From BMWs to Neusoft: Greetings from Shenyang

Editor’s Note: As explained at length elsewhere on this site, this is a news story written by me that originally appeared on the now-defunct Electronic News’ website, which is long gone. It’s former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge). You can still see a copy of this story at EDN.

Travelling the Silicon RoadSHENYANG, China – Welcome to Shenyang, origin of the Quing dynasty and a microcosm that reflects what is happening throughout China at large.

The high tech industry is blossoming here, but it’s more about the code than about the chips.

This busy city in Northeast China, the capitol of the Liaoning province, takes up some 13,000 square kilometers, and has a population of some 7.4 million people. A Mongol trading center for centuries, it has played an important part in Chinese history; it was the Manchu capital before the Manchus captured Beijing, establishing the Quing dynasty – the last of China’s dynastic rulers.

Later, this critical industrial city was held by the Japanese during its occupation of China for several decades, and briefly by the Russians after the defeat of Japan in World War II.

Today, some 57 different industries are represented here, everything from cars – BMW makes its 3 Series and 5 Series here – to advanced vacuum equipment used in high-tech R&D. While Shanghai may grab the headlines outside China and Beijing may be the heart and soul of this ancient nation, Shenyang is part of its muscle and sinew.

Both the central and local government has done much in recent years to foster growth here, and it shows: the city’s gross domestic product (GDP) was approximately $23.5 billion (190 billion yuan); GDP growth has been in the double digits since 2001. Foreign investment meanwhile has exploded, from $700 million in 2000 to $2.4 billion last year. The first foreign bank in Shenyang, a South Korean concern, opened a branch here in 2004 as well.

Like much of China, Shenyang is also a city in transition: there is construction everywhere and cranes dot the skyline in every direction; a gleaming, Western-style Holiday Inn hotel catering to business travelers looks down over the city center that hosts a large statue of Mao Zedong.

Street markets, where everything from combs and hand mirrors to fruit and squid on a stick are sold, flourish blocks away from new office buildings; old men using bicycles to tote construction materials share the road with luxury automobiles.

And like the rest of China, while manufacturing is still of great importance here, Shenyang is looking to build a technological future, and much of it in software. Start-ups concentrating on embedded applications for such things as industrial automation – a natural here in this industrial city — as well as CAD applications for manufacturing can be found here. There are 428 research institutes based in and around Shenyang – some local, some provincial and some national in nature; some are attached to the 30 colleges and universities based here. The city plays host to some 150,000 students besides.

It also plays host to large software companies that came from modest origins within a university, and flourish in part from all the local talent coming out of the university system here. Sound familiar? Like a certain place on the West Coast of the United States? It might look familiar too.

Deja Vu … Where Are We Again?

If one drives south of Shenyang’s city center, the old gradually gives way to the new. Some of Shenyang’s government buildings for example, look as if they date back to the 1950s, when the central government first set out to remake Shenyang as a diversified industrial city. And yet south of the city, tall, gleaming apartment and office buildings are taking root as are high tech parks and corporate campuses in the new Hunnan district.

Long, wide newly-paved roads lined with new saplings and well-manicured lawns adorned with corporate logos could make visitors here familiar with Silicon Valley wonder if they were south of Shenyang or northwest of San Jose. There are familiar names to be found here too, such as Tycho and Philips.

One of the crown jewels of Shenyang’s high-tech business is also found here, Neusoft. The company’s beginnings are the stuff of tech industry legend: it began in 1991, having incubated for several years in China’s Northeastern University, with three people, three computers and about $5,000 (30,000 yuan) in start-up capital. Last year, Neusoft Group Ltd. achieved total sales revenue of nearly $300 million (2.4 billion yuan) and now employees more than 7,000 people.

It boasts Alpine, Toshiba and Philips among its investors; in 1996 it became the first software company listed on the Chinese stock exchange. While it has branched out into other things, such as IT education and training and medical systems, software and services still provide the lion’s share of its revenue. It supplies software across a broad range of industries, supplying such things as database management and network security products to dedicated applications for tobacco and transportation concerns to systems integration.

Outsourcing is a foundation of the company, it began with a partnership with Japanese electronics company Alpine. It lists many big American names among its partners as well, IBM, Sun, Oracle and Microsoft among them. Neusoft primarily helps tailor outside companies’ products for the Chinese market; its outsourcing revenue was $36 million last year, and should hit $50 million this year.

Literally down the street and around the corner from Neusoft are the offices of Shenyang Only-Info Tech Co. Ltd. Like its neighbor it is a growing software concern that was spawned in academia, in this instance the Shenyang Chemical College in 1993. In 1997 the company was spun out of the college as a private company; today it employees 300 people and has annual revenue between $25 million and $37 million.

While the company’s history lies in IT products and services, like Neusoft, it has recently turned to software outsourcing, specializing in things like telecomm value-added software, digital gaming, and perhaps most notably, outsourcing software for Japanese software suppliers for the Chinese market.

Japan was once a bitter enemy of China thanks to its occupation, and memories are long here; mention Japan in a historical or political context and even many young people in China may react with guarded hostility. But the Chinese, being pragmatic, don’t let that get in the way of business, and Shenyang’s software companies are good examples of that.

Only-Info just launched its Japan-oriented software effort last year; it already represents a significant chunk of its revenue. As Only-Info’s Zhao Jun Hong explains, Shenyang, given its history and Japanese influence, has an advantage when it comes to the outsourced Japanese software market.

But like Neusoft, with which it has a joint venture operation, Only-Info plans to expand to more international outsourcing opportunities, launching U.S. and European-oriented software programs next year, Zhao said.

Manufacturing Alive and Well

While software may be a wave of the future for industrial Shenyang, it isn’t straying too far from its roots; manufacturing is still welcome here. In fact, much of its burgeoning software development is geared around manufacturing.

Take for example NEU Information and Technology Co. Ltd., another Northeast University startup that was formed by three professors from the university. It currently employs 22 people and another 20 students, and has assets of $3.7 million.

The company focuses on co-designing hardware and embedded software “to improve the intelligence of equipment” in industrial applications, according to Deng Qingxu, VP of the company. Among its products are emissions monitoring equipment that can be found in power plants throughout China.

And like its older brothers in the university-startup fraternity, NEU Info and Tech is looking beyond Shenyang and China to develop joint ventures with foreign companies, namely in the United States and the United Kindgom. In one case, it would like to license the technology in the gas control units of a U.S. company, and tailor it specifically for the Chinese market.

Even older companies in Shenyang have found their way into high-tech. Sky Technology Development Co., Ltd. was first established under the Chinese Academy of Sciences in 1958. Entirely stated owned at that time; now its employees own 35 percent of the company. Specializing in vacuum equipment, today it has helped simulate the vacuum of space for the Chinese manned space program, as well as providing components for a host of high tech applications, such as molecular beam epitaxy, electron beam and ion-beam deposition, chemical vapor deposition (CVD) and plasma-enhanced CVD.

Sky Technology has also been ahead of the curve in international cooperation; it has supplied parts for Applied Materials Inc. subsidiary AKT, as well as newcomers in the domestic chip market. And like seemingly every other high-tech company in Shenyang – and perhaps all of China – they are keen on more joint venture opportunities with foreign companies, in particular the United States.

The phrase “win-win” crops up frequently when talking business in Shenyang.

And there may be a new manufacturing market coming to Shenyang in the near future: chipmaking. Zhang Qing Feng, director of the Shenyang Science and Technology Bureau, a unit of the local Shenyang municipal government, identified the chip industry as of the new industries that the bureau sees as critical for the future of the city.

Electronic News Travels to ChinaShenyang has had discussions with a foreign chipmaker about the possibility of building the city’s first chip fab, a 200mm or perhaps 300mm factory, he said. While nothing has been signed yet, the land has been set aside, as the city has actively courted companies from South Korea, Taiwan and Canada.

Shenyang is doing all that it can to make the city attractive to foreign companies; “In the next few years we’re going to formulate incentives,” Zhang said, such as chopping the tariff on importing equipment into China, and providing easy access to government loans.

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