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. Last Updated: 07/27/2016

China's Market, Not Mao, Shakes World

LOS ANGELES -- China sent shock waves through the metals markets in June 1992, when it began buying huge amounts of copper, pushing the price from 98 cents to $1.20 a pound. By the end of the summer, Chinese speculators had reportedly made $300 million to $400 million in profits and Western traders were suffering, having bet that prices would fall sharply because of new mines coming on line.


?A tiny pink worm and a bout of bad weather forced China into the cotton market in a big way in the spring of 1995, sending world prices to their highest level since the Civil War. In California's Imperial Valley, cotton farmers, who export 80 percent of their crop, celebrated a record year.


?People scoffed when MasterCard International went to China in 1988 to cultivate its next generation of plastic-users. But in a country as big as China, even a fraction of the market is huge. Now China is MasterCard's second-biggest and fastest growing market. Last year, its 11.4 million Chinese cardholders racked up $53.6 billion of purchases.


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Wake up, world. From cotton to copper to credit cards, the Chinese are consuming and selling in such huge quantities that they are moving markets, cowing the competition and inspiring a rush of foreign suitors. In numerous arenas, China has already emerged as the world's No. 1 player.


"When McDonald's starts selling a [pork 'hamburger'], the markets go wild," said Rich Brecher, vice president of the U.S.-China Business Council in Washington. "Whenever China even starts thinking about bacon, the same thing happens."


Sometime early in the next century, this Asian giant is expected to become the world's largest economy, eclipsing the United States and Japan. To get there, the Chinese government plans to spend as much as $250 billion -- the equivalent of the combined gross domestic product of the Philippines, Singapore and Thailand -- developing power plants, roads and airports, telecommunications systems and a manufacturing base to satisfy its 1.2 billion people.


That kind of spending has a tumultuous effect on the global economy, as builders, architects, steelmakers and telephone companies shift strategies, build new factories and cozy up to officials responsible for dispersing this infrastructure bonanza.


Last month's news that in June China registered the largest trade surplus with the United States, bypassing Japan, was one more reminder of the challenges posed by this awakening Communist giant as it unleashes the productive capability of 20 percent of the world's population.


China's economic ascendancy is already affecting financial markets, trading patterns and worldwide wages and living standards. But given the dramatic changes engineered by the nation's aging leaders over the past decade, it is difficult to predict all the ramifications of its move to the top of the economic heap.


Spurred by the rise in bilateral trade conflicts, a growing number of U.S. policymakers and business people support China's bid to join the Geneva-based World Trade Organization, where it would be subject to the rules of the international trading system. But that effort has bogged down in a debate over the conditions of China's admittance.


"China's ability to disrupt the international economic system is something we're becoming increasingly aware of," explained Brecher, of the U.S.-China Business Council. "That is why it is very much in our national interest to bring China into the WTO."


While China remains a relatively poor country, with a per capita income of $500, economists estimate that as many as 200 million middle-class consumers already have money to burn on Procter & Gamble shampoo and imported children's clothing.


Two decades after the United States and China normalized relations, marking the start of China's commercial opening to the non-Communist world, the threat is not export of Maoism but the flood of low-cost, labor-intensive goods that overwhelm foreign competitors and shake up world markets. The first to feel it were the producers of textiles and apparel, followed by manufacturers of electronic goods, tools and small appliances.


China has become the proverbial double-edged sword for U.S. companies increasingly dependent on a trade relationship vulnerable to geopolitical tensions, natural disasters and shifting Chinese policies. U.S. executives are scouring the Chinese countryside, trying to determine how to secure a slice of this potentially huge market while protecting their technological edge in a country known for piracy.


"Chip companies such as Intel are scrambling now to find out how to get into the Chinese market without having to offer up a lot of technology for free," said Jeff Wier, a spokesman for the U.S. Semiconductor Industry Association.


The flow of Chinese products into the world market also is accelerating, as modernization of state factories accelerates and more joint ventures are financed by the world's largest stream of foreign investment. In the first nine months of 1995, the export of electronic goods and machinery from China jumped 60 percent over the previous year.


And China's economic coming of age is not affecting only developed countries. As the Asian giant expands its capacity, the overflow is hitting less-developed countries in Asia and Latin America, threatening their efforts to trade their way out of poverty. Several years back, the Mexican government imposed steep tariffs on Chinese textile and apparel imports after its domestic producers complained they were being threatened with extinction.


China has never shied away from using large purchases as leverage in its dealings with other countries, a strategy that will become increasingly effective as its buying power expands. When relations with the United States soured last year because of tensions over trade and relations with Taiwan, the Chinese warned that the Boeing Co., which was bidding on several multibillion-dollar Chinese airplane contracts, would feel its wrath.


In April, the Chinese seized the opportunity to register their anger with the United States by ordering $1.5 billion worth of airplanes from the European consortium Airbus Industrie, Boeing's chief competitor.


Sometimes, it is natural disasters, such as floods, drought or insect problems, that force China to go on a shopping binge. When the Chinese -- suffering from a bout of bad weather and an infestation of bollworms -- purchased 300,000 bales of cotton in April 1995, the price of cotton rose five cents a pound in a matter of days. By the end of May, cotton was selling for $1.17 per pound, the highest price since the Civil War.