The Jinqiao Export Zone in the Pudong district of Shanghai plays host to numerous multinational corporations' R&D centers like GE, GM and Siemens. One of the zone's selling points, it tells prospective clients, is that it represents the country's move up the value chain from "made in China" to "developed in China."
Occupying 2 1/2 million square feet is a private, employee-owned Chinese company that has moved far up the value chain and symbolizes what reformers here would like the country's economic system to be: innovative and more genuinely market-driven.
Huawei Technologies Co. Ltd started out in 1988 as a small-time distributor of PBX systems in southern China. It is now not just the world's largest supplier of telecom equipment, but an increasingly ambitious player in high-tech sectors ranging from network servers to mobile telephony.
On display inside the company's glass-encased space-age building are a bevy of sophisticated products: data management centers, solar-powered small footprint base stations, cloud-based software services, videoconferencing systems, smart phones and, most recently, a tablet aimed at the business market.
"Huawei is building some of the best, most innovative and fastest equipment in the industry," Fortune magazine said last year.
Operating in 140 countries, the company recorded $32 billion in sales last year and looks to triple that number in the next 10 years. The Shanghai center, where much of the mobile phone R&D occurs, employs 10,000 people out of a global workforce of 140,000. It operates 23 R&D centers worldwide, including one in Santa Clara, where 700 researchers are focusing long-term on photonics, optics and advanced LTE (Long Term Evolution) devices. Huawei installed the world's first LTE network in Oslo in 2009.
Rated the fifth most innovative company in the world by Fast Company magazine in 2010 (behind Facebook, Amazon, Apple and Google), Huawei is where the Chinese government would like its economy to be. Innovation in technology is a key component of the country's five-year plan for "rebalancing" the economy and "higher quality growth." That cannot be achieved without greater involvement of the private sector, say analysts, including the World Bank and the Development Research Center, a Chinese government agency, which in a recent report called for substantially scaling back the role of the country's giant state-owned enterprises.
That will be a tough call. The enterprises, whose day-to-day operations are run by professional managers, are some of the world's biggest companies and, for the most part, are highly profitable. With massive financial resources at their disposal, the state-owned companies have been the main institutions through which the government has directed the economy from above.
"Up to now, the (communist) party has seen SOEs as the driving force of Chinese innovation," said David Wolf, a Beijing-based corporate consultant and author of a soon-to-be-published book on China's telecom companies. "They still think they're the horses to back, and it will take a great deal to persuade party leaders to change course. But if they do, it will change the face of Chinese business."
Looking at how far Huawei has come, that may not be a bad bet.
Cold shoulder: In addition to its 700 employees in Santa Clara, another 1,000 are employed elsewhere in the United States, where Huawei spent $230 million on R&D alone last year. Earlier this year, it awarded $6 billion worth of contracts to three California companies, including advanced semiconductor maker Avago Technologies, in San Jose.
Such largesse seems not to have impressed the U.S. government, which has scotched at least four deals involving Huawei and U.S. companies in recent years, including the acquisition of a failing Silicon Valley cloud computing company, 3Leaf, on national security grounds.
Apart from the fact that Huawei was founded by an ex-People's Liberation Army soldier, and that it has done business with the Chinese military (none of which appears to bother Huawei's many project partners, including IBM and Nokia), it's not clear what the U.S. government's problem with Huawei is, apart, perhaps, from generalized concerns about China's coveting of other countries' advanced technology.
Some observers have questioned just how private Huawei is. They point to the contracts the Chinese government has granted the company, despite the existence of competing state-owned telecommunication enterprises, and loans Huawei has received in the past from state banks.
"The company has never published a full breakdown of its ownership structure," according to Richard McGregor, author of "The Party," a critically acclaimed book on the often hidden role of the Chinese communist party in Chinese companies. Government support has been critical "at crucial points in its development," McGregor wrote.
Ross Gan, Huawei's head of corporate communications, said 98.58 percent of the company is owned by its employees, who can purchase stock after two years of employment. The rest belongs to the company's founder and CEO, Ren Zhengfei, he said.
Wolf, who is not a consultant to Huawei, said the company is partly at fault for failing to communicate its story better, especially to the American government. "It has to learn to play the Washington game. Basically, Chinese companies are lousy communicators," he said.
Huawei appears to be learning. It has recruited a number of executives from U.S. companies into its senior ranks, and recently hired a Washington firm headed by former U.S. Defense Secretary William Cohen to represent its interests in the nation's capital. Last month, it published an open letter to the U.S. government, inviting lawmakers to "carry out a formal investigation on any concerns it may have about Huawei."
"We're working hard on communicating better with our non-industry stakeholders," said Gan, who squired U.S. reporters around Huawei's facility in Shanghai for a couple of informative hours.