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Seagate Wuxi Factory
High tech companies accounts for less than 2 percent of the Chinese economy, but their stake is getting bigger. Chinese technology firms are attempting to make the leap from user and copiers if advanced technology to being creators and designers. By 2010 the Chinese government wants to have 10 technology companies with exports of more than $5 billion and has offered gnerous tax breaks and other incentives to attract investment.

According to the consulting firm IHS Global Insight, China accounted for 18.6 percent of the world’s gross manufactured output in 2009. In 2010 it is expected to surpass the U.S., which had a 19.9 percent of the output in 2009. As of 2008, about 89 percent China’s high-tech exports came from non-Chinese-owned companies.

A number of chip makers and high-tech firms are setting up shop in the Shanghai and Beijing areas. Zhongguancun, in the Haidian districts in northwest Beijing, is sometimes called the Silicon Valley of China. It is the home of many Internet and computer firms as well as 40 universities and 138 scientific institutions and many of China’s 810,000 research scientists and engineers. Microsoft has a major research facility here.

China has the ability to quickly mobilize resources funded by rapid economic growth It is stronger in hardware development than software innovation and is better in quantity development than quality. It is expected to produce low-end products over the coming years that could dramatically change markets in communications, energy and transport. But even with foreign companies maintaining a large presence China is not expected to produce quality high-tech products until 2015.

Manufacturing sophistication is rising all the time. China is no longer just a producer of toys, textiles and shows. It has made the leap into high-end manufacturing. Telecommunications companies make electronic switches that route phones calls and Internet traffic through telecommunications networks. There are also factories that make car engines, food pressing machinery and air conditioners.

China has the most advanced biotech program after the United States. It has 20,000 people employed at 200 labs devoted to biotech research and spends about $300 million a year on it.

Liu Chuanzhi, the head and founder of Lenovo, told the Financial Times he expects China will eventually replace the US as a global trend-setter in technology as a take-off in Chinese domestic consumption would force global tech companies to set their development roadmaps to follow Chinese consumer tastes. Other global PC companies such as Hewlett-Packard, Dell and Acer are pouring additional resources into China in recognition of its market potential.

Good Websites and Sources: China Tech News.com chinatechnews.com ; China Solar Net shinesolar.net ; Suntech suntech-power.com ; Solar and Alternative Energy Products made-in-china.com ; Articles on Renewable Energy in China martinot.info ; New York Times Article on China’s Leadership in Clean Energies nytimes.com ; Industry: China-Made Products made-in-china.com ; U.S. Commerce Department Information by Industry for China buyusa.gov/china ; Wikipedia article on Industries of China Wikipedia ; U.S. Commerce Department’s Office of China Economic Area (OCEA) export.gov/china Links in this Website: ; AUTOMOBILE INDUSTRY IN CHINA Factsanddetails.com/China ; FOREIGN CAR COMPANIES IN CHINA Factsanddetails.com/China ; PIRATING AND COUNTERFEITING IN CHINA Factsanddetails.com/China ; See Dalian in LIAONING PROVINCE Factsanddetails.com/China ; SHENZHEN AND THE PEARL RIVER DELTA Factsanddetails.com/China ; ZHEJIANG PROVINCE Factsanddetails.com/China ; SHANGHAI Factsanddetails.com/China ; SCIENCE IN CHINA Factsanddetails.com/China ; CHINESE SPACE PROGRAM Factsanddetails.com/China ; See Engineers, Labor

Retooling for Higher Value Products in China

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Seagate tests drives
In recent years many factories have started training their work forces, investing in sophisticated machinery and retooling their factories to make higher-value products. Some companies feel they have no choice but to follow this trend as the rising costs of labor and materials and low selling prices have made it hard to make money in cheap-labor industries. Ground zero for this trend is in Shenzhen and Dongguan, former cheap-labor factory centers.

BYD, a Shenzhen-based company that became the world’s second largest battery maker in less than a decade, is even more ambitious. It has built a 1.6-million-square-foot assembly plant and has hired Italian-trained car designers to make plug-in hybrid cars. Hasee is a computer maker that was founded in 2002 and is already producing 100,000 laptops a month. By pouring it resources into research, focusing on innovative computers such as laptops that sell for less than $370 it hopes to be the world’s largest computer maker by 2020.

Chinese companies are expanding into software, biotechnology, medical devices and supercomputers. They are developing a passenger jet, several models of automobiles and opening up sophisticated chip plants as Japan and South Korea did before. Andy Rothman, a longtime China analyst, told the New York Times, “When a country is in its early stages of development, as China was 20 years ago, having an export processing center is good for growth. But there’s a point when that’s no longer appropriate. Now China’s saying, “We don’t want to be the world’s sweatshop for junk any more.”

Factors pushing China’s drive to produce more sophisticated products include the rising value of the yuan, the high cost of labor, labor shortages, new labor laws that mandate overtime and severance pay, the movement of workers to factories in the interior, high fuel and material costs, higher shipping costs, criticism over shoddy products and safety, efforts to clean up the environment---all of which make it hard to make money off cheap products and thus pushes companies to modernize and become more productive and efficient.

In its favor China possesses an array of ambitious entrepreneurs, fiercely competitive domestic markets and hundreds of thousands of highly trained engineers. The government is driving the process forward by tightening pollution regulations and encouraging companies to invest in expensive new machinery, often providing the money from state-owned banks to finance such upgrades. Beijing is discouraging the establishment of cheap-labor factories in southern China by ending tax breaks there.

Chinese manufacturers of electronics and automobiles and other products was hurt parts shortages caused by the tsunami in Japan. China was particularly hard hit because as the world’s factory it has so many manufacturers and those made cars, refrigerators, iPods, flat-screen televisions, laptops and other stuff all need parts made by Japanese factories silenced by the earthquake and tsunami.

Global market share of lithium-ion battery shipments (percentage in April-June 20): 1) Sanyo Electric, Japan (20 percent); 2) Samsung SDI, South Korea (18 percent); 3) LG Chem, South Korea (15 percent); 4) Sony, Japan (12 percent); 5) Panasonic, Japan (7 percent); 6) BYD, China (6 percent). [Source: Techno Systems Research]

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Seagate Clean Room

Information Technology Goods in China

In 2004, China overtook the United States as world’s biggest supplier of information technology goods. A report by the OECD showed that China’s exports of information and communication technology---including laptop computers, cell phones and digital camera---increased by more 46 percent to $180 billion in 2004 from the previous year. By contrast the U.S. exported $149 billion, a 12 percent increase from 2003.

China produces m more laptop computers, computer parts, cell phones and other communications goods than the United States or any other country. It produces three out of every four photocopiers in the world and two thirds of the watches. Technology exports such as cell phones and computers account for 27 percent of China’s exports.

China is trying to impose its own technology standard on a range of consumer products, including cell phones, personal commuters digital cameras and wireless networking. Some analyst feel that China could have reached its position of dominance in certain technology sectors much faster were it not hindered by restrictions on dual-use technologies that have civilian uses and military applications.

China is not expected to be a major innovator in high tech fields any time soon. It is primarily an assembler of technology products and is dependent on imported advanced chips to make the products is does Less than 0.03 percent of Chinese firms own the intellectual property rights for the key technology in the products it produces. Only 0.56 percent of sales from technology products goes into R & D.

At China becomes dominant in information technology fields some worry ability to copy the latest technology advances made outside China and put secret devices in the products it produces.

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Refrigerator factory

China’s Lack of Brand Power and Innovation

John Pomfret wrote in the Washington Post: “Quick: Think of a Chinese brand name. Japan has Sony. Mexico has Corona. Germany has BMW. South Korea--- Samsung. And China has...? If you're stumped, you're not alone. And for China, that is an enormous problem. No big marquee brands means China is stuck doing the global grunt work in factory cities while designers and engineers overseas reap the profits. Much of Apple's iPhone, for example, is made in China. But if a high-end version costs $750, China is lucky to hold on to $25. For a pair of Nikes, it's four pennies on the dollar. [Source: John Pomfret, Washington Post, Tuesday, May 25, 2010]

"We've lost a bucketload of money to foreigners because they have brands and we don't," Fan Chunyong, the secretary general of the China Industrial Overseas Development and Planning Association, told the Washington Post. "Our clothes are Italian, French, German, so the profits are all leaving China. . . . We need to create brands, and fast."

"Moving forward another 10 years," Kenneth J. DeWoskin, chairman of Deloitte's China Research and Insight Center, told the Washington Post. "It's hard to see how viable Chinese companies will be if they just stay in China." The problem is exacerbated by China's lack of successful innovation and its reliance on stitching and welding together products that are imagined, invented and designed by others. A failure to innovate means China is trapped paying enormous amounts in patent royalties and licensing fees to foreigners who are.

“China also faces enormous challenges to creating globalized firms,” Pomfret wrote. “Studies of Chinese executives show that they spend far more time with government officials---who in China are the key to their profits---than with customers, who are the key to international success. "Chinese executives like me need to spend a generation outside China to learn how business is done around the world," said Hua Dongyi, who chairs a massive Chinese mining company in Australia but has also built roads in Algeria and infrastructure in Sudan. That's definitely true for Hua. In April, he was forced to apologize to his Australian workers after he told Chinese media that the workers were money-grubbing and lacked the "loyalty and sense of responsibility existing in many Chinese enterprises."

Chinese Government’s Response to a Lack of Brand Power and Innovation

John Pomfret wrote in the Washington Post, “China's government has responded in typically lavish fashion, launching a multibillion-dollar effort to create brands, encourage innovation and protect its market from foreign domination. Through tax breaks and subsidies, China has embraced what it calls "a going-out strategy," backing firms seeking to buy foreign businesses, snap up natural resources or expand their footprint overseas. [Source: John Pomfret, Washington Post, Tuesday, May 25, 2010]

Domestically, it has launched the "indigenous innovation" program to encourage its companies to manufacture high-tech goods by forcing foreign firms to hand over their trade secrets and patents if they want to sell their products there.

Since 2007, thousands of Chinese businessmen have attended government-sponsored seminars on "going out," learning everything from how to do battle with domineering Americans and Britons during conference calls to why a Chinese boss should think twice about publicly humiliating his wayward foreign workers---as he'd do to his staff at home.

Haier Industrial Park Qingdao

$1.5 Trillion for High-Tech Industries

China has made it official policy to become a "world power" in science and technology by the middle of this century. However, it has a long way to go from its current situation where about half its technological know-how is imported. This is according to China's State Council, the nation's Cabinet, which derived the measure by taking technological know-how as a percentage of the sum of technology imports and domestic spending on research and development.

In February 2011 Reuters reported that “China is considering investments of up to $1.5 trillion over five years in seven strategic industries, sources said, a plan aimed at accelerating the country's transition from the world's supplier of cheap goods to a leading purveyor of high-value technologies. Analysts expressed skepticism at the sheer amount of money---it equates to about 5 percent of China's gross domestic product on an annual basis---but said that the eye-popping headline figure was an indication of the government's determination to catalyze a structural shift in the economy.”[Source: Reuters, December 3, 2010]

The targeted sectors include 1) alternative energy, 2) biotechnology, 3) new-generation information technology, 4) high-end equipment manufacturing, 5) advanced materials, 6) alternative-fuel cars and 7) energy-saving and environmentally friendly technologies. The central government itself would most likely not deliver the bulk of the money, but would seek to spur spending by corporations, investment by local governments and lending by banks. [Ibid]

"The State Council is considering a plan to invest up to 2 trillion yuan ($300 billion) each year in the seven new strategic industries over the next five years," a source with ties to the leadership and direct knowledge of the proposal told Reuters. Beijing has said before that it wants to promote the sectors, a policy that it hopes will make the country less dependent on low-end, dirty manufacturing. The value-added output of the seven strategic industries together account for about 2 percent of GDP now. The government has said it wants them to generate 8 percent of GDP in 2015 and 15 percent by 2020. [Ibid]

Chinese officials sometimes declare vast investment ambitions as a way of rallying support for spending initiatives, even if the numbers ultimately fail to live up to their original billing. "Focusing on the seven new strategic industries will increase China's competitiveness and push the economy further up the value chain," Zhao Changhui, chief economist of the Export-Import Bank of China, told Reuters. "It will provide direction for transforming China's economy. It's the next stage of globalization." [Ibid]

Patents and Technology in China

International patent filings in 2010: 1) United States (44,855 patents, down 1.7 percent from the previous year); 2) Japan (32,156 patents, ); 3) China (12,337 patents, up 56 percent percent from the previous year); 4) South Korea (9,686 patents, up 20.5 percent from the previous year). [Source: World Intellectual property Organization]

In 2010, ZTE Corp, China’s second biggest maker of phone network equipment was No.2. l in international patent filings behind Panasonic with 1,863. Huawei, a Chinese telecom giant, applied for more international patents than any other firm in 2008.

Yale’s Stephen Roach wrote in the Christian Science Monitor, “China is rising in terms of international patent applications. At the same time, China is targeting a research-and-development share of GDP of 2.2 percent by 2015---double the ratio in 2002. This fits with the 12th Five-Year Plan’s new focus on innovation-based “strategic emerging industries”---energy conservation, new-generation information technology, biotechnology, high-end equipment manufacturing, renewable energy, alternative materials, and autos running on alternative fuels. Currently, these seven industries account for 3 percent of Chinese GDP; the government is targeting a 15 percent share by 2020, a significant move up the value chain.”

John Pomfret wrote in the Washington Post, “China's attempts to fight what it sees as the stranglehold of foreign patents and intellectual property rights have also had hiccups. China is estimated to have paid foreign firms more than $100 billion in royalties to use mobile telephone technology developed in the West, according to executives of Western communications companies. [Source: John Pomfret, Washington Post, Tuesday, May 25, 2010]

So in the late 1990s, it decided to develop its own. But after more than $30 billion in development costs, its unique technology still has fewer than 20 million users in a market of more than 500 million. Handset makers have told China's government that they won't produce phones equipped with the new technology unless they are given subsidies. And China has resorted to giving away the technology to Romania and South Korea to encourage broader use.

"China is still stuck," said Joerg Wuttke, former president of the European Union Chamber of Commerce in China and a 25-year veteran of doing business in China. "There is a huge disconnect between the money spent in universities and the lack of products."

Electronics Industries in China

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Electronics industry worker
China is one of the world's largest producer of electronics. Chinese companies make computers, scanners, computer disks and silicon chips. As of 2005, China produced two thirds of the world’s television sets and DVD players and other electronic gadgets. China expected produced 98 million desktop and laptop computers in 2006, with of most them produced for export. Chinese producers are also making stuff for buyers at home. Between 1994 and 2000, the share of domestic television makers rose from 30 percent to more than 80 percent. In 2000, Chinese companies produced 43 million televisions.

Global PC market share (percentage in 2009): 1) Hewlett Packard, U.S. (19.7 percent); 2) Dell, U.S. (12.6 percent); 3) Acer, Taiwan (12.6 percent); 4) Lenovo, China (8.2 percent); 5) Toshiba, Japan (5.2 percent); 6) Asus, Taiwan (4.1 percent); 7) Apple, U.S. (3.7 percent); 8) Samsung, South Korea (2.1 percent); 9) Sony, Japan (2.1 percent); 10) Fujitsu, Japan (1.8 percent); 11) Founder, China (1.2 percent); 12) NEC, Japan (0.9 percent); 13) Other (25.9 percent). [Source: IDV Japan Data]

The electronic market is very competitive and profits margins are slim. The price of televisions, for example, dropped one fifth every year between 1996 and 2000. In addition most of the profits made electronic items made in China for foreign companies end up outside of China, mostly with the foreign companies and retailers. Of the $280 manufacturing costs for the Apple iPhone, for example, which is assembled in China under the guidance of of the Taiwanese company Hon Hai, less than five percent actually stays in China.

Chinese production strategies have changed the way the electronics industry operates. Wolf Corrigan of the consulting group LSI Logistics, told the New York Times: “Typically a new technology will be released at $1,000 in Japan and it would take two years to drop below $1,000 and make it to the U.S. and Europe and take a total of five to seven years to reach the mass market. As features were added, prices rose. Now China’s low labor costs and the vastness of it population are combining to bring bargain electronics into homes in record time. Chinese companies build sophisticated goods with components produced locally and rush them by the millions into the huge domestic market. New companies arrive. Competition shrinks the times it take for new products to appears, new features are added while prices are likely to drop Anything to pump up sales.”

The Asus Factory in Suzhou, near Shanghai, which makes laptops and desk tops is for Dell and cell phones an other electronic products, is a square kilometer in area. In 2010, ZTE Corp, China’s second biggest maker of phone network equipment was No.2. l in international patent filings behind Panasonic with 1,863.

See Television, Arts, Media, Sports

E-Business and the Internet, See Arts, Media, Sports

Computers and Software, See Arts, Media, Sports

Strengths and Weakness of Chinese Electronics Industry

Benjamin Yeh of AFP wrote: “More Chinese companies than ever took part in Asia's largest IT fair, the five-day Computex fair in Taipei, but their growing numbers could not disguise their lingering weaknesses, observers said. China has a lot of catching up to do when it comes to innovation, not least when compared with the host of the fair, the small but savvy island of Taiwan, which punches above its weight in technology. [Source: Benjamin Yeh, AFP, June 5 2011]

"There's no denying the Chinese have carved out niches in some items, like computer casing and power systems," said Chang Li, deputy secretary general of the Taipei Computer Association, the co-organiser of Computex. "But generally speaking, Taiwan companies are still ahead in all the PC-related fields."

With more than 1 800 exhibitors present at Computex, it was easy to lose sight of the roughly 220 Chinese companies at the sprawling event. And while the mainland presence was up from 100 enterprises last year, most occupied small booths, squeezed in between much larger and better-known multinational brands.

Sandget Digital Technology, from Shenzhen in southern China, did attract attention with a new seven-inch touchscreen tablet that operates on Google's Android open-source platform. "Even Samsung and Acer sent people to our booth to have a look at our tablets," said Lily Lee, a sales manager with the company. But the product would never have made it this far without the close cooperation of more experienced companies from other countries, she said. Sandget's tablet, known as Joydroid in China, featured a screen supplied by South Korea's LG, and the design of the entire device was carried out in Taiwan.

"Taiwanese companies are more tuned in and better at gathering information on new trends," Lee said. Part of the problem is that China still does not provide an environment that makes it profitable to spend time and resources on lengthy research as opposed to copying the inventions of others. "An effective patent policy system to encourage and protect innovation has not been fully established," the Chinese government admitted in a recent document.

China also still battles with its historical legacy as a largely agrarian economy that only recently made the leap into the modern age. "China's PC sector was off to a late start, getting going about 20 years after Taiwan's. I believe it'll be hard to catch up," said David Lee, chief of the Shanghai unit of Topology Research Institute, a Taiwan think-tank.

However, China will not stay weak forever, and in some areas, notably telecommunications, it has emerged as a mighty player, he said. China stands to benefit from a trend that renders hardware a commodity that can be produced anywhere, while software and content are areas where individual companies can still shine. For example, to develop an online game that appeals to Chinese adolescents, game developers must know what kind of heroes have a resonance and what kind of monsters are scary. They must know the culture from the inside. No one is better positioned to create content suited for China -- the world's biggest online market with nearly half a billion users -- than the Chinese themselves. "Content and service have become ever more important, and more crucial than hardware. Localisation of content is playing a key role now," said Topology's Lee.

Chinese Electronics Industry Abroad

China has been establishing high-tech clusters in Silicon Valley since the late 1980s after scientists returned from abroad with news of Silicon Valley and Route 128.

The Japanese are worried about Chinese incursions into Japan’s numerous technology companies. In the late 2010s a leading Chinese retailer bought Laoz, a Japanese electronics chain with a large presence in Tokyo’s Akihabara district. Particularly vulnerable are vital technology suppliers whose stock values in many cases are below the value of their assets.

In 2010, China announced plans to require Western companies doing business in China to turn over sensitive technologies and patents to Chinese competitors in exchange for access to the country’s markets.

Chinese Electronic Companies

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Television factory in the 1980s
TCL has been called the Chinese Sony. The largest publically traded electronic maker in China, it combined with Thomson to make televisions and DVD machines and become the world’s largest television maker, producing 20 million televisions a year. TCL bought German television maker Schneider Electronics AG in 2002 and makes handsets with Alcatel SA. See Communications.

BOE Technology is a major monitor and computer screen maker. In 2003, it became a global competitor after purchasing the display business of South Korea’s troubled Hynix semiconductors for $38 million.

Huawei technologies is China’s largest phone equipment maker. Based in Shenzhen, it had overseas sales of $2.2 billion in 2004. It hoped to raise that figure to $4 billion in 2005. Its main rivals are Cisco and Ericsson. It has won business away from Cisco by developing switches and routers at lower prices.

Huawei and its rival Chinese ZTE, another telecommunications equipment also based in Shenzhen, have had great success selling telecommunications equipment in the developing world. In Nigeria, for example, they were able to take 50 percent of cell phone market between 2003 and 2007 by offering handsets that were as much as 40 percent cheaper than those sold by companies like Ericsson and Alcatel-Lucent. Huawei has also been awarded contacts in Colombia, Venezuela, Uruguay, Russia, Vietnam, Pakistan, Indonesia, Bangladesh, Morocco, Tajikistan, and Saudi Arabia, ZTE is very active in India and also has contracts in Lesotho and Ghana.

Semiconductor Manufacturing International is China’s largest supplier of made-to-order chips. It is on course to become the world’s third largest maker of made-to-order chip despite being ordered to pay $175 million to a Taiwanese chip make in a patent dispute.

Other large electronics manufacturers include Xiamen Republic Electronic Co., a maker of DVD players, Konka which makes televisions that are sold in the United States.; Great Wall, a local computer brand..

Lenovo, See Separate Article


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Microsope factory in China
Hisesnse is a television maker with global ambitions. Largely owned by the Chinese government, it hopes to increase profits and sales by increasing the scale of production to get better deals on raw materials and establish a brand which consumers would pay high prices to get. Among its achievement have been setting up a factory in Hungary in a matter of months to supply the European market. It also has factories in South Africa, Algeria, Iran and Pakistan.

Hinsense began as the Qingdai City Number Two Radio factory in 1969 as a manufacturer of AM radios with 30 employees who task at that time was to deliver the message of class struggle during the Cultural Revolution. A year later it made its first black and white television . By 1970 it was producing 6,000 televisions a year. In 1989 ut changed its name to Qindao Hisense Group. In 1997 shares were sold on the Shanghai Stock exchange. In 2004, it employed 10,000 people and had annual sales of $2.75 billion.

At the Hisense factory in Qingdao, workers who are paid $100 a month assemble flat panel televisions with screens up to 50 inches under a digital display that records how many televisions they make and how many they need to make to reach that day’s goal.

Changhong Electric Co.

Sichuan Changhong Electric Co. is China’s No. 1 television exporter and No. 2 television maker. It began as a company that produced radars for the People’s Liberation Army. In 1997 it was the world’s 7th largest television producer. At that time it produced 6 million television sets a year. Their plant at Mianyan in Sichuan alone produces 3,400 television sets a day on 17 assembly lines manned by workers who wear matching blue uniforms and are encouraged to read Chinese classics.

Changhong televisions are sold under the Apex name in the United States and are available in Wal-Marts. In December 2004, Changhong announced losses of almost $500 billion, because of declining sales in the United States, accusations of dumping and the failure of ones it largest customer to pay money it owed.

Foreign High Tech Companies in China

Foreign high tech companies are attracted to China by highly skilled, low wage engineers and computer programmers as well as low-cost labor. Microsoft employs engineers that take questions from customers in the United States, South Korea, India and Thailand. Intel, IBM, Oracle, Microsoft and Siemens all have all research facilities n in China. Applied Material, Intel and Hewlett-Packard have set up high tech factories in China. In the city of Wuxi factory compounds with schools, playground and its own power plant makes disk drives and devices called optocouplers in dust-free rooms.

Intel has semi-conductor plant and a state-of-the-art facility with 1,000 researchers in Shanghai and has $375 million assembling plant in Chengdu. first manufacturing plant in Asia. In September 2007 ground was broken on a $2.5 billion Intel chip factory in Dalian. It is Intel’s first manufacturing plant in Asia and represent one of the biggest single investments in China. The plant is slated to open in 2010, and employ 1,200 people.

Cisco, the world’s largest maker of networking equipment, had invested $8.5 billion in China as of 2007 and was planned to spend a total of $16 billion by 2012. The company sells equipment for phone and high-speed wireless services and has stakes in Alibaba.com and Harrier, two of China’s best-known companies. See Internet

Chinese companies make computers for IBM, Dell, Hewlett Packard and other Dell purchased $18 billion worth of computer components from China in 2006, up from $15.7 billion in 2005.

Dell is the largest foreign compute make in China with 10 percent of the market. In September 2007, Del announced that it had made a deal with Gome to sell its computers in their stores. Dell has introduced a low-price computer geared specifiable for rural Chinese.

Chinese companies make cell phones for Motorola, which are sold in China and around the globe. Motorola tripled its outlets to 30,000 in 18 months in the mid 2000s.

In August 2007, a Chinese technology company initiated an effort to buy of only two disk makers left in the United States--- Seagate and Western Digital.. Some American government officials objected to the move on national security grounds.

Matsushita, See Japan

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Electronics factory Shenzhen

Chinese Chips

China is the world’s second largest chip maker. As of March 2004, China was the world’s fifth largest seller of chips in terms of volume after the United States, Japan, Taiwan and South Korea.

In the early 2000s, China was a leader in a low-end chips used by Chinese makers to make things like calculators and clocks. It chips are not as advanced as those produced by Taiwan, South Korea, the United States and Japan but it was catching up fast. Many managers are Taiwanese.

China is catching with the United States in chip technology. Part of the reason for this is that China has imported sophisticated chipmaking machinery that allowed them to make chips and learn to the technology to make such machines.

The United States has complained that in it drive to be a major high-tech manufacturer, China has placed an unfairly high tax on foreign chips and it is developing technical standards that are unique to China. There are worries that once China gets into chip manufacturing in a big way it will produce a global glut, forcing prices to plummet.

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Luminous Media Factory

Chinese Chip Makers

Semiconductors Manufacturing International is China’s largest chipmaker. SAST, Advanced Semiconductor Manufacturing, All Best Technology and Huaxia Semiconductor Manufacturing are two four other large Chinese chip makers.

A number of computer chip plants have sprung up on the outskirts of Shanghai Together they have a capacity to produce about a half million wafers a month. Among them are a $1.5 billion plant opened by Semiconductor Manufacturing in 2002; a $1.2 billion plant opened by SAST; and a $750 million plant opened by Advanced Semiconductor Manufacturing in 2004;

All Best Technology has plans to open a $600 million plant in Shenzen and Huaxia Semiconductor Manufacturing has plans to open a $1.3 billion plant in Beijing.

Foreign investors into Chinese chips include Intel, Advanced Micro Services, IBM, NEC, Philips and Toshiba. These companies invested in chips not because they saw chips as a major growth market---there is actually a worldwide chip glut---but because they wanted to be close to their buyers. A wide variety of chips are used in manufactured goods produced in China. China wanted the plants so it doesn’t have to import so many chips. As of 2002, it imported 20 percent of its chips.


Haier Logo in Qingdao
Haier is the world’s largest white goods maker. It makes air conditioners, washing machines, refrigerators and other household appliances. Based in Qingdao, Shandong Province, it sells products in more than 160 countries and has grown incredibly fast because of its cheap prices and ability to undersell competitors.

Haier Inc. is one China’s best known brands. It is the leading appliance maker in China, the 6th leading appliance maker in the world and one the world largest maker of small refrigerators like those found in hotel and college dormitory rooms. Based in the eastern port city of Qindao, it is valued at $10 billion and is quickly making a name for itself as a producer of quality low-price large appliances.

Haier was nearly in bankrupt in 1984 but turned things around. It began exporting refrigerators in 1992 and captured a quarter of the small refrigerator market in the United States by the early 2000s. It had annual sales of $5 billion in 2000 and has 13 factories (including one in South Carolina) and 30,000 employees (more than one tenth in research and development).

Haier is known for its innovative products. In China it sells a clothes washer with an attachment that kneads noodle dough, a clothes washer capable of cleaning potatoes and a television set that "prevents near-sightedness" if viewers get too close. The one that kneads noodle dough has been a big seller for Chinese.

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Haier research facility
Haier is working had to penetrate the American market. As of 2003, it had a 16 percent share of the refrigerator market there, compared to 36 percent for G.E. and 25 percent for Whirlpool. Haier small refrigerators are sold at Best Buy, Wall Mart and Home Depot and are popular with college students. In 2005 Haier tried unsuccessfully to buy Maytag. It offered $1.28 billion for Maytag but dropped its bid because it was unprepared for a bid by rival, Whirlpool, which ended up buying Matag. for $1.7 billion. Japanese companies such as Sanyo outsource their domestic refrigerator production to Haier.

In 2010, Haier launched a major marketing offensive in Japan, the home of many of its competitors. It hired Japanese technical experts for advise, designed products specifically for the Japanese market and sold its products for 20 percent less than other manufacturers. In July 2011, it was announced that China's Haier will buy Panasonic Corp's Sanyo Electric washing machine and refrigerator units in Japan and Southeast Asia for about $130 million, in a move that will give the Chinese appliance giant better access to Japanese markets.

Troubles for Haier in the United States

Appliance maker Haier was the first Chinese company to build a factory in the U.S. Employyes don’t mind working for a Chinese company. Brenda Missouri, a 43-year-old leaks tester who works for Haier told Fortune, “They're good business folks; they get the job done.” she says. As for communism? “Doesn't matter,” she shrugs. “It's money that makes the difference.” [Source: Sheridan Prasso, Fortune, CNNMoney.com, May 7, 2010]

Haier apartment
In the mid 2000s, a caller to The Rush Limbaugh Show complained that as he was driving past the Haier plant in Camden, the Chinese flag was flying higher than the American flag and the South Carolina state flag out front. It was an easy mistake to make by anyone looking at the three equal-height flagpoles from an angle. [Ibid]

Conservative media joined in and called for protests, and the public rang the factory to complain. The Chinese executives at Haier had no idea flags were such a big deal, and it became their bugaboo. The complaints continued until 2008 ago when Haier America factory president Joseph Sexton, who was new to the job, decided to fix it. He had two of the poles lowered so that the U.S. flag looks highest from all angles. [Ibid]

It took Haier some time to work through other issues. “Having a Chinese manager didn't work. That's why they took all the Chinese managers out of here,” Haier's human resources director, Gerald Reeves told Fortune. Reeves was one of the first hired by Haier and guided the Chinese through the realities of American-style personnel management -- including convincing them that they needed to offer health insurance. [Ibid]

What is perhaps most startling about the Haier factory is that it is actually shipping goods back to China. Best known for its mini-fridges for dorm rooms and studio apartments, Haier's U.S. plant also makes large units, good for supersized American McMansions but too large for a typical Chinese household. Now a growing number of wealthy people in China want to supersize too, so Haier has realized it can ship a small number, maybe 4,000 a year, of its highest-end refrigerators home and sell them for $2,600 apiece. [Ibid]

Huawei Technologies

Huawei, a Chinese telecom giant, applied for more international patents than any other firm in 2008. [Source: Jason Dean, Andrew Browne and Shai Oster. Wall Street Journal, November 16 2010]

Privately held telecommunications equipment maker Huawei Technologies Co. has long had its overseas expansion supported by China Development Bank, which in 2004 extended a five-year, $10 billion credit line and routinely lends money to foreign buyers to finance their purchases of Huawei products. Revenue has risen more than 200 percent in the past five years, and it has become one of the top three telecommunications companies, along with Nokia Siemens Networks and Telefon AB LM Ericsson.

Huawei Technologies tried to acquire 3Leaf System, a U.S. computer company, but backed of the deal in February 2011 after a security panel refused to approve the deal. Huawei has offered to install a a free mobile phone network in the London Underground in time for the 2012 Olympics. The project would involve installing mobile transmitters on the ceilings of the tunnels so travelers can make and receive calls.

Sprint Nextel Corp. recently excluded Huawei and fellow Chinese telecom company ZTE Corp. from a contract worth billions of dollars, prompted by U.S. fears that the companies have ties to China's military. The Sprint decision was a setback for Huawei in the one major market it has had difficulty penetrating, the U.S., and shows how mounting concerns over China's policies are starting to exact a cost.

Huawei has also faced complaints in Europe that Chinese government backing gives it an unfair advantage. Both Huawei and ZTE have said their equipment poses no threat to U.S. security, and deny benefitting unfairly from government support. For China, the biggest risks may be internal. Some attempts to generate high-tech breakthroughs by fiat have fizzled. A drive to produce a home-grown microprocessor took years to replicate features of those from Intel Corp. and Advanced Micro Devices Inc., whose products had continued to evolve. A Chinese-developed mobile phone technology has yet to gather significant momentum abroad, despite the government forcing China's largest phone company to adopt it.

Longer term, China faces a host of challenges that threaten growth. They include a population that is aging quickly because the one-child policy limited births in recent decades, and environmental damage resulting from the country's breakneck pace of industrialization.

For now, that pace has the West on guard. "Our competition has gotten tougher during a period for the U.S. of profound economic weakness that magnifies any perceived threat," says Ms. Barshefsky, the former U.S. trade representative. There is a "significant and profound---almost theological---question about the rules as they exist."

Corrections & Amplifications: An earlier version of this article mistakenly said that Chinese economist Qian Yingyi is from Peking University.

In November 2010, China Aviation Industry and General Electric, the world’s biggest jet engine maker, agreed to form a joint venture to sell avionic systems and provide services for aircrafts. GE entered the deal in part to get more involved to supplying parts for Chinese-produced aircraft.

Image Sources: 1, 2) Cgstock http://www.cgstock.com/china ; 3, 4) Nolls China website http://www.paulnoll.com/China/index.html; Wiki Commons; Wiki Commons

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, National Geographic, The New Yorker, Time, Newsweek, Reuters, AP, Lonely Planet Guides, Compton’s Encyclopedia and various books and other publications.

Last updated April 2010

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