How China Will Change Your Business
Fourteen things every entrepreneur should know about the capitalist explosion heading our way. But don't assume that conceding China's rise means conceding to China.
China's miracle economy can come at you in a lot of ways, from all directions.
- Mention an interest in China to your old friend who owns an industrial toolmaking shop and he confides that his factory, which was started by his father and has bought a comfortable suburban life for three generations of his family as well as good wages to hundreds of workers, "is getting killed by the people over there."
- Stop at the auto supply store for windshield-wiper fluid. Half the store is now a showroom for small Chinese motor scooters, some of which look like half-Harleys, others like Ducatis. Most cost less than $300.
- Decide at last to plunge into digital photography. Photo magazines all rave about a small new camera from Nikon, an engineering wonder that can shoot fast, captures dimly lit scenes, and costs half the price of similar machines a year ago. Nikon is one of Japan's marquee brands, but when you bring the camera home from the store you spot the words in small print on the product itself: "Made in China."
- Wake up in Santa Barbara, Calif., one morning to a sky that looks as though it is painted a shiny white. The morning's newspaper reports that the sunlight is playing tricks on something known as the Asian Brown Cloud, a mass of dust that has drifted over the Pacific from China. The cloud contains particles of loose earth from deforested land mixed with arsenic and other industrial pollutants from the country's factories.
Powered by the world's most rapidly changing large economy, China is an ever increasing presence and influence in our lives, connected to us by the world's shipping lanes, financial markets, telecommunications, and above all, by the globalization of appetites. China sews more clothes and stitches more shoes and assembles more toys than any other nation. It has become the world's largest maker of consumer electronics, pumping out more TVs, DVD players, and cell phones than any other country. And more recently, it has ascended the economic development ladder higher still, moving quickly and expertly into biotech and computer manufacturing. It is building cars (there are more than 120 automakers in China), making parts for Boeing 757s, and exploring space with its own domestically built rockets.
Americans tend to focus on the huge inequality in trade between the two countries. It is a worry Americans help to create by buying ever more from China's humming factories. In 2004, the Chinese sold the United States $160 billion more in goods than they bought. Contrary to common wisdom, however, the trade deficit with China does not mean that Americans are spending down the national wealth at a faster pace than ever before. So far, most of China's gains with American buyers have come at the expense of the other countries that once lured American dollars, especially other Asian economies. Americans -- and the world -- get more stuff in the bargain.
Ever since China started on the capitalist road, opinions about its prospects have figuratively, and literally, been all over the map. The present mood is a combustible mix of euphoria, fear, admiration, and cynicism. On those emotions ride great tides of capital, the strategic plans of businesses great and small, and the gravest political calculations in the world's capitals and city halls.
Yet few working Americans have a full awareness of China's rise. How could they? Nothing like this has ever happened before, and it's occurring on the other side of the globe. Yet Americans -- particularly anyone involved in running a business -- need to know what is happening today in China and to understand how China's fate has become inextricably bound with our own. Conceding China's rise does not mean conceding to China. But it does require acknowledging some important truths:
- China's economy is much larger than the official numbers show.
- The growth of China's economy has no equal in modern history.
- China is winning the global competition for investment capital.
- China can be a bully.
- China's economy is an entrepreneurial economy.
- The most daunting thing about China is not its ability to make cheap consumer goods.
- China is closing the research and development gap -- fast.
- China now sets the global benchmark for prices.
- China's growth is making raw materials more expensive.
- No company has embraced China's potential more vigorously than Wal-Mart.
- There are hidden costs associated with doing business in China.
- Piracy is a problem.
- China's heavy buying of U.S. debt has lowered the cost of money in the U.S.
- Americans and Chinese have become reliant on each other's most controversial habits.
1. China's economy is much larger than the official numbers show. In 2003, China's official GDP was $1.4 trillion. By that measure, it was the seventh-largest economy in the world. As with nearly all economic statistics from China, however, that measure is suspect. One reason the real number may be much higher is that, in competition for development funds, local Chinese authorities have considerable incentive to underreport their growth rates to the nation's central planners. Another reason is that the government measures only China's legal economy. Its underground economy, made up of both unsavory businesses and more mundane ones that lack a government stamp (and tax bill), is enormous but uncountable.
