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China's technological capacity beginning to climb

SHENZHEN, China—Perhaps as soon as October, a Long March rocket will thrust a spaceship into Earth's orbit carrying two Chinese astronauts for a five-day mission.

The launch will mark the latest feat for China's space program, which first shot a man into brief orbit in 2003, and will highlight the country's newfound technological prowess.

It's a far cry from the common global image of China as low-cost factory to the world. Others invent technologies, such as the DVD player. China churns them out for as low as $29 each. Yet that image is a little stale.

A look around China shows a handful of surprising advances in scientific niches, such as gene research, biomedicine and certain aspects of electronics. China's technological capacity is beginning to climb.

Whether, and how quickly, China scales the technological ladder is no small matter for the United States, which holds a quantum lead in matters of science and engineering. If China were to gain ground, that would have a major impact on consumer products it can make as well as the ways in which its huge military could conduct modern warfare.

China has almost no companies with global name recognition, but observers say some Chinese companies are rising, moving significantly faster than neighboring Japan and South Korea did.

"The speed at which this is happening is catching other companies off-guard," said Joe Abelson, the vice president of emerging markets at iSuppli, a global market-research firm in El Segundo, Calif. He noted rapid advances in mobile-telephone, network and appliance engineering as well as semiconductor design.

At a showroom in its landscaped headquarters in the southern coastal city of Shenzhen, a representative for Huawei Technologies shows off streaming video on a tiny cellular handset. The networking company, which makes routers and telecom gear, is taking on global giants, competing with Cisco, Alcatel and Lucent.

"We have recruited a lot of young talent," said Edward Deng, the vice president for global marketing. "We've applied for over 6,500 patents worldwide."

Much hampers China's technological development, though. The government meddles incessantly in private business. Research links between universities and private companies, such as those that gave birth to Silicon Valley, are feeble. Many companies rely on low-cost labor and razor-thin margins to survive. They have few incentives to spend on research when they can pirate technology and operate sweatshops.

"Chinese companies are not going to be leading the way in product innovation," asserted Arthur R. Kroeber, the managing editor of the China Economic Quarterly. "What they are good at is making products cheaper. What Chinese companies are able to do is take things and turn them into commodities faster than ever before."

Much of China's technological development is led and financed by the central government, a vestige of the nation's centrally planned economy. Government cadres still choose "pillar" industries—and the "information industry" is one of them—and throw heaps of bank financing at them. Recently, a state-controlled Chinese bank offered Huawei and its clients an astounding $10 billion line of credit.

As the space program attests, China has the resources to mount major drives in high-tech research. Experts say the Shenzhou VI spaceship that will go into orbit this fall is sharply upgraded from old Soviet technology. China is following the United States and the former Soviet Union in sending humans into space.

Spraying a torrent of cash, China seeks to nurture homegrown technologies and shape global standards for wireless communications, software applications, satellite positioning and even radio-frequency ID tags to track merchandise.

How far China will prevail in imposing its own standards is yet to be seen. Last year, it told foreign vendors they'd have to cooperate in adopting a homegrown standard for wireless communication. When the companies balked, China backed down.

Some of those same foreign companies are helping China climb the high-tech ladder, setting up research and development centers here as a way to get a foot in the door to a huge consumer market.

High-speed computers were once rare here. Not anymore. Even city governments own them, seeking to give local businesses a leg up.

At a high-tech industrial park in the Pudong district of Shanghai, Wang Puyong explained what hummed behind closed doors in his building.

"It is the fastest computer with commercial applications in China," Wang said.

The Chinese-made Dawning 4000A Opteron at the Shanghai Supercomputer Center was ranked the 18th fastest in the world until earlier this year, able to spin out 11 trillion calculations per second, or 11 teraflops. Financed by the city of Shanghai, the center offers computing power to local companies in genetic and pharmaceutical research and major engineering projects, Wang said.

Blocking China from obtaining such technology remains a goal for Washington. In 1989, after the Chinese army's massacre of hundreds, if not thousands, of pro-democracy protesters in Beijing, the U.S. government slapped sharp restrictions on high-tech exports to China, such as supercomputers, that can be used for weapons design and communications decryption.

Given China's technological advances, though, some U.S. business leaders argue that the restrictions may be irrelevant.

Indeed, officials at a company here, Galactic Computing Shenzhen, have boasted to local media that they will build the world's fastest supercomputer. Its Taiwan-born, U.S.-educated founder, Steve Chen, declined requests for an interview.

China is skirting U.S. restrictions in other ways. In a snub to the Pentagon's control of the Global Positioning System, which allows tracking of any object on Earth, China recently joined Europe's Galileo system, a move with geopolitical and military significance. Plans call for building 30 positioning satellites. Galileo may prove a counterweight to GPS, which allows pinpoint accuracy for weapons guidance.

In many ways, China seems to have many conditions that would allow rapid technological advancement. After all, its universities pump out 219,000 engineers annually, compared with 59,000 in the United States.

But an examination of the growing high-tech portion of China's exports shows that a huge percentage came not from Chinese companies but from foreign-invested companies, primarily American, such as Motorola, or Taiwanese.

"About 85 percent of high-tech products are actually exported by foreign-invested companies," said Kroeber, the managing editor of the economics publication.

Promising research often comes from foreign-educated scientists. Foreign-trained experts have turned Nanjing in eastern China into a hotbed of stem-cell research, saying China has none of the ethical qualms about such study that roil the United States. A scientist in China, for example, is placing human genetic material into the cells of other mammals in an effort to learn how to repair damaged organs.

Others are examining other technologies that promise to improve human health.

After returning from postdoctoral studies at the Massachusetts Institute of Technology, Hu Gengxi founded the company Shanghai HealthDigit, which makes state-of-the-art protein chips that can provide early detection of up to 12 common cancers when exposed to patients' blood.

"This is a very effective way to test tumors at an early stage. It's easy to operate. ... It's non-invasive," said Yu Tijun, the executive director of the Shanghai office of Ming Yuan Holdings, a Hong Kong company that bought HealthDigit last year.

Small private companies may hold promise for China's high-tech advancement.

"The real competitors from China are companies that we don't even know about yet. They are companies with $3 million to $5 million in sales now, which are growing very fast. When they finally show up in your radar screen, it will almost be impossible to stop them," said Ming Zeng, an expert at China's Cheung Kong Graduate School of Business.

Others are far less sanguine, saying the government meddles too much in companies once they grow, leading them into areas with no commercial appeal.

For example, seeking to reduce the country's reliance on foreign technology, the government asked China's household appliance company Haier Group to replicate a power-conservation electronic chip, worth about 10 cents, that goes in washing machines, said Anne Stevenson-Yang, an American and a longtime resident of China who's followed technology developments.

"Why would you spend $5 million learning how to make a chip worth 10 cents?" she asked.

Stevenson-Yang said she wasn't worried that China was building technological competence that could threaten U.S. dominance.

"I'm sorry for China that its political system makes it so hard for its scientists to excel," she said. "All of these really cool technologies that I've seen here just never go anywhere because of the political-economic structure of the country."

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(c) 2005, Knight Ridder/Tribune Information Services.

PHOTOS (from KRT Photo Service, 202-383-6099): CHINA-TECHNOLOGY

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