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Silicon Dragon: How China is Winning the Tech Race

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Don't be surprised if the next Steve Jobs comes from China. Already, I can see the beginnings of this trend in the likes of entrepreneurs Jack Ma of e-commerce startup Alibaba, Robin Li of search engine Baidu, Gary Wang of video sharing service Tudou.com and Joe Chen of web 2.0 powerhouse Oak Pacific Interactive. Not only did they develop products at the same time or ahead of their U.S. counterparts, but they are beating big American brand names Google, Yahoo, MySpace and eBay in China.

Back in the mid-1990s dotcom bubble, a coffee shop called Buck's in upscale Woodside, California was the epicenter of innovation, the place where business plans were scribbled on napkins and startups seeded. Today, the compass has shifted east to China.

Zhongguancun Software Park is in a northwest corner of Beijing, on the way to the ancient Summer Palace of past Chinese emperors. The sprawling district is one of several new bustling high tech and science zones. It feeds off graduates from Tsinghua University and Beijing University -- just like Stanford University grads helped to transform California's Silicon Valley from fertile agricultural land to tech central some 30 years ago.

The "in" thing among bright, young Chinese techies is to do a startup, get financing, scale it to sizeable revenues and profits, and then go public. An army of so-called technopreneurs like Wang are turbo-charging world-class enterprises. Call them collectively a new rival to the Valley's tech dominance, or Silicon Dragon.

A rising supply of tech talent and surplus venture capital is feeding the dragon. Thousands of Western-educated and trained young Chinese have returned to their native homelands with advanced degrees and Valley entrepreneurial know-how to crank up businesses. The reforms of former Chinese leader Deng Xiaoping and his often-quoted 1992 phrase, "to get rich is glorious," unleashed change, and tech entrepreneurship has proved to be a golden path to cashing in.

There's still a lack of managerial and leadership experience at many Chinese tech startups that puts them at a competitive disadvantage in building successful enterprises. But there's no shortage of technical engineering talent.

Boosted by low operational costs, booming consumer demand and surging economic growth, Chinese startups are ramping up and reaching profitability at lightning speed. Today over 65 Chinese companies trade on NASDAQ and the New York Stock Exchange. Just as recently as 1999, none did. Moreover, several Chinese firms have surpassed $3 billion in market capitalization.

Today's China is switched on: the world's largest number of mobile phone users (500 million), the second-largest number of Internet users (162 million) and two of the top 10 web sites globally. China also accounts for 24 percent of the world market for semiconductors.

Chinese goods once stood for cheap knockoffs found in Wal-Mart, but with the Internet revolution, young Chinese "sea turtles" began churning out close imitations of Google, eBay, MySpace, Amazon and Yahoo. Today, home-grown super-innovators are coming up with cutting-edge advances for cell phones, chips, ecommerce and software.

In 2006, China chalked up the world's fastest growth rate for new patent applications, a 56 percent increase to 3,910, ranking it eighth globally. The gains are driven in part by Chinese President Hu Jintao's pledge to make high-tech innovation the cornerstone of economic growth.

Liu Yingkui is one of the new innovators. Over drinks in a Beijing bar, "King" excitedly tells me that his company, Oriental Wisdom, makes advanced software for customer sales management. It works on mobile phones, not personal computers. At his office in the Haidian high-tech district of Beijing, Jeff Chen demonstrates a browser called Maxthon that has Microsoft scurrying to adapt features for Internet Explorer. Near Tsinghua University, Charles Wang introduces me to Pingco, one of the world's first free instant messaging services for mobile phones. At Nanchang University in southeastern China, Jiang Fengyi, founder of Lattice Power Corp., shows me how he is cranking out new-fangled lights that promise to replace standard bulbs. Over a Chinese box lunch at his Shanghai high-rise headquarters, Shi Zhengrong, chairman and CEO of Suntech Power Holdings, tells me he holds 11 patents for producing lower-cost solar panels.

China is leapfrogging past a legacy of outdated formats that stymie western firms. Because of the size and stature of China's markets, such innovations could set world standards for technology.

Granted, China faces enormous economic, legal and social challenges and claims a fraction of the world's tech innovations. Lenovo personal computers, Haier appliances and Huawei electronics goods are early examples of Chinese tech brands that have emerged globally. Over the next decade, China will increasingly become a nation of innovators rather than smart copycats or manufacturers.