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China Expo's
October 2002 Report On People's Republic Since
1972
DONGGUAN, China, October 10, 2002 -- Ten years
ago, this southern Chinese city was little more
than vegetable farms and rice paddies. Today it is
a teeming, smoggy monument to manufacturing. More
than 4 million workers toil in 22,000 factories,
churning out everything from patio chairs to power
tools.
Rows of industrial buildings the size of airplane
hangars stretch on for miles. Uniformed workers
spill out of factory dormitories before dawn,
stopping for a quick bite of porridge before
heading to the assembly lines. Container trucks zip
along modern superhighways to high-tech ports,
where cargo is loaded around the clock onto ships
bound for Los Angeles, Tokyo and Rotterdam.
Poor and isolated 30 years ago, China is emerging
as the world's factory floor. The country's embrace
of capitalism, coupled with an abundance of cheap
labor, massive foreign investment and the collapse
of international trade barriers, has sparked an
explosion of manufacturing. The reverberations are
being felt around the globe.
Shopping for a pair of shoes? Chances are that
nimble Chinese hands sewed them, along with nearly
80% of the footwear purchased in the United States.
That French provincial bedroom set on the showroom
floor? It's probably part of the $4.6 billion in
furniture that China shipped to the United States
last year.
Computers? Factories here in Dongguan, 50 miles
north of Hong Kong, produced 37% of the world's
disk drives and 10% of its computer monitors last
year -- not to mention tens of millions of
scanners, printers and DVD players.
Though many of China's exports are familiar Western
brands, made in factories owned or run by
foreigners, home-grown Chinese enterprises are
making refrigerators, microwave ovens and
high-definition televisions for customers
worldwide.
"They're going to be a force to be reckoned with,"
entrepreneur George Thomas said of the Chinese.
Thomas heads an Illinois company that makes
computer networking equipment. He recently moved
his manufacturing operation to the Chinese city of
Suzhou to take advantage of low wages, tax breaks
and inexpensive supplies.
"They're going to drive standards," he said.
"They're going to drive everything."
China is not the first developing country to become
a center for low-cost production. But the speed and
scale of its emergence set it apart. Until recently
a minor player in the world economy, China now is
the sixth-largest trading nation. Experts predict
that it will rank second by the end of the decade,
ahead of Germany and Japan and behind only the
United States.
"The pace of China's industrial development and
trade expansion is unparalleled in modern economic
history," said Nicholas Lardy, a China expert at
the Brookings Institution in Washington and author
of several books on the Chinese economy. "While
this has led to unprecedented improvements in
Chinese incomes and living standards, it also poses
challenges for other countries."
Despite its spectacular progress in recent years,
China remains an impoverished country: Two-thirds
of its people live on less than $1 a day. Its
industries remain far behind their U.S.
counterparts in technology, innovation, managerial
expertise and marketing know-how.
But international economists say China is advancing
steadily and eventually will compete with U.S.
companies in making complex, high-value products
such as aircraft and semiconductors. Whether this
is to be encouraged or feared is a source of
growing debate.
Some security experts, business leaders and members
of Congress say that an economically powerful China
will become a political and military rival. It is
worrisome, they say, that an authoritarian country
with a history of contentious relations with the
U.S. has become a key source of all kinds of
manufactured goods. If a political upheaval or a
diplomatic dispute interrupted those supplies, the
U.S. economy would suffer.
This vulnerability was underscored recently when a
labor dispute shut West Coast ports, interrupting
the flow of computer parts, Christmas toys and
other products from China.
The skeptics would like to see China's rise slowed
and its access to advanced U.S. technology
limited.
"The economic growth of China is at least as potent
a threat to U.S. security as the actual military
power," said June Teufel Dreyer, a China specialist
at the University of Miami. "Obviously, a strong
economy can field a stronger military."
Advocates of free trade with China, who include
President Bush, contend that economic engagement is
the best way to foster a stable, prosperous China
capable of buying U.S. airplanes, wheat and
pharmaceuticals.
"The key is not to try to hold China back, because
that in the long run is an exercise in futility and
it's a political mistake. It breeds an enormous
amount of resentment," said William Reinsch, a
former top Commerce Department official who is
president of the National Foreign Trade Council in
Washington. "What makes more sense is to run faster
because we can. We're an entrepreneurial
society."
40 Cents an Hour
China's low wages have been the main catalyst for
its manufacturing boom. The population of 1.3
billion, the world's largest, provides an almost
inexhaustible supply of low-cost labor. The average
factory wage is about 40 cents an hour -- one-sixth
that of Mexico and one-fortieth what U.S. factory
workers are paid.
China's total trade -- imports and exports -- was
$510 billion last year, nearly 15 times greater
than in 1980. Forty-one percent of the exports went
to the United States. China recently supplanted
Japan as the country with the largest trade surplus
with the U.S. Last year American purchases of
Chinese goods were $83 billion greater than Chinese
purchases of U.S. products.
Wal-Mart Stores Inc., the world's largest retailer,
bought $14 billion in merchandise from China last
year -- 13% of all U.S. imports from the country.
To be closer to its suppliers, the company recently
opened a worldwide purchasing center with 300
employees in the southern city of Shenzhen.
On U.S. shores, the torrent of Chinese merchandise
has been both bane and blessing.
To the delight of budget-conscious shoppers,
retailers have filled their shelves with
inexpensive Chinese-made goods, many of them
bearing such brand names as Black & Decker,
Stanley and Rubbermaid. The low prices of these
products have helped keep inflation in check and
bolstered the bottom line for many U.S.
companies.
Trade with China has created millions of jobs for
U.S. lawyers, marketers, shippers, truckers and
others.
The trade-off is in U.S. factory jobs. In one
industry after another -- clothing, furniture,
light electronics -- domestic manufacturers unable
to match Chinese prices have gone out of business
or shifted production abroad. A recent study done
for a congressional panel found that at least
760,000 U.S. manufacturing jobs have migrated to
China since 1992.
Scheu Manufacturing Co. of Rancho Cucamonga sells
portable industrial heaters. Until two years ago,
it made all its products in Southern California.
Today, it imports two-thirds of them from China.
The change eliminated 130 seasonal jobs at
Scheu.
"We've always prided ourselves on being a low-cost
producer, because of the quality of our
engineering," said Craig Scheu, a principal in the
family-owned business. "The next thing we knew, not
only were we not competitive, we weren't even in
the ballpark. It's stunning the prices they can
do."
China's emergence has been a mixed blessing for
developing countries as well. Hong Kong, Taiwan,
Singapore and the Philippines have lost thousands
of jobs, in some cases entire industries, as
production has moved to the Chinese mainland.
Mexican factories that once supplied the United
States with golf clubs, blue jeans, door locks and
other products have closed by the thousands over
the last two years as China has taken their
business.
At the same time, China's purchases of raw
materials and equipment to power its export sector
have bolstered Asian economies weakened by the
slowdown in the U.S. and Europe.
The struggle for control of the U.S. bicycle market
illustrates China's raw manufacturing muscle.
As recently as the mid-1990s, more than half the
bicycles sold in the United States were made in
U.S. factories. Manufacturers had survived low-cost
competition from Taiwan, Japan and South Korea.
Then bicycle makers moved their assembly lines to
China.
"Within a couple of years you had [factories
in] what had been dirt fields churning out a
half-million bicycles [each]," said Michael
Kershow, a Washington attorney who represented
major U.S. manufacturers in a failed attempt to
secure trade protection.
U.S. companies could not match the Chinese prices.
Chinese imports now dominate the market, accounting
for nearly 85% of the 16.8 million bicycles sold in
the U.S. last year. The share of U.S.-made models
has dropped to 2%. Venerable American brands such
as Huffy and Schwinn now are made abroad.
The U.S. bicycle industry lost an estimated 8,000
manufacturing jobs. Asian countries that saw their
shares of the American market shrink also lost
jobs. But U.S. consumers saved billions of dollars
as the average price of bicycles sold through mass
retailers such as Wal-Mart dropped from more than
$100 to $77.
"I don't know how [Chinese manufacturers]
deliver a ridable bicycle for 70 bucks, but they
do," said Fred Clements, executive director of the
National Bicycle Dealers Assn., a trade group with
headquarters in Costa Mesa. "The low-end bikes are
as good as they were when they were made in the
United States. Only the prices have dropped."
Opening the Market
China's rise was made possible by a convergence of
political and economic forces. Under Deng Xiaoping,
China's Communist leaders began dismantling the
centrally controlled economy and encouraging
private enterprise in the late 1970s. The move
toward a free market accelerated in the late 1980s
as the Soviet Union teetered toward collapse.
China entered the global economy just as trade
barriers were falling around the world and the
Internet was making it easier to do business across
borders. Like their Asian neighbors, China's
leaders promoted exports as a way to spur economic
growth. They also wanted to create jobs for a vast
peasant population.
But in contrast to Japan, China welcomed foreign
investors, particularly overseas Chinese.
Entrepreneurs from Hong Kong and Taiwan whose
families had fled the Communists decades earlier
led the way in moving production to the mainland,
making cheap clothing and plastic toys.
As other outsiders set up factories, the trickle of
low-margin export goods turned into a flood of
increasingly sophisticated products.
Multinational companies had been chasing cheap
labor around the globe for decades. But the outcome
was more impressive in China, for a variety of
reasons.
Foreign firms, eager to establish a presence in
China, brought valuable technology and built some
of the world's most modern and efficient factories.
The Communist regime provided tax breaks, cheap
land and other inducements and spent billions of
dollars on highways, ports, fiber-optic networks
and other infrastructure.
At first, foreigners were required to take on a
Chinese partner to share the wealth. They were free
to export their products, but the government
severely limited what they could sell in China to
protect domestic companies. The regime also tightly
restricted foreign investment in key industries
such as autos, steel and telecommunications.
Those restrictions gradually were eased. To qualify
for entry to the World Trade Organization last
year, Beijing agreed to open its economy still
further.
The growing concentration of manufacturers and
suppliers became a spur to further development.
China developed into a place for one-stop shopping,
where companies could obtain everything from raw
materials to packaging and get their products to
customers in record time.
The potential to sell their products to Chinese
consumers and industries, as well as to export
them, was another powerful incentive for foreign
companies to invest in China. Wal-Mart, in addition
to stocking its U.S. stores with Chinese goods,
operates 15 stores in China and plans to open
more.
The country's middle class, though just a sliver of
the population, is estimated at more than 100
million and is growing rapidly. Even now, China
buys more cell phones than any other country. Its
expanding industrial sector is becoming a major
buyer of raw materials, machinery and high-tech
equipment.
China faces formidable barriers to further
development. Its financial markets are small and
poorly regulated. The closure of unprofitable
state-owned companies has put millions of people
out of work and left the country's banks with
massive debts. Government and judicial institutions
are rife with cronyism and corruption.
Yet the industrial transformation of recent years
is nothing short of startling.
The Pearl River Delta in southern China is a center
of the manufacturing explosion, producing ceiling
fans, lightbulbs, pianos and other products by the
container load. In less than a decade, farmland has
been overrun by concrete, steel and smokestacks
across an area five times the size of Los
Angeles.
Dongguan, Shenzhen and Guangzhou (formerly Canton)
have been transformed into giant industrial zones,
linked to Hong Kong, the region's major port, by
expressways more modern and less congested than
those in Los Angeles.
Dongguan, which is divided into 32 districts, each
specializing in its own slice of the global
industrial pie, has become one of the country's
wealthiest cities. Giant factories bearing names
such as Nokia and Sony sit side by side with luxury
housing developments for Chinese entrepreneurs and
foreign managers.
"What is happening is a huge, unprecedented shift
of trade flow from ... other places into China,"
said Craig Pepples, chief operating officer of
Global Sources Ltd., an online trading network
based in Hong Kong that matches suppliers in Asia
with customers around the world.
Chinese suppliers now represent 34% of Global
Sources' business, a level twice as high as three
years ago. "It's really quite shocking," Pepples
said. "You see the export figures in Taiwan and
Hong Kong, which have dropped in double digits,
while China is increasing even in a bad
economy."
Doubts Dispelled
George Thomas, the Illinois entrepreneur, can
attest to the advantages of manufacturing in China.
His 40-employee company, Contemporary Controls, in
Downers Grove, Ill., near Chicago, makes computer
networking equipment used to automate
factories.
Thomas, 58, became interested in China several
years ago after getting orders from factory
managers there. He was buying most of his
components from China because prices were so low.
After attending several trade shows in China, he
realized there was strong demand for his products
in that country and that he could make them much
more cheaply there.
Thomas did the math. Production workers were paid
$1 an hour in China and $12 an hour in Illinois.
Factory lease: $2 per square foot in China, $8.50
in Illinois. Once in China, the company would be
close to its suppliers and no longer would have to
pay to ship components across the globe.
Yet Thomas had doubts about whether Chinese workers
could meet his standards for quality. As a test, he
sent a Chinese factory instructions for making a
piece of customized networking equipment. Within
days, he had a sample that worked flawlessly.
"I was fairly flabbergasted," he said.
Contemporary Controls began looking for a location
in China and found one in Suzhou, an ancient city
of canals and exquisite formal gardens near
Shanghai that has become one of China's busiest
manufacturing zones. The company agreed to spend
$200,000 on a production facility and began
operations last summer, with 13 Chinese
employees.
In addition to low labor costs, Suzhou offered a
two-year tax holiday, cheap real estate and a ready
network of suppliers and customers.
Contemporary Controls can buy just about everything
it needs within a 20-mile radius. Semiconductors
are the one component it must import; the chips now
made in China are not sophisticated enough. But
some of the world's leading chip makers, including
Fairchild Semiconductor International Inc., are
opening factories in China and the company hopes to
be able to buy all its chips locally within a few
years.
Thomas expects difficulties operating in China,
given the horror stories he has heard about customs
delays, unreliable suppliers, corrupt officials and
theft of designs and techniques.
But he is optimistic, because his customers are
factories and China is building more of them than
any other country. Thomas plans to keep his 28 U.S.
workers busy with research and development, design
work and manufacturing for the U.S. market. The
Suzhou facility will supply the rapidly growing
Asian market.
Moving Up a Level
Beijing's leaders know that being the cheapest
assembly line in the world will not keep their
people fed forever; too many other countries are
vying to fill the same role. So China is working
hard to reach the next level of industrial
sophistication.
This will require more than foreign money and
technology. Though its factories excel at producing
foreign-designed goods, China has yet to develop a
cadre of industrial innovators comparable to those
in the U.S., Japan or Germany. Its ranks of skilled
managers are thin, its command of marketing
weak.
The result is that though the Chinese can make
high-quality cars for Volkswagen, Toyota and
General Motors, they have yet to develop a model of
their own with a recognizable brand and an
international market.
Chinese officials are striving to change that. They
are trying to develop their own global brands in
electronics, home appliances and personal computers
-- Chinese versions of Sony, General Electric and
Dell. Some of these products -- Legend computers,
Haier refrigerators and Konka televisions --
already are well-established in developing
countries and are making inroads in the U.S. and
other industrialized nations.
The government also is spending heavily to develop
the highly sophisticated industries that could
propel China into the first rank of economic powers
-- aerospace, semiconductors and biotechnology.
China has built dozens of high-tech research
centers, mounted a campaign to lure ethnic Chinese
scientists living abroad and overhauled its
higher-education system, with a focus on training
first-rate scientists and engineers.
Gary Hufbauer, a senior fellow at the Institute for
International Economics in Washington, said he
would not be surprised if Chinese workers were
assembling commercial aircraft within a decade.
China's move into industries traditionally
dominated by the U.S. will lead to greater tension,
much as Japan's economic ascent did in the
1980s.
"China will become more prosperous and we will have
more trade battles," Hufbauer said. "But they will
be battles of prosperity."
///
China
Expo's October 2002 Report On People's Republic
Since 1972 -
Part TWO
The Microchip and
China's Semiconductor Goals
DONGGUAN, China -- In a vast climate-controlled
room far from the dust and din of the woodcutting
machines, rows of young Chinese women create
elaborate patterns from thin strips of wood.
Fingers flying, they shape veneer into complex
patterns of contrasting grains and colors, wooden
tapestries meant to transform mere cabinets into
objets d'art.
The workers who craft these designs are paid 40
cents an hour, which allows factory owner Samuel
Kuo to make high-end furniture for American
consumers for 30% less than his U.S. competitors
can.
By tapping into the aspirations of China's poor,
Kuo has helped turn a remote stretch of rice
paddies in the Pearl River Delta into a
furniture-making powerhouse. His factory is one of
thousands churning out dining room sets, sofas,
china cabinets and coffee tables. In less than a
decade, China has become one of the world's leading
furniture producers and the top exporter to the
U.S.
"For the next 10 or 15 years, China will be the
manufacturing base for all of the world," said Kuo,
47, whose Lacquer Craft Manufacturing Co. ships
1,400 containers of furniture -- the equivalent of
18,200 bedroom sets -- to the United States each
month. "For anything that involves people, China is
the place."
An outpouring of Chinese products is reshaping the
global economy. Around the world, makers of
everything from bicycles to bath towels are
struggling to survive intense competition from
inexpensive, high-quality Chinese goods. Thousands
of factories have closed as production jobs have
moved to China.
That migration has been driven, above all, by low
wages. In furniture, for instance, labor represents
30% of the cost of production in the U.S. In China,
it is less than 7%.
As furniture factories have moved to China, their
suppliers and related businesses have followed,
making the country an exceptionally efficient place
to operate. Akzo Nobel, a Dutch-Swedish
conglomerate that is one of the largest suppliers
of furniture finishes, has closed plants in the
U.S. and Europe and is opening three factories in
China.
"We can't expand fast enough," said Michael Keith
Estes, a managing director at Akzo Nobel. He
predicted that 90% of U.S. furniture production
would move to China within five years. "It's a
sleeping dragon, and it woke up."
*
Crossing the Strait
Among the first to move to China were furniture
producers from Taiwan, which were being squeezed by
rising wages and land costs at home.
Kuo, whose family manufactured wooden pool cues in
Taichung, a city in central Taiwan, was among the
pioneers. After completing his military service,
Kuo took over the family business, expanded into
furniture and began looking across the Taiwan
Strait for a cheaper place to operate.
That was in the early 1990s, and China was eager to
attract foreign investors. The government wanted to
convert the southern city of Dongguan, 50 miles
north of Hong Kong, to an industrial zone
specializing in exports. Officials there offered
Kuo tax breaks, inexpensive land and light
regulation.
Long-standing animosity between Taiwan and Beijing
complicated such a move. At the time, Taiwan
prohibited direct investments in the mainland. But
entrepreneurs devised ways around the rules, and
the government generally looked the other way.
Kuo set up a factory in Dongguan and started making
simple wooden tables, which he shipped to the U.S.
at bargain prices. Quality was unpredictable.
Shoddy packaging fell apart in transit and the
furniture arrived with nicks and dents. It was hard
to find a steady supply of top-grade wood, because
China's forests had been depleted by years of
unrestrained logging.
Gradually, Kuo turned things around. He imported
high-quality wood, upgraded his machinery and
brought in experienced managers from Taiwan and the
U.S. Soon, his Dongguan factory was able to meet
the standards of a growing list of U.S. customers,
including prominent brands such as Ashley, Standard
and Progressive. In 1994 he closed his factory in
Taiwan.
Competitors took note of Kuo's success and followed
him across the strait. Today, 2,000 foreign
furniture companies operate in southern China, 350
of them owned by investors from Taiwan.
Those Taiwanese-owned factories produce nearly
three-quarters of China's wooden furniture exports.
Kuo hopes this mutual dependence will reduce the
likelihood of military conflict between the island
and the mainland. "We speak the same language,"
said Kuo, whose wife, Grace, handles the company's
finances while his teenage children attend school
in Taiwan and Australia. "We're all Chinese."
*Economy and Quality
The road to Kuo's factory in Dalingshan, a township
within Dongguan, is lined with small shops selling
wood, paints and furniture-making supplies. Lacquer
Craft is a sprawling complex of blue-and-white
buildings with several huge manufacturing, assembly
and warehouse facilities and four dormitories for
Kuo's 5,000 employees.
By midmorning, the factory is bustling. Young men
wearing goggles feed wood into precision cutting
machines that fill the room with a constant
screech. Workers drive motorized carts between
buildings, unloading supplies and moving furniture
pieces to the next step in the production process.
At the end of the assembly line, workers wrap
dining room chairs and dressers with padding and
plastic for the long sea voyage.
By the time it reaches the showroom of a Macy's or
a Levitz, the furniture commands prices ranging
from $300 for an end table to as much as $4,000 for
a dining room set.
At each step of the manufacturing process, Kuo
tries to shave costs without compromising quality.
He does this by combining modern technology with
manual labor.
He has purchased some of the world's most expensive
wood-measuring and -cutting machines, so waste is
minimized and furniture parts will fit together
seamlessly. But he relies on human hands for fine
decorative touches or for rote labor that in China
can be done at low cost. For instance, Kuo
economizes on raw materials by purchasing cheap
wood for certain uses and paying workers to cut out
the knotholes.
In the "veneer room," hundreds of women piece
together intricate designs. The ornamentation
enhances the appearance of a cabinet or a bureau
and thus its market value. That is not the only
reason Kuo is fond of veneer. Every last piece of
wood is used, so there is far less waste and more
furniture can be made from the same quantity of
timber.
"He has the best veneer room in the world," said
Winsor White, an American furniture designer living
in the Philippines who came out of semi-retirement
to work for Kuo. "No one in the U.S. can afford to
do that today."
Once a piece is completed, it heads down a
mile-long, serpentine finishing line with 19
spraying stations and 300 workers, more than twice
as many as would be found in a U.S. factory. Each
item gets extra sanding, buffing and finishing,
attention reserved for only the most expensive
furniture in the United States.
Kuo has no trouble filling jobs. An estimated 10
million laborers from across China, more than 60%
of them women, are looking for work in Guangdong
province. Their hours are long and the labor
grueling, sometimes dangerous. They keep at it
because their paychecks help feed the families they
left behind.
Among Kuo's employees is Dai Zhiying, 23, from a
village in Hunan province in central China. Dai's
education ended with elementary school. As a
teenager, she took a job driving a truck at a
cement factory for $36 a month. Six years ago, she
followed relatives to Dongguan, where she held a
series of jobs in clothing factories, each offering
a few cents more per hour than the one before.
Last December, Dai took a job on the drawer
assembly line at Kuo's company. Lacquer Craft stood
out from the city's other export factories because
it gave regular raises and performance bonuses.
*
2,000 Drawers Per Shift
The workday starts at 7:30 a.m. and lasts until 8
p.m., with breaks for lunch and dinner. During each
shift, Dai and her co-workers assemble 2,000
drawers, more than three per minute. Employees live
six or eight to a room in rent-free company
dormitories and pay about $7 a month for three
meals a day. They relax by watching television or a
rented movie in a communal screening room or
playing basketball in the courtyard.
Dai and her husband, a painter at Lacquer Craft,
have moved into an apartment outside the factory
with their year-old baby. She now makes about $50
to $60 a month, 25% more than she made at the
cement factory in Hunan. "These factories are all
the same," she said. "But my friends told me, 'If
you stay at Lacquer Craft, your salary will go up.'
"
Salaries average $100 a month for production
workers at Lacquer Craft, Kuo said.
After six years with the company, Mei Xiaoli earns
$240 a month as a supervisor in the machine room,
12 times the average income of a Chinese peasant.
Every new year, Mei, 25, joins the migration back
home to his village in northern China's Henan
province. But after visiting his family, he said,
he always is eager to return.
"The economy is very slow in my hometown," he said.
"I came here to make money."
Kuo said it's in his interest to offer his workers
progress toward a better life, however gradual.
Employees who are treated well are less likely to
defect to one of his competitors. Lower turnover
reduces training costs.
"Under communism, people all got the same pay," he
said. "Now, people will jump to another job for a
penny an hour more."
*
Buying a Brand
As competitors flooded into China, Kuo realized
that he couldn't compete on low prices alone. After
studying the U.S. market, he became convinced that
having a brand of his own was the best way to
increase sales and profit.
As a supplier, Kuo was not in control of his
production. The large American furniture brands
that were his major customers told him what to make
and how much. Kuo wanted to sell directly to
retailers. But he knew that an unknown Chinese
brand stood little chance of success.
Then Kuo heard that one of his biggest clients,
Universal Furniture Ltd., based in High Point,
N.C., was up for sale. Last year Kuo paid an
undisclosed sum, believed by industry analysts to
be at least $25 million, to acquire Universal's
brand name and its sales and marketing network. He
did not want its factories in the United States and
Asia, which were sold or closed.
The marriage of Universal Furniture's name with
Kuo's low-cost production base has been lucrative,
he reports. Though overall U.S. furniture sales
have been slumping, Kuo said the demand for his
ornately carved dining room sets and veneered
cabinets has been so strong that he plans to spend
$20 million building new production capacity in
China.
Kuo said furniture manufacturing is in China to
stay. One reason is that the country's population
-- at 1.3 billion the world's largest -- ensures an
almost endless supply of cheap labor. Millions of
peasants will travel across the country for even a
meager paycheck. As wages rise in industrial areas
such as Dongguan, manufacturers can open factories
elsewhere.
Kuo has started building a second factory near
Shanghai, where wages are lower than in southern
China and government incentives even more
appealing.
"China is getting stronger and stronger," Kuo said.
"It still has 10 to 15 years to go before it
reaches the next level. But compared to 10 years
ago, it has come a long, long ways."
///
Respectfully
Josie
Cory
Publisher/Editor TVI Magazine
TVI Magazinem,
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China
Expo's October 2002 Report On People's Republic
Since 1972 - Part Three
China Christianity and The
Microchip
SHANGHAI -- Richard Chang, a
devout Christian raised in Taiwan and educated in
the United States, has opened a $1.6-billion
semiconductor factory here and plans to build a
church for his 3,000 employees.
Chinese officials have displayed a cool, some would
say hostile, attitude toward foreign religions. But
they have put out the welcome mat for Chang because
they desperately need his expertise.
This communist nation has embraced capitalism and
become a manufacturing power, exporting toys,
appliances and other products to every corner of
the globe. Now, government officials want China to
compete in a far more challenging arena: the making
of semiconductors, the silicon chips that power
everything from cell phones to missile guidance
systems.
The semiconductor is one of the sophisticated,
high-value products that form the cornerstone of an
advanced economy. Chinese officials believe that
mastery of the 250-step production process for the
chips will teach factory managers and engineers the
skills needed to lift China into the top tier of
industrial powers.
With the single-minded determination it once
focused on ideological crusades, the government has
embarked on a crash program to develop a
world-class semiconductor industry, using tax
breaks, free land and other incentives to attract
foreign companies and know-how.
Though primitive by the standards of the United
States, Japan or Taiwan, Chinese chip making has
taken a big step in the last few years.
A recent report by the U.S. General Accounting
Office said several of China's factories, using
foreign capital and technology, are one
"generation" or less behind the world's leading
semiconductor makers. Chip technology undergoes a
significant advance, entering a new generation,
every two years.
Chinese leaders are counting on foreign technology
experts such as Chang to help them make the next
leap.
Under tight security in a cavernous building in
Shanghai's Pudong district, employees of Chang's
Semiconductor Manufacturing International Corp.
work in sterile "clean rooms," producing silicon
chips with circuits as narrow as 0.18 micron,
barely one-thousandth the diameter of a human
hair.
The factory, among the most advanced in China,
makes semiconductors for companies in Japan, the
U.S. and Europe. The chips are packaged and sold
under those firms' brand names and delivered to
customers in China, which put them in a variety of
electronic products.
"Because of our proximity, it is easy for us to
penetrate the China market," said Chang, a
53-year-old engineer who is the company's president
and chief executive. "We are not the price leader,
but we offer better services in China. And
performance-wise, we are first-rate."
China produced $900 million worth of semiconductors
in 2000, compared with $11 billion for Taiwan. But
it is not only in volume that China lags behind the
industry leaders. Sophisticated factories such as
Chang's are rare. Nearly all the chips made here
are of the rudimentary kind used in microwave ovens
and televisions — "trailing-edge" technology,
as it is known in the industry.
China does not make enough even of these
comparatively primitive chips to meet the demands
of its factories, whose consumption of
semiconductors is growing 30% a year. The country
imports 85% of its chips.
"Semiconductors are the key to the information
technology industry," said Yu Zhongyu, president of
the China Semiconductor Industry Assn. "If we want
to develop further, we need to have this
skill."
Five-Year Plan
Just a few years ago, China's prospects in this
high-tech realm seemed poor.
The United States restricted Chinese access to the
most advanced American semiconductor technology out
of concern that it might be put to military use.
Air and water pollution made it hard to create the
sterile environment needed for chip manufacturing.
Skilled technicians and managers were in short
supply, a legacy of the late-1960s Cultural
Revolution and its purges of intellectuals.
China also lacked the necessary investment capital.
Building a semiconductor factory, or "fab,"
involves huge start-up costs — more than $1
billion in equipment alone.
To develop a globally competitive industry, China
needed foreign capital and talent. In 1995, the
government set out to get both with Project 909, a
five-year plan with ambitious goals for building
chip plants and developing technical expertise.
China lowered barriers to foreign investment and
set up high-tech zones offering free land and tax
holidays. To encourage Chinese factories to use
chips made in China, the government imposed a 17%
tax on imported semiconductors and charged just 3%
for those produced domestically.
Chip makers from Japan and later Taiwan began
setting up production facilities in China.
Initially, they had to export most of their output,
so home-grown enterprises would be protected from
competition. But the government gradually permitted
foreign-invested factories to sell more of their
semiconductors in China. That attracted more
foreign firms.
Today, Motorola Inc. operates a giant semiconductor
plant and a test and assembly facility in Tianjin,
a port city southeast of Beijing. Even as it
slashes jobs in other countries, Motorola has
announced plans to spend $6.6 billion over the next
five years in China, building at least 10 more
semiconductor wafer fabrication plants.
"Everybody is making a bold dash into China," said
Kirk Pond, president and chief executive of
Fairchild Semiconductor International Inc. The
American firm is building a $200-million facility
near Shanghai to assemble and test chips for sale
in China.
Taiwanese leaders feel particularly threatened by
all this. They fear that the loss of chip-making
jobs will hollow out the island nation's economy
and give China leverage in their long-running
political struggle.
For years, Taiwan barred its semiconductor makers
from doing business on the mainland, though
companies found ways around the rules. But this
year, after lobbying by Taiwanese companies, the
government eased those restrictions, permitting the
transfer of all but the most sophisticated
technology.
Microsemi Corp. of Irvine, a leading supplier of
chips to the U.S. military and space programs, is
among the American companies making their way to
China. Eager to expand its commercial and
industrial business, the firm has opened a factory
in Shanghai, its first outside the United
States.
The factory, a joint venture with a Chinese
company, makes a specialized line of chips used in
power plants and other industrial applications.
Raw materials are cheap, and engineers with
advanced degrees and five years of experience can
be hired for less than $500 a month, said Andy
Yuen, Microsemi's vice president of international
operations. The factory produces high-quality chips
at one-third the cost of a similar product in the
United States.
"We chose Shanghai as a center because everything
we need is within 20 miles of our factory," said
Yuen, a Hong Kong native who oversees the firm's
operations in Asia and Europe. "Raw materials,
chemicals, tooling — you name it, they're
here. And instead of just having low-end assembly
workers, we can use Shanghai as a place for
brainpower. My goal is to do 100% here, no
exceptions."
Return
From Exile
Foreign technocrats such as Yuen and Chang provide
China with something money can't buy: extensive
experience in the intensely competitive
semiconductor industry.
Chang was born in Nanjing, China, and raised in
Kaoshiung, Taiwan, where his parents moved before
his first birthday. They were among the thousands
of Chinese who fled after the Communists wrested
control of the mainland in 1949.
After graduating from National Taiwan University
and completing his military service, Chang went to
the United States, where he got a master's degree
in engineering science at the State University of
New York in Buffalo. He and his wife, also an
engineer, went to work at Texas Instruments Inc. in
Dallas.
Over the next two decades, Chang played a key role
in the company's global expansion, helping oversee
the launch of six semiconductor factories in Asia
and Europe.
After taking early retirement from Texas
Instruments in 1997, he decided to return to
Taiwan. Backed by a group of international
investors, Chang founded Worldwide Semiconductor
Manufacturing Corp., which made custom chips for
the world's leading technology firms. In 2000,
Worldwide merged with a Taiwanese chip maker, and
some of Chang's customers and investors urged him
to start another factory.
With $1.6 billion in funding from firms such as
Goldman Sachs and H&Q Asia Pacific, a Palo Alto
investment group, Chang went shopping for a
location. Officials in Shanghai offered him the
most attractive tax breaks, along with cheap land,
water and electricity and a large supply of
technical talent.
But for Chang, the critical factor was spiritual. A
missionary trapped in an engineer's body, he saw
his company as a way to strengthen Christianity in
the world's most populous nation.
"China is a good place in many aspects. The market
is huge. Manufacturing costs are competitive. The
pool of talent is also very good," he said. "But
frankly, I was thinking about how I could share
God's love with the Chinese more than how I could
help the economy."
Chang traveled the globe assembling a team of chip
designers, engineers and production experts, many
from the Chinese Christian community. He offered
the classic tech-company bargain: a chance to be on
the ground floor of a pioneering venture, with
stock options. To ease employees' culture shock, he
is building a housing development near the Pudong
factory, with a bilingual school.
Roger Lee, 43, gave up a good job at Micron
Technology Inc. of Boise, Idaho, one of the world's
largest memory chip companies, to join Chang's
start-up as a vice president. Lee also took a
substantial pay cut. Chang pays his employees at
prevailing Chinese rates, which for top executives
are 25% to 30% of U.S. salaries.
Lee worried about tearing his wife and three sons,
ages 7 to 15, away from their five-acre spread in
Boise and the friends and family they had known all
their lives. But Lee, who was born in China and
educated in the U.S., shared Chang's conviction
that their native country was poised to become a
world center for chip manufacturing.
At Micron, where Lee worked for 15 years, the
Princeton graduate played a critical role in
developing products and had 115 patents to his
name. He hopes to replicate that record at Chang's
company, where he is head of memory technology
development.
"When I joined Micron, it was a start-up company,"
Lee said. "When I left, there were 12,000
employees. It is hard for one person to make a
difference."
Shou Gouping, a 40-year-old engineer for Chang's
company, left Beijing for the United States two
years after the 1989 Tiananmen Square massacre and
did not expect to see his homeland again. After
obtaining advanced degrees in electrical
engineering, Shou worked for technology firms in
Silicon Valley. He met Hai Ling, a Chinese
immigrant who had come to the U.S. to study
physics. They were married in 1998 and had a son
the next year.
Early last year, Shou's aging mother grew sick, and
the couple returned to China with their son. After
a decade in the United States, Shou said, it felt
good to be surrounded by family and the culture and
language of his childhood. Though people were poor
by U.S. standards, he sensed an optimism about
China's future.
Three weeks later, Shou and his wife reluctantly
returned to Sunnyvale, Calif. But they left their
son with Shou's mother and decided to look for a
way back to China. Through a friend in Florida,
Shou heard that Chang was hiring. He took a job as
a technical manager in the firm's design service
department, providing computer support.
Shou, a Christian, said that Chang's spiritual
message resonated deeply with him.
"I had a feeling that my life should be in China,
serving people and God," he said.
Chang and his employees have had their share of
frustrations, including tussles with local
officials over taxes, delays in getting
sophisticated U.S. equipment because of export
controls, and a shortage of experienced
personnel.
But analysts say the company's prospects are
bright. Chang has cut deals with industry giants
such as Toshiba Corp., Fujitsu Ltd. and Singapore's
Chartered Semiconductor Manufacturing Ltd. to
obtain leading-edge technology. In return, Chang
gave them an ownership stake in his firm or agreed
to produce chips for them.
Chang's company "is successful because it has
outside connections," said Dorothy Lai, a Hong Kong
analyst with Gartner Dataquest, a technology
research firm based in Stamford, Conn.
Seven months ago, Chang began holding religious
services in a rented building near his factory. He
hopes to start construction soon on a church for
his employees.
"Every time we have done something successful, I
openly mention that this is done with the Lord's
blessing," he said. "At first, some people felt
awkward about this. But as they realize we really
practice our beliefs, they accept us."
- Chinese
Academy of Arts Conference, Monterey Park
California
/
January 3, 2003
- Chinese Academy of
Arts - Beijing Executive
Commitee
- 1. Mr. Wang
Ganfu, Vice President, Chinese Academy of
Arts.
- 2. Dr. Ding
Yaping, Editor in Chief, China Culture and Arts
Publishing House, Chinese Academy of
Arts.
- 3. Prof.
Long Rui, President, Arts Research Institute,
Chinese Academy of Arts.
- 4. Prof.
Zhang Baiqing, President, Film & TV Research
Institute, Chinese Academy of Arts.
- 5. Mr. Hou
Yangxiang, Deputy Editor in Chief, Vice
President, China Culture and Arts Publishing
House, Chinese Academy of Arts
- 6. Ms. Zhong
Jiang, Editor, China Culture and Arts Publishing
House, Chinese Academy of Arts
- Chinese Academy of
Arts - USA Executive Commitee
- 1. Liu Bing,
President, Evergreen Publishing
- 2. Miss.
Cheng Meixian, Manager, Evergreen
Publishing
- 3. Mr. John
Qu, President, New Bridge Media,
Inc.
- 4. Mr.
Curtis Skene,Director, New Bridge Media, Inc.
International Investment Banking);
- 5. Mr. Able
Kwan, Director, New Bridge Media,
Inc.
- 6. Mrs. Jane
He Qu, Manager, New Bridge Media,
Inc.
- Honored
Guest
- 1. Miss
Karen Han, Assistant to Michael D. Antonovich,
Supervisor, County of Los Angeles.
- 2. Mr. Davia
T. Lau, Mayor, City of Monterey Park
- 3. UCLA -
Dr. Chou, Houng-Hsiang, Professor, School of the
East-Asian Language and Literature Study,
UCLA.
- 4. UCLA -
Mrs. Amy Ching-Fen Tsiang, Head,Richard C.
Rudolph East-Asian Library,UCLA.
- 5. USC -
Prof. Zhang, Cuo, Dean, School of the Language
and Literature East-Asian, USC.
- 6. USC - Dr.
Sun, Shaoyi, Professor, Asia-Pacific
Communication Center , USC.
- 7. Dr. David
Wu, Representative, UCRiverside; Vice President,
American-Sino Academic Foundation; Professor,
Mt. San Antonio College.
- 8. Mr. Woody
Mu, Manager, International TV Distributions,
Warner Bros.);
- 9. Mr. Troy
Cory, Singer , Producer, Publisher, Television
International);
- 10. Josie
Cory, Editor in Chief, Television
International);
- 11. Mr. Si
Jiuyue, Chief Correspondent, Xinhua News Agency
, Los Angeles Bureau)°F
- 12. Mr.
& Mrs. Li,Zijian, Artist);
- 13. Mr. Li,
Binyang, Composer, President, Southwest China
Association, USA)°F
- 14. Mr.
Latif Icin, President ,D&L International
Inc.)
- 15. Ms.
Diana He Wang, Vice President ,D&L
International Inc.)
- 16. Pianist,
President, Taitang International
Inc.);
- Award
Presenters and
Achievement Recipients
- 1. Miss
Karen Han, Assistant to Michael D. Antonovich,
Supervisor, County of Los Angeles.
- 2. Mr. Davia
T. Lau, Mayor, City of Monterey Park
- 3. UCLA -
Dr. Chou, Houng-Hsiang, Professor, School of the
East-Asian Language and Literature Study,
UCLA.
- 4. UCLA -
Mrs. Amy Ching-Fen Tsiang, Head,Richard C.
Rudolph East-Asian Library,UCLA.
- 5. USC -
Prof. Zhang, Cuo, Dean, School of the Language
and Literature East-Asian, USC.
- 6. USC - Dr.
Sun, Shaoyi, Professor, Asia-Pacific
Communication Center , USC.
- 7. Dr. David
Wu, Representative, UCRiverside; Vice President,
American-Sino Academic Foundation; Professor,
Mt. San Antonio College.
- 8. Mr. Woody
Mu, Manager, International TV Distributions,
Warner Bros.);
- 9. Mr. Troy
Cory, Singer , Producer, Publisher, Television
International;
- 10. Josie
Cory, Editor in Chief, Television
International;
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