Silicon Dragon: How China is Winning the Tech Race

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.

Comments

[lboucher]

I agree that Silicon Valley is on the decline.
You can hire a MSEE Phd. in China for $40K.
The labor costs across the board are 80% less than in Silicon Valley and the employees are loyal to their companies.

Your point that because of China's size it can set technical standards is correct. A couple years ago China almost changed the WiFi standards. Eventually they will set most the wireless communication standards.

[NABNYC]

Every business has intellectual property and trade secrets: valuable information which shows how to make something, and which may be the base for a discovery of how to make some new product in the future.

The major U.S. corporations have taken their manufacturing outside of the U.S. And have taken their intellectual property and trade secrets with them. They have given the benefits of the entire U.S. working class for the past 50 years to China.

Of course China will take that information and use it to their benefit. And when that happens, those same greedy U.S. corporations will scream like stuck pigs, demanding the U.S. attack China because it's infringing on their intellectual property.

The U.S. has been stripped bare and looted by the class of criminals which represents the wealthy elite. The slush fund people, the venture capitalists, as they call themselves, who launder drug money and child prostitution and porn money and take an enormous fee for doing so. The venture capitalists who use their insider information to find out which country is vulnerable then swoop in and buy up its major industries.

The same people who will soon be offering to sell thirsty people a drink of water.

I don't know if China will survive its pollution long enough to become the wealthiest nation in the world. But the major elite of the U.S. have given away the wealth and resources and information of this country in an effort to make themselves a few bucks more.

[realitytrumpsbull]

China's 'genius' up to this point has been its' status as a most favored trade nation, and mass production. While we train professional lotus-eaters, they actually grow the lotus flowers.
Who do YOU think is going to end up 'owning' the ranch? The esoterics, or the production people?

China graduates a lot of engineers from their schools. They have a lot more school candidates to choose from, because they have a lot more people than we do. Where can our firms recruit, the local high school, sorting through the pot heads and illiterates and so forth? Ya gotta have top-flight people to have a top-flight company, and as long as our K-12 insists on social promotions and shaky standards, China and other countries will continue to be in the lead in the area of turning out trained graduates that are ready to go forth and wreak industrial mayhem on the world. We're boxed in by socialists and eco-whiners of dubious political heritage, being effectively sandbagged by prohibitive taxation practices, if I was a major american manufacturer, I'd be thinking 'china' also, because on their level, maybe the US o Ayyyyy really isn't such a Great Deal, anymore. Our major export anymore is our money and propaganda, Detroit's still chugging along, but just, and their products don't make sense in a 3-dollar-a-gallon economy, frankly.
We're buried in debt, and watching other countries run away with the ball...yaaay, socialism...could YOU be an architect, like, build buildings, and stuff? Chances are the answer is 'no'. But, the Builders are the people that end up with the Fat Cash, the construction engineers, the electronics engineers, the designers, the product developers, they are the Movers and the Shakers, and the rest of us are just passengers, or in Bernankese, 'consumers'.
Consume, america, consume, because that's the only thing we know how to do, anymore...
Ok, done ranting, anyway, the answer is that
this is a problem that'll start fixing itself when 'education' gets reformed. Your new 'teacher' will be R2-D2, Made In Korea.

[desmirl]

In his victory speech last night, John McCain was attempting to wax eloquent about the moral, technological, intellectual, and entreprenurial superiority of the people of the United States vs. the rest of the world. The problem is when people believe this bunk and think they can coast while the rest of the world tries to catch up. The reality is that the rest of the world has caught up, and in some areas we are the ones lagging behind. Wander through your neighborhood university some time--or just check their online catalog--and see who's teaching the math and science classes. It isn't Jones and Smith. More likely, it's Wu and Kim. If you really want a wakeup call, go to the campus and take a walk through the departments that support technology. Notice that most of the bright young people there look a lot more like Jackie Chan than your neighbor's kids. We need to wake up. We need to re-emphasize the benefits of good educations in math and science the way we did right after the surprise of Sputnik. And we need to get at it NOW.

[ShanghaiGuy]

I dunno Ms. Fannin, from my experience, innovation is not a strong suit of contemporary Chinese business culture.

I'll use one of your own examples to make my point: the successful Chinese search engine Baidu.

Try this - open three browser windows:

www.sohu.com.
www.baidu.com
www.google.com

Now compare. Sohu.com has a pretty average East Asian-style home page. Baidu.com's home page is unusual because it looks so utterly unlike typical Chinese web sites. Instead it's a near twin of ... google.com! This is an example of promising Chinese innovation?

You might as well cite China's hottest domestic car, the Chery QQ - it's a near clone of the Chevrolet Sprite, even the brand name is a copy (Chery vs. Chevy).

Haier, Huawei and Lenovo were mentioned as examples of emerging global technology brands. Yet if I'm not mistaken, both Haier and Huawei owe large parts of their success to being part of, or closely tied to, the Chinese gov't.

Haier is a state-owned industry that makes well-regarded air conditioners and other products, but - innovative? Maybe I'm not familiar enough with their products. Huawei is closely connected to the Chinese military, I believe its business was built on inside gov't telecom contracts, it was accused of copying Cisco's designs. Lenovo became a global pc player by purchasing IBM's pc division. Where's the innovation in any of that?

A big part of the problem is that the Chinese school system disfavors creativity. And those who manage to graduate with imagination intact (surprisingly many do) are left to negotiate a business environment with virtually no IP law enforcement.

Despite the enormous potential of its people, I'm afraid China is not going to become any sort of global powerhouse of innovation as long as piracy is so far out of control. I worry it will take more than just a decade to fix that.

However, one thing I'm sure we can agree on: if history is any indication, whenever the conditions do become favorable, the Chinese will (again) awe the world with their technological prowess.

[usna73]

I hope you are correct. Our response should be to "steal" the patented knowledge, create barriers to entry here, and stop them from gaining from it. Just as they have done to us for 2 decades in industrial engineering, consumer products and copyright piracy.

Fair and level. We should get even with them and then see if they want to negotiate.

These people are not our friends.

[Idytme]

This is why people who say that once all the jobs are exported out of the US, we have to educate ourselves into new jobs - are ridiculous. People can build websites in other countries cheaper and its far easier of a switch then moving a brick and mortar operation to another country. So far the republican and Friedman spin of just getting us educated for the high tech jobs is working, but as the world catches up we will find that it is a bunch of bunk.
Which isn't to say that everyone in the US shouldn't be tech savvy, but somehow Americans seem to be shocked to find out that people in other countries are just as smart and even more motivated than we are.

[StephenJK]

Hey, now I can say I've seen it all:

Free Thinking Chinese Business People.

I'll believe it when I see it.