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People's Republic of Products

China's embrace of capitalism is making it the factory floor to the world, posing a serious challenge to the U.S. economy.

October 20, 2002|Evelyn Iritani and Marla Dickerson | Times Staff Writers

ONGGUAN, China — Ten years ago, this southern Chinese city was little more than vegetable farms and rice paddies. Today it is a teeming, smoggy monument to manufacturing. More than 4 million workers toil in 22,000 factories, churning out everything from patio chairs to power tools.

Rows of industrial buildings the size of airplane hangars stretch on for miles. Uniformed workers spill out of factory dormitories before dawn, stopping for a quick bite of porridge before heading to the assembly lines. Container trucks zip along modern superhighways to high-tech ports, where cargo is loaded around the clock onto ships bound for Los Angeles, Tokyo and Rotterdam.

Poor and isolated 30 years ago, China is emerging as the world's factory floor. The country's embrace of capitalism, coupled with an abundance of cheap labor, massive foreign investment and the collapse of international trade barriers, has sparked an explosion of manufacturing. The reverberations are being felt around the globe.

Shopping for a pair of shoes? Chances are that nimble Chinese hands sewed them, along with nearly 80% of the footwear purchased in the United States. That French provincial bedroom set on the showroom floor? It's probably part of the $4.6 billion in furniture that China shipped to the United States last year.

Computers? Factories here in Dongguan, 50 miles north of Hong Kong, produced 37% of the world's disk drives and 10% of its computer monitors last year -- not to mention tens of millions of scanners, printers and DVD players.

Though many of China's exports are familiar Western brands, made in factories owned or run by foreigners, home-grown Chinese enterprises are making refrigerators, microwave ovens and high-definition televisions for customers worldwide.

"They're going to be a force to be reckoned with," entrepreneur George Thomas said of the Chinese. Thomas heads an Illinois company that makes computer networking equipment. He recently moved his manufacturing operation to the Chinese city of Suzhou to take advantage of low wages, tax breaks and inexpensive supplies.

"They're going to drive standards," he said. "They're going to drive everything."

China is not the first developing country to become a center for low-cost production. But the speed and scale of its emergence set it apart. Until recently a minor player in the world economy, China now is the sixth-largest trading nation. Experts predict that it will rank second by the end of the decade, ahead of Germany and Japan and behind only the United States.

"The pace of China's industrial development and trade expansion is unparalleled in modern economic history," said Nicholas Lardy, a China expert at the Brookings Institution in Washington and author of several books on the Chinese economy. "While this has led to unprecedented improvements in Chinese incomes and living standards, it also poses challenges for other countries."

Despite its spectacular progress in recent years, China remains an impoverished country: Two-thirds of its people live on less than $1 a day. Its industries remain far behind their U.S. counterparts in technology, innovation, managerial expertise and marketing know-how.

But international economists say China is advancing steadily and eventually will compete with U.S. companies in making complex, high-value products such as aircraft and semiconductors. Whether this is to be encouraged or feared is a source of growing debate.

Some security experts, business leaders and members of Congress say that an economically powerful China will become a political and military rival. It is worrisome, they say, that an authoritarian country with a history of contentious relations with the U.S. has become a key source of all kinds of manufactured goods. If a political upheaval or a diplomatic dispute interrupted those supplies, the U.S. economy would suffer.

This vulnerability was underscored recently when a labor dispute shut West Coast ports, interrupting the flow of computer parts, Christmas toys and other products from China.

The skeptics would like to see China's rise slowed and its access to advanced U.S. technology limited.

"The economic growth of China is at least as potent a threat to U.S. security as the actual military power," said June Teufel Dreyer, a China specialist at the University of Miami. "Obviously, a strong economy can field a stronger military."

Advocates of free trade with China, who include President Bush, contend that economic engagement is the best way to foster a stable, prosperous China capable of buying U.S. airplanes, wheat and pharmaceuticals.

"The key is not to try to hold China back, because that in the long run is an exercise in futility and it's a political mistake. It breeds an enormous amount of resentment," said William Reinsch, a former top Commerce Department official who is president of the National Foreign Trade Council in Washington. "What makes more sense is to run faster because we can. We're an entrepreneurial society."

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