How China Will Change Your Business

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With money comes knowledge. The catalytic role of foreigners in the country is still growing quickly; every day China receives a river of European, Asian, and American experts in manufacturing, banking, computing, advertising, and engineering. In 2003, the exports and imports by foreign companies operating in China rose by over 40%. More than half of China's trade is now controlled by foreign firms. Many of these import goods into the country that they then manufacture into exports. Foreign companies have pumped up China's trade volume enough to make it the third-largest trading country in the world, behind the U.S. and Germany and now ahead of Japan.

4. China can be a bully. China can spend, it can hire and dictate wages, it can throw old-line competitors out of work. In just a three-year period from 2000 to late 2003, for example, China's exports to the U.S. of wooden bedroom furniture climbed from $360 million to nearly $1.2 billion. During that time, the work force at America's wooden-furniture factories dropped by 35,000, or one of every three workers in the trade. China now makes 40% of all furniture sold in the U.S., and that number is sure to climb.

5. China's economy is an entrepreneurial economy. China's industrial competitors, including the U.S., often misapprehend the source of China's productive strength. They fear that another centrally governed, well-planned assault on strategic industries is being plotted in Beijing. The world has already seen how effective the Japanese, Koreans, and Taiwanese can be when they focus on sectors they mean to conquer. Even Chinese government planners like to talk as though they are aping the centrally coordinated, government-financed assaults on strategic global industries that their Asian neighbors have pulled off over the past 40 years. However, in looking at how Chinese businesses really take shape -- locally and opportunistically -- Kellee Tsai, a political scientist at Johns Hopkins University and a former analyst at Morgan Stanley, argues that nothing could be further from the truth. For a world fretting over Chinese economic competition, the entities to fear are not government planners but enterprises that spring on the scene lean and mean, planned and financed by investors who want to make money quickly.

An emblem of the Zhejiang province in China is Hong Dongyang, an entrepreneur whose story is now well-known throughout the country. Hong was once a schoolteacher. She began making socks in the 1970s on a home sewing machine. At first Hong sold them along the roads near her home. She opened a stand and christened her embryonic enterprise Zhejiang Stocking Company. Hong's sock company was predictably copied en masse by others. Today, the province is the Chinese sock capital, with more than 8,000 companies spinning out eight billion pairs a year, one-third of the world's supply. In 2001, the Chinese makers produced 1% of the socks on U.S. feet. In just two years, sock imports from China to the U.S. jumped two-hundred-fold and now make up 7% of the U.S. market. James J. Jochum, assistant secretary for export administration at the U.S. Department of Commerce, has noted that the Chinese manufacturers cut their prices by more than half in 2003 and helped drive one in four U.S. sock makers out of business.

6. The most daunting thing about China is not its ability to make cheap consumer goods. The American economy won't crater just because the Chinese can produce sofas and socks for less than we can. The Japanese, for their part, have lost the television business. The Italians are losing the fine-silk business. Consumer goods trade on the surface of the world's economy and their movement is easy for the public to watch. The far bigger shift, just now picking up steam, is occurring among the products that manufacturers and marketers trade with each other: the infinite number and variety of components that make up everything else that is made, whether it is the hundreds of parts in a washing machine or computer or the hundreds of thousands of parts in an airplane.

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