Research follows factories to China

Times Staff Writer

En Li left China in 1986, convinced that was the best way to become a world-class biologist.

The alternative was getting trained at poorly equipped Chinese labs or universities hollowed by the Cultural Revolution.

So the graduate of Peking University went to Boston and obtained a doctorate in biology from MIT. He joined the faculty at Harvard Medical School, teaching and doing cutting-edge research in genetics. Three years ago, Li was recruited by drug maker Novartis for its global lab in Cambridge, Mass.

But this spring, Li will move back here to head Novartis' newest research venture -- a $100-million center that will eventually employ 400 scientists to pursue cures for infectious diseases and other ailments common among the Chinese.

"I want to do something significant for the people in China," said Li, 45, a soft-spoken man with streaks of gray through his hair. "It's exciting."

Li and other Chinese-born scientists working overseas are at the forefront of a new wave of foreign investment in China. After two decades of pouring billions of dollars into factories, a growing number of multinational companies like Novartis are establishing research beachheads in the Asian nation.

Eager to develop products for China's vast market and tap the nation's growing pool of engineers and scientists, dozens of corporations, including Hewlett-Packard Co., Siemens, Google Inc. and Johnson & Johnson, announced in recent months the opening of Chinese research and development facilities, mostly here and in Beijing.

By the time China's Ministry of Commerce compiles the statistics for 2006, it expects to see well over 800 research centers with foreign investors in the country, up from an estimated 100 six years earlier.

The ramp-up signals a new stage of economic development for the rising power, as it moves beyond its role as the global leader in the production of cheap toys, textiles and fur. Increasingly, Chinese exports are electronics, appliances and ships.

"The time that any foreign company can build factories and easily enjoy tax breaks is gone," said Mei Xinyu, a research analyst at the Ministry of Commerce. "Now China is making a choice among all these foreign investments, and those blood-and-sweat factories will not be welcomed anymore."

China's overall spending on research in 2006 has been estimated at $136 billion, up 20% from the previous year, according to the Organization for Economic Cooperation and Development. About 16% of that is foreign-affiliated research spending, says Mario Cervantes, a senior economist at the Paris-based group.

The organization estimates R&D; spending in the United States last year at $307 billion. But America's research expenditures, as a percentage of the nation's economic activity, slipped from 2.74% in 2000 to 2.68% in 2004, the latest figures available; China's increased from 0.9% to 1.23% during the same period.

The contrast in trends has heightened concerns about Washington's support for basic research and about American schools' competitiveness in math and science. It has also raised the specter of higher-paying jobs leaving for China, India and other emerging nations with cheaper costs.

Chinese engineers at multinational companies in China make about a third less than those working in the U.S. China is pumping out about 600,000 engineering graduates a year -- nearly double India's and eight times the number in the U.S.

"Students are worried, oh, yes," said Belle Wei, dean of the College of Engineering at San Jose State University, which has an enrollment of 5,000.

About 1,200 of the graduate students are Indian and Chinese nationals. "They compare notes with Chinese students. They know how hardworking they are and how they literally go the extra mile to get the job done."

In past years, Chinese graduates overseas sought to extend their stay for postgraduate training or work. But nowadays many more are returning home, adding to the rapidly expanding talent pool.

"There's definitely a competition between manpower resources in China and the U.S.," said Wei Liu, research program director at HP Labs in Beijing, which announced its opening in November 2005.

Liu, 43, returned to China four years ago after a decade in Palo Alto and Colorado Springs, Colo., as an HP research engineer and project manager.

Like Novartis' Li, Liu graduated from a leading Chinese school -- Zhou Enlai's alma mater, Nankai University in Tianjin -- but afterward saw few options. Liu remembers the shortage of mentors. University professors generally were very old or very young, a legacy of the Cultural Revolution, the 1966-76 period characterized by purges of intellectuals and criticism of so-called bourgeois values.

But over the last decade, Liu said, "China's been able to build up that middle layer" of professors thanks largely to its booming economic growth and aggressive recruitment of overseasbased Chinese with grants and programs like the Hundred Talents Fellowship.

Liu came back partly to be nearer to his parents and siblings, who live in Chengde in Hebei province, a 2 1/2-hour drive from Beijing. "Everybody was happy," he said.

Liu works inside a glass tower by the International Trade Center in Beijing's east side, managing a staff of about 20. It is one of six research labs in HP's global network. The company, which has been in China for two decades, previously opened development and design offices in Shanghai for printers and desktop computers, close to its manufacturing plant.

Microsoft Corp., Intel Corp. and Motorola Inc. run their research outfits on the other side of Beijing, near Qinghua and Peking universities, the nation's top schools. All of them are headed by Chinese returnees who are helping build a new generation of leading engineers and scientists in China.

Many U.S. companies insist that their R&D; investment in China is not taking away jobs from other places -- or at least it hasn't yet. Executives at most multinational companies say their operations in China are focused on product development as opposed to pure research, and that they are aiming mainly at innovating goods for China and Asia, work best done near local suppliers and markets.

"Cost isn't a primary driver. We're here for our customers," said Greg Germain, manager of Dell Inc.'s design center in Shanghai, which opened in 2002 and has doubled the number of its engineers to 500 in the last year. Among other projects, they are working on developing less-expensive desktop computers for emerging markets.

The computer maker is getting help from the government in Shanghai, which aspires to become China's research hub. When Dell wanted to expand its design facility, housed in a sports complex above a Starbucks and retail shops, district officials cleared out an entire floor for the company. Dell also got a standard package of incentives that included tax breaks on imported machinery.

Shanghai boasts nearly 200 R&D; operations funded by foreign investors, including those run by General Motors Corp., General Electric Co., Procter & Gamble Co. and PepsiCo Inc. Shanghai officials admit that rampant piracy and weak protection of intellectual property rights make attracting top researchers difficult.

China wants cutting-edge technology from the West and has encouraged multinational companies to set up research facilities as joint ventures with Chinese partners. But most foreign companies aren't doing it that way, fearful of losing trade secrets.

Liu Jinping, vice chairman of Shanghai's Foreign Economic Relations and Trade office, said the city was enforcing antipiracy laws. Making a chopping motion with his right arm, he cited the city's recent shutdown of Xiangyang Market, a notorious bazaar filled with pirated goods. Most of the tenants, however, have since reopened in two large markets elsewhere.

Still, China's huge market, lower-cost workforce and rapid pace of growth have made it a magnet for foreign research centers. In Shanghai's Zhangjiang Hi-tech Park in Pudong, a new development zone, biopharmaceutical and other companies have started to form clusters of research centers. Roche Group and Eli Lilly & Co. are there, and soon Novartis will join them. In some years, Li says, Shanghai could be another San Diego, a thriving biotechnology hub.

Siemens, the German technology company, has been operating in China for more than a century, but it wasn't until the last two years that it built up a research center here. For the job, the company tapped Arding Hsu, 53, a Hong Kong-born Chinese with extensive research and business experience in Princeton, N.J., and Berkeley.

In two years, Hsu has hired nearly 200 scientists and supporting staff members in Beijing, most of them locals.

"Why are we doing this in China? Why can't we do it in Princeton or Germany?" Hsu said, referring to Siemens' other research sites.

One reason, he says, is that Siemens wants to be an innovator in emerging markets. One of Hsu's projects involves integrating traditional Chinese medical practices with Western diagnostic techniques. Siemens is a major supplier of medical equipment in China.

"China is on the way up," he said. "It's so dynamic."

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