The rise of China\'s Communism 3.0

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By introducing tougher labor and environmental standards and endingtax breaks for thousands of factories here, the government has senta powerful signal about its desire to have Chinese companies moveup the value chain, and also helped fuel an exodus of factoriesfrom an area long considered the world's shop floor.
President Hu Jintao hinted at the Olympic-sized Chinese ambitionsduring a meeting of the country's scientific elite last June at theChinese Academy of Sciences, where he called on scientists tochallenge other countries in high technology.
"We are ready for a fight to control the scientific high ground andearn a seat on the world's high technology board," Hu said. "Wewill make some serious efforts to strengthen our nation'scompetence."
Government policies now favor high-tech economic zones, researchand development centers and companies that promise higher salariesand more skills. A computer chip facility being built by Intel inthe northern city of Dalian is welcomed; a textile mill churningout $1 pairs of socks is not.
"When a country is in its early stages of development, as China was20 years ago, having an export processing center is good forgrowth," said Andy Rothman, a China analyst at the investment bankCLSA. "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 junkany more."'
Chinese firms are expanding into (or buying companies that work in)software, biotechnology, automobiles, medical devices andsupercomputers. Earlier this year, a government-backed corporationeven rolled out its first commercial passenger jet, a move Beijinghopes will allow it to some day compete with Boeing and Airbus.
In some ways, the government is only riding the currents that comewith strong economic development. For instance, many manufacturersin southeast China, the country's biggest export zone, are movingto the interior, where land and labor costs are cheaper, orexpanding operations to lower-cost countries, like India, Vietnamor Bangladesh.
World-class brands that have grown dependent on outsourcinglabor-intensive production to China are now searching foralternatives. Even the huge retailer Wal-Mart Stores, which movedits global procurement center to Shenzhen in 2002, is going to beforced to map out new sourcing channels to fill its 5,000 storesworldwide.
For millions of consumers around the world, experts say the policyshift could also mean higher prices for a broad array of goods frompens and hammers to dolls and running shoes.
"Basically the cost of things China produces for Home Depot andWal-Mart are going up," said Dong Tao, an economist at CreditSuisse. "But there is another side. In some areas that China'sgoing to grab, like telecom equipment, they'll push prices lower."
Economists say the economic development of China is following inthe footsteps of Japan and South Korea, which successfully shiftedfrom low-skilled manufacturing to high technology, services and thecreation of global brands.
There are still numerous obstacles here, including weak enforcementof intellectual property rights and a culture of copying orstealing technology from foreign companies or venture partners. Butexperts point to positives like a rising aggressive entrepreneurialclass, legions of newly minted science and engineering graduatesand a fiercely competitive domestic marketplace.
Peter Williamson, a professor of management at CambridgeUniversity, challenges the notion that China doesn't havetechnological know-how.