China's real long-term strategy is to outrace America and the E.U. countries to the top, and the Chinese are off to a good start. China's leaders are much more focused than many of their Western counterparts on how to train their young people in the math, science, and computer skills required for success in the flat world, how to build a physical and telecom infrastructure that will allow Chinese people to plug and play faster and easier than others, and how to create incentives that will attract global investors. What China's leaders really want is the next generation of underwear or airplane wings to be designed in China as well. That is where things are heading in another decade. So in thirty years we will have gone from “sold in China” to “made in China” to “designed in China” to “dreamed up in China”-or from China as collaborator with the worldwide manufacturers on nothing to China as a low-cost, high-quality, hyperefficient collaborator with worldwide manufacturers on everything. This should allow China to maintain its role as a major flattening force, provided that political instability does not disrupt the process. Indeed, while researching this chapter, I came across an online Silicon Valley newsletter called the Inquirer, which follows the semiconductor industry. What caught my eye was its November 5, 2001, article headlined, “China to Become Center of Everything.” It quoted a China People's Daily article that claimed that four hundred out of the Forbes 500 companies have invested in more than two thousand projects in mainland China. And that was four years ago.
Japan, being right next door to China, has taken a very aggressive approach to internalizing the China challenge. Osamu Watanabe, chairman of the Japan External Trade Organization (JETRO), Japan's official organ for promoting exports, told me in Tokyo, “China is developing very rapidly and making the shift from low-grade products to high-grade, high-tech ones.” As a result, added Watanabe, Japanese companies, to remain globally competitive, have had to shift some production and a lot of assembly of middle-range products to China, while shifting at home to making “even higher value-added products.” So China and Japan “are becoming part of the same supply chain.” After a prolonged recession, Japan's economy started to bounce back in 2003, due to the sale of thousands of tons of machinery, assembly robots, and other critical components in China. In 2003, China replaced the United States as the biggest importer of Japanese products. Still, the Japanese government is urging its companies to be careful not to overinvest in China. It encourages them to practice what Watanabe called a “China plus one” strategy: to keep one production leg in China but the other in a different Asian country-just in case political turmoil unflattens China one day.
This China flattener has been wrenching for certain manufacturing workers around the world, but a godsend for all consumers. Fortune magazine (October 4, 2004) quoted a study by Morgan Stanley estimating that since the mid-1990s alone, cheap imports from China have saved U.S. consumers roughly $600 billion and have saved U.S. manufacturers untold billions in cheaper parts for their products. This savings, in turn, Fortune noted, has helped the Federal Reserve to hold down interest rates longer, giving more Americans a chance to buy homes or refinance the ones they have, and giving businesses more capital to invest in new innovations.
In an effort to better understand how offshoring to China works, I sat down in Beijing with Jack Perkowski of ASIMCO, a pioneer in this form of collaboration. If they ever have a category in the Olympics called “extreme capitalism,” bet on Perkowski to win the gold. In 1988 he stepped down as a top investment banker at Paine Webber and went to a leverage buyout firm, but two years later, at age forty-two, decided it was time for a new challenge. With some partners, he raised $150 million to buy companies in China and headed off for the adventure of his life. Since then he has lost and remade millions of dollars, learned every lesson the hard way, but survived to become a powerful example of what offshoring to China is all about and what a powerful collaborative tool it can become.