Harry Shum's office may be among the best places in China to witness the next stage of the nation's rise as an economic powerhouse.

Working in the heart of the Haidian District in Beijing, with its canyons of universities, labs and high-tech ventures, Shum occupies a corner of Microsoft Research Asia, the US software company's effort to tap scientific brainpower in China.

Shum oversees 170 scientists, who huddle around computers in gray cubicles to brainstorm and tinker with ideas that may one day drive Microsoft's technological empire to greater heights.

"Microsoft began to realize we can't find all the talented people in the US," he said. Pointing outside, he added, "Nowhere in this universe has a higher concentration of IQ power."

Microsoft is not the only multinational company to use China as a base for research and development.

Chinese officials in charge of the sector say no one knows exactly how many international companies have R&D labs in China, but a Commerce Ministry official recently said that there were 600 labs now and that foreign companies were arriving at the rate of 200 a year.

Maximilian von Zedtwitz, a professor of management at Tsinghua University in Beijing, was more conservative. He estimated that China had as many as 300 foreign R&D centers, most founded over the past three years.

But von Zedtwitz also said that within five years, China could overtake Britain, Germany and Japan as a base for corporate R&D, leaving it second only to the United States.

These labs vary in size and ambition, but as they multiply and expand they may help transform China. While it is now primarily a user and copier of advanced technologies developed elsewhere, executives and experts said it could become a powerful incubator in its own right.

Such a shift may eventually reshape applied research, jobs and policies in the United States and other developed countries.

"The Chinese are going to become sources of innovation," said Denis Fred Simon, an expert on Chinese science and technology who is provost of the Levin Institute of the State University of New York. "They will find themselves enmeshed in global R&D more and more."

But it is far from certain that China will reap the full rewards of this flowering. Planting and nurturing corporate labs is a delicate business, and in China they are buffeted by concerns about protecting patents, retaining and training researchers and managing the distances -- physical and cultural -- between China and head offices elsewhere.

When Microsoft opened its Beijing lab in late 1998, it was among the first multinational companies to establish a large research center in China. It hoped that investing in research here would help pry open the door to two dazzling prizes: China's large reservoir of skilled but inexpensive scientists and its consumers, who are still relatively poor but who are growing richer and more eager for new technology.

After considering several sites in Asia, Microsoft settled on the Haidian District, home to some 40 universities, 138 scientific institutes and many of China's 810,000 research scientists and engineers.

"China was really the No.1 target from the beginning," Richard Rashid, senior vice president of Microsoft Research, said in a telephone interview from corporate headquarters in Redmond, Washington. "We felt there was a tremendously deep pool of talent there."

Microsoft, like other companies setting up research facilities here, was able to lure scientists from state-run labs, which do not pay as well and often do not work on cutting-edge developments.

"There are a lot of really good scientists and engineers coming from Chinese universities," said von Zedtwitz, the management professor at Tsinghua University.

When the Microsoft lab first announced openings for 50 positions, it was deluged with tens of thousands of applications, said Zhang Ya-Qin, the former managing director of the lab and now a corporate vice president in charge of Microsoft's mobile technology.

It is no surprise that Microsoft Research Asia has such popular appeal. It is one of the few labs here spared the pressure of developing products for direct application; its researchers, like those in Microsoft's labs in Redmond, San Francisco and Cambridge in Britain, are given leeway to explore ideas with no immediate commercial payoff.

But Microsoft researchers in Beijing also said they were conscious of their untested "outsider" status, which made them especially eager to find product applications for their theoretical findings. Among other things, researchers are working on computer graphics, speech recognition and text translation.

"We're a young lab and an experiment of having a lab in a developing country in Asia, so there was a need to prove ourselves," said Zhang Hongjiang, who runs a new division devoted to shepherding research findings into applications.

He and many other researchers said the lab felt more like an adrenaline-fueled start-up than an academic institute.

If Microsoft ever overtakes Google as an online search engine, for example, some of the credit may belong to Wei-Ying Ma. His group, which has grown to 10 researchers, is working on ways to drill deep into the Internet and select and organize information found there.

"We've progressed fast because we have a lot of really smart people and we discuss and brainstorm a lot," Ma said. "In the US, the research is much more individual, and each researcher is more like a professor. Here it's more a team."

The expansion of foreign labs in China is bound to provoke further debate, similar to the controversy over the outsourcing of technology services, about the implications of the globalization of corporate research.

Executives at Microsoft and other companies asserted that their Chinese labs were not taking jobs away from the United States or elsewhere.

"There's an internationalization of research going on," said Rashid, the senior vice president of Microsoft Research. "That's a good thing. The more smart people, the more innovation and the more benefits for companies like Microsoft."

The starting point for this research boom was China's growing sophistication as a market for technology, especially telecommunications and the Internet, industry executives said.

Recently, Oracle opened a lab in Beijing to tailor its Linux operating software to suit its Asian customers. Companies like Motorola, Siemens, IBM and Intel are going even further, running full-scale labs that work on their companies' most advanced products.

Although experts think China's growth as a research base will continue, many said expansion could be slowed or ultimately endangered by growing pains and legal uncertainties.

The recent rise of China as a base for multinationals to conduct research has not yet seriously affected their advanced operations elsewhere. Indeed, it may be helping them. But Martin Hirt, a consultant at McKinsey, cited examples suggesting that at the lower end of applied research, some jobs were indeed shifting to China from the United States, Japan and other developed countries.

(China Daily via New York Times September 13, 2004))