No longer satisfied with low-skilled manufacturing, China is nurturing high-tech companies, like Hasee Computer in Shenzhen.

By DAVID BARBOZA

SHENZHEN, China - Few people have heard of the BYD Corporation - BYD for Build Your Dream - but this little-known company has grown into the world’s second- largest battery producer in less than a decade of existence. Now it plans to make a great leap forward: “We’d like to make a green energy car, a plug-in, said Paul Lin, a BYD marketing executive. “We think we can do that.
Even in a fast growing China, such lofty aspirations may sound too ambitious. But BYD has built an auto assembly plant here and hired a team of Italian-trained car designers; it plans to build a green hybrid by the end of the year.
No longer content to be the home of lowskilled, low-cost, low-margin manufacturing for toys, clothes and other goods, Chinese companies are trying to move up the value chain, hoping eventually to challenge the world’s biggest corporations for business, customers, power and recognition.
The government is backing the drive with a two-pronged approach: using incentives to encourage companies to innovate, but also moving to discourage low-end manufacturers from operating in southern China. That step would reverse one of the crucial engines of this country’s spectacular economic rise.
But by introducing tougher labor and environmental standards and ending tax breaks for thousands of factories here, the government has sent a powerful signal about its global ambitions, and helped encourage an exodus of factories from an area long considered the world’s shop floor.
President Hu Jintao hinted at China’s vaulting ambitions during a meeting of China’s scientific elite last June at the Chinese Academy of Sciences, where he called on scientists to challenge other countries in high technology. “We are ready for a fight, he said, “to control the scientific high ground and earn a seat on the world’s high technology board. We will make some serious efforts to strengthen our nation’s competence.
Government policies now favor hightech economic zones, research and development centers and companies that promise higher salaries and more skills. A computer chip plant being built by Intel in the northern city of Dalian is welcomed; a textile mill churning out $1 pairs of socks is not.
“When a country is in its early stages of development, as China was 20 years ago, having an export processing center is good for growth, said Andy Rothman, a longtime China analyst at CLSA, the investment bank. “But there’s a point when that’s no longer appropriate. Now, China’s saying, ‘We don’t want to be the world’s sweatshop for junk any more.’
Chinese firms are expanding into (or buying companies that work in) software and biotechnology, automobiles, medical devices and supercomputers. This year, a government-backed corporation even introduced its first commercial passenger jet, a move Beijing hopes will allow it to some day compete with Boeing and Airbus.
World-class brands that have grown dependent on outsourcing labor-intensive production to China are now searching for alternatives. Even the retail behemoth Wal-Mart, which moved its global procurement center here to Shenzhen in 2002, is going to be forced to find new sourcing channels to fill its 5,000 stores worldwide.
“Basically the cost of things China produces for Home Depot and Wal-Mart are going up, said Dong Tao, an economist at Credit Suisse. “But there is another side. In some areas that China’s going to grab, like telecom equipment, they’ll push prices lower.
Economists say China’s development is following in the footsteps of Japan and South Korea, which successfully evolved from low-skilled manufacturing to high technology, services and the creation of global brands.
There are still plenty of obstacles here, including weak intellectual property rights enforcement and a culture of copying or stealing technology from foreign companies or joint venture partners. But experts point to positives like a rising aggressive entrepreneurial class, legions of newly minted science and engineering graduates and a fiercely competitive domestic marketplace.
Peter J. Williamson, a professor of management at Cambridge University, challenges the notion that China does not have technological know-how.
“They are some of the biggest in launching satellites. They have a lot of technology locked up in the military, and now the government is reducing budgets and pressing agencies to privatize, he said. “So suddenly, a lot of technology people thought didn’t exist has come out from behind the curtain.
This is what China is betting on.