China: A Growing Market And Competitor

June 30, 2005
China continues to make inroads on the rest of the high-tech world, as a market and in a competitive sense. It's growing so rapidly, a number of U.S. industry executives believe China is challenging India as the global low-cost center for software develop

China continues to make inroads on the rest of the high-tech world, as a market and in a competitive sense. It's growing so rapidly, a number of U.S. industry executives believe China is challenging India as the global low-cost center for software development and Taiwan for original design manufacturing (ODM). Consumer electronics is particularly strong in China.

Haier (Qingdao), China's largest electronics company, makes TVs, wireless handsets, PCs, and some white goods. The company's sales topped $12 billion in 2004, and it has U.S. headquarters offices in New York City and a manufacturing facility in Camden, S.C.

TCL (Huizhou, Guangong), which competes directly with Haier, comes in at number two revenue-wise. TCL got a big jump when it merged its TV and DVD business with Indianapolis-based Thomson/RCA on a 70/30 basis. It also set up joint ventures with Alcatel's handset unit and with Toshiba.

Lenovo, China's largest PC manufacturer, got much bigger last December after acquiring IBM's PC business. The U.S. government already approved the deal.

A growing number of U.S. companies (for example, Dell and MIPS Technologies are opening sales offices, R&D centers, and manufacturing facilities in China. Joint ventures between U.S. and Chinese high-tech companies and high-stakes investments in Chinese design and manufacturing houses are on the rise, too. China is taking high-tech very seriously and plans to compete on the global stage.

"After a decade of moving factories to China, many of the world's big high-tech firms are forging a new style of partnership with Chinese manufacturers that show the country's growing engineering process-and its competitive threat," according to a recent market study from Research and Markets.

China also is flexing its muscles in standards development. The country's representatives literally walked out of a wireless-standards meeting in February. They felt the International Organization of Standardization was taking the IEEE's 802.11i wireless local-area-networking (WLAN) security scheme more seriously than its Wireless Authentication and Privacy Infrastructure (WAPI) proposal.

Then there are the intellectual-property (IP) issues. China has been accused of IP theft ever since "Made in China" labels first appeared on just about everything it exports, which is just about everything.

In December 2004, the Chinese government issued a new judicial interpretation for criminal IP rights infringement to address deficiencies in its system. Many IP rights holders believed these deficiencies thwarted the use of the Chinese criminal justice system to attack counterfeiting and piracy. As a result, a major change in the judicial interpretation significantly reduces the monetary thresholds for seized and confiscated counterfeit and pirated goods.

However, the U.S. Patent and Trademark Office (USPTO) says the new judicial interpretation still requires some clarification of terms. To help better understand the Chinese position on IP, the USPTO sponsored a seminar in Washington, D.C., to explain how the Chinese justice system handles IP offenses to U.S. industry, government agencies, and IP lawyers.

"With 1.3 billion people, China offers a fertile market for American products and services," says Deputy Under Secretary of Commerce for IP Steve Pinkos. "Improving the environment for U.S. companies doing business in China and addressing widespread counterfeiting and piracy is a major goal of the Administration."

Still, according to most industry sources, China's new IP laws have had little effect. Analysts who follow Chinese high-tech markets say the commercial culture of the country makes it very difficult for its industries to change old habits.

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