Communications of the ACM
Transforming China
Introduction
In the 19th century, Napoleon Bonaparte predicted "When China awakens, it will astonish the world." China's recent stirring from its centuries-old slumber has far-reaching implications for international business and politics, as well as for science and technology development.
For much of the last two millennia, China was one of the world's greatest economies and most technologically advanced societies. In recent centuries, however, the Middle Kingdom stagnated as other parts of the world experienced the Enlightenment, the Industrial Revolution, and the emergence of computer-based IT. Since paramount leader Deng Xiaoping opened China's door to the outside world in 1979, an infusion of market economics, foreign capital, and modern technology has been restoring its historical prominence [8]. From a global perspective, the country has gone from near irrelevance during the 1960s to being quaint, exotic, and inscrutable before emerging as a heavyweight. The Beijing Olympic Games in 2008 will celebrate the country's latest rise and represent an important milestone in its transformation from isolated Maoist state to full-fledged member of the international community.
More than any other country, China is being transformed by its application of IT, from a poor and isolated society to a major force in the global economy.
With rapid industrial development and a market of more than 1.3 billion increasingly prosperous consumers, the expected rewards of doing business in China are now widely viewed as outweighing the risks of investing capital there. It is already the world's biggest market for many commodities, including cement and steel, and consumer goods, including cell phones and soft drinks. As multinational firms invest in a country with a seemingly endless supply of cost-efficient workers, China is also fast becoming the world's factory. It already dominates many labor-intensive industries; for example, it is the world's biggest and most-efficient producer of low-end electronics and toys, most clothing items, and many industrial goods.
The overall growth of the Chinese economy has been accompanied by significant evolution and perhaps transformation in the focus of its business activities [4]. As recently as a decade ago, economic development in China was based almost exclusively on exploiting natural resources and physical labor. This is increasingly complemented by activities based on knowledge and mental labor, including software development and e-commerce.
China wants to be a technology powerhouse. Progress is evident in products based on IT (such as cell phones and PCs); IT-based exports have grown at annual rates of 40%60% over the past decade, reaching $160 million (U.S.) in 2004. However, manufacturing export-quality goods depends on imported technology [7] and foreign capital [2].
China still faces the huge challenge of moving beyond technology transfer and contract manufacturing toward being a technology innovator and global leader in brands and products. The nature of this and other challenges is more apparent if we consider a number of paradoxes (adapted from [8]) in China's recent revival:
Foreign dependence. Its economic development has been highly dependent on imported resources, particularly foreign investment. This suggests not only weaknesses in both domestic enterprises and financial institutions but also renewed Chinese concern about foreign domination that has sparked a wave of nationalism [3].
Capital. It has received huge infusions of foreign capital despite steadily declining share prices in its equity markets and lingering deficiencies in corporate governance and state institutions [1].
Democracy. Its economic reforms have not been matched by political reforms. The absence of political democracy and the censorship of mass media (and the Internet) have renewed concern about the moral authority of the government, which was diplomatically isolated and internationally criticized after the Tiananmen Square crackdown in 1989.
Business owners. Despite these moral concerns, more than one-third of all private business owners, the ultimate capitalists, have become card-carrying members of the Chinese Communist Party since 2001 [9].
Domestic inequality. Despite being governed since 1949 by a party that espouses the ideals of communism, China has one of the world's greatest disparities between rich and poor. That disparity is reflected in a Gini coefficient that, according to the 2004 edition of the United Nations Human Development Report (hdr.undp.org), significantly exceeds those of India, Japan, Singapore, Canada, Germany, the U.K., and the U.S.
Intellectual property. It has benefited from massive transfers of technology despite the limited protection it provides for intellectual property rights. Foreign firms remain reluctant to conduct R&D there due to fears that their proprietary technology will be misappropriated [7].
These paradoxes amidst the dramatic awakening of China make the country an interesting and challenging place to study, and important for all of us to understand and discuss.
The articles in this section seek to improve that understanding and stimulate discussion by focusing on how IT is transforming China. They exemplify the commitment to China that the ACM Executive Committee first espoused at the Asia Pacific Regional Conference in 1996. The response to our call for participation was especially encouraging. We received manuscripts from more than 40 China experts on various IT-related aspects of its transformationreflecting the importance of the theme and the stature of Communications. The submissions reflect the breadth and depth of a transformation in progress, with amazing achievements already but with formidable challenges still ahead.
There is little doubt that the global reach and low cost of using the Internet have dramatically changed businesses operations and personal activities all over the world. But more than any other country, China is being transformed by its application of IT, from a poor and isolated society to a major force in the global economy.
The section opens with a big-picture view of how the Internet is transforming Chinese society. Jonathan J.H. Zhu and Enhai He report on the growth of online activities in China and on the emphasis on Web-enabled mobile phones, short message services, and massively multiplayer online role-playing games. Significantly, less than 10% of the Chinese population goes online regularly, many using the Internet only as a recreational medium. It will be interesting to follow developments as the other 90% follows, comparing their experience to that of the early adopters.
Xunhua Guo and Guoqing Chen explore the penetration of the Internet in the Chinese business community, noting that many enterprises have leapfrogged from manual to Web-based systems in just a few years, dramatically improving their productivity while avoiding the problem of legacy systems.
In addition to enhancing the performance of existing enterprises, the Internet has also created new business opportunities. Charles Zhang has capitalized on them, founding an online business that evolved into Sohu.com (a billion-dollar corporation and one of the world's most popular Web sites in terms of online traffic) while launching the first Chinese-language search engine. In an interview, Zhang says the Internet has accelerated China's transformation into a modern society by helping its people become more enlightened and empowered.
Despite the overall diffusion of the Internet (and other forms of IT) across the country, a digital divide is part of the growing inequality within China [1]. Big cities near the coast, including Beijing, Shanghai, Dalian, and Xiamen, as well as the Special Administrative Region of Hong Kong, have led the way by quickly adopting new technologies. Dynamic enterprises, research centers, and the public at large now benefit from a modern information infrastructure created as a state priority during the 1990s. The facilities at universities in Beijing and Shanghai differ little from those in and around Boston, San Francisco, and Hong Kong.
In contrast, the interior provinces and the state sector lag behind, impoverished not only economically but technologically and intellectually, as well. However, as Robert M. Davison et al. report, even parts of Western China are being transformed by Internet applications. In the absence of credit cards and private delivery firms, e-tailers and consumers increasingly rely on a cash-on-delivery service provided by the State Post Office. Nevertheless, inequality and regional imbalances remain, along with tension between modernism and tradition. These factors represent formidable challenges for a government that values social stability above all and still seeks to control all forms of information and communication.
Jing Quan et al. caution that the potential for capitalizing on IT differs greatly from enterprise to enterprise. Large firms competing in the global market are more likely to benefit from emerging technologies than are smaller firms serving the domestic market. IT is indeed not for everyone. Western multinationals have overcome cultural hurdles to successfully adapt their IT-intensive business models in China. Many Chinese firms have also implemented technology effectively. For example, Hong Kong-based Li & Fung has used IT to transform itself from a traditional trading company into a wide-ranging intermediary, linking manufacturers in China to buyers all over the world [5]. Conversely, many large, state-owned firms continue to struggle with IT applications, particularly those spanning the enterprise and requiring unfamiliar mind-sets [6].
Knowledge management is an important foundation for effective IT applications in China. Glen R. Burrows et al. explain how the management of knowledge is influenced by distinctively Chinese cultural factors, describing the country's dominant approach by contrasting it with its prevailing counterparts in the U.S. and Japan. They suggest that the Chinese have integrated market-oriented processes to managing knowledge with the social elaboration of knowing, or peer-to-peer knowledge transfer, while also highlighting such problems as intellectual property protection and implicit decision making.
The wide-ranging functionality of IT inevitably raises ethical and social concerns, particularly in a country with an unequal distribution of power. A recent study, yet to be published, by David Ma of the Chinese Academy of Social Sciences in Beijing, that sampled more than 1,100 Chinese suggests that the ethics of using information resources in China differ significantly from one generation to another. For example, young adults espouse greater respect for both privacy and intellectual property than their parents' generation. Taken together with the article on knowledge management, this evidence concerning information ethics is an encouraging sign for more domestic knowledge creation and more socially responsible IT applications in China.
The final article looks at a social problem arising from the increasingly widespread use of IT in China. For many organizations and even a few economic sectors, transformation means extensive restructuring, which in turn creates much psychological stress for vast numbers of employees. Qiang Tu et al. report that computer-related technostress is a major problem among Chinese workers. The extent of technostress is troubling, given China's scarcity of skilled managers and workers. Weaknesses in management and shortages in technical skills are, along with institutional deficiencies, major bottlenecks to the future development of Chinese business and society.
The government recognizes these bottlenecks and since 2001 has given priority to nurturing science, technology, and education. This prioritization is already producing more sophisticated research and education, along with growing numbers of IT graduates and an increasing stock of scientific knowledge. It is also enabling more of China's bright (mostly siblingless) youngsters to pursue post-secondary studies, with increasing numbers studying in their home country rather than departing for North America, Western Europe, or Australasia.
A combination of government policies and economic opportunities further reverses the brain drain by encouraging large numbers of ethnic Chinese to return to their ancestral homeland. Most returnees are university graduates armed with international business expertise and hands-on technical knowledge. In addition to relieving a bottleneck in domestic development, they can be expected to further bridge China and the outside world, creating mutually beneficial collaborations with the top technologists in the West.
World-class universities in Hong Kong and the U.S. already play a key role in developing the scientists, engineers, and technology managers China lacks. More generally, universities from all over the world are building relationships with their counterparts in China, collaborating on research, offering joint educational programs, and creating opportunities for academic networking.
As globalization continues, more and more intellectual work, including software development, will follow the migration path of manual labor and relocate to China. Outsourcing and offshoring are a mixed blessing. It will be painful for those losing their jobs in developed countries. However, in addition to the overall economic benefits of better resource allocation, more technology development in China should also lead to improved intellectual property protection, because domestic enterprises and Chinese scientists will have a vested interest in promoting stronger laws and stricter enforcement.
As China has awakened, the rest of the world has taken notice. The country is building up its intellectual and technological capabilities while securing and attracting key resources. By gradually adopting modern management practices in business, government, and scientific research, it is increasingly able to capitalize on its natural and human resources to become more competitive globally. Barring collapse [1], China will become a growing rival to the U.S. [7]. The development, scope, and outcomes of this rivalry will depend largely on how China responds to the paradoxes and challenges cited throughout this section.
The articles also reveal distinctively Chinese approaches to applying the Internet and managing knowledge. Taken together, they reveal a critical crossroads in China's transformation effort. As the world's most populous country becomes a more prominent and integral member of the global community, I encourage others to build on the existing foundation of knowledge and serve the needs of a growing audience by deepening our understanding of China, its people, and their application of technology.
References
1. Chang, G. The Coming Collapse of China. Random House, New York, 2002.
2. Child, J. and Yan, Y. Investment and control in international joint ventures: The case of China. J. World Bus. 34, 1 (Winter 1999), 315.
3. Huang, Y. Selling China: Foreign Direct Investment During the Reform Era. Cambridge University Press, New York, 2003.
4. Luo, Y. and O'Connor, N. Structural changes of foreign direct investment in China: An evolutionary perspective. J. Appl. Mgt. Stud. 7, 1 (June 1998), 95109.
5. Martinsons, M.G. Electronic commerce in China: Emerging success stories. Inform. & Mgt. 39, 7 (July 2002), 571579.
6. Martinsons, M.G. ERP in China: One package, two profiles. Commun. ACM 47, 7 (July 2004), 6568.
7. Martinsons, M.G. and Tseng, C.S. Technology transfer to China. In China 2000: Emerging Business Issues, L. Kelley and Y. Luo, Eds. Sage Publishing, London, 1998, 189215.
8. Shenkar, O. The Chinese Century. Wharton School Publishing, Philadelphia, PA, 2004.
9. Xinhua News. One-third of private businessmen are CPC members (Feb. 10, 2005); news.xinhuanet.com/english/2005-02/10/content_2569317.htm.
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