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.
The next question is whether any commercial technology is beyond an imminent challenge from China.
Given how quickly China is climbing the industrial ladder, perhaps the next question is whether any commercial technology is beyond an imminent challenge from China. Gal Dymant, an American Israeli venture capitalist in Beijing, believes the answer is that few will be. One of the companies Dymant works with, a database publisher named Asia Direct, produces an annual China Hi-Tech Directory. Tracking the directory's updates year to year gives Dymant an informal measure of the shifts in Chinese industry.
The first thing one notices about the directories, he says, is how much thicker they grow every year, particularly in industries where there have been large foreign investments. In 2003, Asia Direct's volume grew considerably fatter in the sections devoted to China's domestic mobile-phone manufacturers and suppliers, broadband communications, and in companies establishing themselves in cities outside of China's eastern powerhouses. The manufacture and sale of integrated chips is also soaring, along with healthy gains in China's software and information-services markets. Then again, every section in the directory has grown, including biotechnology, semiconductors, and Internet development, areas in which Chinese firms have newly established themselves, many now in partnership with the world's leading technology-driven companies.
For his part, Dymant is putting together an investor group to build a Chinese version of one of the world's most advanced and costly medical devices, the magnetic resonance imaging (MRI) machine. "The talent is here to build anything," Dymant says. "We think we can develop MRIs for about 60% of the price they are built for in the U.S."
7. China is closing the research and development gap -- fast. The ability of American industry to stay ahead of its international competition rests on the national gifts and resources that the U.S. devotes to innovation. The research gap between the U.S. and China remains vast. In December, Washington authorized $3.7 billion to finance nanotechnology research, a sum the Chinese government cannot easily match within a scientific infrastructure that would itself take many more billions (and years) to build.
