The Rise of a New Power (3)

6/20/05
(Page 3 of 6)

Former party leader Deng Xiaoping, who first put many of China's economic reforms in place in the 1980s, famously told his compatriots, "To get rich is glorious." Now that some are finally figuring out how to do it, a booming professional class is starting to generate an information society tailor-made for western services firms. When AIG, the huge New York-based insurance company, first got a license to operate in Shanghai in 1992, most Chinese didn't even know what insurance was. Now, with more personal property and fewer state pensions, "people here are starting to realize, 'Hey, I have these things I could lose,' " says Chia-Yan Chang, AIG's chief officer in Shanghai. "And it's not going to take China 30 years to catch up."

AIG's sales in China hit $500 million last year, and like other western firms, it's looking to double China revenues every year--a nifty offset to setbacks elsewhere, such as the accounting scandal that has engulfed the company in the United States. In China, many of AIG's 2,400 agents, in eight cities, have master's, medical, or law degrees. Some agents make over $100,000 per year.
Copycats. As always in China, there are growing pains. Local competitors have copied AIG's policies word for word--seemingly anything can be pirated in China--and priced their coverage cheaper. Several high-profile scams have soured consumers on insurance. And AIG still is not allowed to sell lucrative group policies to companies or other organizations. Senior executives, however, are undeterred. "It will become the largest market in the world over a couple of decades," predicts Edmund Tse, AIG's senior vice chairman.
Executives in countless other industries believe the same thing. Citigroup expects China to become one of its biggest markets--and sees a rare opportunity to be present at the creation of a consumer juggernaut. With a savings rate higher than 30 percent--compared with less than 2 percent in the United States--China has a vast fortune in its bank vaults. But most accounts are simple savings plans earning minimal interest. Citigroup and dozens of other financial service providers hope to offer more-sophisticated accounts producing better returns once the Chinese banking sector opens fully to foreign competition by the end of 2006, the deadline set when China joined the World Trade Organization four years ago. Of course, savings may drift down as Chinese consumers learn how to shop--but Citigroup hopes to get a cut of that action, too. Fewer than 5 percent of Chinese have a credit card, compared with 80 percent or more in the West. Citi is already pitching plastic in Shanghai in partnership with a local bank.
The lopsided U.S. trade deficit with China and the "offshoring" of manufacturing work there have focused attention on lost jobs and the fading fortunes of industries such as textiles, decimated by cheap Chinese imports. But America's interdependence with China has benefits, too. Cheap goods keep U.S. inflation and interest rates low. And the growth of China's service sector--likely to be heavily fueled by American companies--will bring a well-heeled new consumer to the global market, with less threat to American jobs. "China will be a second driver of economic growth in the world after the United States," says Richard Stanley, CEO of Citigroup China. Stanley claims the 2001-2002 U.S. recession would have been worse if not for Chinese demand for goods from America and elsewhere.