist backlash could rise from the United States or other countries. Labor-intensive industries such as textiles have been pressing Washington for protectionist measures. The Commerce Department recently agreed to temporary quotas on some cotton clothing from China after global quotas expired in 2004. In addition, U.S. companies lose millions of dollars to Chinese theft of intellectual property, such as pirated movies and software. Still, many American companies want an expanded trade relationship.

China’s very size _ 1.3 billion people _ makes questions about its future all the more important.

“China is the largest laboratory of social, economic and political change in modern history,”
said Zhang Weiwei, a Chinese political scientist who lives in France.

The ripple effects of such rapid, large-scale economic development are being felt in Asia and the rest of the world.

China’s growing tensions with Japan, for example, are partly because of disputes over undersea oil deposits in the East China Sea.

But China’s economic power isn’t only a source of friction; it’s also attracted admiration. Australians, who are doing a brisk business selling to China, now view China more positively than they do the United States, an opinion poll by the prestigious Lowy Institute, a research center in Sydney, found in February. Some 69 percent of Australians look positively on China, while only 58 percent do so on the United States, the poll found.

Eventually, the United States could find itself competing with China for dominance in Asia. It would be the first time the United States faced a challenger with so much economic power.

China’s leaders have sought smooth relations with the United States while they focus on domestic problems. In the meantime, a growing China has started to help solve global problems, from support for the government of Afghanistan to the fight against AIDS.

Our children and grandchildren are going to live in a world where China will be a very strong and powerful player on the world scene,” veteran U.S. diplomat John Negroponte said during a confirmation hearing for his new job as national intelligence director.

Urban, middle-aged Chinese marvel at how much their country has changed since they were young.

For three decades after the 1949 revolution, the state assigned jobs and housing, restricted travel and offered a bare-bones welfare system. Simple belongings, such as wristwatches and bicycles, could take years to acquire.

Twenty years ago, I dreamed of having a watch. My family was too poor to buy me a watch. So I drew one on my wrist with ink,” said Li Tao, a research fellow in Beijing at Tsinghua University, one of China’s premier institutions. “Now I have a car.”

Billboards and TV ads pitch the latest BMW models, liquors and perfumes. Chinese can move about the country, switch jobs, acquire passports, start businesses, and buy and sell homes.

“I used to live in a very shabby apartment. . . . The wooden floor was rotten. There were rats everywhere,” said Yi Shoucheng, a deputy manager at a cutlery factory in Wuhu, a city in central inland China.

Yi lives in one of the new apartment blocks that are rising around Wuhu, the last deep-water port along the Yangtze River, where industrial zones throb with activity and bulldozers flatten old homes to make way for apartments.

The farming hamlet of Xiangfengwei is a 40-minute drive from Wuhu. Running water arrived in 1973, electricity a decade later. Relief from poverty has yet to come. Many people burn straw or coal to cook.

Rural unrest is a potential flash point in China, and the Communist Party keeps close political control.

Urban and rural dwellers alike are angry over land grabs by corrupt officials. Banking and stock-market scandals simmer. Underground religious sects appear to be expanding. Expectations of rising standards of living could endanger the party’s legitimacy if unmet.

Everything could fall apart. It’s not that stable,” said Wang Gungwu, the director of the East Asian Institute at the National University of Singapore. “It’s a single political party with no transparency (and) little accountability.”

Officials censor news of unrest, muzzle troublemakers, jail dissidents, clamp down on the Internet and stifle religion.

Their logic is that everything depends on stability,” said Wang Yizhou, the deputy director of the Institute of World Economics and Politics at the Chinese Academy of Social Sciences. “Development, growth, reform, all of it depends on one condition: stability .”

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