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8/29/2005
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China Eyes 'Creative' Industries In IP Push

A recent influx of technology-related funding provides a look into where the country is trying to get, miles away from its reputation for low-cost manufacturing.

MANHASSET, N.Y. — Critics call China's policy of promoting industrial revitalization and scientific and technological innovation "technonationalism"; others see the sparks of the next Asian Miracle. Either way, expect to see "Designed in China" labels replacing the more prosaic "Made in" variety that has been migrating from nation to nation in Asia since the end of World War II.

As China reaches beyond its reputation as a destination for low-tech, ultralow-cost manufacturing, assembly and design, the country is getting creative. The turning tide of strategic industrial development in China has brought a surge of government support for innovation and an influx of investment from the West.

And in a sea change, the activity is focused on the market potential at the top of the food chain — what one industry watcher called the "creative, high-value intellectual-property industries."

The recent announcement by Intel Corp.'s China Technology Fund of its first venture capital placements in the country hint at this shift upward in venture funding for technological innovation.

Indeed, the flow of funds from VC firms as well as top Silicon Valley companies is reaching promising startups across China. Against that backdrop of offshore interest, China's national and regional development agencies are accelerating their own efforts to promote homegrown up-market innovation and development in consumer electronics, digital media and the related creative industries — video games, animation, advanced computer graphics and multimedia communications.

Next week, the municipality of Beijing and the Zhongguancun Technology Zone will host The China International Creative Industry Forum, a high-profile conference focused on building bridges between China's growing digital-content industries-especially electronic gaming and animation-and the outside world. China's Ministry of Science and Technology, the national Ministry of Education and the People's Government of Beijing are sponsoring the summit. Analysts expect China to become a proving ground for breakthroughs in such areas as networking equipment and wireless Web services, with attendant implications for the global standards process and the deployment of new hardware, software and services.

Certainly, the sheer size of the potential market is a driver. China is home to 350 million cell phone subscribers, with the total expected to reach 600 million in four years. In only two years, meanwhile, China's base of Internet connections is expected to surpass the size of its U.S. counterpart. Those two factors are expected to intensify the country's demand for the most advanced telecom, digital-media and mobile-media features.

"We will see China in a few years going from being a follower to being a leader in defining consumer electronics trends," Philips Semiconductors executive vice president Leon Husson said in a recently published interview.

"China's recognition of the importance of the creative industries to industrial development is strategic," said Etan J. Ayalon, managing director of technology tracker GlobalTech Research LLC (New York). "The government's interest in this aspect of technology development goes well beyond just fostering growth of a domestic game-development industry. Its creative-industries emphasis cuts across all creative, high-value intellectual-property industries-not just movie production, animation, software and semiconductor design, but also biotech, nanotech, alternative energy [fuel cells] and other technology areas."

Ayalon called the effort "part of a worldwide trend," adding that "technology development is proliferating and decentralizing" around the globe and that "companies, regions and nations are trying to move up the IP value chain, recognizing that much more value comes from IP creation than from incremental improvements in efficiency, distribution, etc."

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