The Two Faces of China

New York Times 12/06/04
author: Keith Bradsher
c. 2004 New York Times Company

GUANGZHOU, China - Few business executives watch the growth of the Chinese economy as closely as Michael R. P. Smith, the chief executive of the Hongkong and Shanghai Banking Corporation.

Yet even Mr. Smith was startled when his staff recently projected that in 2034, bank assets in China would surpass those in the United States.

"When I saw that, I said, 'That can't be right,' and I went back to the economics guys," who confirmed the projection, Mr. Smith recalled.

Much the same surprise is cropping up in industry after industry and in country after country. From steel to oil to cars to credit cards, China is poised to become the world's biggest producer and market for many goods and services.

Along the way, China has come to terrify many foreign business executives and attract others - and sometimes both at the same time, depending on whether they see the country as a competitor, a cheap source of supply, a market, or all three.

Companies across many industries are facing enormous pressure to match prices that are available in China or lose their customers. That can mean deep price cuts of 25 to 50 percent, leading in some cases to job losses, cutbacks and even closings. At the same time, American and European companies are taking advantage of China's vast and inexpensive labor force by moving some of their operations there - and by offering their products to a country whose role as a consumer continues to grow.

China is already the largest user of steel and cement and is poised to overtake the United States in consumption of everything from copper to soybeans. These goods are needed in a fast-growing economy with many highways, factories and office towers to build - and with 1.3 billion mouths to feed.

China has become the world's largest market for cellphones, and it is catching up with Germany and Japan as a market for cars, although it considerably trails the United States in its appetite for new vehicles.

Businesses reaping the biggest rewards include companies that supply China's need for infrastructure, like the General Electric Company, which sells large turbines and aircraft engines. G.E. currently ships roughly $3.5 billion worth of goods each year to China from other countries, mainly the United States, while exporting $2 billion of merchandise from China, mainly to the United States.

But companies like G.E. are the exception. American imports from China exceed exports by more than five to one, as retailers like Wal-Mart Stores buy immense and growing quantities of goods from China. With as many people as the entire industrialized world combined, China has tens of millions of unskilled workers willing to work for less than $100 a month.