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Issue 28, November 2010
Welcome!

This newsletter is a monthly supplement to ChinaAnalysis.Com, a new website that aims to promote knowledge sharing in China-related analysis. This newsletter contains original content and may not be reproduced without exclusive written permission. If you have any questions, comments and suggestions, please email support@chinaanalysis.com.

ChinaCompass - China's High-Speed Railways: A Work of the Ministry?

Earlier this year, in newspapers, on TV, and over the Internet, China’s state media triumphantly announced the country’s breakthrough in high-speed trains. According to reports from Xinhua, China’s state news agency, China now has the world’s “longest high-speed railway tracks, fastest high-speed trains (running at 380 km/h), and largest scale of high-speed railway under construction”.

How have foreigners responded to these announcements? In March, soon after the Chinese media blitz, Japanese business executives criticized the Chinese for “steal(ing) technology and compromis(ing) safety (in speedup)”. In April, newspapers like The New York Times worried about IP issues as China was expected to export its high-speed trains. In October, when the California governor Arnold Schwarzenegger was on a shopping tour to buy low-costs Chinese bullet trains, The Financial Times wrote a long editorial piece on “how China digests (or steals?) the technology” (October 8). However, none of these responses questioned the content of the Chinese claims. Indeed, China’s leadership in high-speed railway systems seems to be well-founded.

The fear is that the Chinese will take over one industry after another by implementing similar “digesting” strategies, defined by China’s Ministry of Railway as improving and innovating on the basis of imported foreign technologies. Those who are familiar with China’s history of technology development over the past thirty years would doubt such a quick conclusion. From the late 1980s, Chinese officials began to talk about the so-called digesting strategies, based on imitating the successes of Japan and South Korea. Yet, from automobiles to pharmaceuticals to semiconductor chips, many of China’s expensive state projects have failed.

It is rare for the technology import and digest projects to be conducted by a strong arm of the government. In the case of rail transport, however, the Ministry of Railway owned the country’s entire railway system, plus dozens of super-large state-owned train makers with annual sales of billions of RMB. The railway system is essentially a national monopoly, which enabled it to act like a business group in collectively and aggressively bargaining with foreign partners, Germany’s Siemens, France’s Alstom, Japan’s Kawasaki Heavy Industries, and Canada’s Bombardier. Lured by the world’s largest high-speed railway market, the four foreign companies compete with each other so fiercely that they are all suspected of transferring to the Chinese more of the advanced technologies than they had agreed to provide.

In many other technology-digest projects conducted by weaker ministries, China’s decentralized development pattern gave enormous incentives to local governments to foster growth, but it also created too much governmental competition, manifested in greater concessions to attract multinationals. Such competition generally undermined the state’s ability to leverage China’s big market in bargaining with the powerful multinationals. Before the success of high-speed railways, the norm of the Chinese state technology-digest projects was to pay a lot and only get a little.

The other difference in railways is the technological sophistication of the Chinese firms involved. Historically most Chinese state-owned enterprises (SOEs) were badly managed, at least before the major restructuring of SOEs in 1998. Many of the SOEs involved in state projects had little capability to learn new skills or engage in technology upgrading. But railways were different because of a history of attempts to learn from abroad. As early as 1990 the Ministry of Railway began sending engineers to France and Japan to learn the high-speed technology. The first Chinese home-grown high-speed model was a system called “Spring City” developed in 1998 in a state lab located in a ministry-owned SOE. The “Spring City” engineering team was subsequently involved in developing the China Star of 2002 and in later technology transfer programs. As a result, a few of the SOEs in railways were technologically quite sophisticated before entering the digest project.

In sum, the main reason for China’s success in high-speed trains is the Ministry of Railway’s system of innovation.

Top News of Last Month
Oct 05 China poised to become global innovation leader
Oct 08 China denounces award of Nobel Prize to dissident
Oct 15 CPC Central Committee starts session to determine next five-year development
Oct 16 Thousands in China, Japan rally over island claims
Oct 18 China's vice president on track to become next leader
Oct 24 China protecting strategic interests with rare earths policy
Oct 24 Guangzhou tops Forbes China list of best places for business
Oct 26 Fast train, big dam show China's engineering might
Oct 27 China to nurture 7 new strategic industries in 2011-15
Oct 30 China Unveils World's Fastest Supercomputer
 
New Books
China, India and the International Economic Order

Edited by Muthucumaraswamy Sornarajah and Jiangyu Wang

"With contributions by a variety of internationally distinguished scholars on international law, world trade, business law and development, this unique examination of the roles of China and India in the new world economy adopts the perspectives of international economic law and comparative law. The two countries are compared with respect to issues concerning trade and development, the World Trade Organization, international dispute settlement, regional/free trade agreements, outsourcing, international investment, foreign investment, corporate governance, competition law and policy, and law and development in general. The findings demonstrate that, though their domestic approaches to economic issues diverge, China and India adopt similar stances at the international level on many major issues, recapturing images which existed during the immediate post-colonial era. Cooperation between China and India could provide leadership in the struggle for economic development in developing countries.”- from Cambridge University Press
 
Red_Engineers

Edited by Zhiqun Zhu

“Despite the significant progress it has achieved, China faces daunting challenges today. These challenges include a rigid political system, uneven economic growth, a graying population, environmental degradation, ethnic tensions, potential social instability, and a poor international image, among others. This book aims to make a significant contribution to the understanding of key challenges China faces today as it strives to become a global power. Contributed by scholars and experts in political science, international relations, economics, public administration, history, mass communication, psychology, and diplomacy, the book focuses on the efforts needed by China to grow in a sustainable manner and become a respected global power.”- from World Scientific Publishing
   
The Perils of Proximity: China-Japan Security Relations

By Richard C. Bush

“The rivalry between Japan and China has a long and sometimes brutal history, and they continue to eye each other warily as the balance of power tips toward Beijing. They cooperate and compete at the same time, but if competition deteriorates into military conflict, the entire world has much to lose. The Perils of Proximity evaluates the chances of armed conflict between China and Japan, presenting in stark relief the dangers it would pose and revealing the steps that could head off such a disastrous turn of events.”- from Brookings Institution Press
 
Upcoming Events
Nov 09 - Nov 13 China International Industry Fair
Nov 16 - Nov 21 China Hi-Tech Fair
Nov 25 - Nov 25 HR Conference 2010-2011
Nov 30 - Dec 02 Anticorruption China
Dec 11 - Dec 12 The Third Conference on Strategy and Marketing
 
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