China’s High Tech Industry – Is the “Digital Dragon” Here Yet?
China Travel Wire brings to you a series of articles titled “China After the Olympics,” discussing the future of China in areas of politics, economy, and society after the Olympic Games. This is the first part in a larger series of postings…
There’s been quite a stir over the past couple of years over the emerging “digital dragon”; many entrepreneurs and venture capitals are banking on a quick evolution in China’s development from low-cost, cheap assembly manufacturing to high value-added production and R&D. In 2007, China become the 9th major source of new patents, and many experts expect China to surpass Germany for the number three spot in the next few years – behind only the US and Japan. The Chinese central government has also invested significant sums into Chinese R&D, beginning in the early 1990s with the creation of the TORCH program and 53 high tech development zones located throughout the country. The Zhongguancun technology park in Beijing was the first of these zones created, and has emerged as a major national center for technology firm headquarters and research with strategic proximity with Tsinghua University, Beijing University, and Renmin (People’s) University. In recent years, local governments have also gotten into the act. One such example is Dalian, a coastal city in Northeast China. In the past ten years, the government has created several incubation and software development parks, most notably the Dalian Software Park, and has nurtured a major computer graphics and animation industry.
Despite these investment and planning achievements, does China evoke the image of a high tech power just yet, or even in the foreseeable future? There are several misleading factors, says Spencer Cohen, senior research analyst at Chinatravelwire.com. According to Cohen, “for one, Chinese statistics blur the distinction between what is basic, core research & development and what we more commonly consider to be services, such as localization of foreign software into the Chinese (Mandarin) language. A second concern is the recording of patents, which may be a combination of loose definitions of propriety and the issuing of patents to foreign firms in attempt to preclude usurpation by Chinese firms.”
Many of China’s most recent IT successes largely mimic foreign firm innovations. Baidu, the major China-specific search engine, came out well after Google had already established a global presence. Tudou.com is a video-sharing service very similar to Youtube.com (though the site suffered a temporary domestic ban for some of its content). Even in the case of Dalian, often held up as an iconic example of China’s emerging global high tech presence, many of the firms housed in the Dalian Software Park concentrate on localization and services.
Despite these shortcomings, Cohen is contingently optimistic about the future of China’s high tech industry: “several key factors need to be thoroughly addressed, beginning with a more effective and implemented property rights system whereby innovation is both encouraged and rewarded through protection of those rights. Second, China’s education system needs to reform so as to encourage individual innovation and creativity. The market will definitely be there. With current urbanization rates, China will continue to emerge into the largest IT consumer market, which bodes well for both domestic and foreign IT firms.”
The IT industry is also not a zero-sum game. Over the past decade, many of China’s most prolific and successful innovators and entrepreneurs earned their graduate degrees in the US, and bring with them US venture capital investors. Much of the industry remains dependent on informal relationships and networks. “Many of these new investors and entrepreneurs develop their social networks in places like Silicon Valley, then move back to China to exploit opportunities to use their know-how and connections,” says Cohen.
