Trading with China: The reality.

• Author: WURSTER, WILLIAM H.

How to go about setting up a business in China -- without taking too many hits in the process.

ALMOST 150 YEARS AGO in California, and about 100 years ago in Alaska, the discovery of gold lured thousands to seek fortunes that seemed all but certain. Ultimately, of course, the only certainty was hardship. Very few of the adventurous prospectors ever got rich. Today, similar get-rich-quick illusions have inspired a rush to invest in China, and for many it may well end in disappointment and defeat. Those who are eager to invest or start a business in China would be wise to temper their optimism with the restraint of the realist -- and even the caution of the paranoid.

The promise of macroeconomic benefits now paves the way for agreement between the People's Republic of China and the United States that will allow entry by China into the World Trade Organization (WTO). Ratification, of course, is still subject to approval by the U.S. Senate and other nations, but the long-term virtues of China's WTO membership will not be limited to international trade.

China will find that, in order to get what it wants and needs from the international community, it will have to discard its closed attitude in favor of transparency, which must eventually lead to the rule of law rather than rule by men. Basic freedoms -- of information, the press, and communications (including the Internet) -- will become undeniable. The United States will benefit from greater protection of patent and royalty rights and a vastly improved environment for banking, insurance, and other services.

As these changes permit freer investments by Americans and others, U.S. exports to China will also increase, thereby reducing the enormous U.S. trade deficit. And as China becomes more thoroughly enmeshed in world commerce, it will find that unilateral decisions, such as those regarding arms trade or disputes with neighbors (including Taiwan) are constrained by repercussions at home. All told, China faces a future of great economic and political change, after which the "Middle Kingdom" might well become a new "Rome" to which all roads lead.

But upon closer examination, the microeconomic road to that promising future is far from smooth. Forget the romantic illusions about oil for the lamps of China, the friendly amah who raises your children, the Pearl Buck stories. Imagine yourself instead as the owner of a medium-sized business or as a young officer of a large corporation assigned the task...