Guangdong Visions: Forging China's Future

In previous parts of this five-part report from southern China's Guangdong province, the core of China's historic reform and opening-up, I presented Party Secretary Wang Yang's vision of transformation. In this installment, I describe several world-class enterprises emerging in Guangdong.

Shenzhen-based Huawei Technologies has become the world's strongest telecommunications equipment maker, an icon of China's new enterprises. It grew 46% in 2008, notwithstanding the global recession, booking $23 billion in contract sales. While rival companies expected 2009 to be a depressing year, Huawei forecast 30% growth to more than $30 billion. Once criticized as a second-rate company that copied foreign technology, Huawei has become an innovation leader, surpassing former leaders such as Nortel (NRTLQ), Nokia (NOK), and Alcatel-Lucent (ALU) in its drive to become the world's telecom-gear champion.

Huawei's Patent Power With more than three-quarters of its business coming from international markets, Huawei is the dominant telecom supplier to the developing world and is penetrating North America and Europe. In 2008, Huawei was the world's top international patent seeker and BusinessWeek's first annual list of the World's Most Influential Companies named Huawei No. 3, after only Apple (AAPL) and Google (GOOG).

However impressive its technologies, marketing, and systems—Huawei's worldwide intranet command center rivals NASA's mission control—what impressed me most was something more subtle. I was holding a simple Huawei marketing brochure showing a map of China and surrounding countries when faint writing caught my eye. Along the China-India border, there is a disputed region in the Himalayas over which the world's two most populous countries fought a hot war in 1962, with large-scale combat at altitudes above 14,000 feet. A half-century on, the territorial dispute still smolders, particularly in India.

So here's the conundrum: Huawei is a Chinese company that wants to do big business in India; in China, borders are sensitive because they reflect sovereignty, and in India there is an enduring conviction that China is occupying Indian land. What to do? The Huawei map simply describes the realities on the ground in a way that both sides can accept. The disputed territory, controlled entirely by China, is demarcated by the objective statements "Chinese line of control" (closest to India) and "Indian claims" (farthest into China). In a gentle tilt toward India, the shading of the disputed territory looks like India, not like China. Huawei's first foray into India, I'm told, was not successful; the second time they got it right.

Gree's Technology R&D Gree Electric Appliances of Zhuhai in Guangdong has become the world's largest residential air-conditioner manufacturer, surprising many. The company was formed around 1991 when Chairman Zhu Jianghong restructured several inefficient state-owned enterprises (SOEs). A small, nameless factory with 200 employees and annual production of less than 20,000 units, Gree was an unlikely candidate for global air-conditioner leadership, particularly in technology where the Japanese and American giants enjoyed what seemed to be unassailable dominance. Gree is now a multinational enterprise with 40,000 employees and annual production of 20 million units.

Owned 64% by the government and 36% by other parties, including management, Gree is proud that its R&D is now second to none. Gree has 2,000 research engineers, including foreign experts, and invests almost $150 million in R&D annually, said Chairman Zhu. "A company without core technology is one without a spine; when one has no spine, one will never stand," he said. "If no technology, then no competitive products, no market share. Production alone makes no sense."

Zhu recalled that in its early days Gree had to purchase technology from other countries, which turned out to be self-limiting, even a trap. "We imported machines from Toshiba, but when they had problems the Japanese technicians wouldn't come to the mainland, only to Hong Kong, and we had to take instructions verbally," Zhu said. "It was humiliating.

"Another time, we needed to import quality-control equipment, but the Japanese supplier deliberately withheld the latest technology. I came to realize that if we could buy 'advanced' foreign technology, that just meant it wasn't advanced anymore."

Zhu says he became determined for Gree to develop its own technology—and do it quickly. "What took the Japanese 10 years to develop, we did in one year," he boasts. "Moreover, our heating unit would function at –25C, whereas the Japanese unit was limited to –15C."

Zhu concluded with unalloyed pride: "I had wasted 18 years in fruitless SOEs before starting Gree, and I can now say with confidence that Gree's refrigeration technology is the most advanced in the world. We possess about 1,500 technical patents. We are selling air conditioners, with energy-saving technologies, in Japan."

Before it's here, it's on the Bloomberg Terminal.