The Chinese century: Will China surpass the United States as the world's economic reader?

China used to be far away, the country at the bottom of the world. Certainly that is how it must have seemed until recently in Pekin, Ill., a city of 34,000 residents that in 1830 took its name from China's capital, Peking (now called Beijing). As a reminder of this historical connection, Pekin's high school teams are called the Dragons.

Back in 1830, the residents of Pekin thought that their town was directly opposite Beijing on the globe. These days, however, Pekin is connected to China not just by an imaginary hole through the earth, but by the world's shipping lanes, financial markets, telecommunications networks, and the globalization of consumer appetites.

Farmers around Pekin were expecting to sell China half a million metric tons of corn last year. Excel Foundry and Machine, a local factory, has relocated 12 percent of its production to China to keep from losing business to China's huge, cheap foundries.

Even Pekin's new Wal-Mart Supercenter spreads China's influence around town. Because 12 percent of China's exports to the U.S. end up on Wal-Mart's shelves, the company exerts tremendous downward pressure on prices. That means nearly every shopper in Pekin will save money at Wal-Mart and profit from the retailer's China connection. But this same connection may also help Wal-Mart drive other local stores out of business.

Pekin is not so different from anywhere else in America. China is everywhere these days, influencing our lives as consumers, providers, citizens. It has the world's fastest changing large economy. And it is full of contradictions: China is at one moment our greatest threat, the next our friend. It siphons off American jobs, but it lowers prices and helps keep U.S. inflation down. China's industrial might steals opportunities from the developing world, even as its booming economy pulls poorer countries up.

SOARING GDP 

Since economic reform began in 1978 under former leader Deng Xiaoping, China's gross domestic product (GDP)--the value of all goods and services produced in one year--has quadrupled. Its economy is now the world's sixth largest, with a GDP of around $1.4 trillion. (The U.S. ranks first, with a GDP of $10.9 trillion.) China is the world's third-most-active trading nation, behind the United States and Germany. If any country is going to supplant the U.S. in the world marketplace, China is it.

Mornings at the Wanfeng automotive factory outside Shanghai begin with a neat line of employees doing calisthenics to martial music broadcast over a public address system. The blue-uniformed workers, most of them young men, regularly attend company boot camps run by drillmasters from the Chinese army (the People's Liberation Army) who stress patriotism and hard work. The results are impressive. Ten years ago, Wanfeng was hammering out motorcycle wheels by hand. Today, it produces 60,000 vehicles a year that resemble Jeep Grand Cherokees. They come with every luxury, including leather seats and DVD players.

Wanfeng's plant looks nothing like a modern American factory. There is not a robot in sight. Instead, there are hundreds of men working with electric drills, wrenches, and rubber mallets. This is why Wanfeng can sell luxury vehicles (in the Middle East, mostly) for $8,000 to $10,000--1ess than a third of what a comparable Jeep costs in the U.S. Wanfeng does not spend millions on machinery, and the yearly pay of its highly skilled workers is less than the monthly pay of new hires in a Detroit automotive plant.

Wanfeng is hardly the first factory to mobilize the Chinese labor force as a stand-in for machinery. Mao Zedong, the Communist leader of the People's Republic of China from 1949 until his death in 1976, believed that China could surpass other countries by deploying a vast workforce. But Mao's programs, including the Great Leap Forward and Cultural Revolution, led to poverty and mass starvation.

Even as the Communists impoverished the nation and rigidly controlled the workforce, they also primed China for capitalist success. Obedient workers keep management costs down. In a Chinese factory, there might be 15 managers for 5,000 workers. "Culturally, the Chinese put a very high premium on not losing face," says Merrill Weingrod of China Strategies, a consulting firm in Providence, R.I. "Their self-discipline and their ability to adapt are key factors driving Chinese competitiveness."

According to the U.S. Bureau of Labor Statistics, Chinese workers earn an average of about 64 cents an hour. But it's not only cheap labor that drives China's economy. The best Chinese operations are as efficient as those of the world's elite manufacturers. This has helped make China the world's factory floor of choice: It assembles more toys, stitches more shoes, and sews more garments than any other nation. It has also become the world's largest maker of electronics like TVs, DVD players, and cell phones.

1.5 BILLION PEOPLE

Behind China's rapid economic climb over the last 25 years is the basic fact of its huge population. China now has close to 1.5 billion people--perhaps the greatest natural resource on the planet. But China's workforce is not the world's cheapest. Chinese workers cost more than those in poorer countries of Southeast Asia or Africa. China is the world's workshop because it sits in a relatively stable region and boasts a reliable workforce.

Another great contributing factor is the migration of hundreds of millions of peasants from the countryside. Average city incomes, according to the Chinese government, are $1,000 a year--three times what they are in rural China. This has prompted the largest human migration in history. By 2010, nearly half of China's people will live in urban areas.

"China is the most exciting place in the world right now to be a manufacturer," says Mark Wall, president of the greater China region for GE Plastics. His company sells the plastic pellets used to make everything from DVDs to building materials. Wall describes a country in love with manufacturing, where engineers come in excited and readily work long days. GE plans to capitalize on this zeal with scholarship programs at Chinese technical universities.

There will be no shortage of qualified candidates. China has 17 million university and advanced vocational students, the majority of whom are in science and engineering. The country produced 325,000 engineers last year. That's five times as many as in the U.S., where the number of engineering graduates has been declining since the early 1980s.

In American business, there is now something called "the China price"--the price at which Chinese manufacturers can deliver certain goods and services. It is the price American suppliers have to match to keep their customers.

THREE SCARY WORDS

According to Oded Shenkar, a business professor at Ohio State University, big manufacturers come to their American suppliers with the China price in hand and present ultimatums that the price be met. Business Week magazine recently called the China price "the three scariest words in U.S. industry." But that price also saves American consumers enormous amounts of money. A household with drawers full of three-dollar T-shirts and a DVD player in every room probably has all that extra stuff because of the China price.

By having changed itself, China is changing the world. No one can predict its long-range effects on the U.S. economy. But things won't necessarily be worse for Americans as the "Chinese century" unfolds. Imagine Pekin, Ill., in 2050. A local Wanfeng dealership is holding a "dig to China contest": Whoever gets closest in 40 minutes wins a brand-new sports coupe worth $4,000. Shoppers flock to Homeworld, a Chinese retail giant whose nearness to suppliers enables it to beat Wal-Mart's prices. And a basketball team from Beijing is due in for a game with the Pekin Dragons, provided its flight--on a brand-new Chinese jumbo jet--arrives on time.

THE CHINESE CENTURY

China has burst onto the world scene, becoming the world's sixth-largest economy. Its secret: a large, cheap, patriotic labor pool.

TEACHING OBJECTIVES

To help students better understand the bustling, exploding economy of China, the world's third-biggest trading country, and how China's growth affects ordinary Americans.

BEFORE READING: Write "Globalization" on the board. Tell students that they are about to learn how globalization--the opening of the entire world to economic investment and trade--has transformed China from a long-time economic backwater to the world's sixth-largest economy--and how that movement is touching the lives of Americans and their jobs.

CRITICAL THINKING: The article reports that Chinese workers earn an average of 64 cents an hour, a fraction of what U.S. workers earn. Cheap labor helps China's factories win business from American companies.

Have students write an essay in which they either defend the rights of Chinese companies to pay their employees so cheaply (one argument might be that goods cost less in China and, therefore, workers don't need to earn as much); or argue that Chinese workers deserve to make a wage comparable to Americans (they are, after all, making the same goods, some might point out.)

SCAVENGER HUNT: Have students look through their family's possessions for products bearing "Made in China" labels. Electronics should be one of their first stops. But look also at such items as sneakers and sports gear. List these items and their cost and bring the lists to class. Add up the cost and multiply by 49 million (roughly one sixth of the U.S. population) to get some sense of the value of such imported consumer goods.

DISCUSSION QUESTIONS

* How would you answer a factory worker who asked why her job had been moved to China?

* Do you think asking for the "China price" is a fair business practice?

FAST FACT: In 2003, Americans bought $4.1 billion worth of made-in-China radios, tape decks, and other stereo equipment.

WEB WATCH: www.cia.gov, a CIA site, provides data on China. Go to "World Factbook," and scroll to China. www.chinadaily.com.cn/english/home /index.html. China Daily is a daily English-language Chinese newspaper.

QUIZ 1

The Chinese Century

1. Describe what action one Pekin, Ill., factory took to compete with its counterparts in China. --

2. What does the Wanfeng factory do to help ensure that its workers are diligent and efficient? --

3. Like most of China's factories, the Wanfeng automotive factory saves millions of dollars by

a importing low-cost supplies from the U.S.

b producing low-cost automobiles.

c setting mostly to wealthy Middle East countries.

d retying on cheap tabor rather than expensive machinery.

4. When U.S. manufacturers demand that their American suppliers match the cost of doing business with China, they are referring to what is often called

a bargaining the deal..

b price fixing.

c the China price.

d dumping.

5. One contributing factor to the rise of the Chinese economy has been

a the fatting cost of raw materials.

b the migration of hundreds of millions of peasants from the countryside to the city.

c lower tariffs on China's exports.

d its technological, expertise is better than that of most other countries.

6. CRITICAL THINKING: Other than low prices, how might sates of Chinese goods in America help some

Americans?--

1. It moved some of its production (12 percent) to China. 2. It sends them to military boot camps to instill patriotism and teach the value of hard work. 3. (d) relying on cheap labor rather than expensive machinery. 4. (c) the China price. 5. (b) the migration of hundreds of millions of peasants from the countryside to the city. 6. Answers will vary, but might include the fact that some American jobs depend on selling Chinese goods to other Americans.

Ted C. Fishman, a contributing editor for Harper's magazine, is the author of "China, Inc.," which will be published next month by Simon & Schuster