Report From China: Friendship, Peace, Cooperation, Development

In the heart of Beijing this week, it's hard to escape Africa. Leaders of 48 African countries descended on China's capital this weekend--as did I--though we're here for quite different missions.The African statesmen--including 35 heads of state and a slew of other dignitaries and their families--arrived for the opening Sunday of the China-Africa summit, an economic development powwow that illustrates how far China's reach across the world stage has extended. That made for tough going from Beijing's modern airport to the hotels downtown, most of which are festooned with red and green banners promoting the conference's rubric of "Friendship, Peace, Cooperation, Development." That's the official line, anyway, though the underlying story seems more complex.

China needs Africa's oil and metals to fuel its runaway economy, and on Saturday President Hu Jintao pledged $5 billion in loans and export credits to African nations and another $5 billion to encourage Chinese development there. But Africans are worried about selling raw materials and buying back Chinese finished goods, and panelists at the summit on TV called it the "C-word"--that's colonialism.

When it comes to IT, China is looking further west, to the United States and its wells of engineering talent and entrepreneurship, but the issues are no less complex. I'm here to try to tease out a better understanding of the IT market in China, both from the perspective of CIOs setting up shop to support operations here, and of technology companies trying to tap into China's rising consumer class and increasingly deep-pocketed businesses. Among the issues I'll be tackling: research and development, intellectual property and patents, the CIO's outlook, China's homegrown tech industry, and industry standards, Chinese style. I'll also look at the battle to attract and retain talent.

Some perspective: China's $2 trillion economy is growing by 10% annually, and it's on track this year for its fourth straight year of double-digit growth. Market researcher IDC estimates China's IT market will reach $35 billion this year. IT spending in all of Asia--excluding Japan but including fast-growing India--is forecast to grow nearly 9% to $116.7 billion this year, IDC says, with China accounting for 41% of growth. Patent applications in China nearly doubled between 2000 and 2004, and China is now the world's fourth-largest filer of patents, according to a United Nations report last month.

"They intend to be No. 1 in making potato chips and computer chips," says Reed Hunt, former FCC chairman in the Clinton administration and now a senior advisor at management consulting firm McKinsey & Co. and author of a recent book on China. "This is the big challenge: American firms have never had an economy rise so rapidly."

Software company Sybase's Chinese business is growing 10% to 15% a year selling databases and middleware for running business apps on mobile devices to multinationals and state-owned banks, oil companies, shipping concerns, and telcos. "As China continues on its path of growth, you can assume many smaller companies will become big IT spenders," says CEO John Chen.

Right now, they're too expensive to sell to. Even the big guys are making Sybase's 400 Chinese sales and engineering staff work for every yuan. IP protection is absent, payoffs abound, and it's tough to get paid on time, says Chen. "I put China on a cash basis," he says. If Sybase doesn't see cash, its customers don't see products.

Other pitfalls await. Beijing is crafting standards in Wi-Fi, digital television, RFID, and software encryption that could give its own IT companies an edge and make it hard for outsiders to compete. China is churning out technically trained graduates, but their English skills are often poor--especially compared with workers in India's booming IT outsourcing market--and workers aren't steeped in a culture of entrepreneurship. And companies are having a hard time attracting valuable Chinese nationals who've spent time in Silicon Valley back to their home country. "There's a layer missing," says Meichun Hsu, director of Hewlett-Packard's research lab in Beijing.

The technology market here is promising, but the road to Beijing--and Shanghai and Shenzhen and Guangzhou--is long. Tune in to my daily blog and podcast series this week, and we'll try to negotiate it together.