China is emerging as a new economic superpower, but is it also emerging as an IT superpower? Certainly it has gone a long way toward catching up and even leading in some fields. We can understand its "techno-nationalism" as the foundation. Butas recent difficulties with Google illustrateit must also address ongoing challenges before the superpower label can be applied.
IT infrastructure and services. When China started economic reform in the early 1980s, its information and communications infrastructure was weak. In 1980, the Chinese mainland had just four telephones per 1,000 citizens. In contrast, just over the border in Hong Kongstill a British colony at that timethere were approximately 460 phones per 1,000 citizens.1 Even in the 1990s in Beijing, a two- to three-year wait was required to have a telephone line installed in a typical household. From that point, though, a combination of very strong demand, heavy state investment plus supply-side support from government to the monopoly supplier ensured a major change. The most recent figures indicate the number of fixed-line subscribers had reached more than 310 million; or 230 per 1,000 population.7
The mobile telecommunications market has similarly gained rapid momentum since 2G digital systems were deployed in 1994. By 2001, China was already the world's largest mobile telecommunications market. The latest figures show more than 640 million subscribers in 2008, and a 19% annual growth rate during the 2000s.5 Contrast this with the U.S., which had 270 million subscribers and an 11% growth rate, or Japan with 110 million subscribers and a 5% growth rate. During this period, China's mobile telecommunications networks upgraded to GPRS and EDGE, and are now adopting 3G technology. As Fortune 500-listed companies, the three operators own nationwide networks and provide value-added services, mobile Internet connectivity, and the like.
China has also pushed ahead with national informatization programs initiated in 1994 with the creation of the National Information Infrastructure Steering Committee. This launched various "Golden" projects such as Golden Bridge, Golden Card, and Golden Customs, which have built a national platform for providing commercial Internet services, constructed a national credit card network, and linked customs points through a national EDI system, respectively. These are now just one small part of an overall drive for e-business, e-commerce, and e-government that has created more than 100 national information systems that provide a true "digital economy" infrastructure. Annual trade in China's B2C market, for example, is now around $3 billion (total e-commerce is approximately 100 times greater) and is growing at a rate of about 50% per year.
All of this has been built around a fast-growing e-infrastructure: by 2009, China had the world's largest population of Internet users (more than 300 million) and the largest population of broadband users (more than 100 million). For a long time that population was restricted to large cities and coastal provinces. But the 2004 Village Access project ensured that, by 2007, 99.5% of all administrative villages were connected to the telecommunications infrastructure.6
Of course, China will win most absolute IT numbers counts because it has the world's largest population. Take relative figuresfor example, 48% mobile device penetration compared to 87% in the U.S.; 6% broadband penetration compared to 23% in the U.S.and the country is no longer the world leader, but catching up. Considering relative growth rates, one should modify that to "catching up quickly." And taking into account the availability of services and standards then at least for a significant proportion of China's population, the message is "already caught up."
IT firms. In 2006, China Mobile became the world's largest mobile operator, with the world's biggest mobile subscriber base. The Financial Times ranked it fifth in a 2007 list of the world's most valuable brands,4 reflecting the broader globalization of Chinese telecommunications firms. This has seen international strategic alliances set up between China Mobile and Vodafone, and China Unicom with Spain's Telefónica. And ambitions have gone beyond just alliance: in 2007, China Mobile purchased Pakistan's Paktel and used this as the launching pad for its own international brand, ZONG.
In IT services, local firms are the dominant force in the domestic market. Shenzhen-based Tencent, for example, has over 500 million registered users and a 78% share in the instant messaging market. Some firms have been able to grow even further. China's Alibaba.com is the global leader in the B2B market with 47 million users covering virtually every country in the world. Its 2007 $1.7 billion IPO was the largest for any Internet firm since Google. Google, like Amazon and other major Internet firms, has set up in China; such firms often create local joint ventures that help develop local partners. (At the time this column was written, Google relocated part of its search services under the domain name Google.cn to Hong Kong, but maintained its sales group and R&D functions in mainland China and has not closed its site in China.)
Foreign firms have also been important in IT manufacturing. In the early 1980s, when China was first targeting IT, its manufacturing industries were poor in both quality and innovation. It was thus forced to look to foreign partners, with imported technology dominating. As a result, nearly all leading IT firms have a joint venture or foreign independent investment operation in China. Initially a sign of weakness, though, China has managed these relationships, and ensured the large influx of foreign capital, technology, and expertise has acted as an impetus rather than a restraint to local firms. From being a stunted consumer market, China has grown to be one of the world's largest producers of IT equipment, including mobile systems and computers. Indigenous manufacturers have become key international players.
Some Chinese IT firms have evolved from this domestic platform to innovate enough to compete globally.
Perhaps most notable has been the performance of Lenovo and Huawei, set up in the 1980s. Lenovo achieved global attention and reach through its 2005 purchase of IBM's PC division. This purchase was an iconic statement of changing fortunes that led the firmstill one-quarter-owned by the Chinese governmentto be the world's fourth-largest PC maker in 2009 with approximately $15 billion in sales.
Huawei's rise has been even more dramatic given its beginnings with a staff of 14 and some $3,000 of capital distributing imported telephone exchanges. By 2009, it had 90,000 employees and worldwide sales of more than $21 billion covering mobile, networks, terminals, and value-added services. In just two decades, it has not just caught up, but in some areas taken over. It is the world's number-two firm in telecommunications equipment and number one in subfields such as mobile switches and next-generation network technology. BusinessWeek rated it one of the world's 25 most influential companies in 2008.3 Huawei achieved a significant milestone in 2009 when it won 4G roll-out contracts in Norway and Sweden that beat rivals Nokia and Ericsson in their home markets.
IT innovation. As noted earlier, before the 1990s China mainly depended on foreign technology. Since then the nexus of government and Chinese firms has adopted a twin-track approach to creating domestic technologies: boosting supply by investing in R&D, and steering local demand by buying locally innovated products. Today, in areas such as PCs and consumer electronics, Chinese technology dominates the domestic market. Construction of the nation's IT infrastructure has been predominantly based on indigenous products.
Some Chinese IT firms have evolved from this domestic platform to innovate enough to compete globally. Huawei can again provide an illustrative example: FastCompany rated it among the world's top five most innovative companies in 2010, along with Facebook, Amazon, Apple, and Google.2 That rating reflected Huawei's relentless investment in technology R&D; spending some 10% of revenue on R&D centers based not just in China but now in India, Europe, and the U.S. It is the single largest applicant under the international Patent Cooperation Treaty.
Government has also played a role: through investment and policy decisions China has moved to sixth in the global patents league table. The quality and utilization of such patents outside China is sometimes limited, but the Chinese government is also playing a higher-level game. Understanding the importance of standards in the internationalization of IT, it has pushed to have Chinese-developed standards recognized and used. In this endeavor, it has had some success in breaking beyond the confines of the domestic market. The International Telecommunication Union has ratified three main 3G standards based on CDMA. China's TD-SCDMA now competes with W-CDMA (originating from Japan and Europe) and CDMA2000 (originating from the U.S.). The TD-SCDMA standard is widely used in China but is also starting to experience international deployments: first in Ghana but also planned for South Korea and some Eastern European countries.
We answer the question posed in the headline for this column with a mixed but generally positive response. In IT infrastructure, China is catching up quickly. In some areas of IT services and innovation it has caught up. A few IT firms and technologies are now world-leading. How did this happen in a country that, less than three decades ago, was decidedly "Third World"?
China's general economic growth has helped. So has its large size. But government and its policy of "techno-nationalism" has been a significant in-fluencing factor with a series of policies that made ITespecially local IT capacitya priority. The general approach has been heavy control followed by liberalization, but varied from sector to sector.
For example, in telecommunications services, infrastructure was very weak in the 1980s but there was some local capacity. The Chinese government decided to retain the state monopoly and granted it tax and investment privileges. Only as the market grew was competition introduced to boost growth, moving from monopoly to duopoly in 1994, and then opening to further competition in 1998 and 2008. In telecommunications equipment, local capacity was too limited and risked stunting wider growth. Government therefore opened the market to foreign firms in 1982. It used the lure of China's 1.3 billion potential consumers as leverage to encourage Western firms to compete among themselves in offering the best technology transfer to China, and the greatest support to local innovation.
The Chinese government has also created and supported a series of R&D programs that bring firms, research institutes, and universities together to work on R&D for key technologies. Creation of the TD-SCDMA standard involved just such a consortium. Together, these initiatives and actions mean China now has a drastically improved national innovation system.
Challenges and Future Trends
In IT infrastructure and services penetration, China is still some way behind the U.S., Western Europe, and neighbors like Japan and South Korea. Its national policies, though, will no doubt allow the "catching up quickly" to continue. For example, China has invested extensively in higher education over the next few years, coinciding with cutbacks in many Western nations.
More difficult will be China's aim for innovation leadership through techno-nationalism. One focus of the 2006 15-year Science and Technology Plan is building "indigenous innovation." This was made possible due to what had already been achieved since the 1980s; it was desirable because of what had yet to be achieved. But it faces three challenges. Tight governmental control and censorship of information, media, and the Internet in the name of national security inhibits innovation. For example, as an important propaganda channel, the broadcasting sector is tightly controlled by the state; as such, broad-cast networks cannot converge with telecommunications and Internet networks to offer new information services.
Indigenous innovation also faces challenges from overseas. China's relations with foreign IT firms have been volatile. Sometimes they seem needed but not wanted; sometimes vice versa. Sometimes they are attacked in private but soothed in public; sometimes vice versa. Google, for example, has been welcomed, hacked, partnered, criticized, and toleratedoften simultaneouslyall in a short time span.
Google is somewhat unusualChina does not rely on it (the Chinese firm Baidu dominates the search market) and Google does not rely on China (revenue from within China represents approximately 1% of total). But Google's reaction of pulling in U.S. government assistance is not unusual. One-quarter of U.S. high-tech firms feel they are losing out due to the 2006 Plan.8 Accusations of Chinese protectionism and calls for U.S. Congressional countermeasures are increasing. Together with fallout from the Google case, this may damage foreign trade and investment and, hence, harm innovation in China.
Thirdly, Plan-based indigenous innovation requires direction from government. Indeed, the "Great Leap Forward" leitmotif in China's history is one that not just encourages this type of "big push" approach; it shows it is required for development. But governments may push the wrong way. The Chinese government's attempt to have indigenous WLAN Authentication and Privacy technology replace Wi-Fi in the local market did not succeed. And, it forced China Mobile to deploy the TD-SCDMA standard, even though this may be against the firm's own economic interests and wishes. Only time will validate whether it was right to override other voices, and whether this standard will truly succeed internationally.
In sum, the changes since the 1980s mean China's techno-nationalism is now a high-wire actbalancing between the economic and the political, the global and the local, the state and business. Its current model will remain central to ongoing IT catch-up and leadership, with major national initiatives already under way in the areas of nano-electronics and 4G mobile networking. China must hope these future large-scale initiatives do not lead it to slip off the high-wire arrangement it has constructed.
2. Fast Company. The world's most innovative companies, (Feb. 2010); http://www.fastcompany.com/mic/2010
3. Gibson, E. and McGregor, J. The world's most influential companies, BusinessWeek (Aug. 8, 2008); http://images.businessweek.com/ss/08/12/1211_most_influential/index.htm
4. Global brands. Financial Times, London, 2007; http://www.ft.com/reports/globalbrands2007
5. ICT-Eye. International Telecommunication Union, Geneva, 2010; http://www.itu.int/ITU-D/icteye/Indicators/Indicators.aspx
6. Ministry Report News. Central Government of the People's Republic of China, Beijing, 2008; http://www.gov.cn/gzdt/2008-02/02/content_879678.htm
7. Telecommunication Industry Statistics. Ministry of Industry and Information Technology, Beijing, 2009; http://www.miit.gov.cn/n11293472/n11293832/n11294132/n12858447/12985105.html
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