Monthly Archives: July 2010

Nanoscience or megawaste?

Turning developing countries into significant R&D players has occupied the minds of policy-makers and academics alike. So when a once-in-a-millenium case study comes around, it offers plenty of opportunities to investigate how easy it is to catch up with the big league of R&D nations.

In a recent working paper two scientists assess China’s progress in nanotechnology. The results are striking. On one hand in less than a decade the number of Chinese nanotechnology publications have grown to outnumber those from Japan accounting for close to 20% of the world’s nano-related publications. On the other hand the number of Chinese nanotechnology patents remains below 1%, a clea indication that the linkage between academia and the market needs improvement.

A second set indicator reveals interesting differences between China and the leading science nations. In China, the government bears the brunt of the expenses (corporate money accounts only for a third of total invesment). In the other countries the private sector more often that not invest as much – and sometimes twice as much as in the USA – as the government.

So far China has managed to accumulate a lot of scientific knowledge (and spent a lot of money). Let’s hope that it does not all go to waste.

The red machine

In his fascinating account of the Chinese communist Party, Richard McGregor describes a particular telephone found on the desk of a few and select Chinese: the red machine.

The devices are part of an encrypted, closed system connecting the 300 or so top party officials who run China. They are also given to the CEOs of the 50-or-so largest state-owned enterprises, ensuring that top management does get out of touch with the Party’s leadership.

As a sign of the times, in some large state-owned enterprises another artefact sits next to the antiquitated device: a screen giving the stockprice of the firm’s overseas listed entities!

Heparin billionaires

For a short while in May 2010 Mr Li and his wife held the title of China’s richest couple. Thanks to an IPO on the Shenzhen stock exchange their shares in Hepalink Pharmaceutical – a biotech ompany producing an anti-coagulant from pigs intestine - was valued at more than USD 6 billion.

On one hand it may appear surprising. Seldom did a biotech firm in China attract so much interest from investors. More importantly heparin suffered from a contamination scandal in 2008 raising scrutiny from drug safety agencies in the United States and Europe. On the other hand, stockholders may feel that their money is well invested. The firm supplies Sanofi-Aventis, Novartis and other global pharmaceutical firms. Not least, Goldman Sachs had purchased 12.5% of the firm in 2007.

The shift to notice here is that it is one of the first time that a Chinese billionaire is created in a high-tech sector. So far, they were to be found in more traditional sectors like real estate or car manufacturing.

187.51

A new ITU telecommunication standard? The end of an IP address? Not quite, 187.51 is the bill of materials in USD for the iPhone 4.

Like with other IT hardware final assembly takes part in China but only after a long and intricate supply chain extending across the globe. Micro-chips come from Germany and Korea, Wi-Fi chips come from the USA and the touch screen module from Taiwan.

It comes to little surprise that the smallest part of Apple’s iPhone costs are in China. Labor entering the assembly is estimated at around 7% of total production cost while a dozen IC chips account for about 66% of total cost. In other words, much of the value-added is captured at the beginning and end of the process, i.e. in the R&D and branding.

Now that raising wages of assembly workers seems inevitable and in spite of the low value of labour costs some contract manufacturers are planning to move away from the Shenzhen area to the interior of the country. This process of delocalisation has a historical twist: Mao had initiated a similar delocalisation (dubbed “Third Front“) in the 1960s. At the time the rationale for retreating to the hinterland was to preserve the Chinese industrial base from… a nuclear attack.

U[n]sual suspects in the Top Tech 100

Who heads the Business Week “Top Tech 100″ in 2010?

Apple? IBM? This year the ranking is topped by a Chinese manufacturer of rechargeable batteries, mobile handset components and cars. BYD - which stands for “Build Your Dreams” – can of course count on a “healty” growth of the car industry. BYD has plans to introduce a hybrid and a pure electric sedan in the Chinese, US and European markets by 2011. 

In less than a decade BYD managed to become the #2 manufacturer of rechargeable batteries. Not bad in a capital and technology intensive industry – something which doesn’t usually play to the advantage of labour-intensive firms. Its secret? The firm spend its R&D budget both on product improvement and manufacturing process improvement. For instance, BYD designed a new battery production method replacing robots by labour force that give a significant cost advantage over its foreign competitors. 

BYD appeared so promising that Berkshire Hathaway acquired 10% for USD 230 million in 2008. It comes to no surprise that Buffet’s investment has been multiplied by 7 since then.

P.S.: For those wondering, the third place – just behind Apple – is held by Tencent, China’s #1 online gaming operator and host of Happy Farm.