Thursday, August 11, 2005

The Rise of a New Power (2)

(Page 2 of 6)

The booty in this battle is jobs and prosperity. A recent report by the National Intelligence Council warns that by 2020, the rise of China could drive the world's most powerful companies to lean more toward the east than the west, cause more displacement of middle-class workers in the United States and Europe, and make Washington "increasingly irrelevant." Congress has formed a panel to monitor China's economic policies, and one bill, which has bipartisan support, would slap hefty fees on all Chinese imports. "It will not be Communist militarists that most threaten the U.S. standard of living," Ted Fishman writes in the bestseller China Inc., "but a Communist-capitalist rival that is a much more formidable economic competitor."

Open for business. Strange, then, that the planefuls of American business experts flocking to China are discovering a country that greatly resembles . . . their own. Premier American corporations like Microsoft, General Electric, and IBM have arrived in China not so much for the ubiquitous 50-cents-an-hour assembly workers as for the English-speaking engineering talent and, of all things, a pro-business political climate. World-class manufacturers like General Motors and Motorola are more interested in building products to sell to the Chinese than to ship back home. Businesses worry more about missing out on "the Chinese century" than about losing their way in terra incognita. "This is the late-19th-century United States, except that it's happening on a faster and broader scale," says Marshall Meyer, a professor at the Wharton School. "It's Chinese manifest destiny."
To rejuvenate its dormant state-run economy, China in the 1980s began wooing foreign multinationals to form joint ventures with Chinese companies, most of them government owned. That gives China the "last-mover advantage," says Spencer White, Asia Pacific chief equity strategist for Merrill Lynch. Home-grown firms extract business know-how from those who have perfected it, offering access to the Chinese market in return. "The size of their market makes them uniquely assimilated to attract technology," says White. "China knows it can just drop a couple of huge orders, and it blows away the critics."
Government directives over the past decade have prodded China's closet capitalists to test their entrepreneurial mettle. In the mid-1990s, when it became evident that lawyers were scarce, the government encouraged people with legal training to start practicing law--which few were doing. It worked. Ji Zou had graduated from law school in Beijing in 1990, but law was considered a shabby profession at the time, and only a few of the graduates in her class of 160 went to work as lawyers. So Zou moved to New York to work as an attorney. In 2003, she returned to China, eventually joining Paul, Hastings in Shanghai. Now, she says, nearly 70 percent of her old classmates have rejoined the legal profession, typically earning $35,000 per year or more--plenty, in Shanghai, for a car, nice house, and a few luxuries.
Fleeced. Command capitalism doesn't always work. In 2000, the government instructed China's four state-owned banks to start offering car loans to juice growth in the automotive sector. Car sales exploded--but the banks were massively fleeced by phantom borrowers who disappeared with their new cars. Still, forced enterprise is not a bad second to free enterprise. A 2002 "go global" campaign led by Premier Hu Jintao, which urged Chinese firms to explore other markets and develop new brands, has brought a number of Chinese firms to the world stage. Chinese computer maker Lenovo grabbed the spotlight late last year when it agreed to purchase IBM's personal computer division.


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