Last week I posted about Android in China. I explained that I’m interested in mobile technology, and when that coincides with topics about China business, I get really excited. So… along these lines, I read articles in Engadget and GSMArena about HTC’s decision to sell phones in China under its own brand name.

Then I read this post in WSJ China Realtime Reports about this news article..

The article has several areas of ambiguity which should have been made more clear, so that readers can understand the significance of this business development. Just a sample…

Luckily for the Taiwanese company, Apple has been slow to launch its hot new products here, and has a relatively small presence with a 7.1% share of smartphone sales in the second quarter, according to Analysys International. Only a non-Wi-Fi version of the iPhone 3GS is officially available in China so far, and Apple hasn’t yet indicated when it might release a version with Wi-Fi or the iPhone 4… If HTC follows through on its promise to make an aggressive branding push, it could pose a bigger threat for Apple, analysts say. CK Cheng, an analyst at CLSA, said HTC is a key beneficiary of China’s carriers looking to offer handsets that can compete with the iPhone.

This overlooks that fact that iPhone has been a popular seller in China’s grey markets since it came out. As for posing a bigger threat to Apple because it is a “beneficiary of China’s carriers looking to offer handsets that can compete with the iPhone”, I would say this is true. As it is true for Samsung, Motorola, Lenovo, Huawei, Nokia, LG, and Sony. And some others probably.

However, my main question is…why does HTC now need to promote the HTC brand instead of its subsidiary brand Dopod, which has been in China for many years? Today HTC phones in China are grey-market smartphones with wifi. I presume that in the future, HTC will still make their branded phones in China (maybe in the Wuxi Dopod factory). But will the phones be any different? If not, then why re-brand?

I think of negative comparisons between HTC and Acer in 2000. Like HTC, Acer, makes technology and provides manufacturing services for other brand names, as well as promote their own brand. In 2001, Acer created BenQ, which sold computers and systems in China. I believe it was supposed to be the “China channel” for Acer. However, when I went into computer markets in Shanghai in 2003, I would see systems and components from both Acer and BenQ. Acer also had AOpen, which was supposed to provide components, but actually also made “white boxes”. In America, Acer bought the brands (and American manufacturing facilities) Gateway, Packard Bell, and eMachines. BenQ, meanwhile, bought Siemens mobile and produces mobile phones…as does Acer. Then Acer got rid of its remaining shares of BenQ. I’m pretty sure that today, Qisida (BenQ), Winstrom (Acer) and AUO (Acer) all make LCD panels and displays. Talk about sibling rivalry!

I studied Marketing in MBA school, but I don’t believe I’m a branding genius. On the other hand, I know obvious strategic level brand idiocy when I see it. I hope HTC does not make similar mistakes as Acer with big, seemingly meaningless brand positioning movements. On the other hand, maybe HTC plans to eliminate Dopod brand, so that it has one unified brand world-wide. If this is the strategy, I think it does make some sense.

(full disclosure: I used to work for Acer in the United States. I believe it is there that I developed an unhealthy prejudice against Taiwanese companies).

This is going to seem ridiculous to my readers (all 6 of the non-robot readers). Today I have read three minor news articles which give me hope. These news articles are not related to each other and not really related to business. But for some reason, these give me hope that China is progressing in the right direction.

1. Chongqing passes a law banning adults from snooping on kid’s computers and phones (h/t Shanghaiist).

2. China is exporting a domestically produced graphic novel (h/t Jing Daily)

3. Ministry of Public Security bans public shaming of prostitutes (again h/t Shanghaiist)

BTW, of point #1 and #3 above, they will probably not be enforced, and they merely expand on existing laws.

These items have nothing to do with each other. As I said above, this is ridiculous. But to me, these are all evidence of China’s growing civil society. Exporting original artistic content. Protecting the privacy rights of not just the rich, but those who do not have power. Each of these news items are astonishing to me because it just does not usually happen. China making original comics of quality? China caring about privacy of children? China moving against the supreme hypocrisy of humiliating prostitutes, who universally pay rent to the police who bust them in order to appease visiting superiors?

What’s next? PSB actually arresting corrupt township officials who appropriate land on behalf of developers? China enforcing labor laws and EHS standards equally on State Owned and Privately Owned Enterprises? Taiwanese companies investing in the development and growth of their human capital?…wait… now we are getting into the realm of science fiction.

China Law Blog (aka Best “Chinese Business Blog”) offered 3 posts recently about Chinese companies doing business in America: “Ten Reasons Chinese Companies Fail In The United States“, Why United States Lawsuits Against Chinese Companies Are Trending Up. Just Follow The Money, Why China Companies Are A Litigation Mark (As In Sucker), Part II. To summarize my take-aways, Dan basically is saying that Chinese companies in the US face problems because:

• Chinese companies purchase sub-standard consultation services on the cheap, which leads them to make many bad decisions.
• Chinese companies often do everything cheaply- including the hiring of employees – and with a short-term mindset. (More on this point, I recommend Bill Dodson’s article, “China’s Casino Economy“)
• Chinese companies are not marketing oriented, and hence don’t develop brands, don’t do good industrial design, don’t listen to customers, etc.
• Chinese companies are being sued more often, in part because they don’t know how to defend themselves in America (because of reasons above) and in part because they now have more business activity in America.

What interests me here is the implications for future business practices of Chinese companies.

I wrote before that I’m worried about the End of the World… about the coming trade war…about whether China will be open for business for foreigners. The above points give me hope. Not because it shows that Chinese companies will need people like me in the future (actually they won’t… they’ll need people like Dan at China Law Blog), but because this shows how the American legal system will help change Chinese business practices for the better.

Several people have commented that there will be two Internets in the future; the Internet and China’s Internet. The same appears to go for everything else; there will be a Market, and a China Market…and the two will never meet. Baidu is fine playing just in China. Just as Tencent. Just as Lenovo. Just as Haier.

Actually…no. Baidu maybe will stay in China. Obviously Haier cannot. Lenovo cannot. The Chinese electronics, automotive, white-box, and pharmaceutical industries cannot just stay in China. They, like their Western counterparts, must expand, or eventually die. By expanding, they will need to play by the rules of foreign law codes. I hypothesize that they will probably also need to internalize international business norms into their own China business practices because their China business will impact their expansion.

Past “sins” that Chinese companies commit in China may not open the company to risk with Chinese courts. But when the company steps outside of China, they are vulnerable for their past sins. The more Chinese companies realize this, the more they will work to correct past mistakes. An example that comes to mind is about China exporting their high-speed train technologies abroad. When Chinese technology companies get serious about bidding on international transportation projects, they will be challenged by foreign competitors, who own lots of international patent rights. This did not happen so much in the past in part because a) Chinese companies were not going abroad, and b) multi-nationals did not want to get into fights that could harm their activities in China’s “emerging market”.

Now, the Western companies are starting to see more benefit in litigation… in the United States. Therefore, I predict that as the companies expands, they will (in my theory) need to negotiate with Western companies in order to avoid litigation risk. In this way, Western companies may become gatekeepers to Western markets.

The post is about a China Daily article about how boat-ownership can be considered a business expense. Stan’s common-sense point is basically how stupid and hypocritical can people be to think that yacht ownership is anything other than an ostentatious display of wealth. Furthermore, how can people have the balls to claim a boat as a business expense.

I used to spend every weekend at a Western built-and-managed marina near Suzhou because my previous company used the facilities to host corporate off-sites for customers. At the marina, we got to see the local richy-rich guys drive up in Porsche SUVs, wearing popped-collars, a purse on one arm, and really nice eye-candy on the other arm. They would spend a few hours on their boats in the harbor. However, they often would not take the boats out, because the Marina never bothered to properly dredge the channel out to the lake (this is related to a large problem with lack of private waterway rules and regulations in China). So they would sit around in the hot hot sun, next to the humid lake, doing…nothing.

I completely understand Stan’s feelings about the super-rich boat owners. Now, to play Devil’s advocate:
1. What else are rich people going to spend money on? Another mistress? A Ferrari for the children? Another apartment to buy and leave empty until ready to flip? My point is that buying a boat at least produces jobs and lays the groundwork for recreational boating in China. As more Chinese achieve “middle class” status (assuming that really happens), this will help boating become more accessible to “the masses”. I think that there are far worse things for “The Rich” to do than buy a boat. (i.e. more golf courses)

2. Hot women on boats are cool. I would do this (if I was rich, and not married to a hot woman already).

Suzhou Covner's on a boat

Beginning with its first product, OICQ (the former incarnation of Tencent QQ), which copied ICQ, Tencent has never been able to bury its “copying gene.” First it brought in QQ Show and a line of value-added products from Korea, then it imitated Sina by building a portal website. In online gaming, it copied Ourgame (联众) by developing a platform, and then like Shanda brought in international players, started in-house development (like Netease). Then there was the C2C e-commerce site Paipai, and the third-party payment service TenPay (财付通). Without exception, these were “shanzhai” products, which lies at the root of the hatred for Tencent.

I agree with the sentiment. However, all of this were first copied from US high-tech companies. So, to me, Tencent’s competitors attacking Tencent because Tencent “copies” earlier entrants is sort of hypocritical.

Today I read that China’s middle class will reach 700 million

by 2020, according to Euromonitor. … 700 million out of the estimated 1.45 billion people of 2020 will have an income of roughly between 80,000RMB (11,800USD) to 120,000RMB (17,700USD) a year..

The obvious silliness of this figure is the definition of Middle Class. At the high-end, that’s 10,000 RMB / month. Which means that they are earning between 25% to 50% more than they are paying for rent. Assume ownership, its still only 60-70% more than mortgage payment in Shanghai. I specifically say Shanghai because if someone is making this salary level, chances are they live in a 1st tier city, which has overly inflated living costs. In 10 years (by 2020), I think its a safe bet to assume that there will be significant inflation. So this this middle class income level will be less relevant in the future.

The Shanghaiist post goes on to quote a translation from The Beijing Times:

The reasons for the study of the issue and people’s growing expectations basically come from the rational spirit, peaceful state of mind and conservative psychological condition that middle class status can bring. [...] In the last 10 years, middle class families assets have been increasing because of the rapid rise in housing prices. But the burdens on these families are also growing bigger. Most middle class families have become more and more nervous.

Although the increase of wealth is essential, a peaceful, rational and conservative state of mind is more crucial is to the middle class.

I hate the whole “conservative state of mind” which Chinese media promotes as a fake cultural norm. But the quoted opinion piece is correct. And it is correct not just because “middle class” people have more stressful lives because they have more to lose, but also because, at these income levels, they may actually not be true middle -class vis-a-vis the rising cost of living. Even today, at the middle class salary levels described above, families would not have such a comfortable, secure existence in one of the 1st tier cities.

I have said this before on my blog and several others: if a young person decides to extinguish his light that shine for just a small moment in time in the void which is this universe, then the fault of the tragedy lies with himself. I’m not defending a really stupid company BTW. I just think that if we MUST place blame somewhere (and I don’t think this type of thing needs blame placement), then it must be with the individual who did this to himself.

In the Shanghaiist post, they point out to a quote in Caixin (I don’t know if its an editorial or quoting someone) and another source which say:

But Caixin points out that “this policy has actually sidelined Foxconn’s real need to dramatically improve its out of date business model…” Namely, that using human workers to do everything machines do in the West or Japan, and then running off when there’s cheaper labor to be had is eventually going to leave Foxconn with nowhere else to go. Or as China CSR noted on Twitter, “Foxconn biz model is polar opposite of responsible. Exploit local conditions. get caught. move.”

I would like to ask a question to the person who wrote the content above. If companies used machines to do everything that people could do, then why would they need to manufacture in China? Yes the answer is obvious; they wouldn’t need to manufacture in China. But then what good is it for China if they are NOT here? And who should have the moral right to say that China would be better off without this development?

I have read quite a few other posts that had similar views about Foxconn and their business practices. From what I read, I do believe that they have labor management problems, just like many companies in China. But Foxconn’s business model is not different from most Chinese companies, and really not different at all from other CMS companies. Which is to say – focus on keeping every cost to down, systematize and standardize every possible transaction and operation, and don’t spend money on improving employees.

My bottom line is thus: lets give the big stupid evil company a break. After all, they are not different from all the other companies. They do not have an alternative China manufacturing business model which works. They make products which we all buy (so we share in their guilt). And they are not BP.

[even more unrelated side-point]
BTW, I love this cartoon:

Its on top of the Foxconn building. The sign says “Don’t jump! Jumping will hurt body health”. The man on the left says “We have already done all we can!”. The man on the right replies “Its still a problem of the fengshui.”

Taikongren's self-made Chinese Android graphic!

Not only interested in “China Business”, I am also interested in mobile technology. Before I moved to China, I was a Product Manager in charge of some mobile software solutions for “PDAs”. However, my interest in mobile technology is not an extension of my previous career choices, but rather an expectation of the day when petaflop-speed computing becomes a permanent augmentation of to my central nervous system. Until that day comes, I’ll settle for the coolest greatest smartphone on the market. So, this article in TechCrunch by Mr. Richard Yu about the future Android Market in China is really something for me to get excited about. (h/t Shanghaiist)

Richard’s main points are:
1. There are a lot of mobile internet users in China
2. In spite of the Google-China thang, which should have killed Android in China, Android – [actually OPhone] – is being adopted by the Chinese carriers
3. Chinese carriers will obtain 50% of the mobile app market revenue.
4. Google won’t get revenue from these Android devices (nor will they have a say in “information freedom” matters)
5.Big driver for this are low-cost chips and components, commonly found on the “bootleg” devices.

This is a cool article. However, there are parts which I believe are just wrong. In fact, its strange. I think the gist of the article is correct, but every point in it has a serious error which overlooks complexity of the real market trends.

Lets start out with the facts and figures for mobile internet users. The article says 957 million by 2014. I say “what’s a mobile internet user?” A “mobile internet user” who just checks the weather 3 times a month probably should not be classified as a user. In fact, a good definition could just describe those who subscribe to mobile data plans. If we use this definition, then unless China’s government enforces price controls on the carrier to make mobile internet very cheap, these plans will not become popular.

Next, lets look at the Google-China thing. I wrote about this too many times, but usually from the standpoint of business ethics and media criticism. I will now quote myself, on my first post about the Google issue, back in March:

I believe this has long-term implications to the development and success of Android. If most low-cost Chinese manufactures (and large ones) strip Google search/branding/services from their own version of Android OS, then eventually Google is going to ask, “what’s the point?” That in itself will not endanger Android… the danger is with OS branch fragmentation if Google does not take leadership.

Note that “China” has not tried to stop Gmail and Google’s “productivity apps”. The government is interested in regulating Google products that give access to- or allow publishing of – “mass information.” Which means search, social network, and blog platforms. But without the search and social networking “apps”, there is no profit for Google in Android.

Mr. Yu says:

Ophone OS from state-owned China Mobile. With the help of Lenovo, China’s tech darling, Ophone devices are moving full steam ahead with more Chinese integrated services like an app store, where China Mobile takes 50% of sales revenue.

I say… Ophone is not Android if Google is not making money on it. OK. Better to say… Ophone is not Android unless it gets updated along with Android. Same thing really. UNLESS Ophone is just a skin, like HTC’s Sense UI and Samsung’s Touchwiz. If its a skin, then it will be easy to update Ophone with new versions of the software. If its a real fork in the OS, then the innovations which Google creates will not be included into Ophone. Then we have market fragmentation. And we have apps for Android more and more incompatible with Ophone (and vice-versa).

Another thing… Ophone apps marketplace will not take off without strong intellectual property protections. We are talking about China now. In fact, I’m pretty sure that even if the carriers enact copywrite protection for their app stores, Chinese consumers will bring their Ophone’s to the shop inorder to install hacked copies of Android.

Richard goes on to give these figures:

Cost of an iPhone 4 in China: $1,285
- Cost of a Bootleg iPhone 4 “HiPhone”: $100
- Cost of a Bootleg Nokia E71 with internet connectivity: $14

What will crack this nut wide open is Mediatek’s new Android chipset, which is slated to hit the market later this year. As Moore’s law applies itself to mobile devices, and sub-$100 Chinese-flavored Android 2.2+ phones are released, the over-$600 gray market iPhone will only occupy a niche of the market in China.

Mnnnnnn no. I have never seen a “Bootleg” iPhone4 or Nokia E71. There are many Shanzhai versions of these. Some of the main differences are:
a) Shanzhai iPhone and Nokia phones don’t really run the smartphone OS. They may look close to the real thing. But functionally vastly different.
b) Shanzhai phones are almost always technically far inferior. The iPhone (and most Android phones) uses capacitive screen technology, which helps gives the phone that “smooth” fluid feel. Shanzhai touchscreen phones use resistive touchscreen technology. Hence, you can tell the difference by simply pushing on the screen. If the screen “gives”, it cannot be hard glass capacitive.

Truth is, Chinese brands of phones can be cheaper. But to make an Android phone that will be attractive for Chinese to actually use will cost much more for the Chinese manufacturers than it does for, say, Samsung. Big manufacturers like Samsung can attain huge economies of scale, and have great, established supplier networks. A cheap Shanzhai Android phone will be not be any more attractive to Chinese people than the Shanzhai phones of today. It will probably be less attractive because Android has much greater hardware requirements than the Shanzhai phone OS’s that are in use today. Maybe there will be a “low-end” fork of Ophone. But again, that’s not Android.

(side point: The article says that MTK provides 85% of the chipsets on Chinese phones. I don’t believe that either. From iSupply: “Foreign handset makers had 56 percent of the China market a last year with Nokia leading the market, with a 37 percent market share.” ¹ )

All this being, I do believe that Android phones, and the Ophone spin-off, will be very popular platforms for Chinese manufacturers, simply because they are good systems, and they are free to use. No licensing fee and easy to hack. Therefore perfect for Chinese market. This does not guarantee success though. When looking at the future of the smartphone market, in the near term I think the the biggest issues are the following:

1. Will Android / OPhone still be attractive without the tight integration to Google? I’m not sure that it will be. I certainly do not want to own a Baidu phone. But that could change depending on what special services Baidu can create for the platform. (hint: as the file system is not locked down, it would be very easy to download music from a Baidu search directly to the phone). Anyway, the OPhone has not really “taken off” yet. No one knows how popular it will be if at all. I have never seen anyone actually using an OPhone, though I have seen many people with HTC (and Dopod) devices. No matter what, grey-market Android phones will continue to gain popularity because those are good phones made by Samsung, HTC, and Motorola, which have Wifi and are cheaper than the regular market counterparts.

2. What will be the reception of Windows Mobile 7, and how will Microsoft price the license? I’m pretty sure Microsoft is going to give away its newest mobile OS, AND Microsoft will throw a lot of money around (pocket change for MS really) to get Chinese developers to make WM7 software. This can have a big impact on the market. Furthermore, Microsoft is experienced in China and will very likely get some government support which will have some influence on the Chinese carriers.

So much for my China Smartphone market analysis. Anyone have other opinions?

Cat Appocolypse!

Although I have “issues”, I feel that I should never take “medicine” for my problems, in part because doing so would reinforce the concept that I am a pre-programed biological robot living in a highly mechanical universe. Some of my friends say “of course you are a robot! We all are! Your often depressed because you don’t want to face reality, but you can still see what’s in front of you!”. Anyway, I prefer to have the illusion that I have free will, and hence, control over my destiny.

Wow. Enough mushy stuff about emotions. What does this have to do with China business anyway? Not much. Well, if the world ends, it ends for me in China too. I feel it would be best for me to see clearly how the world will end, and then see, within that overall disaster, where can I take control over my destiny.

The world will end in the following ways:

• Global warming is going to mess-up our world, and China is going to excellerate this
• We are all on the verge of the Trade War to End all Trade Wars.
• The drive to ever increasing efficiency is going to make human’s irrelevant.
• My existence in China (based on my ability to work and provide services as an expatriate) is threatened by the above.

OK. First of all is Global Warming. Because of the increasing demands of Chinese consumers, Greenhouse gases created in China (and…uh…everywhere else) will doom all chances of stopping global warming. Funny thing is, the more hot it gets, the more people will use air-conditioners (I know I am!) and so the more CO2 created. Because we humans are basically very stupid beings, and the inherent problem of the commons / “prisoner’s dilemma” nature of Global Warming, there is no chance of our governments cooperating to stop the disaster. At worst, the permafrost in the artic circle will melt, causing an exponential increase in CO2. The increased heat will cause the tropics to heat up, but at a certain point it won’t be able to heat up, so Ocean currents will stop, and then wind will stop, and then bad Oxygen eating microbes proliferate, and then we are all screwed. Geoengineering may be able to save us, but in the meantime, I am considering taking control of my destiny by buying land in cool Canada.

So, I have to overcome my character defects to make enough money to buy land in Canada. Not the most difficult of challenges really. However, I make my money by helping companies in China. That seems to be becoming more difficult.

As the GM of GE Jeffry Immelt said, “They won’t let us win!”. More on this here, and here. My favorite quote: “[China] is increasingly putting pressure on developing nations with large natural resources. Resource-rich nations don’t want to be ‘colonized’ by China”. Hmm. But said developing nations are OK about being colonized by the West? My goodness. Mr. Immelt is a schmuck. Of course, this has re-ignited that China-closed-to-Western business theme which I talked about before.

I tend to dismiss this “China closed for business theme. And so does my fellow alumni and “China business blogger” Rich Brubacker, at All Roads Lead to China. Rich points out these stories are often “emotionally charged”, and nowadays are backed by “data” which is really meant to show a particular biased view for political purposes, but only represents a small part of “reality on the ground”. His article really breaks down the main trends, which include: maturing, more competitive China market; effects of the economic downturn; and greed. But the point which really struck me was, “The anecdotes are driving the story.” In other words, the sky is falling for a few companies and industries, and they purposefully trying to make it seem that the sky is falling down on everyone.

I feel better to hear that the sky is not falling down on everyone. Except…maybe it really is. If we back up to the 30,000ft view of the world, we see Global Warming. We also see what may be the end of Capitalism as we know it. Robert Reich wrote (and here linking to Salon article because his blog seems to be blocked) in “The Vanishing American Consumer and the Coming Trade War”:

President Obama has vowed to double U.S. exports within the next five years. That’s because exports are critical for rebooting the American economy. …
….It’s not just that one out of four Americans is unemployed or underemployed (working part-time, overqualified, or at a lower wage than before). More significantly, the Great Recession burst the housing bubble that had let American consumers turn their homes into ATMs. Now the cash machines are closed.

So the administration figures foreign consumers will have to fill the gap.

Problem is, most other economies also relied on American consumers. Remember the trade gap? Americans used to be the world’s biggest and most reliable customers – sucking in high-tech gadgets assembled in China, car parts from Japan, shirts and shoes from Southeast Asia, and precision instruments from Germany….

…As of now China and India are still relying on net exports to fuel their growth. Even if you think their middle classes will eventually become so big and rich they can buy everything these nations will be able to produce, that doesn’t mean they’ll also buy what the rest of the world produces….Meanwhile, the productive capacities of China and India will continue to grow: More workers, more factories, more high-tech equipment, more offices. The buying power of their middle classes will have to expand rapidly just to catch up with what these nations will be able to produce.
…
When the world’s productive capacities exceed the buying power of the world’s consumers, every government wants to increase exports and discourage imports. That spells trade war.

Great. Trade war. My plan to escape Global Warming by moving to Canada is getting more difficult. It gets worse. Thanks to John Stranderfer at the Huffington Post, in his post “Where the Jobs Went“, he put the issue of the trade war into a higher perspective:

Those jobs [which US economy lost ]are no longer needed as almost every sector of our economy has figured out how to provide more and more products while relying on less and less people. Not only do we have the ability to make many times more of everything than we can possibly buy, but each item has more features and costs less than the previous year.

This trend is being amplified by newer companies like Amazon and NetFlix that are able to generate the same amount of revenue as Barnes & Noble and Blockbuster while only requiring a fraction of the number of employees.

These are structural changes that government programs cannot reverse. No amount of tax credits, investment incentives, or retraining programs is going allow companies to be able to remain competitive while employing the same number of people they did in the past. For better or worse, the world has changed and the traditional link has been broken between economic growth and employment growth.

The above reminded me of the Kurt Vonnegut book “Player Piano“¹. In his book, the upper classes of society manages the robots, while the obsolete lower classes lives off welfare. That is until Skynet takes over (which is not in the book, but one can extrapolate).

Basically, Capitalism is coming to the point where its going to start eating itself. At least, as far as the United States is concerned. There is too much production capacity. People are becoming less relevant an input into the production capacity. And producing will generate waste, hastening Global Warming.

On the plus side, I will look at the glass as, maybe not half full, but nonetheless has some drops of water in it. While China scrambles to find export markets for its over-capacity, and Westerners scramble to find more efficiency in their China operations, there will be plenty of opportunities for me. Maybe. I also feel I’m not too old to go and learn robotics.

So, to end this post I will quote lyrics: “Its the end of the world as we know it…and I feel fine”

Dan says:

[according to Forbes article] China’s leadership understands engineering [because] In China, eight of the nine members of the Standing Committee of the Political Bureau, including the Chinese president, Hu Jintao, have engineering degrees…So what? Running a country is running a country and there is no evidence that those who are better able to design a television are any better at running a country than those who are not.

Of course Dan is correct.

Jimmy Carter was (at least until George Bush), indisputably the worst American President since Hoover and he was (I think) the only engineer.

How dare you! Carter didn’t start wars in SE Asia, invade Cuba with irregular troops, etc. Please don’t repeat right-wing BS about a great man (and a not-horrible President)

China’s leadership wants to out-innovate the U.S. China’s political leadership has made technological innovation a leading goal in everything from supercomputers to nanotech. …. Again, so what? The United States’ leadership wants to out-innovate China and it too has made technological innovation a leading goal. …

Yes, but there is no denying that China has more coherent industrial policy, which the United States lacks. Actually, China is not so good at realizing their industrial policy because it seems that it tends to promote older and less competitive technologies in the energy generation and infrastructure sectors and others. But at least China’s stimulus spending goes to Chinese companies in targeted industries…instead of too banks.

China is getting U.S. technology, all of it. In 2008, Sony Corp. closed what was identified as the last television manufacturing plant in the U.S., in Westmoreland, Pa. It shifted work to an assembly plant in Mexico, but the vast majority of TVs’ electronics components are made in Asia. (Dell sources $25 billion annually alone in components from China, for example). This just about cinches it, I guess. If the United States is losing television manufacturing then it must be falling behind on the newest technology.

This, here, is the key issue. Those of us who live in China all know that the education system has problems and does not produce engineers or, just people, who have the ability to innovate themselves out of a cardboard box. We all know that China’s lack of IP protection also hurts innovation. And we all know that a lot of industry has moved out of US to China. But what I do not know is a good analysis of the extent that the technology transfer to China has really helped China get ahead in a broad range of technologies.

Everywhere I go, I see factories with so-called R&D departments. However, the vast majority of this “R&D” is really customization work for the Chinese market. Many companies transfer patents to China. But they usually just transfer old patents in order to get tax breaks. I know in the pharmaceutical industries, there is a lot of R&D work in China. But a great deal of this is just chemical synthesis. Big Pharma transfers to China the grunt-work of R&D, much in the same way software companies transfer code-creation to India. Its not something which will help China get ahead in any technology curve.

So where is the analysis of how much cutting-edge technology is really moving over to China? I’m very curious about this. Just an observation from my personal experience. I have been living and working as a consultant in Suzhou for the last 6 years. Suzhou is one of China’s most advanced “showcase” industrial zones. And in all the time I have been here, I have never seen a company which performs cutting edge research, or any real development work other than China-market related development and customization.