High-tech fair shows China bopping up value chain

SHENZHEN, China (Reuters) - Music pumps, lasers flash and women with antler-like hairdos and white vinyl skirts strike poses on a stage to advertise, not the latest fashions, but new mobile phones.

Anything goes at the annual China High-Tech Fair, where everything from giant liquid crystal displays to the latest in microchips are on display, a showcase of China's determination to climb the value chain and become a more sophisticated developer and marketer of higher-tech products.

The vast fair in the southern boomtown of Shenzhen has big names and small alike, with industry leaders such as home electronics maker Haier, PC maker Lenovo and telecommunications equipment supplier Huawei jostling alongside tiny, unknown firms.

The small guys, in particular, are keenly aware they could face extinction in a competitive market if they try to remain just manufacturers of cheap, low-cost goods for other companies.

Even firms in northern China's Hebei province -- hardly the tech hub that Shenzhen or Shanghai have become -- feel the heat.

Liu Baozhong, an overseas salesman for Hebei-based Jiya Electronics, a producer of tiny digital displays, says the firm, which makes 200 million yuan (US$24.7 million) in revenues a year, is being forced into higher-end products to survive.

"Monochrome screens will be around for a while, but our direction is colour," Liu said. "There are more and more factories now, and the barrier to entry for monochrome screens is very low."

Government and industry representatives were on hand from around China, including Shanxi, a poor northern province famous for little more than its noodles, vinegar and, above all, coal, which now accounts for around 70 percent of its economy.

"There is a lot of money in coal, but the pollution is horrible. Everyone knows it," said provincial official Liu Sasha. "This is a very good opportunity. If we stayed in the province and never came out, that wouldn't be any good."

What does Shanxi have to offer on the high-tech front?

"One thing that we do is a gas warning system for coal mines," she said. "It's really been well-received here."

It is a product with a vast potential market in China, home to the world's biggest mining industry, and its deadliest, with some 6000 people killed in accidents each year.

China competes

Overseas players and their joint ventures still account for most Chinese high-tech exports, but local firms are no longer content to just pump out cheap circuit boards and simple machine parts.

Their efforts are starting to pay off, and high-tech centres such as Taiwan are watching China start to eat into their game.

Consider one of China's leading telecoms equipment makers, Shenzhen-based ZTE Corp, which is making an overseas blitz as it climbs the rungs of the value ladder.

The firm's international sales more than doubled to 3.18 billion yuan in the first half of this year compared to a year earlier, while overall turnover rose just over one percent. ZTE aims to boost overseas sales to 40 percent next year from about 30 percent of total turnover now.

"We are seeing R&D budgets go up across a number of industries. We are seeing companies add skills that they did not have in place before to round out their product lines or even create more original product creations," said Tom Manning, chairman of business consultancy China Board Directors Ltd.

"There's certainly no reason why Chinese companies will not be amongst the most inventive in the world."

That prospect has places such as Taiwan worried. Every major Taiwanese technology company has operations in China now and the government has restrictions on what kind of technologies its companies can export across the Strait.

At the tech fair, Joy Liu from the Taipei World Trade Center is manning two huge booths marketing Taiwan's best products, from bicycles to flat screen computer monitors.

"You can't say that China doesn't compete," she says. "I think the whole world is the same, it's not just Taiwan. We just have to keep innovating."

Meanwhile, Chinese companies are innovating, too.

Long accused of copying the industrial designs of foreign products, some mainland companies are now turning the tables.

Beijing-based UNITOP New Technology Co Ltd, which makes infrared touch screens using a proprietary technology, says a Taiwanese company tried to copy one of their screen designs.

"When you see their product, you can see the resemblance in the architecture," said North American sales manager Edward Wang. "I think with business across the Straits developing, this sort of thing will become quite common."