BEIJING—A series of meetings convinced me that the Chinese government and the major state-owned companies now firmly believe that future economic growth will depend not on exports but on selling manufactured goods to China's own expanding middle class.
With an hour to kill before a meeting with officials from Sinosteel, the largest steel products dealer in the country, I plunged into the bustling crowd flowing into the Carrefour superstore next door. A quick inspection revealed that about 98 percent of the goods on offer were made in China. Of the 30 flat-screen televisions I saw, 28 were of Chinese manufacture. (The other two came from South Korea.) I asked a few shoppers if they recognized the Chinese brand names. Most didn't, but they seemed interested in the products just the same.
Only in the computer section did foreign (especially Japanese and U.S.) products have an edge. That said, Lenovo and other Chinese brands were well-represented and selling for about 40 percent less than the foreign competition of comparable computing power.
In fact, wandering through the crowds elsewhere in the store, it was the prices that grabbed my attention. On the lower end, there was a brisk trade in perfectly serviceable rolling carry-on suitcases for 59 yuan ($8). There was also a workable desk phone with mute and redial for 15 yuan (just under $2), the same price as the two bags of Lay's potato chips sitting on a nearby table. Considering the massive wealth generation that's now feeding China's consumer appetite—for flat screens, computers, potato chips, and a thousand other products—it's hard to argue with the idea that local consumption will drive the next stage of China's expansion.
Chinese policy-makers say this move away from reliance for growth on sending low-end products overseas is merely the first of three phases in China's long-term expansion plan. They insist they intend to move from the export of cheap goods, to the export of capital, to the export of people. Each of these steps creates unprecedented international challenges.
As China has focused its energies on the export of low-end goods, the impact has been felt most sharply in other countries with cheap labor markets—in Latin America and Eastern Europe, in particular. These states became relatively less competitive as China's vast economies of scale undercut their job growth. China's increased export of capital already matters for the United States and the more developed economies within the European Union, while "frontier market" countries—the emerging "emerging markets"—see Chinese inflows as an opportunity. The flood of Chinese cash into equities in these countries makes an enormous economic difference for them.
The export of people has received the least attention, but it's likely to have the biggest long-term international impact. In the 1960s, about 9 percent of Chinese had a high-school education. Today, about 60 percent are going to college. As job growth inside the country fails to keep pace with this infusion of talent and know-how into the work force, the Chinese government means to encourage emigration as a policy priority. That wave of workers will spark increased political turbulence throughout Asia, particularly in those countries in which tensions already exist between an entrepreneurial ethnic Chinese minority and nationalist majorities. A xenophobic backlash is especially likely in Russia, a country with a declining population and some of the least densely populated areas on Earth. Political skirmishes over Chinese migration into Russia's Far East are already apparent.
Moving on to Dalian for the first annual meeting of Global Growth Companies, I can't help but be impressed. The population of this second-tier port city in China's northeast has rocketed from 500,000 (roughly the size of Portland, Ore.) to 6 million (a bit less than Hong Kong) in just five years. But there's plenty of room for the influx of 1,700 public officials and business leaders from 90 countries here for the meetings. There is glimmering glass and steel in every direction, polished up for "summer Davos," as the event is called. Installed especially for the event, endless lines of gaudy lampposts each with 100 bulbs cast a green glow across the city's main thoroughfares. I felt absurdly pleased to find a single bulb that had dimmed to a bluish hue but vaguely disappointed that it refused to flicker out completely. Traffic was remarkably light, mainly because no trucks were allowed inside the city limits during the meetings, and automobile traffic was sharply reduced. I was also impressed—though a little uneasy—with this show of the state's ability to impose order on a city this size.
Summer Davos is a huge deal for Xia Deren, Dalian's mayor, who lobbied hard to host the event. To win, he beat back competition from several other fast-growing Chinese cities. (Tianjin, another emerging port city about 75 miles southeast of Beijing, landed next summer's meeting, along with the economic growth spurt that comes with it.) But there's a lesson here. China's centrally planned system requires that mayors answer to Beijing first and local residents a distant second. If they beat the economic growth quotas the party leadership sets for them, as Dalian's mayor has, they can win a "promotion" to run a larger city—and to climb in the party hierarchy. And if they leave a mess behind them when they leave, it's the next guy who has to clean it up.
Dalian also helped me understand why India is at a significant disadvantage in competing to host these kinds of international events. Much of Delhi's political elite is blessed with extraordinary talent, but local officials can't amass anything like the authority and resources needed to match the show put on by China's high-growth cities.
On the other hand, Dalian's air quality leaves much to be desired—and this seaside city is widely praised in China as one of the country's cleanest. A two-hour walk left me with a headache, though friends who've been here before tell me I caught the city on a bad weather day. Despite the assurances, it's obvious that 17.5 percent annual growth in Dalian is creating all sorts of environmental trouble. Commercial, industrial, and residential districts are tightly packed atop one another, and earlier in the day, I noticed a condominium complex freshly constructed literally within spitting distance of a newly built airport runway.
A healthy dose of propaganda opened the meeting. A Chinese pop star serenaded us with a song called "I Love China," which, like the streetlights, had been ordered up just for the occasion. The song heaped praise on China as a nation of 56 ethnic groups that speak with a single voice, like 56 petals on a perfect flower—an image worthy of Kim Jong-il. Several Indian delegates got up and left during the song.