China's growing market beckons tech firms

/ Source: CNBC

The issue of intellectual property rights is high on the agenda of Chinese President Hu Jintao in his visits this week with American government and business leaders, including a stop here Wednesday to tour a Boeing aircraft plant. But even that contentious issue, troublesome though it is, can't obscure the profit potential U.S. high-tech companies see in the world's most populous nation.

On his visit to Microsoft, Hu walked right inside the belly of the beast — the world's biggest victim of intellectual property theft, according to experts. ( is a joint venture or Microsoft and NBC.)

Microsoft alone loses $1 billion a year to Chinese piracy. For the software industry as a whole, the loss is nearly $4 billion, including programs copied from legitimate developers in China.

Nine out of ten of the operating systems and applications in use in China in 2004 were unauthorized or pirated copies,” said Robert Holleyman, president of the Business Software Alliance, a trade group

The same goes for Hollywood:  85 percent of CDs and DVDs sold in China are pirated, costing the entertainment business some $7 billion a year — and climbing.

"If China wants to be a constructive, active player in the world economy, it's got to respect intellectual property rights or it makes it pretty impossible to do business with them,” said Dan Glickman, president of the Motion Picture Association of America.

"China has actually a very good set of intellectual property laws and regulations, which have been adopted over the last 15 years,” said Bob Wright, Chairman of NBC. “They're only beginning now to really enforce them.”

If respecting intellectual property rights is one key item on high tech's "to-do" list for Hu, expanding business relationships with China is another. It's a no-brainer. Think 1.3 billion people, an expanding middle class and a tech-hungry economy growing 9 percent a year. All of which creates a massive potential market for U.S. technology companies.

The list includes big hardware firms, from IBM to Intel, Advanced Micro Devices, Cisco Systems, Hewlett Packard and Dell to big software makers like Microsoft, Adobe and Symantec. Add to the list the top names in wireless: Broadcom, Qualcomm and Motorola.

The wireless numbers alone are mind-boggling: China has 404 million cell phone users, a market that’s growing by 12 percent a year. The country's largest wireless service provider, China Mobile, boasts a whopping 250 million customers. China's telecom industry is up 40 percent so far this year.

“They’ll probably grow at twice the rate of the overall market,” said George M. Scalise, president of the Semiconductor Industry Association. “I don’t think there are any other markets in the world that can even begin to compete with that kind of growth and demand overall.”

All of which means that China presents the biggest opportunity — and biggest threat — to American business. The outcome depends on what China does next with the sticky issue of intellectual property.