China is a serious contender for tech leadership

In the second of a two-part series on China, Technology Reporter Jamie Smyth warns the West ignores the sleeping tech giant of the East at its peril

Mr Xiaoyu Ma is riding a fast growing technology boom in Beijing that is changing the way people work in China.

The 31 year old programmer at Iona Technology's China research and development centre has already had three jobs in a career that has taken him to Dublin and back. And although he earns a third of the salary that he got when he worked with Iona at its Dublin offices, he says his standard of living is now better.

The former communist model whereby Chinese students joined a single firm for life and lived in a company dormitory has - in the space of only a decade - been superseded by a competitive labour market and an apartment in Beijing's middle class suburbs.

"People tend to work three or four years in a firm and if they feel they are not challenged they move on," says Mr Xiaoyu.

"But for me I have found where I want to work. I love programming and want to be an expert in my field."

Iona (the Irish tech company with the biggest Chinese operation) is one of several Irish technology firms that have targeted China as a fast growing market with huge potential.

Last year China was the firm's fastest growing market and Ms Nicole Bernard, head of Iona's China operations, is upbeat about software opportunities in China.

"When you have such massive infrastructure building going on in roads, telecoms and air traffic there is going to be a need for new software," she says.

"But you have to be careful. You can't just walk in and expect money to flow or offer just old technologies. In China firms can skip technical generations and many seek the latest cutting edge technology."

The Chinese government is specifically targeting the software sector for growth and no expense is being spared to attract overseas talent that can help to build programming experience.

Iona's office in Beijing is in a specially designed software park with impressive facilities such as a luxury hotel, apartments, gym and even a man-made lake to make the site easier on the eyes.

Oracle and Siemens are two of the first foreign firms to locate at the park and, along with Iona, they will benefit from low corporate tax for investors willing to bring their technology to China.

China hopes that cheap labour, low tax rates and a large internal market will help it to break into the global software market in much the same way as it has in electronics manufacturing. Since China joined the World Trade Organisation (WTO) in 2001 it has established itself as one of the world's biggest exporters of computers. And Chinese manufacturers such as Lenova - the biggest PC manufacturer in Asia this year so far - are fast establishing themselves as big global brands.

The neon-lit skyline of Shanghai, which hosts the free trade zone of Pudong, bears testimony to China's emergence as a global centre for computer chip assembly and testing.

Intel, Applied Materials and Grace Semiconductor Manufacturing have all located large facilities in the zone, which exported $4.16 billion (€342.3 billion) worth of integrated circuits and micro-electronics components in the first seven months of the year, an increase of 94 per cent on the same period of 2003.

Yet despite its obvious success in hardware, there are major hurdles to be overcome if China is to establish itself as a software hub that can compete with Silicon Valley, Dublin or Bangalore.

"The funding environment is not positive for small firms at the moment," says Ms Long Qun, general manager of the Shanghai-based e-learning firm Pantosoft, which was founded in 1996 and now has 65 staff in several cities.

The venture capital industry is relatively immature in China and there is still a relatively low understanding of the value of software among people, she says.

Pantosoft was forced to change its business model a few years after it was set up to focus on supplying e-learning courses to firms rather than individuals due to software piracy, she says.

"The copyright issue is a universal problem, although the government is now cracking down on it a lot more," says Ms Qun.

China is ranked joint top with Vietnam in a global piracy league table compiled by the industry lobby group, the Business Software Alliance.

Its latest survey found 92 per cent of all software installed was illegally copied, a factor that is preventing small Chinese firms from entering certain software market segments.

Disputes over brand and intellectual property also regularly emerge between foreign firms and Chinese rivals, often ending in defeat for newcomers and undermining their confidence in investing in the Chinese market.

Diktats from the government regarding new technical standards could also discourage some foreign companies from investing heavily in China and providing the type of technology transfer that it is seeking.

In December 2003 the government stunned industry when it announced that all wireless LAN networks would have to comply with a new security standard called Wired Authentication and Privacy Infrastructure (WAPI).

The ruling would have forced international chip companies to reengineer their chip architectures to support the home-grown security standard. But stiff opposition from Intel and Broadcom - who threatened to stop developing chips for the Chinese market - forced the government to postpone its plan in April.

But WAPI is just the tip of the iceberg with regard to China's growing influence and stated goal to begin setting standards to shape the industry, according to a new report by Deloitte, which predicts that the Chinese government and local firms will seek to break the hold of developed economies on technology standards.

Changing China: Will China's technology standards reshape our industry warns that vendors will need to constantly gauge the potential impact on world markets of China, which will use its massive internal market and spectacular growth rates as leverage in an upcoming standards war.

Success in this standards battlefield would remove China's dependency on exports, reduce potential security concerns and earn it revenue from licensing.

In a blow to Microsoft's ambitions, the Chinese government has announced a commitment to open standards based on Linux software and said it would build an industry around it. Linux is now the fastest growing sector of the software industry - achieving 72 per cent growth in the second quarter of 2004 - and there are signs that local firms specialising in Linux are preparing to go global.

One of China's biggest software vendors, Red Flag, will lead the charge in the autumn when it plans to ship an English-language version of its existing Linux-based desktop operating system.

Thousands of Chinese students arrive in Ireland every year to study English and for degrees.

"This year the number of Chinese students at UCC will rise to 100, up from 50 last year... China is now one of our most important markets" says Ms Louise Tobin, education officer at UCC.

It is these human links that will help Irish firms tap into China's software market, if it manages to assert itself on a world stage.

Magnetic trains attraction wanes

Jetting into Pudong International Airport can help you forget that you are about to enter a developing country where hundreds of millions of people still live in abject poverty in rural areas.

Shanghai's new airport stands as a shining example of the new China, with its gleaming corridors, internet cafes and selection of western food chains offering burgers and pizzas to travellers.

But Pudong is perhaps most famous for its Transrapid Maglev train service, the world's first commercial magnetic levitation train, which runs at a top speed of almost 500 kilometres per hour.

The Transrapid, which has cost up to $1.5 billion (€1.23 billion) to build, propels travellers the 30 kilometres from the airport terminal into Pudong - Shanghai's main business district - in about 8 minutes.

Unlike ordinary train services, the Transrapid is propelled forward by a track which incorporates a range of powerful magnets that cause the train carriages to hover 10 millimetres above it on an electromagnetic cushion.

The magnets propel the train forward at speeds significantly faster than Japan's Bullet train and eradicate the normal resistance caused by ordinary tracks.

The Maglev technology upon which the Transrapid service is based is German and has been around for decades.

But it has proven unpopular with potential buyers due to the huge costs of construction. And the decision by the Chinese government to go ahead with the Maglev project in Shanghai has proved very controversial given its huge price tag.

The service is a symbol of China's rapid economic growth and increasingly technological prominence, however it has also become a financial black hole with only limited use for visitors.

For example the first train to the airport in the morning begins at 8.30 a.m., and is therefore of little use for early morning business commuters, while the final train to Shanghai leave at 5.30 p.m.

Rumours of an impending decision to build a new Maglev train system connecting Shanghai with other major Chinese cities continue to circulate.

But with the rest of China's railway infrastructure in dire need of investment, further experiments with Maglev are likely to prove unpopular.

One report this week said that the Chinese Government is close to signing a $12 billion deal to buy Japanese bullet trains for some routes out of Beijing. And many critics of the Maglev believe it is destined to remain an expensive experiment rather than become a feature of rail travel in China.