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