The elusive China Dream is fast becoming reality for many US
companies.
US corporate profits in China passed $2 billion the first six
months of 2006, up more than 50% from the first half of last year,
according to the US Bureau of Economic Analysis. US companies are
on pace to earn more in China this year than they earned there
during the entire 1990s, notes Joseph Quinlan, chief market
strategist at Bank of America.
The government numbers are consistent with private surveys: 81% of
companies belonging to the US-China Business Council, a lobbying
group, reported that their China operations were profitable. More
than half said profitability in China matched or beat their
worldwide profit margins, according to a recent council
survey.
In 1999, the US State Department found that just 57% of US firms
were profitable in China.
Equipment manufacturer Caterpillar cited strong growth in China,
among other things, last week when it reported a 21% increase in
third-quarter earnings. Like most US companies, Caterpillar doesn't
report China revenue and earnings separately and won't talk about
them in any detail.
But a telling sign of China's importance to the company: Over the
past 2.5 years, Caterpillar has doubled its China workforce to
5,000, says Jim Dugan, the company's spokesman in Beijing.
"Just about any place you go in China, there are road and railroad
and construction and energy projects," Dugan says. "Those are all
fields where we play ball."
'Business is good'
Starbucks, which already operates more than 190 stores in 19
Chinese cities, doesn't break out its financial performance in
China. But spokesman Eden Woon says, "Business is good. We are
accelerating our growth."
Not all successful US companies in China are household names:
Greif, a Delaware, Ohio-based maker of industrial packaging, says
profits are strong and growing in China, a market it entered five
years ago when it acquired a competitor already operating
there.
For centuries, Western businesses have cast covetous eyes at China,
a dream market with the world's biggest population, now 1.3
billion. And it's virtually untouched by modern marketing. But
their visions of profits, dating back to Marco Polo and before,
usually came to nothing. They've been dashed by war, political
turmoil, corruption, bureaucracy and grinding rural poverty.
"Time and again," journalist Joe Studwell wrote in his 2002 book,
The China Dream, "China has failed to fulfill the promise that
foreigners ascribe to her."
But now, China's economy, which began opening to foreign investment
and trade in the late 1970s, is booming, expanding at about 10% a
year.
Living standards have improved in urban centers such as Beijing,
Shanghai and Shenzhen, creating a middle class -- and opportunities
for US firms from Starbucks to General Motors.
From 1999 to 2004, according to statistics compiled by the American
Chambers of Commerce in Beijing and Shanghai, the number of
broadband lines rose to 31.7 million from 2.2 million.
Automobile ownership rose to 22 per thousand Chinese from one per
thousand. Cellphones surged to 111 per thousand Chinese from three
per thousand.
Learning how to do business
China's entry into the World Trade Organization in 2001 made it
easier for foreign companies to operate there. The WTO deal
required China in 2004 to start letting foreign firms distribute
their goods without first entering into alliances with state-owned
Chinese partners, which often siphoned profits and stole
technology. These days, more US companies are going it alone
profitably without Chinese partners. The percentage of American
Chamber members operating as joint ventures in China slid from 78%
in 1999 to 27% in 2005.
US companies have learned how to do business in China. "Companies
have gained experience from the early years," says Robert Poole,
vice president of China operations at the US-China Business
Council. "They trained people, established management systems,
built reputations for their products."
US firms still face problems in China. Good help is hard to find.
Theft of intellectual property is rampant. Competition is fierce as
young Chinese companies try to take on more-established Western
firms. Greif, for instance, reckons it has 400 competitors in
China. But for now the profits are rolling in, and US companies are
confident about the future: 97% told the US-China Business Council
that they were optimistic about their prospects in China over the
next five years.
"When the economy is growing this fast, profits will increase,"
says Studwell, founder of the China Economic Quarterly. "At the
same time, foreign firms have learned hugely from their mistakes of
the 1990s."
