Virtual China: Information Technology - Perspectives, July 26, 1999


	Perspectives Zhongguancun: China's State-Run Silicon Valley July 26, 1999 Despite its sometimes gritty appearance and the fact that a Kentucky Fried Chicken is its main tourist landmark, the Zhongguancun district is easily one of China's most intriguing locales. Consider: there are many places in the world where a traveler may, by straddling a fence or a border, actually stand in two cities at once, two countries at once, or two time zones at once. But only in Zhongguancun can a person stand at the dead center of two opposing worldviews at once: of communism and capitalism, of a planned economy guided by an enlightened political party, and a market economy guided by the invisible hand. Zhongguancun - pronounced jong-gwahn-tsoon - is China's flourishing high-technology district, the home of 4,500 computer companies, most of them seat-of-the-pants startups trying to devise the world's next computer gadget or killer application that will put Bill Gates to shame. Wander down these streets and drop in almost at random in one of the storefronts. Take a side alley and peek in the small rooms. Or go into one of the superstores and stroll the halls. Any of these excursions will take you through a hive of software and hardware retailers and software technicians and engineers bent over keyboards or the opened guts of a PC or laptop, typing, fiddling, smoking, fiddling, smoking, typing. Zhongguancun is known to all in China as that nation's own 'Silicon Valley.' For the past three years, local and national party leaders have touted the district as the "next engine of economic growth" for the entire country, and as a cornerstone of China's next Five-Year Economic Plan. Yet any of the entrepreneurs or civic leaders who helped build America's own high-tech hub in California would be astonished to learn how China is building its own incubator of computing creativity. The mantra of the American Silicon Valley was the free market, free enterprise, and laissez faire: two guys in a garage, financed from their piggy bank and parents' loans, working to win validation from the marketplace. In Zhongguancun, by contrast, it is the Communist Party that is guiding the development of China's 'Silicon Valley,' step by step. Several towering new skyscrapers being built to house software and hardware companies are not being financed with company profits or private investment dollars, but tax money. There is a party headquarters building (the second most prominent landmark after the KFC) where any budding software designer must apply for a permit before setting up shop. And it is the Party that is doling out preferential financial policies designed to attract, nourish, and sustain young companies through lean early years. This last fact drops a hint that the 'two worlds' description of Zhongguancun, while very much accurate at the level of appearances, is somewhat less so when one begins to explore the place. What is actually happening is not two worlds existing side by side, but rather two worlds that are nested within each other, blending and mixing into one. To see this in action, say "Yes," just once, to one of the innumerable street hawkers in Zhongguancun who accost you and say "Want to buy a CD? Software, games, girls! Ten yuan, ten yuan!" They will swiftly lead you off the main street to an alley teeming with young and middle-aged men and women furtively darting into small rented first-floor rooms. In one such room I visited, a half dozen card tables were set with suitcases bulging with pirated CDs of every software program, game, and Hollywood and Chinese movie you could name. Lest you think this is not good evidence of a true mixing of Eastern and Western culture, remember what Bill Gates once said about the fact that millions of pirated Windows 95 CD's sold for pennies across China. Paraphrasing, he said: "If they're going to pirate, at least they're pirating Windows." To Microsoft, it's just about installing a user base. At the legal business level, too, there is plenty of evidence that for all its strict rhetoric about planning, managing, and guiding the development of the country's high tech sector, the Chinese government realizes that a largely hands-off policy is best for fostering true creativity and entrepreneurs. Indeed, many young men and women from around China are gravitating now to Zhongguancun to seek fame and fortune, aping the migrations of their Western counterparts towards the Silicon Valley stretching from San Francisco to San Jose. For those who make it, celebrity awaits. Wang Zhidong, for instance, now president of Sina.com, the most popular Chinese-language portal in China, started a tiny software company in the early 1990s called Stone Rich Sight after graduating from Beijing University. By developing one of the first programs for reading Chinese characters on the internet, Wang has become as much a celebrity in China as, say, Marc Andreeson has become in the U.S. for creating the first popular web browser (which later became Netscape). Popular magazines and Sunday supplements interview and write feature stories about Wang, and state-run TV is also said to be planning a movie about his rise from struggling student to internet star. Wang's first workshop and company headquarters was in Zhongguancun. That 20% of the companies in Zhongguancun are joint ventures with foreign firms is yet another sign of the inexorable mixing of the West and East that's transpiring in China's Silicon Valley. Microsoft, Sun, Intel, Oracle, Dell, Compaq, all the big players in the U.S. computer and software market are here in joint venture form. Reams of government announcements about its achievements and plans for Zhongguancun provide a quick snapshot of the place: an officially state-sponsored economic growth zone for the past 11 years, the total 4,500 companies includes 36 companies that clear more than the 100 million RMB ($12.2 million) per year in revenues. The district has grown 30% a year for the past 11 years, with all its companies totaling 45 billion RMB (US$5.5 billion) in sales. That includes 63 companies that pay more than 10 million RMB (US$1.2 billion) in taxes yearly, and 13 that have sold shares to the public via the Shanghai or Shenzhen exchanges. That Zhongguancun is located just next to two of China's greatest universities, Beijing University and Tsinghua University, is no coincidence. As early as the 1950's, the government, which runs the universities, subsidized a quasi-independent education and research facility in the area. Later, as a part of Deng Xiaoping's economic reforms in the mid-1980s, its focused shifted to high-technology research, and preferential policies were granted to startups much as they are in China's larger 'special economic zones.' The three biggest corporate inhabitants in Zhongguancun, all of which occupy their own flagship buildings, are the Lixiang Group, which makes China's most popular word processing and office software; the Fang Zheng Group, also a software maker; and the Beijing Stone (Group) Corporation, a personal computer manufacturer and distributor. All of these companies were formed largely by the faculty of the nearby universities who either were urged, or jumped at, the chance to get into business under the period of economic reforms initiated by Deng. A quote by Deng is often emblazoned across the top of government reports and press statements declaring its support of Zhongguancun: "Explore information resources as a way to serve the modernization of China." Yet for all the mixing of cultures, technologically and otherwise, that the success of Zhongguancun both embodies and symbolizes, there are still cautionary tales to remind one that, still in China, there are very much lines that must never be crossed. Wan Ren Nan, the entrepreneurial founder of the Stone Group, learned this all too well in 1989, when it was discovered that he had used part of the fortune he'd made to support the demonstrating students in Tiananmen Square. Once the students were crushed, Wan fled to Paris for his life. Still banned from China, unable to return despite the great contribution he made toward building China's own Silicon Valley, Wan now lives in New York.	Archive

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