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.

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!

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.

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.

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.

A new regulation placing restrictions on online payment providers with foreign investors is causing a headache to some of the leading Chinese Internet players.

Under the new regulation firms like Alibaba - which operates the world’s largest online marketplace for trade between businesses and China’s largest retail e-commerce platform - would finally be allowed to provide third-party online payment services.

The problem? Companies with foreign capital are excluded from the new regulatory framework. Alibaba’s AliPay (70% of the marketshare) counts Yahoo and Softbank among its shareholders. Many other Chinese Internet players who created offshore investment shells have similar foreign investor arrangements. In other words, the regulation which would have strengthened the local player ChinaPay and pre-empted Paypal has far broader implications: many Chinese Internet players will have to restructure their shareholding.

Wait a second…. Didn’t China Mobile, eager to get a pie of the online payment business, just recently take a minority in a domestic bank?

Remember Shanzhai? What used to be the celebration of imitation bordering on a cultural movement is now becoming a business model.

Tianyu, a contract-manufacturer-turned-handset-maker, is slowly but surely grabbing market shares from more established companies like Nokia or Samsung. In a few years, it has become the biggest local handset maker in China, shipping 55 millions units in the first quarter of 2010.

Its secret? First, a good knowledge of Chinese users’ needs. Their phones have small function-oriented designs and features, including ultraviolet light for counterfeit bills, dual SIM cards to take advantage of the best pricing schemes or loudspeaker for farmers. Second, the capacity to turn around quickly. Thanks to modular production, manufacturers like Tianyu are able to produce small batches (1000 handsets) and send them to the market. Within a fortnight production can be adjusted, keeping the full product life cycle below 6 months.

As usual, the question is whether such firms can survive in the long run. Previoulsy leading Chinese handset manufacturers (like Bird or TCL) were not really able to hold on to their competitive advantage as their established foreign rivals …imitated them.

What do ethnic groups, Xinjiang, Tibet, disaster prevention and Internet have in common? They were the themes of the Chinese government’s last white papers.

The most recent one - on the Internet in China - outlines in under 8000 words the current thinking of Beijing on what it calls a “significant technological invention of the 20th century and a major symbol of contemporary advanced productive force”. We are also reminded that the government ”energetically advocates and actively supports the development and application of the Internet across the country” through 4 policies: active use, scientific development, law-based administration and ensured security.

It may come as a surprise that the third section (out of six) is entitled “Guaranteeing Citizens’ Freedom of Speech on the Internet”. Don’t get your hopes too high up since it is followed by “Principles and Practices of Internet Administration” and “Protecting Internet Security”.

It’s anyone’s guess what the next white paper will be about.

It was a done deal: China Railway Construction (CRC) had been awarded the construction of the metro rail project to transport pilgrims between Mecca and Mina.

As with any major infrastructure projects there tend to be surprises. For instance the monorail project has been transformed into a conventional steel-wheel, steel-rail design. More importantly though, CRC will have to deal with a peculiar challenge: Mecca is off-limits to non-Muslims.

The traditional business model for the Chinese overseas infrastructure projects rests on importing [cheap] Chinese labor. While hiring non-qualified labor shouldn’t pose too much of a problem, the trick will be, according to one of the contractors “to find qualified Muslim railway engineers to supervise the work - at least for the restricted area”.

Since there is no exception to the rule, this maybe the time to set up an engineering school in Xinjiang!

A recent report from the Boston Consulting Group reveals some interesting trends about China’s “digital generation”: Chinese netizens are said to spend about 1 billion hours online each day - that’s more than double the daily total in the USA. They also seem to have “leapfrogged” over e-mail - only 53% actively use e-mail - preferring instead instant messaging services such as QQ.

Social networking services (SNS) also appear to be extremely popular. Happy Farm puts players in the boots of farm owners. They have to do all the work of cultivating, irrigating, fertilizing, spraying, harvesting and selling crops but the most enjoyable activity appears to be stealing crops from other virtual gardens - toucai (stealing cabbage) turned out to be the most searched-for word on Chinanews.com in 2009…

Newsweek has attributed the craze for the game (and its clones) to a nostalgia for China’s traditional agrarian way of life. Apparently some urban dwellers have even started leasing farmland and are building vegetable plots across South China. Not sure that this will be the tool that (re)-connects the urban areas with the countryside or reduce the growing income gap. At least it will make “cityzens” more aware of the difficulties to tend land.