Moving to China: Where Should You Set up Shop?

Travelling the Silicon RoadSo you’ve decided you need to have a presence on the ground in China. Or you’ve decided it’s time to move some manufacturing to China, or expand the sales offices you have there.

Then the question becomes where do you go in China to set up shop?

It’s a big question, and not one with the clear-cut answers it had just a few short years ago. At first glance, it might seem obvious: if you’re talking about electronics manufacturing, then Shenzhen, China’s richest city, is the place to go. If you’re talking about something farther up the food chain, say semiconductor manufacturing, then Shanghai is the place to be, right?

Well, if you’ve been following along as Electronic News has ventured down the Silicon Road this autumn, you know it is not quite that simple. There is some truth to those statements, to be sure. But the industry landscape in China – and foreign companies options – are considerably more complex, to be sure.

But lets look at that conventional wisdom first. Shanghai and Shenzhen are obvious places for a reason. Shanghai is a huge port city with plenty of natural resources, namely water, and an established infrastructure – this is why there are fabs here in the first place, including many that belong to the fourth largest chip foundry, Semiconductor Manufacturing International Corp. (SMIC). You’ll find the Chinese offices of many a U.S. and European chipmaker here in the gleaming new skyscrapers that dot the skyline.

Look at Applied Materials Inc., the world’s largest process tool vendor, and an old hand when it comes to operating in Asia – it’s literally around the corner from its biggest Chinese customer, SMIC, and its headquarters in Shanghai.

At the other end of the supply chain spectrum is Shenzhen, which has blossomed over the past two decades into China’s electronics manufacturing center. It was made a special economic zone for a number of reasons, but those reasons are similar to why Shanghai has exploded — and why Shenzhen is exploding.

For one thing, Shenzhen is a port city. Located in southern China on the eastern edge of the Pearl River delta, just across the border from Hong Kong, it is home to much, if not most, of China’s electronics manufacturing, and has the infrastructure to support that. In fact, it is probably the only place in the world to have a wholesale electronic components shopping mall located in an office tower downtown. That’s right, the SEC Electronics Marketplace: seven floors of components and finished electronic goods available wholesale.

Both cities have abundant human resources, not to mention prevalent universities, particularly Shanghai. In fact, Shanghai is so popular right now — particularly with Chinese engineer-entrepreneurs returning from abroad to take advantage of the advantageous business climate – that there are some 120 fabless companies in various stages of development in Shanghai, according to one chip startup I visited.

Plus, both cities have much to recommend them in the eyes of Western expats. Both cities are relatively clean and pollution free, and are very cosmopolitan; one could easily get by in Shanghai without having to learn Mandarin, or ever having to eat Chinese food, for that matter (why anyone would actually want to do that, however, I wouldn’t know – but I met Westerners in Shanghai who happily pointed this out).

Shenzhen, meanwhile, while much smaller and definitely more “Chinese” than Shanghai, is rapidly approaching that same level of international sophistication, and is so new and clean, it has been labeled China’s garden city. Indeed, the whole city seems at first glance to be sparkling and new, and compared to China’s older cities, green space is much more abundant.

But these very things that make Shenzhen and Shanghai such obvious choices may also serve to make them not-so-obvious choices. Shanghai, for example, is very expensive by Chinese standards – many people I spoke with, both Chinese engineers who had worked in Silicon Valley, as well as Western expats, pointed out that housing costs are approaching San Francisco/San Jose levels – and all of the attendant issues are starting to crop up in Shanghai, too.

“It’s not a problem for us yet,” said Kevin Sun, a marketing manager for Applied Materials China, referring to the high cost of living in Shanghai. “But of course they feel this pressure,” he said of Applied’s local Chinese employees.

It’s Not Just Location, Location, Location: Beijing vs. Shanghai

Another thing to bear in mind is that to do anything in China, you have to have established quan xi with the government – you have to establish and maintain the right relationships. For all of its cultural opening up, for all of its warm embrace of the free market, China is still a party where the Communist Party holds near absolute power.

And while Shanghai and Shenzhen may have a wealth of technological human resources, when it comes to finding brainpower in China, there is no better place than Beijing – which happens to be the seat of political power in China as well.

Now, for people not familiar with China – and perhaps more so for those who are only familiar with Shanghai – it’s important to understand that Beijing is the cultural heart of China, not just the political center. Geographically, Beijing never had much to recommend it, but in China’s distant past, as its dynastic rulers began to consolidate power across this vast country, Beijing became a strategic location, the crossroads of a growing realm. That is essentially why it became the seat of power for China’s emperors, which in turn attracted China’s intellectual and cultural elite, historically.

By and large, this is still the case today. Not only is it the seat of government, it is home to most of China’s premier universities – the Peking University, Tsinghua University, and the China Academy of Science, to name just a few — not to mention most of its millionaires, old and new, and its popular entertainment stars. It is also home to many of its brightest painters, musicians and writers.

And if there is a hot-button issue for the Chinese today – well, there are many, actually, but the rivalry between Beijing and Shanghai is one of them. Of course, the people that live in China’s other burgeoning high-tech cities have their own views on the matter, but most Chinese people in the tech industry in either Beijing or Shanghai, have a strong opinion with regard to the rivalry.

And the people that argue on behalf of Beijing make strong arguments. Beijing may not be a bustling port city, and may not have the infrastructure for manufacturing that Shanghai has, which the city’s proponents readily acknowledge.

If you’re just after cheap manufacturing, then by all means, go to Shanghai, says Liang Sheng, the section chief of the Department of Information Industry of the Beijing Municipal Government. “But if you want to expand your profits, you have to come to Beijing.”

And if you are looking to develop intellectual property (IP) tailored for the booming Chinese market, Beijing is the place to be. “Here we have our own IP,” he said, observing – as many Chinese officials did — that there was a reason SMIC built its first 300mm wafer fab in Beijing.

Liang likens Beijing to Silicon Valley; it is where a big chunk of China’s domestic chip IP is created. China’s only EDA company, CEC Huada, calls Beijing home, and of the 400 design houses in China, 85 are in Beijing. If that ratio isn’t good enough for you, consider this: out of the 16 design houses that achieve more than $100 million in annual revenue, more than half have their headquarters in Beijing.

Of course, there is no official distinction between Shanghai and Beijing when it comes Chinese efforts to lure the semiconductor industry there. Rather, it’s the result of a natural evolution: “it’s just what it is,” remarked Xu Xiao Tian, secretary general of the China Semiconductor Industry Association. “These two cities have their advantages and disadvantages.”

There’s More to China than Beijing and Shanghai

Some of those disadvantages in Beijing, aside from a comparable lack of natural resources, are considerable pollution and horrendous traffic. That is not to say that they aren’t problems in Shanghai, but in Beijing, they are particularly acute. While Beijing has a venerable, effective public transit system, there are still so many people in the city that its traffic jams rival the worst of those anywhere on the globe; it will be interesting to see how Beijing addresses this problem when it hosts the 2008 Olympics.

And it isn’t the only place to find superior human resources in China; consequently, nor is Shanghai the only place to find infrastructure and physical resources for manufacturing. As Xu observed, quite rightly, many companies both domestic and foreign, are looking at other cities around China – Chengdu, Xian, Shenyang, just to name a few. There are resources to be had elsewhere, often without the costs associated with Beijing or Shanghai.

One thing is common to virtually every significantly large municipality in China today: the local governments are playing to their strengths, and doing what they can to lure foreign investment. Wherever you go, whomever you talk to in local governments – as well as the local companies looking for foreign business partners – the phrase “win/win” comes up time and again; incentives are falling out of the metaphorical trees.

And each these other municipalities offers unique cultural environments as well, as followers of the Silicon Road blog know well, be it the food of Sichuan Province, or the warm subtropical climate of southeastern coastal China.

“I want all these cities to be successful with their semiconductor industries,” Xu remarked. “We’re paying attention to all of them.”

Electronic News Travels to ChinaIndeed, if one were involved in optoelectronics, Xiamen would deserve consideration. If software is your company’s forte, then Shenyang may be the place to set up Chinese headquarters. There are many places, places that we couldn’t squeeze into my Silicon Road itinerary, that are burgeoning high-tech and/or industrial centers in their own rights, or soon will be – Xian, Wuhan, Tianjin, Beihai and Guanzhou, just to name a few.

Wherever you decide to set up shop in China, I can say one thing is abundantly clear after spending a month investigating China’s tech industry: now is definitely the time to be there.

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.

Where in China, Indeed

Travelling the Silicon RoadWhere should you set up shop in China? What about where I would set up shop in China? Well, being a telecommuting journalist, I can, within reason, live wherever I want.

Theoretically, if I have high-speed Internet access and a phone, the world is my oyster, or some such metaphor.

Many of the friends I made while in China would often ask me where I would live if I moved to China, or, out of all the places I visited, which one I liked best. Well, realistically, to cover the semiconductor industry, I’d probably have to call Shanghai or Beijing home, or at least home base. But if I could live anywhere in China — as to my favorite place so far, that is difficult to say.

It’s like trying to decide my favorite place in the United States; I can’t narrow it down to just one.

I loved living in the Bay Area of Northern California, but I gave it up for the wilds of West Virginia, to be closer to family, and because I love West Virginia, too (hard for you Left Coasties to understand, I know, but it’s true). Portland, Ore., Austin, Texas and Santa Fe, NM, are on my short list of places I’d love to live in the United States, as is Athens, Ohio (went to college there).

Now that I think about it, you could tack on Flagstaff, Ariz. to that list as well (I actually did live a half-hour away from Flagstaff, once upon a time). I also loved the two years I spent living in Cleveland, believe it or not; it’s one of the best large American cities, in my humble opinion.

And anyplace near water automatically has something to recommend it, as far as I’m concerned.

As for China, it’s an equally difficult task to decide where I would live, if I were given carte blanche. If I could only take the culture of Beijing and the food of Chengdu — oh, the food of Chengdu — and put it in downtown Xiamen, without making it any bigger — that would be ideal. But I must admit, I enjoyed every place I visited in China, and could be happy in any of those places on the original Silicon Road itinerary.

Plus I’m sure there are many more places I will discover when I return.

Electronic News Travels to ChinaJust as I will discover similar places the next time I go to Europe, or visit the places I haven’t been to yet: the rest of Australasia, and the Middle East & or poking around my home continent, for that matter (New York city; Portland, Maine; Athens and Savannah, Ga. and Key West, Fla. all have yet to be explored by yours truly). Then there is South and Central America, and Africa — I’d love to visit it before more of its ecology is destroyed.

You know, having the travel bug is a mixed blessing. Part of the joy of traveling is returning home to the familiar: sleeping in the same bed every night, and seeing friends and family. Yet I haven’t been home two weeks, and already I’m somewhat restless, thinking about where to go next, memories of language barriers, intestinal distress, jet lag and pit toilets not withstanding.

Jeff

Editor’s Note: As explained at length elsewhere on this site, this is a blog entry of mine that originally appeared on the now-defunct Electronic News’ website, which is long gone. While its former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge), as far as I know, this blog content isn’t hosted anywhere else on the Internet, hence my reproduction here.

Original Comments

at 11/23/2005 12:47:40 PM, Scott O from Ohio said:

I have been following your stories for the past several weeks and think your writing is fantastic. I am a Manufacturing Engineer and I have traveled between Ohio and Shanghai several times this year. I am returning to Shanghai again for two weeks after Thanksgiving. I can really relate to your stories and your point of view… Keep up the good work! I am looking forward to your next article!

Editor’s Note (slight return): D’oh! Once again, when I downloaded the Silicon Road microsite, Adobe Acrobat managed to grab only one of 10 original comments that were attached to this blog entry – it grabbed more than a thousand other pages (most of them empty; I guess it’s an inexact science), but not that one. Damn.

The Kids Are Alright

Travelling the Silicon RoadSHANGHAI — I spent much of today on the campus of Shanghai Jiao Tong University here, my second campus visit since coming to China. I also hung out for few hours one afternoon and pestered a few students at Tsingua University in Beijing last week.

University campuses in China seem to take after the cities they reside in: huge and sprawling, frequently with new construction going on these days. But aside from that, they look remarkably like their Western counterparts: grassy commons and quads, with students and academic types running hither and yon, in order to get to class on time, or deep in discussion as they stroll along.

One notable exception is the lack of what we call typical college bars in the United States — you know, those dive bars adjacent to campus that we spent so much time in, back when we were students. At least I did.

Back in my college days, when I wasn’t cramming for a midterm or in the library trying to finish one or more term papers on the weekend before they were due, or chasing a story for a journalism class or my part time job on the local alternative rag, I frequented places with names like MacSweeney’s Tavern of Love, the West End Tavern, Tony’s and Lucky’s Downstairs — I had my own stool, at Lucky’s, basically.

Yes, drinking doesn’t seem to be as large a part of the curriculum here as it is at schools in the U.S. and Europe; students here even have curfews to contend with. This I found hard to believe; no way college students could be that rigid, I don’t care what nationality you are, or where your country lies on the ideology spectrum.

Fortunately, Alma Wang, one of my colleagues from EB China, filled me in and assured that the curfew is often flaunted. I figured as much. Kids will be kids.

That’s Capitalism With a Big “C”

But aside from having to put up with a little more authority than we have — and looking back I could probably have benefited from a little more authority and a little less freedom in college, quite frankly, God knows my liver could have — the students of East and West aren’t all that much different. Students here wonder about the same things as students do there: get a job, or continue with post graduate work? Get my masters here or study abroad?

Here, China is cranking out so many EEs nowadays, some students worry about being able to get a job — back when everything was state-owned and run, the job market was a little more stable; nowadays competition for jobs is high. Welcome to a market economy and capitalism, boys and girls.

In the long run, the students here also want the same things American students want: a stable job and a career, making enough money to afford a car, and a house, not to mention to raise a family. Some students I talked to dream about starting their own business. Looks like their might be some trademark infringement problems between The American Dream and The Chinese Dream.

But one thing that is different with today’s Chinese student from that of years past is their faith in the future. It’s an ongoing story in China right now: graduates returning from abroad to work and start businesses in China. And many students here today, even among those who plan to get their master’s degrees abroad, plan to come back to China.

As Zhen Yexiu and Fu Zhenjia, two electrical engineering undergraduates here at Jiao Tong University observed, things are much better now than in the past, in terms of future job possibilities in electrical engineering. Both plan to get their masters outside of the Chinese mainland, Zhen in the United States and Fu in Hong Kong, and both plan on returning to China. Fu wants to be a teacher; Zhen’s interests lie in MEMS applications.

Ten years ago, they likely would have chosen to remain abroad, but not so today.

And in addition to universities partnering with foreign chipmakers and other technology companies to expose engineering students to the equipment and methodologies they will have to be familiar with in the job market, educators here are also trying to teach engineering students how to work in teams — how to take a group approach to tackling a project.

Electronic News Travels to ChinaAs members of the faculty here explained, it’s not something that Chinese universities have traditionally taught; rather, in the past they have emphasized individual achievements. But that approach doesn’t really prepare students to work in today’s chip industry, and if China as a nation is going to become competitive in a global sense, that needs to change, they acknowledged.

Yes, I think the Chinese kids are alright. When people talk about China as a competitive threat, I think education is one area where it might actually prove to be true.

Jeff

Editor’s Note: As explained at length elsewhere on this site, this is a blog entry of mine that originally appeared on the now-defunct Electronic News’ website, which is long gone. While its former sister pub Electronic Design News (EDN) currently holds the copyright to all Electronic News copy (to the best of my knowledge), as far as I know, this blog content isn’t hosted anywhere else on the Internet, hence my reproduction here.

Chinese Entrepreneurship Comes in Different Flavors

Travelling the Silicon RoadSHANGHAI – Entrepreneurs take different forms in China, as they do anywhere else. But China is definitely a place for entrepreneurs at the moment, as its transition from a state-owned economy to one that is market-based is in full swing.

On the one hand, there are people like James Gao, founder, president and CEO of start-up Apexone Microelectronics Inc. An analog and mixed-signal company that started operations in 2002, the company has already caught the eye of the VC community and the financial press, being listed as one of Red Herring’s top 100 firms in Asia.

Having completed its Series A funding, its VC backers include DCM-Doll Capital Management, Walden International, The Yangtze Venture Ltd., Ben Itri and YouLiang Cai. Apexone calls Shanghai home, with offices based here in a high-tech park that is also home to companies like Applied Materials Inc. and Semiconductor Manufacturing International Corp.

It is the kind of start-up – and Gao is the kind of entrepreneur – that most in the West would recognize right off. It is a fabless start-up with some interesting IP, currently producing a couple million chips a month, including both from internal development programs as well as finished products.

Its product portfolio includes a patent-pending crystal-less USB transceiver device, a digital audio amplifier developed partially with a U.S. technology partner, and data converters for wireless and broadband applications – converters based on digital CMOS, not BiCMOS, that achieve 12- to 14-bitrates or higher and speeds in the range of a couple of hundred megahertz.

Naturally, the company is targeting high-end consumer applications and is trying to stay away from the crowded low-end market. “In general we’re trying to get high performance analog or mixed signal, along with future applications,” Gao said.

Gao is a Chinese native who got a master’s degree in electrical engineering in the States in 1991 and worked in the chip industry there for a number of years before returning to China. He came back, he said, because he saw the business opportunities here. He noted that’s why others are coming back to China, but is thoughtfully pragmatic about the phenomena; eventually, as the prevailing economic winds shift back to the United States and elsewhere, that’s where Chinese graduate students will go, following the opportunities, he explained.

“I think right now the environment is good,” Gao said of the VC and business climate in China. “But it is a challenge to balance the risks,” he added. “There are always risks, of course.”

He noted that he met recently with some central government officials who observed that the Chinese start-ups that seem to have the best chance at success seem to be those that have foreign VC backers. And at a recent trade show here, among the five Chinese start-ups participating, four of them were backed by foreign VC investors; only one was funded by Chinese venture capitol.

But that’s the hot interest among the VC community right now: start-ups created by Chinese EEs returning to China, having cut their industry teeth abroad, Gao said. The big question is, which ones are the ones to back? After all, they can’t all be successful in the long-run.

Even though getting VC money isn’t a problem in China right now, it’s not like every Chinese engineer with a good idea is guaranteed to strike market gold just because they’re following the technological gold rush back to China.

“Not every company does well,” Gao said of start-ups like Apexone. “The trend really is similar to Silicon Valley. Just a couple percent are successful.”

Moving from Government Bureaucracy to Private Business

At the other end of the Chinese high-tech entrepreneur spectrum is Zhong Jian, founder and manager of Dakeli Technology Co. Ltd., based in Beijing. His isn’t the usual formula for high-tech start-ups, but his is perhaps not entirely unique, at least here in this country.

Zhong is in some ways more symbolic of what is happening in China than a company like Apexone. A former government official in the Ministry of Post and Telecommunications (MPT) (one of the forerunners to China’s current Ministry of Information Industries (MII)), when China first started flirting with a market economy in the 1990s, Zhong saw an opportunity to go into business for himself, and seized the opportunity.

One of his assignments back in the day in the MPT was to travel to Singapore and set up a state-owned company to import high-tech goods into China. He was given the equivalent of about three months worth of funding to get things going. After a year, the business was functioning and stable, so he was sent to Japan to do the same thing; once again given about three months’ worth of funding. Two years later, the business was successfully stable.

After learning how to set up two business operations with little financial backing, and things changing in China, Zhong decided to go into business for himself. “I adjusted to business with no financial backing; why not start my own?” he recalled.

“I like freedom. I hate politics,” Zhong said. “That’s why I left the Ministry, to start my own business.” That was 1997. Today Zhong employs 10 people between Dakeli’s office in a residential apartment building in Beijing and one-man offices scattered around China. Last year it brought in revenues of about $4 million; this year the company should see revenue of about $6 million, according to Zhong.

Dakeli originally started out importing networking test equipment into China; it has since branched out into telecomm, as that is a hot market in China right now. Things have changed considerably since Zhong started Dakeli eight years ago.

“There are many stories … but generally speaking when I started it was easier,” Zhong said. “Now there are more and more private companies. There is more and more competition.”

That’s why Dakeli has had to branch out into other areas, and concentrate on high-end technology and applications; the low end has rapidly become crowded in the Chinese marketplace. The company has become particularly focused on the rollout of a 3G standard in China, as well as other specialty telecomm products.

The 3G standard adoption in China has been delayed, but as Beijing prepares for the Olympic Games to come to China in 2008, it looks as if the government will start issuing licenses for 3G in the first half of next year. “I think next year when licenses are issued, our test business will be brisk,” Zhong said.

Dakeli has also begun working with small foreign companies outside of a distribution capacity. “We like to work with small companies with good technology,” said Zhong. “They are flexible, like me.”

For instance, it is working with a Japanese company to design and sell a unique chipset for PHS applications in China. PHS is a mobile standard that was developed in Japan a few years back and has since fallen out of favor, although still popular in many parts of China. While Dakeli’s revenue from this agreement is small – maybe just 2 percent of this year’s revenue – that represents just the first order, one from a government contract. In the near future, after subsequent orders, the PHS revenue stream could represent as much as 30 percent of the company’s revenue, Zhong suggested.

Electronic News Travels to ChinaThe environment has changed in other ways, too, inside China. Relationships are very important in China, and always have been; being a former employee of the Ministry has helped, Zhong acknowledged. But now, it’s not always about whom you know; many government contracts are put out to bid and there is a transparency in place that wasn’t there back in the 1990s.

“Now business is more and more professional,” he said. “You have to have good products, service and technology. Otherwise, you will lose to the competition.”

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.

Getting From Lab to Fab: a Chinese Challenge

Travelling the Silicon RoadSHANGHAI — One of the challenges peculiar to China as a developed nation but with a relatively nascent chip industry is that of getting technology out of the lab, into the fab, and into the hands of users.

And thereby making some healthy yuan in the process.

Even while government and industry officials, as well as executives acknowledge that homegrown IP is critical to China’s developing chip industry – not to mention its ability to meet its exploding domestic demand — it has had a poor track record in getting technology developed in the lab into commercial production. It is a task that is difficult at best – for every R&D achievement hailed as a breakthrough, few translate into commercial profit.

It’s a universal problem, noted James Gao, founder and president of Shanghai-based startup Apexone Microelectronics Inc., a fabless, high-end analog and mixed signal chipmaker.

“It not only exists in China,” Gao said. “It’s a similar kind of issue back in the States.” Gao studied in the United States and worked in the chip industry before returning to China to start Apexone in 2002.

The problem, as his company experiences it, is hiring fresh graduate students with great ideas — ideas they brought to fruition in the lab — who want to apply it to Apexone’s products. But the optimal power conditions used in the lab don’t exactly emulate the lower power demanded by a commercial mobile device – in other words, what worked in the lab often experiences problems or just won’t work under real world conditions.

“That is a major challenge for university lab students,” Gao said.

Narrowing the Gap

But it is apparently a particular problem for China. As some students and executives here suggest, part of it is the legacy of communism and state-owned business. It isn’t like China hasn’t had a chip industry for some time. But in the previous climate of a state-owned economy there was little incentive for innovation. And now, as China continues to convert to a market based economy, there is a gap between what Chinese chipmakers can produce and the leading edge in the rest of the world.

Most domestic chip designs originating in China today are at .35-micron to .25-micron, according to Hou Jinsong, manager of the software department at Beijing-based CEC Huada Electronic Design Co. Ltd. (HED). HED was the first fabless design house in China. Hou’s unit within the company is the first domestic Chinese EDA software developer.

Very few designs below 0.18-micron are produced in China. Below that parasitic problems are still an issue for most Chinese design houses, Hou noted. That’s why companies all along the food chain are courting foreign VC investment and joint ventures — to help fund the needed R&D in China.

“I think the gap will be narrower (in the future), but it depends on the investment,” Hou said. “If you don’t have enough (proprietary) IC designs, you won’t grow rapidly. For the EDA industry, investment is very important.”

Converting Brain Power to Economic Power

It’s not that China doesn’t have the EEs or the research programs at universities and institutes to create that necessary domestic intellectual property. It’s the conversion to the commercial market like Apexone’s Gao described that many here say is problematic, and perhaps a new idea for the Chinese, as they move from state-owned enterprises to a free-market system.

Take Beijing, for example. There is a reason Intel recently chose Beijing as the location for a new R&D center. The capitol of this country for centuries, it was cast and maintained as the capitol not because of abundant natural resources – which it doesn’t have – but because of its strategic geographic position.

Over the centuries and into the present it has become the heart and soul of Chinese art and culture and in many respects its brain. The central government is here, as well as many of China’s most prestigious and research institutes and universities, such as Tsinghua University and the China Academy of Science.

“The only difficult thing in Beijing is how to realize the potential of all the brains here,” said Liang Sheng, himself a possessor of a doctorate degree and the section chief of the Department of Information Industry within the municipal government. He is also deputy director of the Beijing Semiconductor Industry Association.

It is a problem that China has worked on for years. One that Liang and others in China suggest was one of the reasons the central government decided to move towards a market-based economy. While the situation has improved markedly in China in recent years, there is still plenty of room for improvement, Liang acknowledged.

But China is learning. One piece of evidence to support that is the start-ups that have been launched out of China’s universities. It’s not a lot, especially when compared to the United States or Europe. But it’s growing. The aforementioned Tsinghua University, for example, has spawned three large start-ups. Beijing University has launched two. North East University in Shenyang has launched six companies.

Many of those companies are retaining close ties with their respective universities, participating in and sponsoring related research programs. In some cases, the two are tightly conjoined, as in the NEU Information and Technology Co. Ltd., a spin-off of North East University (NEU), which also plays host to the Shenyang Embedded Technology and Engineering Research Center.

“The company is a platform for product development,” explained Deng Qingxu, a doctorate and a graduate of NEU, and VP of NEU Info. and Tech.

But while the situation has improved considerably in recent years, the problem of turning Chinese brains into Western-style profit still persists here in China, he acknowledged. “It’s not totally overcome,” he said, adding that probably no more than 50 percent of what gets developed in research labs here makes into a commercial application.

He observed that government support still tends to focus on pure research, as opposed to letting market demands drive research. And the government is still aggressively pursuing research, to be sure.

In addition to encouraging innovation and IP development through the tried and true method of market demand, it is putting a lot of financial resources into R&D. On one hand, it is doling out money to support companies large and small with promising IP. Semiconductor Manufacturing International Corp. (SMIC) is an oft-mentioned example of this. SMIC is manufacturing 90-nanometer designs for certain customers at its 300mm fab in Beijing, the only 300mm fab in China.

Another method is through government grants. The central government has set aside some $16 million (130 million yuan) a year specifically for system on chip (SoC) development, for example. The government is also currently building two R&D centers – one in Beijing and one in Shanghai.

Electronic News Travels to China“In my opinion, research should be more practical; there should be more cooperation with industry,” Deng said. “That way you find out what the urgent needs are and concentrate on them.

“Just following random ideas in white papers, this isn’t fruitful,” he added, suggesting that relationships between research centers and industry could be tighter still. “As a researcher, you should take your cues from the factory.”

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.