I don't know who is the lion and who is the gazelle, but I do know this: Ever since the Chinese joined the WTO, both they and the rest of the world have had to run faster and faster. This is because China's joining the WTO gave a huge boost to another form of collaboration– offshoring. Offshoring, which has been around for decades, is different from outsourcing. Outsourcing means taking some specific, but limited, function that your company was doing in-house-such as research, call centers, or accounts receivable-and having another company perform that exact same function for you and then reintegrating their work back into your overall operation. Offshoring, by contrast, is when a company takes one of its factories that it is operating in Canton, Ohio, and moves the whole factory offshore to Canton, China. There, it produces the very same product in the very same way, only with cheaper labor, lower taxes, subsidized energy, and lower health-care costs. Just as Y2K took India and the world to a whole new level of outsourcing, China's joining the WTO took Beijing and the world to a whole new level of offshoring-with more companies shifting production offshore and then integrating it into their global supply chains.
In 1977, Chinese leader Deng Xiaoping put China on the road to capitalism, declaring later that “to get rich is glorious.” When China first opened its tightly closed economy, companies in industrialized countries saw it as an incredible new market for exports. Every Western or Asian manufacturer dreamed of selling its equivalent of 1 billion pairs of underwear to a single market. Some foreign companies set up shop in China to do just that. But because China was not subject to world trade rules, it was able to restrict the penetration into its market by these Western companies through various trade and investment barriers. And when it was not doing that deliberately, the sheer bureaucratic and cultural difficulties of doing business in China had the same effect. Many of the pioneer investors in China lost their shirts and pants and underwear– and with China's Wild West legal system there was not much recourse.
Beginning in the 1980s, many investors, particularly overseas Chinese who knew how to operate in China, started to say, “Well, if we can't sell that many things to the Chinese right now, why don't we use China's disciplined labor pool to make things there and sell them abroad?” This dovetailed with the interests of China's leaders. China wanted to attract foreign manufacturers and their technologies-not simply to manufacture 1 billion pairs of underwear for sale in China but to use low-wage Chinese labor to also sell 6 billion pairs of underwear to everyone else in the world, and at prices that were a fraction of what the underwear companies in Europe or America or even Mexico were charging.
Once that offshoring process began in a range of industries-from textiles to consumer electronics to furniture to eyeglass frames to auto parts-the only way other companies could compete was by offshoring to China as well (taking advantage of its low-cost, high-quality platform), or by looking for alternative manufacturing centers in Eastern Europe, the Caribbean, or somewhere else in the developing world.
By joining the World Trade Organization in 2001, China assured foreign companies that if they shifted factories offshore to China, they would be protected by international law and standard business practices. This greatly enhanced China's attractiveness as a manufacturing platform. Under WTO rules, Beijing agreed-with some time for phase-in-to treat non-Chinese citizens or firms as if they were Chinese in terms of their economic rights and obligations under Chinese law. This meant that foreign companies could sell virtually anything anywhere in China. WTO membership status also meant that Beijing agreed to treat all WTO member nations equally, meaning that the same tariffs and the same regulations had to apply equally for everyone. And it agreed to submit itself to international arbitration in the event of a trade dispute with another country or a foreign company. At the same time, government bureaucrats became more customer-friendly, procedures for investments were streamlined, and Web sites proliferated in different ministries to help foreigners navigate China's business regulations. I don't know how many Chinese actually ever bought a copy of Mao's Little Red Book, but U.S. embassy officials in China told me that 2 million copies of the Chinese-language edition of the WTO rule book were sold in the weeks immediately after China signed on to the WTO. To put it another way, China under Mao was closed and isolated from the other flattening forces of his day, and as a result Mao was really a challenge only to his own people. Deng Xiaoping made China open to absorbing many of the ten flatteners, and, in so doing, made China a challenge to the whole world.