By Sudeep Reddy
Democrat and Chronicle

(June 25, 2000) -- China is the world's oldest continuous civilization, but that 4,500-year-old heritage hasn't kept the country from morphing into the globe's most fertile and powerful market for new technologies.

Consumers in China are flocking by the millions to state-of-the-art gadgetry such as mobile phones, digital cameras and the Internet. The rapid shift is producing unusual contrasts. For instance, an estimated 90 percent of households own televisions, according to Gallup Corp., yet only a third have private toilets.

That phenomenon is called technology leapfrogging -- the use of the latest technology by a region that never fully adopted the previous advancements. And it's catching on in China on a vast scale.

Consumers there own an estimated 70 million cellular phones, second only to the United States. That number is expected to jump to 200 million by 2004 and to equal the number of wired analog phones, according to International Data Corp.

More than 10 million Chinese surf the Web. In five years, there could be anywhere from 30 million to 300 million Internet users, depending on whose estimates you believe.

''By 2010 the Chinese Web will be larger than the English Web,'' said Russell Chin, a partner with the Boston law firm Holland & Knight LLP, who works with corporations expanding into Asia.

Technology leapfrogging is driving business strategies at the Chinese operations of both Eastman Kodak Co. and Xerox Corp. Kodak, for instance, has started selling digital cameras in China even though only 15 percent of households own traditional film cameras.

Xerox has formed a direct sales force to market expensive digital copier/printers that can be attached to a network, even though many businesses and agencies still use older black-and-white analog copiers.

China has set the tone for the game of leapfrog by discouraging companies from opening used-equipment businesses. The government ''has watched in other parts of the world where manufacturers have dumped older technology,'' said Allan Lin, managing director of Xerox's China business. ''China is not going to do that. I applaud them for this. I think that's the right thing.''

Leapfrogging occurs, experts say, because developing countries are unencumbered by the cost, infrastructure and legacies of older equipment. The result is important for everything from telecommunications satellites to building construction.

''We're looking at a country that has state-of-the-art plants, especially in the technology industry,'' Chin said. ''The American company can't say the same for its own plants'' in the United States.

Leapfrogging is transforming the consumer level as well. ''As prices fall and put technology in the reach of many people, we will see people adopt the newer technology,'' said Milton Cofield, chairman of the Imaging Systems Management program at Rochester Institute of Technology and a former Kodak executive who has worked throughout the Far East.

But foreign companies' rush into developing markets can be slowed by governments that have not adapted at the same pace as businesses and consumers, said Kent Kedl, executive director of Technomic Asia, a market strategy company working with foreign companies expanding into the region.

Dealing with mobile wireless communications in China, Kedl found that the government didn't publish a wireless frequency chart, forcing him to piece together a chart himself.

''The technology is leading the bureaucracy to manage it,'' Kedl said.

The fast pace of change in China's technology landscape was apparent earlier this month when China Unicom, the country's second-largest phone carrier, cancelled plans to use an existing wireless communications technology developed by Qualcomm Inc. to expand its network. Instead, China Unicom is expected to use newer, ''third generation'' technology that will supercede the version currently used in Europe and the United States.

This ease of moving into a new technology, Kedl said, creates additional concerns for companies doing business in rapidly developing countries. ''When you're leapfrogging, there's a danger of something newer coming over it, when you thought you had the newest thing.''

Expanding use of cable television and the Internet also means more exposure to Western culture, which can be a driving force for young Chinese consumers with growing disposable incomes, Chin said. ''What they see is what they want.'' Leapfrogging affects not only the developing countries, but also those that invented the high-tech devices. Seeing their inventions flourish abroad reveals the possibilites back home.

''Consumer behavior is not a one-way street,'' Cofield said. ''The implication of technological leapfrogging is you can't look in your home markets alone to see what the demand for some of these products will be.''