China's IT industry recently experienced extremely rapid growth. Its sales figures now surpass those of Japan, making it the No. 2 market globally, just behind the United States. The development of high-end technology in China now appears to be unstoppable, and the country is clearly set to take its place as one of the great regional technology centres

Becoming a leader

Chinese enterprises are starting to mature beyond the manufacture of mass-produced low-end products, and are almost ready to go head-to-head with such high-end global experts as the United States and Japan.

Having at last gained the full support of the Beijing leadership, mainland enterprises are creating a certain apprehension among established multinationals. Robert Mao, Nortel Networks president of the greater China region, says China has shaken free of its past and is quickly becoming a world leader in technology development.

In May, the New York Times quoted US technology experts claiming China was on track to take its place beside Japan, Korea and Singapore.

The world is starting to take notice, and is beginning to realize that China's high- tech experts are the source of innovative new ideas and developments. Already, approximately 400 international companies have opened research and development centres on the Mainland, exploring development trends that originally were limited to local Chinese enterprises. These international companies, said the Washington-based chief of one such centre, are not so interested in China's traditionally cheap labour, but rather seek access to the country's rapidly maturing technological expertise.

In March this year, US-based science weekly Nature took the novel step of publishing a special supplement featuring a series of critical analyses by professional academics regarding the state of China's high-tech industry. Philip Campbell, Editor-in-Chief of Nature, wrote in his introduction: "China is developing fast as a major economic force in the Asia Pacific [region], and in the world at large. This is partly thanks to the natural entrepreneurial skills of the Chinese people, but also due to their dedicated pursuit of new technologies. Equally important, China has over many years sustained its efforts to turn itself into a world-class scientific power. No one who visits China can fail to be impressed with the results."

Difficulties and opportunities

China's road to technological success has been far from smooth. As the US high-tech industry begins to age, China is likely to reap the competitive benefits. However, the chief barrier to mainland achievement may prove to be a psychological insecurity.

Local attitudes - among enterprises, industries and officials - are lagging behind the real strength of China's development. Broadly speaking, the main problems are sensitive internal conflicts and the search for appropriate strategies.

Questions that remain outstanding, for example, are: Should China's high-end technology sector be elevated to a national priority or remain low profile? Is China's high-end technology sector a major factor in the country's development or is it one element among many means directed toward achieving an end? Will the community unite behind a high-tech industrial policy or will there be disagreements? How can the nation best look beyond individual benefits? How can government policy boost development and remove obstacles in terms of mechanisms and abilities? How can the nation overcome its traditional "loser's attitude", refraining from the instinct to protect vested interests and transcending self-consciousness?

China's software industry confronts at least two unprecedented golden opportunities: 1) burgeoning internal demand created by the country's own emerging digital industries, and 2) the emergence of open-source software.

The importance of internal demand has been highlighted by India's experience in trying to develop its own independent software industry. The Indian software industry was an early starter, quickly developed internationally recognised expertise, established successful training schemes and gave rise to some significant software companies. But a lack of internal demand forced the industry to focus on exports. Although this market has attained a sizeable scale, it seems unlikely to provide the base which would allow IndiaÕs software industry to mature into an organised system. Without self-sustaining internal demand, some of the complexities of information security, for example, remain unaddressed.

By contrast, China's internal market supports a fully realised software industry, particularly in the wake of wide government procurement. Although the software industry here was established later than that of India, and to date probably has developed less expertise, there is a very substantial internal market for its products - especially with the recent proliferation of small and medium-sized enterprises, something that India still lacks. Most of the software being created is still applicational, but the internal market enables the Chinese software industry to stand on its own feet and increasingly develop its own unique products.

Globally speaking, most people support open source because it defeats monopoly interests and preserves a degree of control on prices.

Going international

As multinationals open research centres in China, so are selected Chinese high-end enterprises establishing themselves in developed countries. This suggests that local Chinese enterprises may be poised to tap foreign markets. The Guo Teng Group is a prime example.

The privately owned group has grown rapidly during its eight years. Starting with registered capital of RMB0.3 million, its assets are currently valued at RMB200 million. The company has been looking at international opportunities since 1992, ultimately targeting businesses in the city of Cambridge in Great Britain.

Cambridge was an appropriate choice because of its mature high-end technology market and the presence of nearly 1,000 technology companies, most of which are small, though extremely advanced. No monopolies exist. Following Guo Teng's decision to move, the group familiarised itself with local market conditions, human-resources issues and capital constraints.

Integrating its resources, the group imported its most innovative technology and combined the best products available on both international and local markets, seeking to achieve a larger share of both.

Building on this foundation, the company developed a novel set of communications products, working with several small software-design outfits as partners. Looking after integration and localisation, Guo Teng has penetrated not only the Chinese market, but has gained a substantial presence in Thailand, Malaysia and Vietnam.

Encouraging achievements

The achievements of China's high-end technology are clear. Statistically, the industry has expanded dramatically, more than doubling from RMB1.09 trillion in 1999 to RMB2.7 trillion in 2003. Exports more than quadrupled, from US$24.7 billion to US$110 billion.

What is the real significance of the development of China's high-end technology industry? It's perhaps still too early to say what the full impact will be, but given the significance of IT in every facet of life - and particularly in areas such as commerce and defence - it will undoubtedly be of major importance to the future of the nation. For a start, China will be able to avoid dependence on IT technology and suppliers outside its borders, something no country other than the USA can claim, and which gives it independence. Given that growth, the world can expect a surge of creative ideas and competitively priced products on global IT markets, and given China's commitment to open systems, "shareware" and competitive pricing, the rise of China's high-tech industry may erode some of the virtual monopolies that currently exist in some areas of software. It seems likely to be a development the whole world will welcome.