Long march to become a centre of innovation

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Visitors to Shanghai can experience two different approaches to China’s ambition to become a centre of innovation.

One is top-down: the Dawning4000A, pride of the Shanghai Supercomputer Center, which can churn through 8,000bn calculations a second, earning it a place as the world’s tenth fastest computer when it was unveiled a year ago – though it has now slipped to 31st position. the centrepiece of an attempt to create a cluster of expertise.

The other is bottom-up and can be found in the plethora of start-up companies, many based in the internet and mobile communications industries, that have sprung up. Often headed by returning nationals who have learned their craft in the US, most are backed by a wave of venture capital that has swept the mainland.

The supercomputer initiative points to one aspect of China’s attempt to become a technology power: a willingness to invest large-scale resources.

But projects like these have done little to produce lasting innovation, according to Richard Suttmeier, a professor of political science at the University of Oregon.

He argues that a shortage of R&D by companies, weak links between powerful government research institutes and industry, and a high degree of dependence on foreign technology have created a trap that has left the country with a weak base of home-grown technology.

However, the accumulation of engineering talent and a shift in the research effort from government to corporate activity may be changing that picture. From 30,000 in 1980, the number of scientists and graduates with technical qualifications had climbed to 1.3m by 2004.

At the same time, spending on research and development has grown steadily, reaching 1.3 per cent of national income in 2003.

This low-cost engineering firepower has enabled a number of Chinese companies to thrive.

Huawei, the telecommunications equipment company, is “able to do anything we can,” says Gerard Dega, president of Alcatel Shanghai Bell, a joint venture involving the French equipment maker.

“They hire 2,000 engineers and put them on a project: it’s as simple as that.”

Foreign companies have also flocked to draw on this pool of low-cost technical talent: official figures for the end of 2004 put the foreign R&D centres in China at 750, employing 500,000 people. Assessing the effectiveness of this skill base is not easy. While western firms say their local researchers are as productive as those elsewhere, they also concede that technical expertise alone is not enough.

“It takes years to develop this innovative culture,” says Ram Ramalingam Hariharan, manager of Nokia’s China research centre. “They’ve been doing it in China for only 20 years.”

Beyond the research labs, meanwhile, China is in the midst of its own dotcom boom.

“There is massive innovation and growth based on China’s bet on a modern communications network,” says Dan Scheinman, senior vice-president at Cisco Systems.

That infrastructure has nurtured internet and mobile applications and services that in some cases appear equal to or more advanced than in developed markets.

Early triumphs such as Shanda Networks, the first successful online gaming company, and Baidu, the search engine, have served only to intensify the interest of venture capitalists and would-be entrepreneurs in the next big innovations on the Chinese internet.

“After Shanda, we started to get calls from the US,” says Andrew Yan, managing partner of SAIF partners, an early backer of the company. “All of a sudden, all the Silicon Valley firms are getting hot on China.”

But this revolution is not free from obstacles. For instance, there is a shortage of the talent needed to create truly innovative companies rather than mere copycats, says Charles Yang, CEO of Dopod, a maker of high-end mobile handsets.

Another weakness is the shortage of ambitious and experienced entrepreneurs with designs on creating truly world-beating companies.

Mary Meeker, internet analyst at Morgan Stanley, says too many of China’s internet entrepreneurs have only short-term ambitions.

There is also a scarcity of experienced technology managers capable of taking on ambitious, large-scale development projects. “Managing software projects in China is a bit like herding cats,” says one western expert.

If China is to develop as a true centre of technological innovation, it will have much to do with whether it can master new skills like these.

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