Commentary

China's Greatest Tech Myths

Steven SchwankertBy Steven Schwankert
The Grouch spends a lot of time shaking his head at the conclusions of analysts and pundits when it comes to China's technology scene. Sometimes he wonders what the China watchers are watching: it must be "World's Wildest Police Chases" or Liverpool vs. Tottenham because their eye certainly isn't on the ball in China.

So the Grouch thought he could serve the people by offering a bit of insight into the many myths that surround the tech scene north of Lo Wu.

1. The IBM-Lenovo deal represents the arrival of Chinese companies on the international stage, and that we can expect more such purchases n the future as China's position and prosperity grow.

Wrong and wrong. The US Congressional enquiry begun in late January into the sale is just the first of a number of issues, likely unexpected by Lenovo, that this tie-up will face. But that isn't terribly important. To date, Lenovo, formerly Legend, has sold the vast majority of its computers in a highly price-sensitive market, backed by the Chinese government with generous loans and tax breaks.

Comparing IBM's proposed sale of the PC division to Lenovo to Japanese purchases of US businesses in the 1980s is a facile analogy put forth by people who neither understand why IBM is selling nor why Lenovo is buying,

What few seem to consider is that Lenovo did not go to IBM with the intention of buying its PC division. IBM decided to axe the increasingly commoditized businesses because, as former GE CEO Jack Welch would have put it, it's yesterday's business.

Lenovo's move aims to give it an international presence it previously lacked, including distribution channels in foreign markets. The move is in line with a general feeling in corporate China that the economic power of the country means that Chinese companies should enjoy the same stature as their Western counterparts.

But considering that Dell slapped the Chinese giant around on the latter's home turf, its prospects are not rosy for competing in countries where brand and service count as much as price.

2. Linux will be huge in China.

A guy the Grouch knows who heads an IT department at a state-run Chinese publishing house came aboard and decided that he would migrate all of the publisher's electronic communications and Web sites to a Linux-based system. Because open source software is free, he said, the cost savings reaped by this change would be significant. His Chinese counterpart looked at him and said, with a straight face, "but in China, all software is free."

The driving force in China's technology industry is piracy. Knocking off and reverse-engineering foreign products and making unlicensed use of foreign technology is the state of the nation. That's not a value judgment, it is simply a statement of fact. Bearing that in mind, and remembering that all software is free or at least extremely low-cost, then businesses and consumers do not want some free system that they'll have to download or install and configure. This is why Apple hasn't a prayer in China for a wide audience–pirated Apple software is extremely hard to find, and as a result, the platform is limited to creative types who buy their machines overseas.

With price no longer an issue, they want an operating system that will run the software they need for work or play. For that reason, the OS of choice in China is Windows, by a mile. Pirated copies of Simplified Chinese XP are cheap and generally reliable (as reliable as Windows can be), as are Office, Age of Empires, and a host of other applications. Played any good Linux games lately? Of course not. Found an open-source word processing software that works well with Word? Didn't think so.

When China announced that it would migrate government departments to Linux, everyone took it at face value and expected a Linux boom. The country still lacks a sufficient number of technicians who can work on open-source systems. The money is in maintaining Windows-based systems, and in China, you go where the money is.

That Red Hat waited until the end of 2004 to open an office in China should tell us a lot about Linux's progress in China.

3. Piracy could be reduced in China if the government would just enforce some of its existing intellectual property laws.

China's hybrid system of central planning and market economics means that most of the top companies in any industry are often owned by, run by or controlled by (or some combination thereof) government officials. This means that policymakers have a direct economic stake in the policies they create.

It's an open secret in China's entertainment industry that the distributors of legitimate material are also the pirates. If they weren't, there would be no economic incentive whatsoever to handle the relatively expensive limited selection of government-approved titles in film and music.

The same is likely true in software distribution. With legit copies of Windows selling in the neighborhood of US$250 or more, and pirated versions going for US$6 and costing about US$1 to produce, which one's going to sell more? Forget about margins, if a distributor sells a bogus copy, part of that revenue is lining the pockets of a government official, or his son, or his brother, or his buddy.

Until China creates an economically secular government, piracy will be the norm rather than the rule. Just like revaluing the renminbi, the Chinese government is not going to make a significant change unless there is a measurable benefit for China, and when it comes to stamping out piracy, at this point there just is not.

Louis Cha never wrote a kung fu novel as rich in legend and myth as can be found in business coverage of China. Next month, we'll delve again into this mysterious world to reveal more strange tales of profit and gadgetry.

About the author:
Steven Schwankert is a former editor of Computerworld Hong Kong, based in Beijing. He can be reached at [email protected]

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