China:
A Waking Giant?
December
16, 2002
by
Wendy
Hall
Larta Staff Writer
Over a year after joining the World Trade Organization,
China has witnessed a considerable economic upswing,
particularly in technology and IT sectors. However,
there are still significant challenges posed to US
- based businesses and entrepreneurs looking to invest
in China.
Fueled
largely by the economic growth of the PC, consumer
electronics and IT industries, China, particularly
long-democratized Taiwan, has enjoyed a steady rate
of growth to become the 17th largest economy in the
world. One factor that has contributed to the country's
success is China's low manufacturing costs, which
have made it an offshore production choice for many
types of businesses. China
has also benefited from a large population of highly
skilled workers, particularly scientists, technologists
and engineers, while Chinese scholars educated abroad
over the last decade reportedly make up more than
half of the top scientific researchers currently involved
in key projects worldwide. Of all the technology-based
industries that are thriving in China, the IT and
OEM sectors are poised for the most growth.
"I would say that probably in three years from
now China and Taiwan and other Asian countries will
be the manufacturing base for IT products the entire
world, although it borders into other products, for
all the major key components other than the semiconductor,"
says C.K. Cheng of Harbinger Ventures. "Taiwan
is much bigger than China but China is picking up.
The systems that consist of multiple products, even
computer notebooks, are largely manufactured in China
right now. Therefore the startup company in the U.S.
that is currently focused at the infrastructure, the
platforms, or semiconductor, a big part of their customer
base will be in Asia, because there's more of a demand
for it. For the manufacturing sectors, the alliance
between Asia and the US, particularly California,
will become greater over time."
China's "globalization" has been steadily
increasing in recent years as Chinese businesses form
relationships with companies in other countries, and
has accelerated since China became a WTO member, contributing
to significant economic growth and greater domestic
competition.
"One of the main factors that are currently shaping
the future direction of China's economy--one is the
fact that China is becoming a domestically driven
economy and connected with that, it's building a middle
class," says William Overholt, Research Chair
at RAND Center for Asia Pacific Policy and speaker
at the upcoming China Compass Conference on U.S.-
China business relations. "The big drivers are
infrastructure, the housing industry, and the car
industry. China sells about three million cars a year
now, and the market has increased 47% this year. So
this is why China is growing at a time when other
neighbors, especially Japan, are having difficulty."
The other side of this prosperity is the fact that
the country still faces a considerable hangover debt,
both in the banks and in pensions that are not funded,
creating a looming financial problem that can only
be avoided through continued reform and growth. For
U.S. businesses and investors looking to China for
opportunities, there are still many obstacles despite
the country's economic outlook and WTO membership.
Overholt believes there is often an extreme misconception
that you can just walk into China and make a fortune,
despite the fact that it's almost always very difficult
to start up and establish a healthy business in China.
Investment in the Chinese car industry, as well as
manufacturing-based ventures, has been very profitable
for many. If China slows economic reform, the risk
to foreign investors, Overholt says, is essentially
the same as the risk to the Chinese economy. "They
do have this huge burden of debt. And they can handle
it barely, as long as they keep reforming at an extraordinary
rate. But just as globalization here is very good
for the US economy, the unions here fight it. And
in China, you have a lot of interest groups that would
wish things would slow down. And if a new leadership
proved to be weaker than the old, and slowed the pace
of reform, then you could have a financial crisis.
And things would get very bad for everybody. I think
the chances of that are pretty limited, but it's certainly
not impossible."
