HEWLETT-PACKARD, IBM BUILD UP MUSCLE IN CHINA AS MARKET BOOMS

HEWLETT-PACKARD, IBM BUILD UP MUSCLE IN CHINA AS MARKET BOOMS

Two of America's computer heavyweights are boosting their presence in China further in anticipation that it will be the place to be in coming years.

Hewlett-Packard Co. of Palo Alto, Calif., unveiled Thursday a five-year investment plan involving more than $25 million and outstripping its total input in China over the past decade.HP was among the first of the world's big players to move significantly into China production.

Another was International Business Machines Corp. of Armonk, N.Y., which opened Wednesday a northeastern China branch in Shenyang.

IBM China Co., headquartered in Beijing, has branches in Shanghai and Guangzhou, a software development center in Shanghai and information technology center in Beijing. Later this year, an IBM China research center will be established in Beijing, said Henry Chow, general manager of IBM China.

"In fact, IBM has built a business network in China," he said.

IBM's business volume in China grew 50 percent last year over 1993, he said. Its annual sales in China are expected to exceed those in Hong Kong and Taiwan, said Mr. Chow, who reckons IBM's business in China will surpass that in Europe in 2005.

The new branch in Shenyang, capital of Liaoning province, was chosen

because it is a heavy industry base "where information technology has played an irreplaceable role in sustaining local economic growth," he said.

For HP, Ricky Lee, general manager of China HP Computer Products Organization, said production and sales in China jumped 90 percent in the first six months of this year.

Sales of its servers, laser printers and scanners rank first in China, but it lags badly in the hot personal computer sector.

AST Research Inc. of Irvine, Calif., is easily the market leader in PCs, with more than 70 percent of the market. It is trailed by Compaq Computer Corp. of Houston, IBM and HP.

HP's subsidiaries in China earned 1 billion yuan ($120.5 million) last year, among which earnings from computer products were about half, company figures show.

HP intends to promote its new PC based on the ultrafast Pentium microprocessor from Intel Corp. of Santa Clara, Calif., Mr. Lee said, in hopes of getting a foothold in the intense competition for high-end machines.

Taiwan's famously aggressive Acer Inc. has taken the lead in selling Pentium-based PCs in China.

There are more than 2 million PCs in use in China, figures from the Ministry of Electronics Industry show. Officials say that's expected to hit 3 million shortly.

Koo Teng Liat, sales and marketing manager of HP's Information Storage Group, said an optical data storage system known as a jukebox will also be promoted. It will be the first of its kind on the Chinese market, he said.

China's own computer makers, meanwhile, saw production jump 30 percent in the first half over last year, to 130,000 units, the ministry said.

Export business jumped nearly 48 percent, to $1.94 billion in the period, it said, without giving figures. Solely foreign-funded firms accounted for $667 million of that, with state-owned Chinese enterprises reaping $626 million.

Most exports went to Hong Kong, the United States, Japan, Germany, the Netherlands and Singapore.

Imports rose 24 percent, to 41 billion yuan, the ministry said. But of the 300,000 computers imported between January and May, only 70,000 were through legal channels, it said. "China still suffers seriously from computer smuggling."

One reason is probably the hefty surcharge it places on imports in a country where people and companies are desperate to get switched on and have the money to do so.

China's computer output this year is forecast to top 200,000 units, with value rising 25 percent over 1993, to 50 billion yuan. The ministry acknowledged that the low quality of domestic units is partly to blame for the lack of a boom in PC sales.

More than half the computers produced this year are expected to come from the two biggest makers, Great Wall Group and Legend Group, which had combined output of 40,000 computers in the first half.