China’s great myths

The Grouch often shakes his head at the conclusions of air-puffing analysts and postulating pundits on China’s technology scene. Sometimes he wonders what the China watchers are watching. World’s Wildest Police Chases? Liverpool vs Tottenham? Their collective eye certainly isn’t on the ball in China.

So the Grouch thought he would help deflate a few myths surrounding the tech scene north of Lo Wu.

Myth 1. The IBM/Lenovo deal proves Chinese companies are now international players-expect more monster-mergers as China’s prosperity skyrockets.

Wrong and wrong. To date, Lenovo, formerly Legend, has sold the vast majority of its computers in a highly price-sensitive market, backed by the Chinese government with generous loans and tax breaks.

Neither was the deal orchestrated by Lenovo. IBM decided to axe its unprofitable stake in the increasingly commoditized PC business. And most analysts agree that the US$1.25 billion Lenovo shelled out was over the odds.

Lenovo’s move aims to give it an international presence it previously lacked, including distribution channels in foreign markets. The move is in line with a general feeling in corporate China that the country’s economic power means that Chinese companies should enjoy the same stature as their Western counterparts. But brand and service count as well as price among consumers worldwide.

Myth 2: Linux will be huge in China.

The Grouch knows this guy who heads an IT department at a state-run Chinese publishing house. To leverage the cost-benefits of open-source software, said guy decided to migrate of the publisher’s electronic communications and Web sites to a Linux-based system. The software’s free, he explained. His Chinese counterpart looked at him and said, with a straight face, “but in China, all software is free.”

The driving force in China’s technology industry is piracy. Knocking off and reverse-engineering foreign products and making unlicensed use of foreign technology is the state of the nation. That’s not a value judgment but a simple statement of fact.

If all software is free (or extremely low-cost), then businesses and consumers don’t want some free system that they’ll have to download, install and configure. This is why Apple hasn’t a prayer in China for a wide audience-pirated Apple software is hard to find, meaning the platform is limited to creative types who usually buy their machines overseas.

With price a non-issue, businesses and consumers want an operating system that will run the software they need for work or play. For that reason, the OS of choice in China is Windows. Pirated copies of simplified Chinese XP are cheap and generally reliable (as reliable as Windows can be), as are Office, Age of Empires, and a host of other applications. Played any good Linux games lately? Of course not. Found an open-source word processing software that works well with Word? Didn’t think so.

When China announced that it would migrate government departments to Linux, many expected a Linux boom. But the country still lacks a sufficient number of technicians who can work on open-source systems. The money is in maintaining Windows-based systems, and in China, you go where the money is.

That Red Hat waited until late 2004 to open their China office should tell us a lot about Linux’s progress in China.

Myth 3: Piracy could be reduced in China if the government would enforce some of its existing intellectual property laws.

China’s hybrid system of central planning and market economics means that most of the top companies in any industry are often owned by, run by and/or controlled by government officials. This means that policymakers have a direct economic stake in the policies they create.

It’s an open secret in China’s entertainment industry that the distributors of legitimate material are also the pirates. If they weren’t, there would be no economic incentive whatsoever to handle the relatively expensive limited selection of government-approved titles in film and music.

The same is likely true in software distribution. With legit copies of Windows selling in the neighborhood of US$250 or more, and pirated versions going for US$6 and costing about US$1 to produce, which one’s going to sell more? Forget margins-if a distributor sells a bogus copy, part of that revenue is lining the pockets of a government official, or his son, brother or buddy.

Until China creates an economically secular government, piracy will be the norm rather than the rule. The Chinese government is not going to make a significant change unless there is a measurable benefit for China, and when it comes to stamping out piracy, at this point there simply is none.