Chinese Electronics: Getting Ahead of the Game

Travelling the Silicon RoadSHENZHEN, China — It seems wherever you go in China’s cities, north south, east or west, business and government are looking for foreign partners and investments.

Start-ups, local and central government, well-established domestic companies alike, all discuss the possibilities of establishing a win-win relationship with companies from the West, particularly the United States. These efforts are still relatively nascent in China’s chip industry, with a few notable exceptions like foundry Semiconductor Manufacturing International Corp.

And on the other side, many are just as eager. In some cases, they’ve already been here for years, like Agilent or Applied Materials. Or they are just now looking to get involved in the booming Chinese market, and might not be sure who to partner with – venture capital firms, for example, look at the raft of Chinese chip and technology start-ups, and are bewildered about which ones to choose.

But China’s electronics manufacturing industry is considerably more developed than its chip industry. While developing intellectual property and bringing it to market might not be a Chinese strongpoint, manufacturing is, so it is only natural that China’s electronics manufacturing industry is humming along strongly and has been for years.

While the semiconductor content of Chinese electronic components may come from beyond China, the rest of the content that goes into making an electronic product can be found locally here in China, be it cables, boards, connectors or whatever. In many cases a product can be sourced entirely here in Shenzhen and that, along with cheap human resources, is why manufacturing is inexpensive here compared to the rest of the developed world.

Look at the cost of manufacturing a television. Thirty years ago, it cost about 3,000 yuan; today it costs about 500 yuan to produce a TV in China, noted Chao Getu, a general manager at Shenzhen Deren Electronic Co. Ltd. That’s about 62 bucks.

“The same thing will happen in the field of white goods and household electronic appliances, sooner or later,” Chao observed. “The advantage of China lies in the whole [electronics] supply chain.

And when it comes to doing business with the West, China’s electronics companies are also ahead of the game. Deren Electronic is a good example.

A privately held company created in 1992, Deren is focused on R&D and production of electronic connectors. It has a solid foot in the middle layer of the electronics supply chain in Asia and the world; its revenue this year should be around $87.5 million (700 million yuan). It has seven factories around China, and has an impressive list of domestic and foreign customers.

Among its Chinese customers are giants like home appliance manufacturer Haier and television maker Konka. Among its foreign customers most notably are big Japanese names in electronics: Toshiba, Sony and Sanyo – a notably tough market to crack, even now.

How the company got into Toshiba and the Japanese market initially, was its competitive price, said Chao. While the Western supply chain is open to foreign suppliers, the Japanese electronics supply chain is still relatively closed, at least until a few years ago.

To get more solid footing in that market, Deren went a step further, hiring Japanese engineers and setting up a new business division specifically to interface with Toshiba and Japanese customers, one that operated like a Japanese business; Deren recruited staff for that division from Japanese companies.

“This was a good start for Deren,” said Chao; it led to its business with Sony and Sanyo.

Deren has also been able to lure the business of U.S. giant Tyco Electronics. The two companies announced their partnership in January of this year, signing a strategic agreement for connectors to be used in home electronic appliances and communications equipment. Deren agreed to manufacture and distribute certain Tyco brands within China; in addition to this OEM agreement it also serves as a distributor for other Tyco products.

For Tyco, which was at one time naturally a competitor of Deren, it gained a local foothold in the blossoming Chinese market, a place it had struggled to penetrate previously. By partnering with Deren and offering its technology, it suddenly was inside China’s large home appliance market.

Meanwhile, Tyco is supplying Deren with patented electronic connector technology, advanced management techniques and brand marketing, and more importantly an entry into the top-level of its target customer base.

Essentially, the deal represented the localization of Tyco – an important step for foreign companies doing business here – and a step toward the globalization of Deren Electronic. Tyco brought in staff from Taiwan to train Deren employees, gaining access to people with business experience overseas.

As Chao observed, “We need more cultivation than utilization.”

Electronic News Travels to ChinaThe company has already learned a lot from Tyco in less than a year, he said. Its human resources management and factory production and product design have all seen great improvements. While the cooperation on a sales and marketing level remains somewhat lower by comparison, Deren hopes to raise that level going forward.

It’s not resting on its laurels either; it is currently courting a large European company as well, hoping to duplicate its relationship with Tyco and continue its foray into global markets.

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.

Let Us Set the Record Straight

Travelling the Silicon RoadSHENZHEN, China — I was just going through the comments section of this blog to make sure all of the submitted comments had been cleared, when I came across one in an earlier post that was still pending. You see, in order to keep out spam and profanity, we review all the comments that are submitted prior to them appearing live on the site.

And it was the straw that broke my metaphorical camel’s back.

You can find it here. But it doesn’t really matter; there have been similar ridiculous comments. Being a journalist, I’m pretty thick skinned; we’re like lawyers: everybody loves to hate us, and you either get used to it or go into PR. But everyone has their limits.

So, let’s get one thing straight, and I’ll spell it out nice and simple even for the narrow-minded and thick-skulled (which fortunately seem to be in the minority). I am not an apologist for China’s communist government. Yes, I was very surprised at the openness and passion of the officials that I’ve met, both locally and nationally. They were not the automatons I expected.

But NOWHERE have I said, despite several self righteous reader comments to the contrary, that I think China’s political system is a good thing, or its repression acceptable.

I’m a journalist, and freedom of speech and the press is my birthright as an American, after all. I’d take up arms to defend that right. I do not say these words lightly; in these days of the Patriot Act, I sometimes wonder if it will come to that. But the Chinese don’t have freedom of the press here; there are journalists in prison in China, jailed for what they have written. Of course I think this abhorrent.

Got it? One more time, follow along: Jeff say repression bad; free speech good.

The thing that people in the West need to understand is that your average Chinese citizens, while not enjoying all the freedoms we have in the West, don’t appear to be, nor to they think of themselves as, repressed by a totalitarian system.

I know it’s a blow to you ideologues out there, but I’m afraid it’s true. But again, for the narrow-minded, indignantly self-righteous, let me spell it out in tiny little words that even you can understand: I’m not personally justifying the Chinese political system. Just telling you what I’ve observed and experienced — whoops, sorry, let’s say “seen and heard” — this past month. Don’t shoot the messenger.

If you don’t believe me, come here and see for yourself and talk to them, like I have.

It’s a difference in culture between East and West. Like I’ve explained here before, the Chinese people are perfectly capable of revering Mao Zedong as a hero while acknowledging that the Cultural Revolution was a horrendous mistake. And while people like me, being an American, can’t completely understand how Chinese people can be so patient and complacent about things like freedom of speech, nevertheless, they are.

I’ve had a lot of conversations with Chinese people about this issue, and my interpreter, Zhike, a 24-year-old Chinese graduate student, put it best: “We have freedom of speech in China, just not in the media.” He said it with a knowing smile. This is such a thoroughly Chinese way of looking at the world; it was a very Chinese thing to say.

To understand why, ultimately, I think you have to come here and know China for yourself. But I’ll add this: the specter of the Cultural Revolution does still lingers here, as does what happened in Russia following the collapse of the Soviet Union. The Chinese are an ancient people, and are nothing if not patient; they are happy with the changes that have been made over the past two decades, but they are concerned about what might happen if things move to fast — after all, look at the last revolution they endured.

I do not agree with what you have to say, but I’ll defend to the death your right to say it.”
— Voltaire

Now, second of all, it is time for some self-righteousness indignation of my own; this is a subject I’m unapologetically passionate about. Read it and weep.

This business of anonymous ideologues posting morally indignant comments about me or what I supposedly said, and then not having the courage to put their names to it, is quite frankly pathetic. There is no excuse, and you should be ashamed.

You see, people have died protecting this right that we in the West enjoy, the right to express our political beliefs, whatever they may be, in a public forum like this. You do those people a disservice — if not an outright insult — by hiding behind anonymity. You insult their bravery with your cowardice. As far as I’m concerned you might as well run though Arlington cemetery kicking over gravestones.

It’s rather sadly ironic in these times of right-wing, red-white-and-blue dogma in the United States.

So say whatever you wish; ultimately I don’t care, nor do I care who you are. But you should nevertheless have the decency and courage to put your name to what you say.

This isn’t the kind of forum that you have to worry about your spouse or boss finding out you frequent, after all. And this is a U.S.-based site; there are no government goons monitoring it. Not yet, anyway.

Trust me, it’s not hard, I do it every day. I still do it, even though I’ve had my life threatened because of what I’ve written more than once. I’ve been threatened with lawsuits a number of times. I’ve even had a brick through my window and my car vandalized.

And yet I still put my name to what I write, not because I’m brave or thick skinned, or that I think my writing is particularly brilliant, but because it is my right. And it’s yours too.

The only excuse you might have to utilize anonymity here is if you are perhaps a Chinese political dissident, still on the mainland, but I’m reasonably sure “Dave in Dallas” or whoever is not a political dissident.

Electronic News Travels to ChinaLet me just add that I realize that many will take this as just my own inane blah blah blah, and those few at whom this was directed will surely have missed the point. The only thing I’ll say in my defense is that my real name is proudly displayed with it, blather or not.

Neener neener :p

Jeff Chappell

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 11/4/2005 12:16:34 PM, William Woodley said:

Good for you! I have the same beliefs after visiting China.

at 11/4/2005 12:41:45 PM, Mike Jones said:

There are a lot of people in the USA still operating with an ethnocentric mentality. This is a way of thinking that can’t imagine anyone else in the world having a valid idea or way of life different than ours. And our success has only fostered this kind of thinking because it is very easy to translate success into righteousness.

What is coming next is a worldcentric mentality. This viewpoint will be a result of globalization and its challenges. In general many Europeans and Asians are ahead of the game in this regard. The rightwing in the USA just does not like the fact that they are not the center of the universe.

It is much like what the Catholic Church had to go through when it was demonstrated that the earth was not the center of the universe. And the pain the USA will suffer may be no less. All right wingers take note: we live on planet Earth and the USA is not the Garden of Eden and you are not God’s chosen people. We are all related right down to our genetic material. Mike Jones

at 11/4/2005 12:45:47 PM, David Naegele said:

Jeff, First let me say that I have enjoyed everything that you have shared. I doubt I will ever have the chance, or time/money, to go that far away.

With that said, I must also say this about the anonymous postings. In the local news paper all letters to the editor must be signed. In this day of political correctness, many topics are off limits to anyone who wants to keep their job. Some things could easily be misconstrued by ideolouges and cost you a fortune defending yourself against what turns out to be perfectly legal actions. Innocent verdicts don’t restore your bank account.

Take a look into the actions of the BATF in recent years for some overly blatant abuses. There are many agendas being pushed, for good and not so good. I don’t want to get caught on the wrong side of somebody’s agenda. For this reason, letters to the editor once had a “name witheld by request”, but that is no longer the case. Yes, we too have freedom of speech in the U.S., but I don’t believe we have it in the media here either.

at 11/4/2005 12:49:47 PM, said:


at 11/4/2005 1:05:29 PM, BobboMax (aka said:

I also enjoyed those paragraphs that ended w/ neener, neener. My sentiments exactly. Things have gotten to the point that the atitudes expressed in the “Patriot Act” require honest patriots to step in front of the tanks in the Capitol Ma– um, ahh, I mean Tienanmen Square.

Some of us are going to get squashed, just like the men and women in Iraq, both Iraqis and Americans. It’s still true that blood is the price of freedom and it must bought again every generation. Buying oil with blood is another matter.

at 11/4/2005 1:05:37 PM, Joseph Kagan said:

Jeff I enjoyed reading all your articles. They made reading Electrinic News alot more interesting. I agree with your article “Let us set the record straight”. I was in China in May making a study of the dairy industry. My impresions of China were similar to yours. I wish you continued success in your work. Joe K.

at 11/4/2005 1:27:49 PM, P. C. Chen said:

Right On, Jeff! One learns sooner or later in life that whatever one does, there will always be people putting a negative twist to it for their own hangups. A lot of people these days seem very hung up on their own perception of the world, regardless of reality. My philosophy is that, as long as I do things to the best of my ability and with a clear conscience, I don’t really give a hoot to what some narrow-minded people might think or say.

Glad to see you think likewise. I enjoyed your columns very much. My admirations for staying cheerful and objective when in a very different cultural environment.

at 11/4/2005 1:29:42 PM, Herb Smith said:

I decry the religious repression in China, and also the government censorship and monitoring of various media. And yet…one of the best ways to change a repressive system is to expose it to capitalism, however imperfect THAT is. The Chinese government attempt to crush Christianity will also fail. The Church thrives on reporession. So China is going to change, and in ways the government will not be able to control.

at 11/4/2005 1:40:30 PM, Bob Duncan (in Dallas) said:

Jeff, thanks for sounding off against those gutless critics. I enjoy your insight into China and want to learn more about the country than just who’s in power today. Your blog has been terrific! Too bad you have to come back! I also share your concerns about the way our government is treating our personal liberties. Waving the flag and threatening us with terrorist attacks has helped the Bush crowd hide their rape of the American people, both our tax dollars and our privacy.

at 11/4/2005 6:40:10 PM, Al Giese said:

Hello Jeff, I have been enjoying reading your reports from China. I traveled to China in the very early years when the doors to China first opened (first trip in 1977) and sold Thermco Diffusion Furnaces through MEI in Beijing to the then small Semicionductor factory in Wuxi. In those days we traveled on simple and slow local trains and the best hotel in Beijing at that time was the Friendship Hotel. Only old timers will remember this hotel.

Needless to say there were no fancy restaurants, high speed trains and the best you could hope for as local transportation was an old Russian build Limosine with a poorly working heater in the deep of winter. The reason I’m sending this note is to express my full support for the position you have taken in the above article.

There are always some jokers that try to mess up business with narrow minded and arrogant political views. After these early business visits to China which were very successful, I didn’t believe that China would ever manage to build a Semiconductor business or any other high tech business. But I have to give them credit, with support from Beijing and from local Government agencies, it is an unbelieveable success story and as you have said, one has to visit the country to believe it.

The positive changes in business and the changes for the majority of the Chinese population are real and amazing, especially for one who has been there and observed the country 25 years ago. Jeff, please keep on writing. You are doing a great job and don’t let ignorant, narrow minded readers disturb you. Best regards Alfred W. Giese IBC,International Business Consultant

at 11/5/2005 1:45:09 AM, Jeff Chappell said: Wow. Rather just the opposite of the reaction I had expected. A gracious thank you to one and all.

at 11/5/2005 12:33:37 PM, Tom Murphy said:

Interesting observation about PR. I was a journalist for more than 10 years before I was laid off for the fourth time and then took a job in public relations. There were times in journalism were I was villified by readers for something I wrote. But I did not feel the true wrath of criticism until I was involved in client-vendor relations as a PR practitioner.

Even ten years of having rocks thrown at me as a journalist barely gave me thick enough skin to deal with the pressure here. People get fired based on the whims of an executive. That’s pressure. Journalists are protected by the first amendment and sometimes by a publication with a backbone. PR practicioners don’t have that and when you’re dealing with a publicly traded company and the entity’s shareholder value is on the line there is just a great deal at stake. That’s something I was never exposed to as a journalist but it is an experience that is highly valuable.

at 11/6/2005 2:25:13 PM, Clayton Werner said:

Onya Jeff! Too many of us from across the oceans see only the bad side of this North amero-centric push. The world is full of real people, different languages, cultures and the like, viva diversite’ (from the land of Oz) Clayton

at 11/6/2005 6:54:45 PM, Mei said:

Hello, I am Chinese, and love to read Jeff’s writings. What Jeff wrote here is quite to the point.

Kingtype: Sussing Out the Chinese CATV Equipment Market

Travelling the Silicon RoadCHENGDU, China — While in China this past month, Electronic News Editor Jeff Chappell sat down with the founder and current board chairman of Chengdu Kingtype (Electronic) Group Co. Long Yon Gaing to talk about China, its burgeoning electronics industry, standards, and, specifically, the market for cable, digital and satellite television electronics.

Kingtype, the biggest manufacturer of CATV equipment in China, is one of the first domestic, privately held companies to form under China’s economic reforms of the early 1990s. In addition to the Chinese market, it also exports equipment to other parts of Asia, as well as to the United Kingdom.

What follows are excerpts of the conversation.

Electronic News: Can you tell us a little bit more about the history of the company and how it came about?

Long: Under the leadership of Deng Xiaoping, the central government in the late 1980s and early 1990s embarked on the policy of opening up China and its markets. It was at this time that several engineers including myself organized the company. There were six of us that started Kingtype in 1992. After 13 years, we’ve seen steady growth and great progress. The government’s policies have helped us achieve stable growth. Our current net assets are worth 260 million yuan [$32 million].

After so many years of development, we now stress technological innovation. We’ve had to address many problems of the years, but we’ve developed high quality products. We are the best among CATV equipment suppliers in China; we’re the No. 1 brand. Our company has also been directly involved in developing CATV standards in China. Others and I in the company were invited to serve on the National Broadcast and TV Standards Committee.

Electronic News: As a supplier of digital and analog CATV broadcast equipment and set-top boxes, do you do all of your own system design in-house? And are the components of your system produced domestically or abroad?

Long: Yes, we provide system design and system integration. Much of the materials and components, as related to semiconductor content in our products, come from outside China, while the rest of the system components come from domestic companies.

Furthermore, our industry is very professional, or business-to-business; it’s not like the consumer electronics industry. The domestic capability of China to design and produce its own chips is still relatively weak, so we must get our chip components from outside China, and will continue to do so for the time being. In the future, however, particularly for our set-top boxes, which just went into production, and satellite receivers, which we’ve just begun to start manufacturing, we perhaps might begin to use domestically-designed components.

Nowadays, the Chinese government is heavily supporting domestic chip design, manufacturing and the related software technologies. It is developing very fast. But today, our main products are CATV infrastructure equipment, such as network transceiver equipment, optical transmission equipment and wireless emission products, and system management software. And also digital signal broadcast equipment. We do make set-top boxes and satellite receivers, as well, but the set-top box isn’t that popular in China; digital television is still a small market.

As we’ve learned from the U.S. market, it’s not an easy one. This market is tough, and we also face outside competition. You see, unlike the United States, CATV in China is a public broadcast and service medium. So it is difficult to sell related products to the consumer. We would like to see China follow the U.S. FCC, which has set a new policy requiring that digital tuners be integrated with television sets in the future within the United States. As the set-top box isn’t popular here, we think we should follow this example in China.

Electronic News: With the growth of China’s economy, could that possibly spurn the growth of the market for consumer-related CATV and digital equipment, such as set-top boxes?

Long: Of course we will see considerable development in the future, and this will help promote the whole industry. Next summer China’s first direct satellite television broadcasts will begin, for example. That is when we plant to start selling our new satellite receivers. And the future integration of a digital tuner with the TV, this will promote sales of digital television. Once common people have the means to receive digital broadcast signals, it will spawn more digital programming – at that point we’re looking at a bright future.

Electronic News: Can you tell us about the state of broadcast and TV standardization in China?

Long: How fast the industry develops depends on China’s standards development. There are a lot of old standards: DVB, MPEG-2, and so forth. And now there are new global standards emerging, such as H.264. Here in China, we want to develop our own standard: AVS . Of course, the semiconductor industry is also concerned about this problem. These varying standards affect their design and manufacturing, and their design and manufacturing in turn affect ours.

Electronic News: So China’s own domestic standards will help China’s internal IC industry then?

Long: It should promote domestic IC design. It is why we set up our own standards. The H.264 standard, it costs too much money for domestic chip companies to design and produce related components. The MPEG-4 [a standard technically identical to H.264] actually is a good standard. …

Personally, I prefer the H.264 standard. But as a member of the committee, we can’t support it. But it does have a lot of support from the chip industry at large, however. If we did support it, we might see our own market [for related end-user equipment] develop more quickly. The number of chipmakers designing for the emerging AVS applications is still quite small. But this isn’t only my opinion. A lot of other committee members feel the same way. If the H.264 standard can eventually offer us a reasonable cost, we will accept it. That’s why China is waiting for the standards to mature a bit. We’ll wait and see. And that’s why we haven’t put our set-top boxes into mass production, because of the standards issue. DVB was the standard, now we are waiting for the new standard.

Electronic News: Can you tell us why Kingtype chose to set up shop here in Chengdu?

Long: Sichuan [Chengdu is the capital of Sichuan Province] is a base for the electronics industry in China. It stems from the era of Mao Zedong. In the interest of national security, the central government at that time adopted a policy of moving key industries inland.

Nowadays, the environment and talent here is quite rich. There are several excellent universities here, and a lot of electronics companies in China originated here; a lot of other companies in other cities – Shanghai, Shenzhen, etc. – their founders came from here.

The maturation of government policy has helped Chengdu grow, as well, but perhaps it has helped other cities such as Shenzhen even more so. But it will all lead to a more prosperous Chengdu. This city has demonstrated a lot of advantages under the new policies, such as the engineering talent available. There are a lot of multi-national corporations here now, too. And the living environment – the cuisine, the lifestyle – that’s why we chose Chengdu as our base.

Electronic News: Is there anything you would like to add, or anything else we should cover?

Long: Right now Kingtype is the main provider of CATV equipment in China. The next step for us is to cooperate with an overseas partner. We can learn advanced technology and management techniques from them; they can gain valuable access to the Chinese market. We are interested in mutual market development and R&D. It can be a win-win.

We also want to begin exporting more of our products beyond China. In fact, several companies outside of China have contacted us about OEM partnerships, inquiring about production of equipment for export.

Electronic News Travels to ChinaI’d also like to mention our involvement in two-way HFC [hybrid fiber coaxial] network equipment. [In 2004, the State Administration of Radio, Film and Television set up an HFC network technical lab within Kingtype. The company handles technical training for HFC operators in China.] Our company also wants to share its leading edge two-way HFC technology with the world. We’ve attracted a lot of attention already from Americans in this industry that came to see our two-way HFC technology; it’s won a lot of praise. We can build the related infrastructure for two-way HFC networks; our labor costs are low – it’s an advantage for us. But I want to stress the importance of the advantage of this type of network. Just in the last several months, we’ve done projects in this market, and it’s been well-received by consumers.

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.

Shopping, Shenzhen and Farmer Ye: Pondering the New China

Travelling the Silicon RoadSHENZHEN, China — I’ve come to the conclusion that many, if not most Chinese people love to shop.

Now before the ignorant self-righteous weigh in, let me add that I’m not knocking China; far from it. After all, the movement to a market economy is still underway — less than a generation ago, really — and I imagine that many middle-aged people have disposable income for the first time in their lives, and want to spend it. As a middle class American I would feel hypocritical if I found fault with that.

Then of course, there is the bargaining. Travelers to China know all about the tourist or laowai price vs. the Chinese price, and one’s new-found Chinese friends are always on the lookout for you, making sure you get the Chinese price whenever possible. Like friends I’ve known of Middle Eastern descent, I think perhaps the bargaining is half the fun for them.

But for myself, I really don’t care to shop or bargain. While many Americans do, I think my disinterest stems also from being American — by Asian standards we tend to be rather abrupt and forthright; even by American standards most people would consider me very direct.

And I’m not one to mess around with shopping; if I need something I go buy it, as quickly as possible, end of story, no screwing around. I remember getting out of the mag lev station in Shanghai, along with my interpreter, Zhike; we were immediately besieged by taxicab drivers. When they realized that we wanted to go to the other side of the city, there was silence.

Finally one young man ventured timidly, “250 yuan.” I did the math in my head: expensive by Chinese cab fare standards, but still cheaper than many a cab ride from an airport or train station in the U.S. “Done!” I cried, happily. “Let’s go,” I said, proceeding to wheel my luggage toward the gentleman’s cab. At that point I was already sick of carting around luggage — business trips always seem to require 3x as much stuff as vacation — on planes, trains and automobiles, and the sooner this was done, the better.

But you could literally hear the sounds of jaws of everyone within earshot of this exchange bouncing off the pavement. Our cab driver looked a little bewildered; Zhike seemed almost shocked. At the time, I wasn’t sure what faux pas I had committed; now I know — crazy, hasty Americans.

But running around Shenzhen the past couple of days, conducting interviews or just wandering at random, phrase-book in hand, I’ve been thinking a lot about shopping. Shenzhen by all accounts was a sleepy, balmy fishing village 20 some years ago, when the central government decided to make it a special administrative zone. Viola — now it’s a busy, balmy port metropolis, the heart of the country’s electronics manufacturing, and consequently its richest city.

It shows. Everything seems new and sparkling, and the shops stay open very late; downtown there are shopping districts where the stores are open past midnight.

Shenzhen has also been recognized in China as a garden city, for its cleanliness and green space — and indeed it is, especially compared to China’s older cities, and even Shanghai. It provides quite a contrast to the rural areas that I glimpsed outside Chengdu this past weekend. Many of my newly met Chinese colleagues and associates have observed that the gap between rich and poor in China is greater than many in the West realize, especially those that never venture beyond the popular eastern cities — like Shanghai and Shenzhen. Judging from what I saw, I’m inclined to agree.

But I think it is also a generational issue as well; like Zhike and others pointed out to me, young people from rural villages are flocking to cities, hearing stories of the new wealth to be had; once they glimpse a “better” way of life, they head for the smoke.

I put the word “better” in quotes, because I suppose it’s a matter of perspective, in this case, a generational perspective. This past weekend, while hiking up the 1,200-meter Qingcheng Shan, a holy Taoist mountain some 65 kilometers west of Chengdu, I took us off the beaten path. I have a habit of doing that; chalk it up to a streak of Robert Frost.

The path took us to a small farm, a subsistence farm, really, of one Ye Wen Fu (you can see a few pictures of Ye and his farm in the photo section of the Silicon Road — I think it starts with photo no. 65). He told us that he and his wife had been living off the side of the mountain for nearly 50 years. At one point the government had tried to get him and his family to go down to the city, and he did for awhile, but he couldn’t meet his family’s needs, so he returned to the mountain.

While by the standards of any developed nation, East or West, Ye is literally dirt poor, all his basic needs are met, and he seems happy and content with his lifestyle as it is. It’s hard to argue with that, and I wouldn’t presume too. I wouldn’t choose his life, but I understand the attraction to its simple and uncomplicated nature. There doesn’t seem to be anything in the “New China” that interests him, even though he came down off the mountain to see it.

I have no idea how many people there are like Ye in China; I haven’t been here nearly long enough, and won’t presume to draw any broad conclusions. But I can’t help but think about him when I hear people who reside solidly in the New China talk about how China must bring the entire population up to speed in the modern world. People often talk about how 50 percent of the population doesn’t have any sort of reliable means of communication — no land telephone line, no mobile phone, no satellite phone — and how that is a market opportunity that needs to be developed, not only for their own sake, but for those who are rapidly becoming attached to disposable income.

Electronic News Travels to ChinaBut I’m guessing that Ye isn’t the only simple rural farmer out there who might not be interested in the Brave New World. Many of their children are, to be sure, but people like Ye are not. Just how much of a bump, if any, this will be on the road to the modernization of rural China remains to be seen.

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 11/2/2005 12:47:16 PM, W. Wong said:

Hi Jeff: I was born in HK and left there to live in thhe US when I was 10. Now I’m 50, I have yet return or have any desire to visit China. Your article and pictures have really touched my inner soul, so that I should plan a visit to my own country and see the changes that have developed since I left. Thanks

at 11/2/2005 1:28:26 PM, TerryP in VA said: Can you get Chinese food without MSG there?

at 11/3/2005 7:40:53 AM, AndyB said: I look forward to seeing pictures and hearing more about Shenzhen. I spent about a week there visiting companies and was awestruck by the growth and size according to some locals (that was 6 years ago). I was amazed by the unmarked dirt piles blocking freeway lanes and dodging bicycle rickshaws as well (4-way unmarked intersections on the freeway were interesting as well). Thanks for the very interesting personal experiences.

at 11/3/2005 10:00:15 PM, Jeff Chappell said: Yes, you can order food without MSG; you just have to ask (I recommend the Lonley Planet Mandarin phrasebook). And the food is so awesome here. … You can also find espresso; it’s not the espresso you’d find in say, Rome or Paris, but it’s often comparable to what you can get in the U.S., much to my delight. Starbucks is already here, of course. But then some of the tea over here will wire you right up 🙂 and it is about 1,000x better than any tea in Europe.

at 11/3/2005 10:03:59 PM, Jeff Chappell said:

Thank you Mr./Ms. Wong, for your kind words. And I think you would find that your childhood home has indeed dramatically changed …

at 11/3/2005 10:08:12 PM, Jeff Chappell said: AndyB, what you describe is typical of many a Chinese city. In that respect, Shenzhen is Chinese through and through.

at 11/4/2005 12:55:25 PM, BobboMax said:

Hey, I’ve enjoyed the blog- a pleasant mix of humility, openness, observation and that rarity of modern life, good writing.

at 11/7/2005 12:30:52 PM, D Autry said: Hello Jeff, I have thoroughly enjoyed your stories and pictures. We are a small electronics company and will be opening an office in Dan Dong.

Agilent: Old Dog Learns New Tricks in Chengdu

Travelling the Silicon RoadCHENGDU, China – Being in the right place at the right time — a cliché, except perhaps in business, where timing and geography can often mean the difference between success and failure.

Especially for a U.S. technology company looking to take advantage of the booming market here.

So when Palo Alto, Calif.-based Agilent Technologies Inc. announced a joint venture (JV) 10 months ago with a fellow test and measurement instrument maker based here, Chengdu Qianfeng Electronics Ltd. Corp., it raised a few eyebrows in the West. Why form this JV now? After all, Agilent, and before that its progenitor company Hewlett-Packard Co., have a long history in China.

HP was one of the first U.S. tech companies courted by China; in 1977 Dave Packard was one of a select group of non-governmental Americans invited to visit China. He returned in 1979 when joint venture talks began. The Hewlett-Packard Representative Office in China began selling HP products in the country in 1981; then China Hewlett-Packard came along in 1985, becoming the first Sino/U.S. high tech JV.

And why choose land-locked Chengdu, in the Sichuan province of central China? Why not a more obvious place, say Shanghai or Beijing?

The decision to form a JV with an indigenous test and measurement company all came down to speed and access to the local Chinese market, according to Agilent and HP veteran Max Yang. Yang is VP and GM of the JV, dubbed, Agilent-Qianfeng Electronic Technologies (Chengdu) Co.; he’s been with Agilent/HP since 1981. Born in mainland China and raised in Taiwan, he lived and worked in the United States for more than 20 years before returning to Asia to work for China Hewlett-Packard.

While the nearly $2.5 billion Chinese electronics industry and consequently the whole supply chain is booming, the primary value that China brings to the global industry is low cost manufacturing. Thus one of the principal demands of the Chinese electronics manufacturer – as well as those in other parts of Asia – and consequently one of the principal drivers of the test and measurement market here, has been cost effectiveness.

“Low-cost solutions are critical to the Chinese market; that is what they [are] needed locally,” Yang observed. “The areas we’re focused on here are things like inspection and maintenance, education and bench repair.” But Agilent historically has concentrated more on lucrative high-end markets in test and measurement, such as high-speed oscilloscopes.

Yang is quick to note that low cost doesn’t mean low quality, an issue that Agilent is obviously sensitive too, setting up manufacturing in China. “In my mind, the quality has to be of Agilent standard or even better,” he said. Low quality means a high failure rate, and that means rising manufacturing costs – “the customer has to see our Chinese product as good or better.”

So all these things indicate the necessity to establish a local Chinese production facility, one that could serve the needs of the local Chinese market, but other parts of Asia as well, such as South Korean and Taiwan.

But building from scratch would take two to three years, and Agilent, once it decided it needed local production capacity, wanted to act quickly. Indeed, in terms of the rapidly developing electronics market here – the forecast annual growth rate for China’s electronics industry is around 16 percent for the next three years — two or three years is an epochal period of time.

So going the JV route was an obvious choice. “The whole purpose was speed,” Yang said. As for its choice of partner and location, one of the principal drivers in the Chinese domestic electronics market is telecoms and RF applications, and that’s not likely to change soon. This is a country where half of the 1.3 billion population doesn’t have access to a phone, either land-line or mobile, and the central government plans to continue rapidly expanding the country’s communications infrastructure.

Qianfeng, a privately owned Chinese test and measurement company that has been around for nearly as long as Agilent/HP, happens to make communications test equipment. After researching the market players in China, there were two or three good candidates for a JV partner, but Qianfeng was an obvious choice, Yang said.

The fact that it is not a state-owned company was an important aspect. “Our experience is, it’s very hard to cooperate with state-owned companies,” he explained. There is a level of bureaucracy involved in state-owned corporations that one doesn’t find in privately owned companies, which can get things done more quickly and efficiently.

Chengdu: A Well-Kept High-Tech Secret

As for Chengdu, why put your electronics manufacturing business in a land-locked city in central China? This capital of Sichuan province is more likely to evoke thoughts of wonderfully spice cuisine in the Western visitor’s mind, rather than the high-tech lust inspired by the gleaming new towers of Shanghai, or the blossoming special economic zone of Shenzhen.

For one thing, it is one of many other growing technology/manufacturing centers outside of Shanghai, like Xiamen or Xi’an. Much like Portland, Ore., or Austin have become alternatives in the United States to Silicon Valley, places like Chengdu offer many of the benefits without some of the problems of Shanghai.

In the past the Chinese central government, with a nod to national defense, put key technology areas well inland, where they could not be easily attacked; Chengdu was home at one time to China’s national aerospace efforts; much of the electronics industry here today can be traced to those roots.

As for the Agilent JV, Qianfeng has substantial facilities in Chengdu, as well as a pretty good RF team, Yang explained.

“As a side benefit, it’s a very cost effective location,” Yang said, noting that housing costs are about 30 percent of what they are in Beijing and Shanghai. And because there are fewer large multinational firms here, it is easier to retain talent.

A lot of that talent comes out of the University of Electronic Science and Technology of China (UESTC), which traces its roots back to the creation of the Chengdu Institute of Radio Engineering in 1956, the first electrical engineering college in China. Today a multidisciplinary university and still one of the top electrical engineering schools in China, it graduates several thousand EE undergrads a year, a thousand or more graduate students, and a few hundred PhDs.

In the past, graduates of UESTC often had to go elsewhere in China to find jobs. “Our experience in the last few months has been that we’ve attracted a lot of good engineers, experienced engineers, because they want to come home,” Yang noted. “I don’t think we have a concern … about sourcing the talent locally.”

Employee retention isn’t a big issue either, as there aren’t many multinational companies competing for engineering talent here. As Agilent-Qianfeng closes in on its first year of operation it currently employs nearly 170 employees – some 60 dedicated to R&D – and the attrition rate has been near zero for the company, Yang said.

But there are other high-tech concerns to be found in Chengdu though; Qianfeng is hardly isolated. There is a lot of semiconductor packaging business in Chengdu. In fact Intel Corp. recently built a huge packaging factory here, and Chinese foundry Semiconductor Manufacturing International Co. plans to build a packaging foundry here, as well. Another U.S. tech company with an early presence in China, Motorola Inc., has facilities in the city.

There are drawbacks to being located in this inland city of some 4.1 million people. Far from a major port, the city does have a river running through it, but it doesn’t serve as an artery for shipping traffic.

For an electronics company that sells a lot of low-cost consumer electronics that depends on high-volume sales, the transportation infrastructure would be an issue, Yang conceded. But for an instrument maker like Agilent-Qianfeng, it’s not a significant issue. In fact, being a smaller, inland city, the English language skills of the workforce are not what one would find in Shanghai or Beijing, he noted, and being a multinational in China, having a multilingual workforce is essential.

Like many Chinese cities, the government here is working hard to court high-tech industry. Yang came back to Asia in 1985 to serve as HP’s controller and administration manager, responsible for the negotiation and formation of China Hewlett-Packard.

Electronic News Travels to China“The difference between now and then is unbelievable,” Yang said. “The difference in attitude is day and night.” Twenty years ago, getting a business license meant jumping through a series of bureaucratic government hoops, a process that took more than a year and half, he recalled. Agilent and Qianfeng inked their agreement in November of last year; they had their business license by the end of January, when they officially launched the joint venture.

By the time the company will be celebrating its year anniversary at the end of next January, it should be readying the launch of its first test and measurement instrument specifically geared for the Chinese market.

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.