China and India reshape the Core, each in their own way

■"Competition from China and India is changing the way businesses operate everywhere. Here's what companies areóand aren'tódoing to survive," by Neil King, Jr., Wall Street Journal, 27 September 2004, p. R1.

This is a real beauty from a great analytical reporter:

The boom in China's world-wide exportsóup 125% in four yearsóhas left few sectors unscathed, be they garlic growers in California, jeans makers in Mexico or plastic-mold manufacturers in South Korea. India's punch has been far softer, but the impact has still altered how hundreds of service companies from Texas to Ireland compete for billions of dollars in contracts.

The causes and consequences of each nation's surge are somewhat different. China's exports have boomed largely thanks to foreign investment: Lured by low labor costs, big manufacturers have surged into China to expand their production base and push down prices globally . . .

India, too, is prompting a massive rush east by many U.S. and European service providers. But, unlike the manufacturers that headed into China, service companies didn't go to India until cheaper and increasingly sophisticated Indian enterprises invaded their territory.

Many talk of China's rising power, but it's not any less based on connectivity than India's is: over half of China's exports to the U.S. are now accounted for by foreign-owned corporations operating there. You take away the companies, their investments, and the willingness of foreign markets to buy China's goods, and you don't have a whole lot. So where is all this power actually accumulating? That would be in the rise of China's domestic demand over the long run. That creates the middle class you can tax, but it also creates a middle class that's rapidly aging and looking for a lot of social services from the state. China will get rich and it will get old, but how that translates into power independent from its growing dependency on the rest of the world for money, energy, markets, and raw materialsóthat is not so easy to see

Imagine a United States that's growing in wealth but still has to provide for all the poor living in Latin America, and you get closer to understanding the huge tasks China faces in development in the coming years.