China overtakes U.S. as supplier of IT goods


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From the New York Times Online:
BEIJING--After almost a decade of explosive growth in its electronics sector, China has overtaken the United States as the world's biggest supplier of information technology goods, according to a report by the Organization for Economic Cooperation and Development.

Data in the report, to be published on Monday, show that China's exports of information and communication technology--including laptop computers, mobile phones and digital cameras--increased by more than 46 percent to $180 billion in 2004 from a year earlier, easily outstripping for the first time United States exports of $149 billion, which grew 12 percent from 2003.

The figures compiled by the Organization for Economic Cooperation and Development, based in Paris, also reveal that China has come close to matching the United States in the overall value of its trade in information and communications technology products. The value of China's combined exports and imports of such goods soared to $329 billion in 2004 from $35 billion in 1996. Over the same period, the value of American information technology trade expanded at a slower rate, to $375 billion from $230 billion.

To some industry experts, the report is more evidence that China has made progress in its long-term plan to upgrade the capacity of its manufacturing as it strives to become a major economic power.

"It confirms that the Chinese economy is really moving up the value chain from simple manufactured goods like textiles, shoes and plastics to very sophisticated electronics," said Arthur Kobler, a business consultant in Hong Kong and former president of AT&T in China.

The most spectacular demonstration of China's ambition to become a consumer electronics heavyweight came in May this year when Lenovo, the Chinese computer maker, paid $1.75 billion to buy IBM's personal computer unit.

Also, China's efforts to impose its own technology standards across a range of consumer products, including mobile phones, digital photography and wireless networks, are widely interpreted as a strategy to dominate the global market for information technology goods.

Some analysts say they believe that Chinese technology exports would have overtaken the United States much earlier without restrictions applied by Western countries to China on the transfer of so-called dual-use technologies--which can be used for both civilian and military ends--to China after the 1989 Tiananmen crackdown.

"Without this trade barrier, China's information technology industry would have grown much faster," said Li Hui, head of China research for Investment Bank CLSA Asia-Pacific Markets.

The Organization for Economic Cooperation and Development report could also heighten fears among some critics that China's drive to build a powerful information technology and consumer electronics sector could have far-reaching military consequences for the United States.

China's military industry works closely with information technology companies and the government's research and development sector in what some analysts have described as a "digital triangle" that supports the country's rapid military modernization.

"The People's Liberation Army is moving very quickly to adopt practically every information-related aspect of military technology that the U.S. is pursuing at this time," said Rick Fisher, vice president of the International Assessment and Strategy Center in Washington.

In a report to Congress in November, the United States-China Economic and Security Review Commission said the Pentagon had become reliant on an increasingly globalized private sector for some critical military technologies.

"This is taking place as China's position at the center of the global technology supply chain grows, raising the prospect of future U.S. dependency on China for certain items critical to the U.S. defense industry as well as vital to continued economic leadership," the report said.

It is foreigners who have driven much of the growth, with heavy investment from global giants like Intel, Nokia, Motorola, Microsoft and Cisco Systems.

Figures from the Chinese Ministry of Commerce show that companies that had received overseas investment accounted for almost 90 percent of 2004 exports of high technology products.

And foreign companies are increasing their research and development in China in a bid to generate real innovation. "Ten years ago, it was done just to please the Chinese, but now these R&D facilities are integral to their global manufacturing," said Kobler, the consultant.

Leading integrated circuit manufacturers, however, have avoided setting up fabrication facilities in China in order to protect their chip designs and manufacturing technology. This means that China is still heavily dependent on imports of advanced chips it needs to assemble electronic products.

But Li, the CLSA research chief, said, "Most equipment makers are getting close to cutting-edge technology."

Recently, China has unveiled a supercomputer capable of 11 trillion calculations per second, making it among the fastest anywhere. Also, Tsinghua University has produced a microprocessor that matches Intel's Pentium II.

For military analysts like Fisher, the combination of domestic innovation and the spill-over effect from foreign research and development means that China is now poised to make rapid strides in defense technology.

"China is quickly becoming an innovator and, as we know, it has the money to turn those ideas into weapons," he said.
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