A Fast Drive to Riches

Article excerpt

IT IS SURELY ONE OF THE 20tH century's most extraordinary twists: in an era when capitalism became the most unifying force in the world, the most influential capitalist of them all turned out not to be named Rockefeller or Ford, nor Morita, nor even Gates. It turned out to be a five-foot soldier in Mao Zedong's revolutionary army, a man who called himself a communist until his dying day. Thirty-five years after the revolution, Deng Xiaoping proclaimed to a nation of 1 billion people that getting rich was glorious. Nothing was the same again. Not for China. Not for the world.

China's flourishing stock markets took the news of Deng's death without missing a beat. Another day, another dollar. Shem zhen went up a bit, and so did Shanghai. If ever there was the economic equivalent of the military flyover--traders of the world dipping their wings in a last salute to one of their own--this was it. Less than 20 years ago the phrase "China's stock markets" was an oxymoron. There weren't any, and it was barely imaginable there ever would be. Li Hongbo is a 29-year-old resident of Shanghai who undersmds well what Deng wrought. He is a fund manager who oversees $50 million worth of other people's money invested in the Chinese market. His peasant-farmer parents are very proud of him and the money he earns--although they have no idea what a fund manager is.

Deng's capitalist revolution altered the world economic balance of power. It created, most obviously, an enormous market for goods and services that no chief executive anywhere can afford to ignore. In 1978 there were 1 million TV sets in China. Last year there were 282 million. That's why there's a giant, teeming Wal-Mart "Super Center" in Shenzhen, one of Deng's so-called special economic zones, where his reforms took hold first and most vigorously. If Beijing's economy were to grow as fast over the next 18 years as it has over the past decade, its GNP by 2010 will be bigger than America's.

And China is more than just a burgeoning market. It is now a gigantic export platform, as manufacturers--foreign and Chinese--take advantage of a huge pool of cheap and industrious labor. China's bilateral-trade surplus with the United States is $89 billion and rising, second only to Japan's. That has caused an increasing amount of trade friction with Washington--even though, as any unemployed South Korean textile worker knows, formerly "low-wage" East Asian countries have lost far more production jobs to China than the United States has.

Deng's successors understand the power of money. Three and a half years ago, at a meeting of the Asia Pacific Economic Conference in Seattle, Jiang Zemin, now Beijing's pre-eminent leader, sent a message to Bill Clinton, then the new U.S. president: upon arrival in Seattle, Jiang went straight to the huge Boeing factory adjacent to the airport to visit the workers. Boeing competes all over the world with Europe's Air-bus--but nowhere more bitterly than in China. Clinton had spent the 1992 campaign bashing George Bush for "coddling" the men who had presided over the Tiananmen massacre. Ever the good student, Clinton learned the lesson of Jiang's Boeing visit. Washington soon uncoupled China's most-favored-nation trading status from an annual review of its human-rights record.

The economic momentum China now has--and its resulting diplomatic clout-- means Jiang will not consider any major repeal of Deng's reforms. Rather, the new Chinese leader's task lies in dealing with what capitalism has wrought. For Deng, growth was the first, second and third priority. "He always wanted the speed to go faster," says Beijing's vice mayor, Zhang Baifa. But speeding trains can go off the rails. Jiang's economic agenda urgently needs to be broadened, particularly if he wants to continue to attract the foreign investment that has helped drive China's growth.

For all its growth, its irresistible allure as a market and as a production platform, China is still an exasperating place to do business. …