Onward and upward

Information and communications technology (ICT) goods, which include mobile phones and digital cameras among other techie toys, have become the mainstay of China’s high-tech revolution.

In 2004, the country became the world’s biggest exporter of ICT products, at US$180 billion worth. Last year the figure was US$211 billion.

However, as with many sectors of the economy, exports mainly highlight the success of foreign companies exploiting the cheap labor and attractive investment incentives offered by the Chinese government. Nokia and Motorola, for example, together dominate over 50% of all domestic mobile phone sales.

Now Beijing is keen on creating its own brands for its own people: a Chinese Cisco, Microsoft and Maytag.

In some areas, they are well on their way. Haier, a producer of "white goods" is already a well known Chinese brand. Its shares on the Shanghai Stock Exchange, have doubled in value in six months, and the company will soon introduce a stock options plan for management.

The personal computer market offers an example of China’s advancement. In the early 1990s, half of all electronics manufacturing comprised televisions and radios, but the government saw computers as an opportunity for growth. By subsidizing domestic firms and requiring foreigners to share technology in return for market access, PCs and their parts accounted for 32% of electronics production by 2000.

In 2004, China produced US$81 billion-worth of computer hardware, more than any other country. Home-grown superstar Lenovo is the market leader, with 30% of all domestic personal computer sales.

Competing regions

The Pearl River Delta, the first place to experience an electronics industry boom, remains a focal point of activity today. However, operations in the Yangtze River Delta (YRD) are newer and have a slight technological advantage over those in Guangdong.

Intel, TSMC and equipment provider Applied Materials have all established operations in Shanghai. Suzhou, now the world’s largest laptop-producing city, hosts production centers for Samsung and Fairchild.

But, in line with government efforts, there is some activity inland too. Infineon has a design center in Xi’an and production bases in the YRD. Philips began operating a plant in northeastern Jilin in 2004, while Intel set up a US$375 million facility in the western city of Chengdu in 2005.

The usual investment incentives of cheap land and tax breaks are attracting these companies, but their decisions are also influenced by a growing pool of low-cost, well-educated technical workers.

Low margins

Fierce competition in the Chinese domestic market caused protracted deflation during the late 1990s and early 21st century.

The prices of electronic appliances here are among the lowest in the world. The profit margin of DVD players for sale in Guangdong dropped to about US$1 per machine in 2004. More than 30 suppliers of DVD players closed down in the first few months of that year.

While struggling amid cutthroat domestic competition, Chinese companies have expanded abroad. The nation exported US$288.6 billion of electronic information products from January to October 2006, representing 37% of all exports. The 2006 total was expected to reach US$300 billion.

On the world markets, however, Chinese electronic products are still often known more for low prices than for high quality. China is tightening quality control regulations in the hope of improving this image. New standards were set in 2005 to meet EU quality guidelines for all products exported to that region.

China still cannot boast a Sony or a Samsung that is known for quality and reliability but it may only be a matter of time before it can.