The Middle Kingdom's economic might.

Author:Kamsky, Virginia

Economic fundamentals and an irreversible trend toward opening up to the outside world make it clear that China is in the front rank for investment interests.

For many hundreds of years, China has been a magnet for Westerners fascinated by its size and culture and drawn toward its commercial opportunities. In the Chinese language, the word "China" literally means "The Middle Kingdom" or, alternately, "The Center of the Universe." In the ancient days, foreigners would come to China to pay homage to The Middle Kingdom.

But the collision of imagination with Chinese reality has tended to result in pendulum-like swings of the American perception of China between admiration and deep concern. This phenomenon was most recently manifested in the flood of goodwill and business interest in the reform decade of 1979-1988 that twice made Chinese paramount leader Deng Xiaoping Time magazine's "Man of the Year," which was followed after the Tiananmen incident of June 1989 by a shift in many quarters to a view of China as a pariah.

I can say, after studying the Chinese language since age 10 and having lived and worked in China for the past 14 years - before the "Open Door Policy" began - that it is difficult to avoid being swept up in the mood of the moment. But I believe that certain facts and trends are enduring.

The economy will continue to grow rapidly. Since 1978, China's GNP has grown at an average of about 8% per year. But per-capita GNP is still only about $370, and the hunger of the Chinese people for a better life provides an irresistible force for future growth.

The process of opening to the outside world, absent a sea change in the attitude of developed countries toward China, is irreversible. China's foreign trade has grown from a mere $20 billion in 1978 to $135 billion in 1991 and now accounts for 25% to 30% of the country's GNP. Entire regions of China, in particular the coastal provinces, would fall into depression without foreign trade. China recognizes this, and actions this year on intellectual property protection and market access symbolize the degree to which China is now committed to the world economic system.

That the economic clock was not turned back after June 1989 is a decisive indicator of the practical impossibility of a retreat to isolation now that so much of China's economic well-being is bound up in contact with the outside world, and now that China's urban citizenry is exposed through modern communications to life outside.

Economic decisionmaking power will continue to devolve from the central government to local governments. Regional identity has deep roots in Chinese history, and the regions have differing economic strengths and interests. With the move away from rigid socialism as an ideology, and with a new generation of leadership in Beijing, regionalism is likely to intensify. The coastal areas, and particularly the southern provinces of Fujian and Guangdong, will continue to grow rapidly, due to their proximity to the outside and, in particular, to Hong Kong and Taiwan, which provide so much of their capital and managerial expertise. As a practical matter, companies entering the China market will find that their business counterparts at the local level are more and more able to act decisively without central bureaucratic interference.

This trend in no way implies, however, that the central government will collapse in the manner of the...

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