It has been more than a year since Lenovo, then China?s third biggest computer brand, took over IBM?s PC division for US$1.5 billion, thus catapulting itself into first place in the personal computer market. But as a comparatively quieter 2005 drew to a close, the domestic technology sector hit the headlines once again with news that China had surpassed the United States as the high-tech exporter to the world.
The event had been building all year as if something was about to pop. Huawei Technologies? 2004 revenues rose 113% on 2003 to reach US$5.6 billion, of which US$2.3 billion was in overseas sales. Its local rival in Shenzhen, ZTE Corporation, signed a deal with Cisco Systems to exploit opportunities in data technologies in the Asia Pacific region and Africa.
It was left to the Organization of Economic Cooperation and Development to spell out what all this meant: China?s exports of information and communication technology were up 46% in 2004 to US$180 billion, surpassing American exports of US$149 billion, which had themselves grown a healthy 12%. China?s total trade in high-tech goods was up to US$329 billion in 2004 from US$35 billion in 1996.
Numbers can be deceiving, though. While high-tech exports have increased, it?s not all DVD and MP3 players: the presence of budget-buy washing machines and air conditioners cannot be ignored. ?These figures also include ?white goods? and not only high-end electronics,? said Stephen Pong, executive director of the America-Hong Kong Electronics Association (AHKEA). ?And 78% to 80% of the high-tech goods exported are only assembled in China from foreign components.?
This ever-growing mainland assembly market was confirmed by researchers at McKinsey, who found that world-class Taiwan high-tech manufacturers, including Taiwan Semiconductor Manufacturing, motherboard producer Asustek Computer, and PC makers Acer and Quanta Computer, had shifted manufacturing to the mainland to cut costs.
As Chinese tariffs on high-tech products fall, Taiwan companies can expect an increase in component exports to China, the McKinsey study noted. Other international companies are also getting in on the act, with Dell planning to increase the number of PCs it produces in China and exports to other countries in Asia.
But the AHKEA?s Pong warned that the sheer volume of the trade put China in a position of being able to dictate new technical norms. This could see the country dominate global standards in coming years, or at least allow it to become an arbiter in disputes between rival electronic technical standards in Europe and America.
Rob Mulligan, vice president of the American Electronics Association (AeA), stressed the growing high-tech interdependence between China and the US. ?We are not going to stop the economic growth of China ? nor should we want to,? he said. ?The US stands to gain tremendously as both investment opportunities and exports to a rapidly growing Chinese consumer market increase.?
This is not to say Mulligan is unconcerned about the expanding trade deficit with the US, currency controls, intellectual property infringement and ?inadequate? WTO compliance. But he believes the Chinese government will ?see the legitimacy of these concerns? and act on them.
Gains for America
According to Mulligan?s own AeA study, China was the sixth largest destination for US high-tech exports in 2004, climbing to third place if Hong Kong is included. The AeA study also found that US high-tech exports to China nearly tripled from US$3 billion in 1998 to US$8.7 billion in 2004 and that China exports to America were up more than 400% from US$16.2 billion to US$68.2 billion.
In 2004, American technology investment represented US$1.8 billion of the US$15.4 billion total US investment in China, a 34% rise over 2003. Meanwhile, Chinese investment in America is also rapidly growing from much lower base numbers, increasing 59% between 2003 and 2004 to US$490 million.
However, the blockage of dual-use technology from the West because of its military applications remains a drag on Chinese high-tech development. ?Without this trade barrier, China?s information technology industry would have grown much faster,? said Li Hui, head of China research at CLSA. With China?s current military build up, its frosty relations with Japan and Taiwan, these restraints on trade are unlikely to desist, despite recent calls in Europe for a removal of the arms embargo.
?The EU is the foolish moth flying closer to the flame,? warned Richard Fisher, vice president of the International Assessment and Strategy Center in Washington. ?China would start producing and exporting many new very high-tech weapon systems, increasing its ability to challenge the US and its allies.?
In the short term, though, the most fervent response to China?s emergence as the world?s leading tech exporter is likely to come from the currency lobbyists. The exports themselves may be low profit margin white goods or assembled from components manufactured overseas, but they all contribute to a trade surplus with the West that is widely seen to be the product of an undervalued yuan.
To what extent Beijing will listen is another matter. In the tech sector alone, it has other priorities which may take precedence, notably the development of homegrown semi-conductor and microprocessor industries. The fruits of these labors may not be ripe for some years, but it all points to a playing field more and more tipped against non-China players.