We are in a stuffy basement room crowded with boxes of computer components, desks with clients testing programs, plastic cups full of Coca-Cola and mineral water and the unidentified onlookers you find everywhere in China. 'Rents here are almost as high as downtown Beijing,' said boss Wang Li, her hair out of place and her face full of a thousand calculations. 'It is such a desirable location. Many companies open, find within a few months they cannot pay the bills and close. Competition is getting worse and profit margins shrinking, but we are still here.' This is Zhongguancun, China's Silicon Valley, home to the country's biggest market for computers and parts and accessories, housed in one or two-storey shops, multi-storey malls such as Ms Wang's Electronics World or swanky skyscrapers built by the manufacturers. China's three biggest computer makers - Legend, Founder and Great Wall - are based in Zhongguancun, in northwest Beijing, close to the city's three top universities and research institutes. The area's industrial output value in 1996 was 13 billion yuan (about HK$12.14 billion), 61 per cent more than in 1995. The name means Central Gate Village, a reminder that it used to be a collection of farm houses about 10 kilometres outside Beijing's city walls. Buyers come from all over north, northeast and central China. Zhongguancun feels like Akihabara in Tokyo and the computer malls in Causeway Bay: cut-price competition and fast turnover of goods, models, money and people. It is pure market, with no trace of the plan economy. Ms Wang's company was set up in 1993 by her husband who gave up a comfortable job in the police force to deal in the computers he had studied at college. 'The police work was easy, a job for life with housing thrown in and gifts from people who wanted you to do favours for them,' she said. 'But he thought his talents were being wasted. He wanted to see what he could do on his own,' she said. The company imports motherboards and other components from Taiwan. Customers choose from them, and other parts, to make a computer of their choice. Everything is available in the Electronics World. The company then assembles the computer, in about an hour. These mixed-brand computers, which account for about a third of the Chinese market, are the cheapest, costing 6,000 to 7,000 yuan, but have no brand name or warranty. The firm you bought the computer from may not be there when you go to have it repaired. Next level up are Chinese and Taiwan brands, at about 10,000 yuan, with a market share of about 30 per cent. Top of the range are imported brands like Compaq, IBM or Hewlett-Packard, for 17,000 to 20,000 yuan. Zhongguancun is bustling, thanks to the rapid growth in China's computer market. Sales of personal computers last year were about two million, up from 1.15 million in 1995 and 718,000 in 1994. PC sales are expected to reach eight to 10 million by 2000, making it one of the world's biggest markets. One factor fuelling the boom is the easy availability of foreign computers and components. Traders said that few paid the full import duty, with goods either smuggled in or invoices used that understated their real value. Most come from Hong Kong to Shenzhen, home of the second biggest computer market in China, before being shipped to Beijing. Another factor fuelling the boom is prices, which dropped up to 50 per cent in 1996 and are expected to fall 20 to 30 per cent this year, thanks to fierce competition and lower production costs. The rate of personal computer ownership in China is low, although it is rising rapidly in the major cities, reaching 8 per cent last year in Shanghai. For parents, the personal computer has become an important item to buy for their single child. It has also become a status symbol - even if the buyer may be able to use only a few of the computer's functions. An official of Legend, which claimed top place in China's PC market in 1996 and in the first quarter of this year, says it is continuing to cut prices aggressively this year to capture market share from the mixed brands. 'Zhongguancun is a very important window for computer brands, local and foreign. Everyone wants to set up a presence there,' he said. Zhao Yi heads a company doing electronic colour printing. It pays 200,000 yuan a year in rent for its 50 square metres of shop space. 'If you are in computers, you have to be in Zhongguancun,' he said. 'Competition is most severe in computers, computer parts and components and copiers, with profit margins as low as 2 per cent. My business is more specialised, so competition is not so fierce.' He said about 60 per cent of the people in the district were from outside Beijing, unable to make use of their computer skills at home. 'Many businesses here are privately run. Some do not last six months. The competition is fierce and it is hard to survive.' Opposite his shop is a two-storey mall selling computer components, with CD-Roms of Maths, Business English, Tibetan Art and Child's Encyclopedia selling for up to 100 yuan and Chinese Windows for 1,750 yuan. Business is slow, because few people are willing to pay these prices for the legitimate product, when they can purchase fakes for a fraction of the price.