For now, the bulk of China's high-tech production will probably serve the local market, which alone is huge and growing faster than other regions. That is why Lau and others liken China to 19th century America rather than other Asian countries, which depend mostly on export businesses.
Gartner's Hayward believes this inward looking trend is likely to continue.
"There is a heavy emphasis on importing technology so as to adopt it for themselves - and create replacement industries," Hayward said. "Most of the beneficiaries of the boom in China are going to be the Chinese."
However, the opportunities for foreign companies should be underestimated.
"Eighty percent of our semiconductors get imported from out-side," said Dai Haibo, CEO of Shanghai Zhangjiang High-Tech Park Development Corp, an industrial park catering to semi-conductor manufacturing that counts Applied Materials and Lam Research among its tenants. "In 20 years if we have 20 more production (sites) we still won't have enough."
In five years, half of Zhangjiang's tenants will be Chinese companies and the other half will be outsiders, but a projected 70 percent of the park's output will come from overseas manufacturers.
Exports will grow as well because of low labour costs. A notebook costs US$25 less to manufacture in China than in Taiwan, said Carter Tseng, CEO of Microtek, a major scanner manufacturer.
Scanners cost US$8 less to produce. Nearly every Taiwanese manufacturer has or is investing in factories on the mainland, said David Lin, CEO of Lite-On, the second-largest optical drive manufacturer world-wide.
Taiwan produces about half of the world's notebooks and one-third of its desktops annually, so a large portion of US hardware will inevitably come from the mainland in the future.
Last September, Dell Computer shifted its Japanese manufacturing to China. Microsoft's Xbox is built, but not sold, here. Intel also assembles Pentium 4s, chipsets and flash memory in China for worldwide consumption.
Government obstacles
The enthusiasm, though, is tempered by risks and bureaucratic stumbling blocks. Chinese law imposes tariffs, restricts foreigners to certain sales regions, mandates sales caps, and forces some companies to enter into joint ventures with Chinese companies, among other restrictions.
There is also some confusion as to the extent and nature of government restrictions on the ICT market.
For example Australia's Trade Commissioner in Beijing Barbara Hilder says restrictions are only placed on vendors selling into the Government and Military sector, Gartners's Hayward points out that many software vendors are required to be registered with the government, a task he says is difficult for non-Chinese companies.
It is also widely recognised that Government officials also need to be courted. Establishing personal connections within the bureaucracy, hiring locals, and working closely with regional universities and companies are often crucial to success.
"You need to deal with the government a lot more than in other countries," Intel's Tan said. "On the positive side, the government is totally aware of how important IT is to the country."
Nonetheless the barriers appear to be dropping.
Membership in the World Trade Organisation is forcing the Beijing government to redraft laws in the next four to six years, and Chinese officials--especially younger ones-- have become increasingly serious about enforcing them, said Jian Daning, director of the Shanghai
Waigaoqiao Free Trade Zone, an industrial park run by the government and created for foreign corporations.
"Many previously nationalistic requirements will have to be changed," noted Jian, who said he is on the youthful side of a ministerial generation gap in Beijing. "The changes will be rapid. There will be a lot of changes in the next three to four years."
Getting products through customs, for instance, used to take 72 hours. When the government learned that Malaysia could process imports and exports in eight hours, it set a goal of processing goods through customs at ten hours in general and six hours for IT products.
China also understands tax benefits. Nortel Networks, Intel, IBM and other companies inside Waigaoqiao don't pay income taxes for the first two years of operations and half the standard 15 percent for three years after that. Last year, the park accounted for industrial output worth US$10 billion, with 80 percent of the volume coming from IT companies. All are excluded from export and VAT (value added tax).
In addition, government officials are seeking advice from their for-eign business partners. Nokia CEO Jorma Ollila, Ericsson CEO Kurt Hellstrom and Matsushita Electric Chairman Yoichi Morishita all serve on the Business Leaders Advisory Council to the mayor of Beijing, a position that requires them to visit the capital at least once a year. Microsoft, in particular, has become more attuned to local politics.
Piracy prosecutions and the use of Taiwanese translators on the Mandarin versions of Windows have rankled Chinese consumers in the last decade. In late 1999, the company's former general manager, Juliet Wu, wrote a tell-all book about Microsoft's business practices in China that became a bestseller.
Since then, Microsoft has worked to better ingratiate itself. A meeting two years ago between Microsoft CEO Steve Ballmer and Premier Zhu Ronghi led to the creation of Censoft and Wicresoft, two new software services companies owned jointly by Chinese companies and the Redmond, Wash., giant. Censoft began operations in April while Wicresoft will open in July, Microsoft's Tang said.
