:00:00. > :00:09.Now on BBC News, it is time for Talking Business with Linda Yueh.
:00:10. > :00:13.Could China's Silicon Valey surpassed the original in America?
:00:14. > :00:21.Is the world's most innovative company Chinese? Here in Shenzhen,
:00:22. > :00:42.I'm Linda Yueh, and we are Talking Business.
:00:43. > :00:47.A warm welcome to the programme. Three decades ago, I would be
:00:48. > :00:58.standing in the middle of a small fishing village. Then the Chinese
:00:59. > :01:02.government chose Shenzhen of one of the special economic zones that
:01:03. > :01:06.would become a manufacturing hub for exports. Two decades ago, I would be
:01:07. > :01:11.surrounded by factories producing cheap toys and clothing. Now it's
:01:12. > :01:17.high`tech firms, that not only produce here but conduct research
:01:18. > :01:23.and development to such a skill but it is raising the question ` could
:01:24. > :01:27.Shenzhen rival Silicon Valey? I went perhaps the most innovative company
:01:28. > :01:33.in the world that is based here to find out.
:01:34. > :01:39.We think of made in China as cheap toys, socks, shoes, bags,
:01:40. > :01:43.electronics. Manufactured on a huge scale with low skilled workers. But
:01:44. > :01:50.the world's most innovative company might be Chinese. Tech giant ZTE has
:01:51. > :01:59.filed the most pate ands over the past few years, more than any other
:02:00. > :02:04.firm. Three, including ZTE, of the top five mobile phone companies in
:02:05. > :02:07.the world are based in Shenzhen, a short distance from Hong Kong.
:02:08. > :02:10.Chinese firms may be large, but they are not global household names.
:02:11. > :02:33.Also, they are not in the top tier Almost all of my suppliers have
:02:34. > :02:37.factories or offices nearby, so it is very easy to reach them if I have
:02:38. > :02:42.some issue, I can call my supplier and they come to our office within
:02:43. > :02:47.half an hour. The mobile phone industry in this
:02:48. > :02:58.area was encouraged by the Chinese government as a source of exports.
:02:59. > :03:03.It is not just the big players. There are 6000 manufacturers in
:03:04. > :03:10.Shenzhen. China produces more than half of the 2.5 billion phones sold
:03:11. > :03:14.around the world annually. That is equivalent to half of the adult
:03:15. > :03:20.population on the planet buying a new handset every year.
:03:21. > :03:24.We all use our mobile phones to talk, text and send e`mails. All of
:03:25. > :03:30.that equates to gigabytes of data being sent every day. Data that
:03:31. > :03:34.could end up in the wrong hands. That perceived risk has led the US
:03:35. > :03:40.government to largely banned tech companies from China. Within a
:03:41. > :03:45.generation, Chinese firms now jostle with American and European ones. But
:03:46. > :03:51.it takes time to see if a nation is truly innovative. If China succeeds,
:03:52. > :04:03.then it will mark a key chapter in the shift from West to East. Method
:04:04. > :04:15.and device for enhancing virtual topography. That is just one of the
:04:16. > :04:19.thousands of patents listed here. I am here in Shenzhen, and I'm about
:04:20. > :04:26.to speak to the president of ZTE. But it is not just this wall. Look
:04:27. > :04:35.at this one. There are thousands more patents listed here. ZTE has
:04:36. > :04:45.filed the most patents in recent years. But is it truly innovative?
:04:46. > :04:53.That is why I asked the head. For the last more than 20 years, we
:04:54. > :05:02.have been dedicated to innovation. We believe that innovation is the
:05:03. > :05:09.key for our success. How to make this innovation from ZTE's
:05:10. > :05:17.understanding, we have three ways. One way is to be more close to our
:05:18. > :05:21.customer and end users. We try to know more about the requirement and
:05:22. > :05:28.the needs of our customer. Then we find a way to serve their challenges
:05:29. > :05:35.and win the customers. The second way is to attract more talented
:05:36. > :05:43.people globally, so we have many centres, not only in China but also
:05:44. > :05:54.oversees. We have five in the USA, three in Europe, trying to attract
:05:55. > :05:59.talented people. It is also a very important way to make innovation.
:06:00. > :06:07.The third way is to get more partners, and get a better ecosystem
:06:08. > :06:13.for innovation. Today it is a lot easier for one single company to
:06:14. > :06:16.make an innovation all the way. How'd you get from the point of
:06:17. > :06:19.where your technology is competitive, you are putting out a
:06:20. > :06:28.camera which has more features and more ability, new handsets, than say
:06:29. > :06:33.even the existing dominant players. What kind of strategy do you need to
:06:34. > :06:47.put your phone at that price and? It is brand recognise Asian. `` brand
:06:48. > :06:55.recognition. If you only put advertisements and money to promote
:06:56. > :07:02.your brand, it is not the smart way. So first of all we need a unique
:07:03. > :07:08.technology to attract customers. We also need innovation in business
:07:09. > :07:19.models. Like we not only provide these handset and hardware, we also
:07:20. > :07:31.make unique software services to really get our ZTE uses. That is
:07:32. > :07:35.very important to promote the ZTE Brent. And the other part of your
:07:36. > :07:41.business, which is equipment for telecommunication, you have been
:07:42. > :08:01.blocked by the US government from their agencies, and you and why
:08:02. > :08:08.Huawei. We have lots of different systems, and this is one. But
:08:09. > :08:16.through ZTE's efforts and revolution in technology, finally we can
:08:17. > :08:22.approach the USA market to win our customers. We believe this is
:08:23. > :08:27.bringing the value to our customer in the USA. That is the only way to
:08:28. > :08:33.win the market. There is a perception that Chinese innovation
:08:34. > :08:45.is imitation and not as innovative as you would find in Silicon Valey.
:08:46. > :08:59.What would you say to that? Silicon Valey is a great city for
:09:00. > :09:08.innovation, but in China, we now have new leading technologies in
:09:09. > :09:12.different areas, like ZTE. We announced unique radio technology
:09:13. > :09:20.last year, and this helped ZTE to have the fastest`growing 4G player
:09:21. > :09:28.in the world, announced by the consultant company IHS. In your
:09:29. > :09:35.ambition for the company, it sounds like you think technologically you
:09:36. > :09:38.should... There are other reasons why you are not the most recognised
:09:39. > :09:43.innovative company in the world. Is that your aim over the next few
:09:44. > :09:51.years, to get the business model to support the technology that you
:09:52. > :09:55.think should be making you the most innovative company in the world? We
:09:56. > :10:05.have this dream, and also this vision. Division two B the most
:10:06. > :10:13.innovative company in the world. So all of our people, all of our team,
:10:14. > :10:17.our management, want to realise this dream.
:10:18. > :10:21.I also had a chance to see for myself the latest gadget made by
:10:22. > :10:26.this Chinese telecoms giant. Who is calling me? Hello! How I
:10:27. > :10:39.you? These days, you don't have to pick
:10:40. > :10:43.up the phone or even turn on your computer to receive a call from a
:10:44. > :10:51.friend. You can just talk to her through your television screen. How
:10:52. > :10:57.is this possible? Via a little box that can be very low cost. What is
:10:58. > :11:03.extraordinary is the speed of the technology. Depending on how fast
:11:04. > :11:06.your Internet connection is, where I am standing right now the company's
:11:07. > :11:13.headquarters, this signal is being rooted to another city 1500
:11:14. > :11:17.kilometres away, and yet I am able to talk to my friend virtually in
:11:18. > :11:21.real`time. So in the future, depending on whether you like having
:11:22. > :11:25.your movies interrupted, you can make calls in your TV to your
:11:26. > :11:31.friends at pretty low cost and pretty fast speed.
:11:32. > :11:35.How much of what China produces is due to innovation versus imitation?
:11:36. > :11:42.And what would it mean if innovation was to shift from West to East? To
:11:43. > :11:45.find out, I caught up with two experts, Michael Enright, Professor
:11:46. > :11:50.of business at the University of Hong Kong, and the author of China
:11:51. > :11:59.into the future, Nicky sense, other worlds's most dynamic economy. And
:12:00. > :12:06.the Professor and author of forgotten ally: China's World War
:12:07. > :12:12.II. Welcome to both of you. How innovative are the tech mobile
:12:13. > :12:21.handsets and equipment being produced by Chinese companies?
:12:22. > :12:26.In China you are not seeing basic invasion, the hard science, you are
:12:27. > :12:31.seeing adaptation. That is what you expect of a country at its stage of
:12:32. > :12:37.development. China can put a man in space but it is still relatively
:12:38. > :12:41.backward when it comes to the type of onward invasion that is going on
:12:42. > :12:51.elsewhere in the world. Ron, do you think that is what is
:12:52. > :12:56.happening in China at the moment. Well, I think that the comparison
:12:57. > :13:01.that Michael has given us is important. The level of development
:13:02. > :13:06.has shaped China. In the 1950s, Japan as a country, would have
:13:07. > :13:12.gotten laughter, were it suggested that this is where hi`technology was
:13:13. > :13:16.innovative. So we need to allow China the time to develop. But
:13:17. > :13:21.having said that, there is issues, when I look at the context or the
:13:22. > :13:27.ecology of our development in China that I find worrying. The
:13:28. > :13:33.innocencives given to incentives are top down. Going to bay binge ``
:13:34. > :13:38.Beijing's high`technology zone, there is a lot of work going on but
:13:39. > :13:42.it is imposed from the top. In the United States, the perhaps most
:13:43. > :13:46.innovative place of the last 60 years, is that more has to be
:13:47. > :13:49.bottom`up. I would be interested to know how much of the bottom`up
:13:50. > :13:53.development is to be expected from China in the next few years. I am
:13:54. > :13:57.cautious about that. Michael, you work with companies, do
:13:58. > :14:03.you see evidence that some of them can do this bottom`up invasion? We
:14:04. > :14:12.see a few Chinese companies that do that? ZTE, forrence stance, Huawei?
:14:13. > :14:17.`` for instance, Huawei? They are protecting themselves when they go
:14:18. > :14:22.international when they go against charges for violation of patents, as
:14:23. > :14:26.it is against brand new systems. But there is some interesting invasion
:14:27. > :14:32.going on in China. It is going on by foreign companies who are using
:14:33. > :14:37.Chinese stills, and capability researchers, increasingly to develop
:14:38. > :14:43.products for not just a China market but for global pacts. Rana, is this
:14:44. > :14:50.is question that the Chinese products are not as Cabinetive, or
:14:51. > :14:55.are there reasonses such as security risks, like Chinese Telecoms
:14:56. > :15:03.companies not being able to operate freely in the open market? There are
:15:04. > :15:08.issue, as Chinese receives smatter technology, at this moment, with the
:15:09. > :15:13.Flight MH370, the Chinese technology is shown to be competent. That sets
:15:14. > :15:17.alarm bells ringing in a lot of Western and non`Chinese security
:15:18. > :15:20.establishments, quite what is involve fundamental you collaborate
:15:21. > :15:22.with a country whose political intentions are not entirely clear.
:15:23. > :15:28.So those things come together. Do you think that a place like that
:15:29. > :15:33.could surpass Silicon Valley? It depends in terms of production,
:15:34. > :15:39.output yes. In terms of invasion, the core ideas, no. Not at present
:15:40. > :15:43.for a number of reasons. One is both the education and the economic
:15:44. > :15:48.system in China, it does not promote the type of innovative
:15:49. > :15:52.entrepreneurship that is required. The capital markets don't support
:15:53. > :15:56.it. The Ken venture capital markets are thin and access to the stock
:15:57. > :16:02.markets is controlled, that means that the exit for the venture
:16:03. > :16:07.capital and private equity investor is not there. The IP protection in
:16:08. > :16:12.China. Foreign companies complain about it. Think of Chinese companies
:16:13. > :16:16.not being able to protect their IP in China. They cannot even get
:16:17. > :16:22.established in the home market with protection to build up the business
:16:23. > :16:26.to project narkally. So several issues. But in terms of overall
:16:27. > :16:32.economic development, that is a binding constraint when per capita
:16:33. > :16:42.income is $25,000 per person per year, not at about $6,000, where it
:16:43. > :16:49.is today. Do you think that they could have the success as Japanese
:16:50. > :16:52.companies who had medium tech, then movered into high`tech when they
:16:53. > :16:56.became more innovative? It is possible when they become more
:16:57. > :17:01.liberal in terms of the public sphere. The reason that Japan took
:17:02. > :17:05.off, was not just the technology but the fact that the brand was
:17:06. > :17:07.associated with a set of cool innovative values. That goes
:17:08. > :17:11.together. Could they come up with somebody who
:17:12. > :17:16.could produce something as cool as an iPod? Probably not. In 15 years'
:17:17. > :17:23.time, it could be a very, very different story. Look at Ali Baba
:17:24. > :17:27.and compare it to the internet companies in the US, it is an
:17:28. > :17:31.interesting story. Some would say that Robin Lee is a
:17:32. > :17:38.cool guy. Of course, that is the CEO of Bidou,
:17:39. > :17:44.who brought that search engine up quickly. What does it mean for the
:17:45. > :17:49.rest of the world if China succeeds in becoming innovative on the back
:17:50. > :17:54.of companies like ZTE or Huawei or Lenovo. Or any of these. Would it be
:17:55. > :17:58.a seismic shift when they think about global balance of power, for
:17:59. > :18:03.instance. A small question, Michael? I think that part of the crepe is a
:18:04. > :18:07.bit of a red herring. The tech focus and the high`tech industries, that
:18:08. > :18:11.is to me not where the action is or the disruption from China will come.
:18:12. > :18:18.Not in the medium`term. What we Wirral see and should see in China
:18:19. > :18:23.is more of a focus on improving operational efficiency, improving
:18:24. > :18:28.research, resource allocation and when that happens and Chinese
:18:29. > :18:33.companies are more knowledgeable about the international markets,
:18:34. > :18:37.then come in the mid` mid`technologies, the companies
:18:38. > :18:40.making the brands in the buck output in industry after industry.
:18:41. > :18:45.Companies coming out with China cash flows that they are able to use to
:18:46. > :18:50.fund global activities. But even in some of the sectors that you
:18:51. > :18:55.mentioned, with companies like ZTE Corporation and Huawei who win
:18:56. > :18:59.communications equipment, contracts in Scandinavia, against the
:19:00. > :19:05.Scandinavian companies, not by offering a 30% discount but maybe
:19:06. > :19:10.50% or 30% of the prices of the foreign companies, that's going to
:19:11. > :19:16.be disruptive. My view that the Chinese companies coming out over
:19:17. > :19:20.the next 15 years, mostly in mid`tech will be more disruptive
:19:21. > :19:23.than China's emergence as an export powerhouse.
:19:24. > :19:29.And also at some point in the future, not five but maybe ten,
:19:30. > :19:35.beyond, we will hear stories in the Chinese meeta but how the Americans,
:19:36. > :19:39.French, British are coming to China, stealing China's technological
:19:40. > :19:44.secrets and bringing it back to their homelands. That is when we
:19:45. > :19:50.will know that China has become an innovative RND power. We are not
:19:51. > :19:53.there yet but when that is taking place on Talking Business, we will
:19:54. > :19:56.know that the shift has really happened.
:19:57. > :20:05.You will be both back to talk to me about it then. Thank you very much.
:20:06. > :20:10.That was Michael Enand Ron Emmeter of Oxford University. How
:20:11. > :20:15.competitive are Chinese handset makers like ZTE Corporation against
:20:16. > :20:22.Samsung and Apple? I have come to check out just where ZTE and Chinese
:20:23. > :20:27.mobile handsets sit in the global marketplace. To help me find out, I
:20:28. > :20:32.am joined by the managing director and head of China Technology and
:20:33. > :20:39.Telecommunications Research at Jeffries. So, Cynthia, handsets made
:20:40. > :20:45.by ZTE Corporation and the Chinese firms where do they sit in terms of
:20:46. > :20:51.the technology spectrum or desirability of handsets? I would
:20:52. > :20:55.say worldwide. From a volume and shipment it is top five. In terms of
:20:56. > :20:59.price, they are in the mid`to the low end.
:21:00. > :21:04.Why is that? This is driven by invasion, I would say.
:21:05. > :21:10.So for traditional reasons. So the features are not as good?
:21:11. > :21:14.Yes. But the Chinese vendors are good as commercialising and mass
:21:15. > :21:20.production in scale. I see. And in terms of the low end,
:21:21. > :21:25.this sounds like there is a lot of Chinese handset makers, so it is a
:21:26. > :21:29.crowded market. When I look around and see literally, as if there are
:21:30. > :21:33.dozens and dozens of Chinese brands that most people have never heard
:21:34. > :21:36.of, I would guess? That is true. True.
:21:37. > :21:42.So it is a very competitive market, I take it? That is why it is very
:21:43. > :21:51.difficult to make money in the low end on Chinese handsets. When I look
:21:52. > :21:56.here, I see Samsung, I see Sony, HTC it is secured in a box, do you think
:21:57. > :22:01.there is a chance that Chinese handset makers could dislodge these
:22:02. > :22:04.guys any time soon? I think one or two are possible. But the vast
:22:05. > :22:08.majority will not be able to for many years to come. But the top
:22:09. > :22:15.ones, one or two. OK. Thank you very much.
:22:16. > :22:19.That was Cynthia gong. There is no question that the Chinese handset
:22:20. > :22:23.market is competitive. How do companies ensure the quality of
:22:24. > :22:28.their products? I wanted to see for myself how they stress test their
:22:29. > :22:33.phones. I have been given rare access to
:22:34. > :22:37.peak behind the scenes at the quality testing facility of one of
:22:38. > :22:41.the biggest telecommunications companies in the world. Before a
:22:42. > :22:50.mobile phone make it is to the shop it has to first make the cut.
:22:51. > :22:56.We want our phones to be lightweight and technologically innovate Ivan
:22:57. > :23:00.Lendl but we also want then to last `` innovative and we also want them
:23:01. > :23:12.to last. I will conduct my own test... OK. This one survived. Now,
:23:13. > :23:25.this is the ultimate test. How many of you have done this before...
:23:26. > :23:28.Still in one piece. All of this testing is intended to help
:23:29. > :23:33.demonstrate the quality of a product which can make a huge difference for
:23:34. > :23:38.a company in a globally competitive marketplace.
:23:39. > :23:46.This success of Chinese tech companies like ZTE Corporation will
:23:47. > :23:51.determine weather Shenzhen can surpass Silicon Valley. If they
:23:52. > :23:55.succeed it would mark a real shift in invasion from West to East and a
:23:56. > :24:00.new era for China on the world's stage. That is all we have time for.
:24:01. > :24:05.Check out the website and me on Twitter.
:24:06. > :24:13.And join us the next time for more Talking Business with me, Linda
:24:14. > :24:19.Yeuh. Hello there. Good evening. It has
:24:20. > :24:20.been a lovely day for many, despite the sunshine being hazy at times.