Do you remember when Japan was going to take over the world? In the 1980s, that economic powerhouse exemplified all that was wrong with America’s economy, and was poised to dominate world markets in the 21st century. By 1990, its economy fell into recession and it’s been plagued by stagnation and also-ran status ever since. Now it’s China that’s supposed to supplant the U.S. A recent report by PricewaterhouseCoopers contends that the Middle Kingdom will be the world’s largest economy by 2050.

While I respect the work that these accountants and analysts do, I have some misgivings over this projection. One is the question of how China is going to handle a rural/poverty-level population that, by itself, is almost three times larger than the entire U.S. population. Another question I have is how the world of 2050 will cope with the environmental damage of China’s (and India’s) rapid industrial development.

Still another is the question of how a country can meld totalitarian government with free(ish) markets. China’s regulatory and bureaucratic hurdles are part of the tale behind the country’s history with contract manufacturing, explored in Biopharma CMOs in China, starting on page 110.

But my biggest question is whether China will innovate its way out of these problems. For a long time now, I’ve contended that, if any population had an incentive to develop a cheap energy solution, it was the Chinese.

It’s a population with plenty of brain power, a clear market demand, and a well-funded government. But we don’t see fuel cells or advanced materials for cheap solar power coming out of China. Instead we see massive oil contract with Sudan and Iran, respectively funding genocide and nuclear weapons programs.

China’s government has tried to modernize and privatize business, a process that has led to huge investment from global companies. Most of this investment, however, involves manufacture and re-export to the local market. China may become the biggest economy in the world by 2050, but it will take some doing to become the home to global businesses by then. The country sees its future in being more than a manufacturing platform for these firms, and quite correctly it understands that innovation and home-grown technology is critical to its growth.

Which brings me to the story of Chen Jin. Dr. Chen is a scientist, trained in America, who worked at Shanghai’s Jiaotong University to develop new digital signal processing chips, a key component in cell phones. Because foreign companies were afraid of having their IP ripped off in China, they resold DSP chips into the country. Dr. Chen became a national hero when he debuted the Hanxin (China) chip in 2003. Subsequent iterations of the chip, validated as world-class by government testers, showed that China meant business about innovating its way out of its import/export box. Hanxin chips signaled a new dawn.

Until it turned out that the chips were a fraud. It turned out that Dr. Chen bought some DSP chips and hired migrant workers to scrub off the word “Motorola” and paint on “Hanxin.” This, as long-time readers can imagine, falls into my “No, seriously” category of anecdotes.

Dr. Chen got exposed and denounced, and his funding was recalled. As it turns out, he also has several side businesses, one of which was involved in . . . marketing Hanxin DSP chips to foreign companies! In that sense, China’s business practices seem pretty modern and innovative after all.

Gil Roth
Editor
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