In China, this is the dream: a cell phone in every hand, a PC on every desk and a DVD player in every home. Problem is, the dream in some cases turned into a nightmare for companies that tried to develop infrastructure there too soon. For all its promise, China is still a place where it is wise to be cautiously optimistic at best.

In the past year, China has bubbled with activity. New wafer fabs are going up, PCs and cell phones don't stay on store shelves, and there is actually spending on telecom infrastructure, albeit at a slowing pace. In relative terms, multinational companies are still looking to China as the last great electronics growth market or, at the least, as a global electronics manufacturing center.

China already outpaces Taiwan in the export value of its electronics goods. The amount of electronics-based investment flowing into China indicates that trend will continue. A recent survey by Deloitte & Touche showed that many venture-capital investment firms in Hong Kong and China believe the economic outlook for China is favorable, particularly in the areas of technology, media and telecommunications. In Asia, it ranked as the top destination for investment.

Just this year, at least 15 companies, including Motorola Inc., have announced plans to establish R&D centers in China, bringing in billions of dollars in investment over the next several years. Intel Corp. is investing another $100 million in its packaging plant in Shanghai, which will soon assemble and test Pentium 4s; Toshiba Corp. is investing nearly $60 million to set up a production base; Sony Corp. will spend $80 million on an IC packaging plant next year; and NEC Corp. is in the process of moving more of its PC assembly operations there. Matsushita, LG Electronics and Sony Ericsson will also mark out their Chinese territory.

Foundries too are surveying the landscape. Taiwan Semiconductor Manufacturing Co. and United Microelectronics Corp. are negotiating for land outside of Shanghai, where they will open up plants running 200-mm wafers. Earlier this year, Chartered Semiconductor traded 0.18-micron know-how for a stake in Shanghai Manufacturing International Corp., China's first 200-mm foundry. Late next year, Grace Semiconductor Manufacturing Corp. will ramp another 200-mm facility. Others will be popping up around the country, too, such as at Shanghai Belling, a maker of telecom ICs.

The raw talent produced by China's university system is fertile ground for a homegrown semiconductor industry, and government backing is greasing palms, at least in high-profile cases. Obstacles still remain, though. While the technical talent may be available for entry-level jobs, there's a dearth of management expertise and process-technology engineers. "It's quite clear that if you look at the major fabs starting up in China, the management is coming out of Taiwan," said Stan Yarbo, an executive with equipment supplier KLA-Tencor Corp. Once a recovery is under way, he said, it could be hard to lure such talent to China.

Nonetheless, the consensus in Taiwan is that China will copy its success in about 10 to 15 years. Universities, in many ways, will be the key to this evolution. They are already becoming more aggressive with their curriculums in hopes of raising the bar for graduates.

In the meantime, China will hold sway simply because of the unequaled massiveness of its market. In about four years, the Asia-Pacific region will be a larger market than Japan, and China will represent about half of that, according to market watcher IDC. Soon after, it will surpass Britain and Germany for market size.

"The market in China is growing faster than anywhere else in the world," said Mike Sadler, vice president of worldwide sales at memory producer Micron Technology Inc., which is opening a regional office in Shanghai.

No wonder the dreams abound.