US technology companies helping to fuel their own destruction

WHEN THE BRITISH first began to make a determined effort to trade with China some four hundred years ago the East was seen as a phenomenal trade opportunity. Only problem was, the Chinese didn't quite share Britain's interest in beginning trade negotiations. Where the Chinese possessed numerous goods that interested the West (tea, silk and porcelain are three excellent examples), the Chinese arrogantly rejected any idea that the British had any technological advancements or goods that the Chinese could possibly need. Finally, desperate to correct a growing trade imbalance thanks to the popularity of tea, the British began importing opium in huge quantities into China—addicts may not be much else, but they are highly reliable as customers.

In the short run Britain gained its favorable trade situation, and the Opium War created a West-dominated China where various foreign powers struggled for supremacy. China was treated as an asset, not a nation. It was, to be sure, a particularly valuable asset—but it wasn't much more. It's not very surprising, therefore, that the Chinese rejected Western ideals and principles, ultimately founding the People's Republic of China in 1949 based firmly upon Marxist-Leninist doctrine, and utterly opposed to the capitalistic West.

Today, China is seen by many as an incredibly lucrative market, even more so than it was four hundred years ago. With a population of 1.3 billion (with over a billion more sitting in India not so far away) the East and Indian Peninsula contain over a third of the world's population, the vast majority of which do not possess many of the conveniences modern technology has made common in the US and Europe.

With China continuing its rapid drive towards modernization and the amount of trade between it and the West increasing, Chinese markets could be incredibly lucrative for almost any Western firm, but in particular for IT firms, as both IT people and equipment are in high demand.

Consider this: A 25% market penetration for either Intel or Microsoft would give both of these firms an additional 325 million users—25% more than the entire US population today. Toss India into the mix (at the same 25% market share) and that's 575 million customers. If we assume Dell could penetrate 10%, that's an additional 230 million systems sold. Numbers like that would recall the boom days of the 1990s when computers sold hand over fist and would utterly rejuvenate the Western tech industry.

The problem, at least for Eastern-looking corporations, is that China apparently has other plans. Rather than rolling over and meekly submitting to the Wintel alliance, China has pushed ahead with its own CPU research, launching its own Dragon CPU last November. While the Dragon CPU is only running at about 260 MHz currently, China has important plans for its semiconductor industry, as its military has already rejected the use of foreign CPU's in military hardware. Similarly, the Chinese military will not be deploying a Windows OS environment, and has already begun working on an "official" version of Linux. There are rumors that they've cloned the Alpha as well, and may be building a CPU designed to be pin-compatible with the Pentium 4.

China does, however, have a problem: At the moment it lacks the infrastructure to accomplish its ambitious goals, and it lacks the requisite number of technologically-trained people. Establishing (seemingly) strong relations with US IT firms could easily gain them both. By granting just enough trade concessions to appear conciliatory and opening markets just enough to entice foreign investment, China could enrich both its knowledge of cutting-edge semiconductor technology and the overall training level of its IT staff in one stroke.

Companies, in return, seem eager to give ground to Chinese demands (requests)—we've already seen Microsoft agree to open its Windows source code to China after telling US senators that doing so would constitute a threat to national security.

There's nothing wrong with trading with China, and all trade negotiations are give and take, but IT firms who choose to dance with the dragon should be aware that their chosen partner is an ambitious, proud, and determined country which viewed itself as a center of civilization surrounded by barbarians for thousands of years. This attitude still persists in some ways and could make China a very strong adversary/competitor. µ