The giant awakens
By SCOTT WENGER
Neon lights suggest Times Square, but it’s Shanghai's popular Nanjing Road.
In a five-part series, Deputy National Editor Scott Wenger examines China’s emergence as an economic superpower expected to rival the U.S.
Beyond countless shiploads of inexpensive products, Americans found China unexpectedly peddling something new this summer: multibillion-dollar takeovers of marquee companies.
Unlike the low-priced shirts, shoes, furniture and appliances Americans have been all too happy to buy, the Chinese met a wall of opposition in Congress, corporate suites and the halls of once-powerful unions battered by low-wage foreign rivals.
Worried about national security and China's potential threat to American economic might, two major deals rang up as No Sale:
# China National Offshore Oil Corp., or CNOOC, tried to break-up Chevron's planned buyout of Unocal. The proposal set off a firestorm of opposition. Chevron prevailed even though it was outbid, leaving CNOOC to complain about the "unjustified ... political environment."
# China's Haier tried to snap up Maytag, but gave up on a deal for the heavily unionized appliance maker. Haven't heard of Haier? Take a walk down the aisles of Home Depot or Best Buy.
But not all the Chinese money was turned away:
# The PC division of IBM wound up with Beijing bosses. China's Lenovo might not have much name recognition, but it's now the world's third-largest computer maker.
Despite the recent setbacks, "the momentum that China has is unstoppable - it really is mind-boggling," said Dave Kassel, CEO of Long Island-based International Smart Sourcing, a consulting business that helps companies move manufacturing operations to China.
If there's any doubt about China's ascent, a new Goldman Sachs report projects China will leapfrog Japan and even the U.S. to become the world's biggest economy before 2040.
"This is their boom. This is their Industrial Revolution," said Dan Washburn, founder of the Shanghai Diaries Web site.
China's turbo-charged evolution from a creaky Communist society clearly has caught many Americans by surprise.
"The Soviet Union model of what a Communist country is supposed to look like doesn't work for China," said James Green, government relations director of the American Chamber of Commerce in Shanghai. "China has unbridled capitalism."
Roberta Lipson, CEO of Chindex, a U.S. health care and hospital company in China, agreed.
"Look around - this place is happening. Beijing and Shanghai are filled with incredible entrepreneurs. Everyone in the parking lot at Starbucks has an amazing story to tell," she said.
Chinese workers "have an attitude that is can-do, competitive, anything is possible," added Kassel, who lives in Shanghai part time.
It's not just an endless supply of Chinese laborers moving to vast coastal cities fueling China's economic rocket. It's also the skills and China's ability to quickly make, transport and export products, Goldman Sachs International Vice Chairman Robert Hormats said. "If low wages were the only criteria, all the jobs would be in Haiti."
Across America, China has been blamed as countless plants closed the past several decades and millions lost their jobs.
"It's no secret that the manufacturing industry has been getting killed," Sen. Chuck Schumer said. The New York Democrat co-sponsored a bill to put a 27.5% U.S. tax on some Chinese products unless China revalued its currency, the yuan. Chinese leaders announced a small change two weeks ago, making the price of some American products a bit more competitive, and putting Washington lawmakers on the sidelines temporarily.
Federal Reserve chief Alan Greenspan bluntly told Congress this summer that any "misguided" sanctions against China would ultimately punish America.
"Keeping out competitively priced goods would materially lower our standard of living," Greenspan said.
And U.S. shoppers would instantly see the difference.
"If you want to buy a $3 broom at Kmart, a $700 laptop computer at Best Buy and clothing so cheap at Wal-Mart that it is almost disposable, then this stuff has to be manufactured in China," said James McGregor, a business consultant in Beijing and author of "One Billion Customers: Lessons from the Front Lines of Doing Business in China."
China's boom also has meant American-made furniture is filling fewer homes. "The quality of the products we get from China is excellent and indistinguishable," said Alex Bernhardt Sr., CEO of the North Carolina company that makes the Martha Stewart Signature furniture line.
Many American business executives, government officials and economists believe there's far more to cheer than worry about as a new China rises. The emergence of a middle class in a nation of 1.3 billion people holds enormous potential for the U.S., they insisted.
"It's more of an opportunity than a threat," said Hormats, who's advised five Presidents - Richard Nixon, Gerald Ford, Jimmy Carter, Ronald Reagan and Bill Clinton - on world trade. "The average American consumer has benefited enormously." And, despite rampant piracy, "China is a great place for American products." Growing exports to China means good jobs for American workers, he added.
Home buyers have also been "huge beneficiaries" of China's boom, Hormats said. With a lot of cash on hand, China's government has been a massive buyer of ultra-secure U.S. Treasury bonds. That's helped keep U.S. interest rates - and mortgage rates - historically low.
The Clinton administration's ambassador to China, James Sasser, said Chinese leaders know their country's growth can continue only if they help maintain American prosperity.
"They have a vested interest in keeping our economy going because we're their biggest customer. Any slowdown in American spending translates into Chinese unemployment," Sasser said, "which translates into problems for the Chinese government."
While unlikely, the future could turn ugly. "China's got huge problems," insisted James Lilley, former President George H.W. Bush's ambassador to China during the 1989 Tiananmen Square uprising. "There's enormous corruption all across the board," Lilley said.
Violent protests are common by people losing their homes to the torrid pace of re-development and, in a country dominated by poor farming families, the vast disparity between the working poor and comparatively rich is a potential powderkeg, he said.
For the government to maintain control, Sasser said, China's leaders will "have to produce a better today and a better tomorrow."
Just another scare
By HELEN KENNEDY
DAILY NEWS STAFF WRITER
An Asian powerhouse producing better, cheaper products than Americans, buying up U.S. companies, sparking cries of "Buy American" and fears of the U.S. becoming an economic also ran.
Today it's China. But it was only a few years ago that everyone was panicking about Japan. At the end of the 1980s, Japan's economy was booming as America's went into recession.
Japanese cars were dominating the market while plants were closing in Detroit. Japanese firms bought up such iconic American properties as Rockefeller Center, Columbia Pictures, the Pebble Beach golf course, even 7-Eleven.
"The United States is rapidly becoming a colony of Japan," warned a Maryland congresswoman. The cover of Fortune magazine wondered, "Where Will Japan Strike Next?" and Michael Crichton's Japan-bashing novel, "Rising Sun," was a best seller.
It all seems so quaint now, after Japan's overleveraged stock and real estate markets crashed. Many of the biggest Japanese real estate deals turned out to be overpriced trophy purchases, and buyers found they couldn't make a profit after paying so much.
"Like all suckers, the Japanese ended up selling most of these foolish purchases at a great loss," said Edward Lincoln of the Council on Foreign Relations in New York.
American fears about China could end up looking just as quaint, he said.
"We were hysterical about the Arabs in the 1970s, the Japanese in the 1980s and now the Chinese. None of this is justified," he said. "The ones who should be hysterical - hysterical with laughter - are the American sellers."
At odds over policy points
Since President Bush took office, Washington's always complex diplomatic relations with China have only become more tangled.
Campaigning in 2000, Bush vowed to get tough with China. When he made his first calls to world leaders upon taking office in 2001, he pointedly did not phone China's leaders.
Tension quickly came to a head months later with the forced landing of a U.S. spy plane in China and the detention of its crew for 11 days.
But after the Sept. 11 attacks, the Bush administration's No. 1 focus became terrorism, and it saw China as a possible ally. And as a war of words between America and North Korea started heating up, Washington began depending on Beijing's help in mediating.
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