China in a Bull Shop

DALIAN, CHINA - Warren Buffett looked through the car window and what did he see? Customers and more customers. But one doesn't have to be the great Oracle of Omaha to realize the vastness of China's potential. Every businessman to visit the Red republic is awed by its sheer immensity and intensity.

Buffett, for instance, visited China 12 years ago, together with his good friend, Bill Gates, and hadn't felt a need to visit since. Four years ago he put half a billion dollars into PetroChina and last month sold the interest for $4 billion: "The writing had been on the wall," he told me: "I bought the company for a third of its value."

You won't find many businesses going in today's China for a third of their worth. More likely, at double their worth. China's stock market has risen by 123 percent this year after rising about the same in 2006. The business and investment world has noticed China's potential.

The only Chinese reporter to get face time with Buffett was the business correspondent for government television. She kept reverting to the question, will Chinese share prices continue to climb?

"My uncle is afraid of stocks," she confided, "but the interest rates that the banks offer are lower than inflation. He loses every day he isn't in the market."

Buffett smiled. "When the stock market is on the front pages of the paper, that's the time to be cautious, not to think about what you're losing," he suggested.

Whether Chinese share prices are a bubble in the making or about to burst, you can't doubt the power revealed anew in every tour of the industrial zones of the major cities. It isn't just the size, it isn't just the Western facade, it's also the speed. Things that would take years in the West take weeks to months in China.

Take the plant that Iscar inaugurated in Dalian last week. It's a smaller copy of its mother plant in Tefen, Israel, built at a $50 million investment. Half a year ago it was on paper, today it's a giant facility, exquisitely beautiful and modern - and ready to roll.

Dalian's mayor is one of the most aggressive entrepreneurs in Chinese government today. He has lured thousands of Western companies that have invested some $20 billion in the northeastern city. Last month he hosted the World Economic Forum, which usually convenes in Davos. Few major businessmen in the West have failed to hear of Dalian.

"City" is a misnomer for it, actually: Dalian has more people than all of Israel. The business product of its hundreds of giant plants is growing by 20 percent a year. The spanking new malls boast the best Western brands, the roads sport the newest Audi, Mercedes and BMW cars, all made in China, of course, many made in Dalian itself. In 2008, China will become the world's No. 1 manufacturer of car parts.

The whole world manufactures in China, with its cheap but trained labor and gigantic local market. From day to day the production, marketing and commercial processes of China's companies improve. China no longer offers just cheap labor but also efficient, cutting-edge plants with excellent supply chain management.

It has its disadvantages. Chinese bureaucracy is astoundingly complex. Foreign companies need local fixers to grease the wheels for them. Graft is commonplace, and each city mayor sets his own, highly mutable rules. Iscar's managers were recently advised of a new tax on exports, for instance, but another Israeli exporting from Dalian never heard of it. He suggested that the Iscarites find "the right guy" at Customs. As a proper, large-scale company Iscar doesn't resort to such shenanigans, though.

The passing tourist might have a hard time noticing that China is a modern type of dictatorship. Cities glow with the power of the free market, and their stores are stuffed with international brands. Hotel lobbies sport kiosks with all the major international papers.

But the last cover story of The Economist showed a Chinese laborer teetering on a thin red rope and warned that the hinterland was being left behind the cities. The London-based magazine's editorial shredded Beijing's policy for encouraging the free market while ignoring key ills: poverty in rural areas, the vast income gap, and the collapse of the health system. An article on the communist regime on page 33 notes the long-standing shadow of Mao Tse Tung....

But that's in the West. In China, pages 33 and 34 have been torn out of the weekly. Yes, China is a roaring free market but don't forget that it's also a dictatorship with a tamed press.

The week the communist leadership convened in Beijing, George Bush decided to rebuff their pleading and met with the Dalai Lama in Washington. The Chinese were infuriated and pundits warn that a response will be coming. Will be, or has? Last week anybody trying to access Google in China was redirected to Baidu, a Chinese search engine. Some say it isn't a glitch.

Western businessmen closely track developments in the Chinese market. Sometimes it seems like a colossal engine that nothing could stop. Any Chinese businessman with a smattering of English will proudly state that China used to be the center of the world, and will be again. But sometimes that careening engine seems about to derail. Some fear that Beijing knows well that loss of control is a matter of time, and that the leadership is grimly hanging on until the Olympics are over.

Note that China is more than a giant growth driver for the world economy. It is also the government that finances America's gargantuan deficits. The Chinese government is the biggest buyer of United States government bonds and Chinese manufacturers supply the endless appetite of the American consumer who, like his government, abhors saving for a rainy day.

If the idea that one of the poorest economies in the world is lending to one of the richest seems peculiar to you, well, you have a point. The question of how long America and China can maintain that mutant symbiosis, of the poor man saving while the rich man squanders, hangs like a storm cloud over East and West economies alike. For now it's created a vast global wave of wealth. But one day the tables could turn and send planetwide shock waves that rock economies the world over.