Can China build its own Silicon Valley?

Beijing's recipe for technological success

Chinese workers construct personal computers at a Lenovo factory in Beijing. Lenovo, which recently purchased IBM's PC business, is one of the big tech firms congregated in the Zhongguancun district.

“Zhongguancun” doesn’t roll off the Western tongue easily, but it will soon be an address that technology investors must learn. For 25 years, locales from Singapore to the south of France have tried to create their own Silicon Valleys, but the original’s remarkable spirit has never been duplicated. China, however, is putting the finishing touches on its own Silicon Valley —  and this time, they may have found the recipe. 

The Zhongguancun district is in the dusty northwest corner of Beijing not far from the old Chinese emperors’ Summer Palace. It is already populated by thousands of high-tech companies —  local firms large and small, as well as international outposts of companies ranging from Microsoft and Sun to Siemens and NEC. But now, in the heart of Zhongguancun, sleek new buildings are rising around prestigious Tsinghua University, creating what will be a world-class technology incubator.

In Beijing last month I met with Meng Mei, a Tsinghua University professor and the managing director of the Tsinghua Science Park. As we stood at a tenth-floor window that looked out over hundreds of acres under development, Meng explained that the Science Park facilities weren’t just for research. Tsinghua is building an entire infrastructure of business support, from venture capital to legal services to property management. There are even support groups for entrepreneurs.

“We need a culture,” says Meng, “that gives small companies the confidence to succeed.”

That, of course, is part of Silicon Valley’s secret sauce — an entrepreneurial infrastructure that can take a company from napkin doodle to business cards and a health plan in a week. 

The other ingredient is a strong academic institution. Silicon Valley was born at Stanford and some of its first companies were launched in an industrial park that Stanford built in the early 1950s. Tsinghua University is arguably China’s single most prestigious school: out of the 7 million Chinese students who qualify for college each year, only two thousand are admitted to Tsinghua. And while Tsinghua is best-known for science and engineering, like Stanford it also offers a top-drawer business school. And, just as does Stanford, Tsinghua not only allows but encourages its professors and students to start companies.

Unlike Silicon Valley, however, Tsinghua is starting with another strong advantage: “sea turtles.” That’s the local nickname for the native-born Chinese who receive educations in the United States and return to start companies in China. Ahmad Bahai, chief technologist for National Semiconductor and also a professor at Stanford and Berkeley, says: “Recently I’ve had some very good Chinese students whom I offer jobs at National. But instead they want to return home.”

One reason is that it’s much cheaper to start a company in China than in Silicon Valley. The classic sea-turtle is Charles Zhang, who graduated from MIT in 1994 and returned to China to launch Sohu.com with a few hundred thousand dollars; the Internet portal is now worth half a billion dollars. I met one sea-turtle at last month’s Asian Technology Roundtable in Beijing who explained his departure from Silicon Valley very simply: “Chinese engineers work harder for less.”

At this point, skeptics may recall that similar fears about a new global competitor rose in the 1980s, when it appeared that Japan might gain an insurmountable technology lead. Japan built plenty of science parks and even imported Americans to teach Silicon Valley ways. The American press issued grave warnings about the future of the U.S. technology lead, but in the end Japan never became a global technology innovator. So what’s different about this new Chinese initiative?

The first difference, according to Joe Schoendorf, a long-time Silicon Valley venture capitalist, is simple: “The Chinese are born entrepreneurs.” Even in the 1980s, when private enterprise was only tentatively sanctioned, the entrepreneurial spirit was everywhere. Although it wasn’t clear what was permissible, roadside vendors appeared in droves, opening tiny market stalls right under the rifles of the Red Guard. By now, Chinese entrepreneurship is unstoppable. Last month I was walking beside a big apartment building in Beijing, idly looking at the iron grills installed over the ground floor window-wells. One window-well, however, had been completely boarded up, with only a small square opening. When I peered in, a weathered Chinese face looked back at me, in front of a tiny shelf of soda bottles, matches and soap. The proprietor had turned a three by five foot window-well into her own little market.

Another striking difference between Japan and China is the Chinese success in learning English. One of the eternal mysteries of Japan is why, in a country where the post-war constitution mandates English study, so few speak it well without overseas study. By contrast, lots of Chinese who have never left the mainland speak excellent English. In fact, it’s a national obsession. During my last visit to China, the second annual English Speaker competition was just ending: a nationwide event in which 6 million students compete to be finalists on a national primetime television special to choose the best English speaker in China. (Hey, we’ve got "American Idol.") But the drive for English is not just to chat with Americans — it’s because English is now the worldwide language of business.

Additionally, the Chinese track record for innovation dwarfs that of Japan. As Robert Templeton’s book "The Genius of China" sets out in detail, the country was centuries ahead of Europe in inventions ranging from the wheelbarrow and cast iron to matches, paper and the rocket. Chinese physicists developed a nuclear reactor in 1958, an atomic bomb in 1964, a long-range missile in 1966, and in 1970 orbited a satellite. Between 1991 and 2001, Chinese expenditures on research and development tripled, and that number continues to climb. The biggest investments are being made in such key areas such as advanced chip design, biotechnology and nanotechnology.

Finally, China brings an element to the table that few other nations can match: a sufficiently large domestic market such that it can actually create its own standards for technology — and make them stick. Traditionally, Europe, Japan and the United States have always created technology standards — how television or cell phone signals are broadcast, for example, or the formats for CDs and DVDs. But China is now developing its own standards for technologies such as digitized video and next-generation cell phones. Foreign manufacturers will have to adopt those standards if they wish to sell to the Chinese. Sooner or later, one of those home-grown standards may go international, giving Chinese companies even more power. 

It’s hard to spend much time among the enthusiastic entrepreneurs at Zhongguancun and Tsinghua without worrying about how the U.S. will measure up in years to come.  While the number of U.S. science and engineering graduates declines, year after year, China’s numbers are surging. China already graduates more English-speaking electrical engineers than does the U.S. Last month the U.S. came in 17^th in an annual international collegiate programming contest; a team from a Shanghai university came in first. And U.S. middle school math and science scores continue to lag behind those of other developed nations — even as school boards debate how to teach evolution.

Optimists and flag-wavers can offer counter-arguments to those worrisome statistics, ranging from the pluralistic nature of American education to the extreme emphasis that emerging nations put on events like international programming contests. But the fact remains that this country’s blithe assumption that it will always be the world’s primary technologic innovator is about to encounter a severe challenge from China. Only twenty years ago, Asians came to the United States to see the future. Now, to see the future of technologies like broadband or wireless, one must visit Asia. It’s hard not to wonder what will be next. 

© 2006 MSNBC Interactive 

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