Chapter 4 HEADLINES: China Drawing High-Tech Research from U.S

Applied Materials, a well-known firm in Silicon Valley, recently announced plans to establish a large laboratory in Xi’an, China, as described in this article.

XI’AN, China—For years, many of China’s best and brightest left for the United States, where high-tech industry was more cutting-edge. But Mark R. Pinto is moving in the opposite direction. Mr. Pinto is the first chief technology officer of a major American tech company to move to China. The company, Applied Materials, is one of Silicon Valley’s most prominent firms. It supplied equipment used to perfect the first computer chips. Today, it is the world’s biggest supplier of the equipment used to make semiconductors, solar panels and flat-panel displays.

In addition to moving Mr. Pinto and his family to Beijing in January, Applied Materials, whose headquarters are in Santa Clara, Calif., has just built its newest and largest research labs here. Last week, it even held its annual shareholders’ meeting in Xi’an. It is hardly alone. Companies—and their engineers—are being drawn here more and more as China develops a high-tech economy that increasingly competes directly with the United States… .

Not just drawn by China’s markets, Western companies are also attracted to China’s huge reservoirs of cheap, highly skilled engineers—and the subsidies offered by many Chinese cities and regions, particularly for green energy companies. Now, Mr. Pinto said, researchers from the United States and Europe have to be ready to move to China if they want to do cutting-edge work on solar manufacturing because the new Applied Materials complex here is the only research center that can fit an entire solar panel assembly line. “If you really want to have an impact on this field, this is just such a tremendous laboratory,” he said… .

Locally, the Xi’an city government sold a 75-year land lease to Applied Materials at a deep discount and is reimbursing the company for roughly a quarter of the lab complex’s operating costs for five years, said Gang Zou, the site’s general manager. The two labs, the first of their kind anywhere in the world, are each bigger than two American football fields. Applied Materials continues to develop the electronic guts of its complex machines at laboratories in the United States and Europe. But putting all the machines together and figuring out processes to make them work in unison will be done in Xi’an. The two labs, one on top of the other, will become operational once they are fully outfitted late this year… .

Source: Keith Bradsher, “China Drawing High-Tech Research from U.S.” From The New York Times, March 18, 2010 © 2010 The New York Times. All rights reserved. Used by permission and protected by the Copyright Laws of the United States. The printing, copying, redistribution, or retransmission of this Content without express written permission is prohibited.

Questions to Consider

After reading China Drawing High-Tech Research from U.S., consider the question(s) below. Then “submit” your response.

Question

1. Which of China’s relatively abundant factor endowments supports China’s trade with Applied Materials as described by the Headline?
Lower wage, yet highly-skilled engineers.

Question

2. What does it suggest about relative factor intensities between the U.S. and China that high-skilled labor, which previously migrated from China to the U.S. are now moving from the U.S. to China (where production is increasingly high-skilled labor intensive)?
China, which used to be low-skilled labor intensive is becoming increasingly high-skilled labor intensive compared to the U.S.

Question

3. How do Chinese subsidies of green energy companies (and the Xi’an city land subsidy) affect high-tech production?
The subsidies lower the cost of doing business in the cities/regions offering them. Thus the green energy subsidies lower the cost of high tech manufacturing, while land subsidies reduce land expenses.