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Get ready for China to shake the world

by Stephen Hawley Martin
for Virginia Business
June 12, 2007

Lately, I've been working on a book with a successful Chinese-American business man about how best to do business in China. This has included a fact-finding trip to China and a great deal of research. I can honestly tell you that what I have learned is not at all what I had expected.

My first impression after landing in China was that this was a happening place. Wherever I looked, modern expressways and glass and chrome skyscrapers are under construction. China now has 27,000 miles of limited-access super highways, compared to 43,000 miles in the United States, and more miles are being added every day. A new coal-fueled electric power plant opens once each week on average. As an aside, anyone who thinks the world can realistically cut CO2 emissions needs to give that some thought.

Second is the realization that the China of today is not a communist country. It's true that China is run by an authoritarian government. But that government is no longer totalitarian or communist, regardless of what it may call itself.

According to my dictionary, communism is a system of government in which the state owns just about everything and plans and controls the economy. Does a country where 80 percent of urban dwellers own their own homes and where 65 percent of the GNP and 70 percent of taxes come from private enterprise fit that definition? I don't think so.

Seeing the rapid growth in infrastructure taking place before my eyes made me realize that an authoritarian government has its advantages. When it comes to building what's needed to support industry - such as roads, bridges, ports, power plants and the like - it can be done quickly because little or no discussion or debate is required. A decision is made and construction begins. This is a major reason China has been able to grow its GNP almost 10 percent a year, whereas in India, a democracy, construction of infrastructure lags far behind what it needs to sustain its growth.

Authoritarian or not, there's no doubt the Chinese government is pro-business. The government keeps the cost of electricity artificially low, sets water rates at a fraction of the real value, puts a cap on the price of some categories of coal, subsidizes oil to make it cheaper to transport, ensures workers cannot form independent unions, promotes savings so its banks have plenty of money to lend, and provides preferential tax treatment to companies that export goods. That sounds pro-business to me.

On the four-hour drive on a high-speed expressway between Shanghai and Ningbo, we passed an unbroken line of apartment buildings and factories the entire way, most of which looked new. Standing on an observation platform at the Port of Ningbo, China's second largest after Shanghai, container ships stretched out in both directions as far as the eye could see. In 10 minutes I counted half a dozen trucks hauling Costco containers in the steady stream of port traffic. And I thought about jobs. How many U.S. manufacturing jobs have been lost to China?

The answer also was not what I had expected. No doubt some individual industries have been hit hard. But according to an Op/Ed column by Robert Samuelson in a recent issue of the Richmond Times-Dispatch, Jacob Funk Kirkegaard of the Peterson Institute for International Economics had this to say; "The heated public and political debate [about out sourcing of jobs] has been vastly overblown." Kirkegaard examined a survey on "mass layoffs" from the Bureau of Labor Statistics to see how many came about as a result of work moving offshore. The answer was 4 percent and that included both manufacturing jobs and jobs in the service sector.

In 2004 and 2005, the BLS counted almost 1 million workers fired in layoffs of 50 or more. When one considers the labor force includes a total of 150 million people, that's not such a big number. And the 1 million doesn't include just jobs lost to outsourcing. That figure included layoffs for domestic reasons. In fact the largest reason given was "contract completion." In other words, the skyscraper, highway or power plant was finished and the workers let go. Only about 12 percent of the layoffs stemmed from "movement of work" and two-thirds of these moves were domestic.

China is a country of 1.3 billion people. That's four times the United States. According to official Chinese government estimates, 24 million workers enter the labor market in China each year. Imagine trying to keep up with that? No wonder the government is pro-business. And business is booming as a result, which means that the middle class is growing quickly.

What happens when the middle class grows and has more and more money to spend? The domestic market for goods catches fire. It's happening now.

Have you considered establishing a beachhead in China? If your company is national in scope and hasn't done so already, I urge you to at least give it some study before your competition becomes firmly entrenched.

Over the next few weeks we will be exploring some ins and outs about doing business in China. So stay tuned because I believe Napoleon had it right when he said China was a sleeping giant, and when she awoke she would shake the world.

Don't you feel the tremors already?

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Stephen Hawley Martin is a former principal of The Martin Agency in Richmond and the author of more than half a dozen books including his newest, Lean Enterprise Leader: How to Get Things Done Without Doing It All Yourself. He is editor and publisher of The Oaklea Press, a book publishing business dedicated primarily to helping business executives increase productivity.