Keynote Q&I:

Ted Fishman's first words to his audience at the IAMC Professional Forum spoke volumes about what he's seen and what IAMC members are seeing:

"I've learned more being here than what you can learn from me," said the author of China Inc. "What you deal with every day is too far off the national agenda."

But it's getting to be top-of-mind in boardrooms and legislative chambers alike.

"All of the problems we face from globalization are solvable at home, with the way we structure our economy, the way we create great workers," Fishman said. "The things we do to get ready for global trade will serve us in any case. There is a lot of shoe-banging that goes on in international relations with China. There are professional China bashers, and we need bad cops, but they're at odds with the work of the governors," who want to conduct trade missions to the People's Republic as fast as they can organize them.

"Think about discovery of resources in China as the unlocking of a resource — roughly a doubling of the world's work force," Fishman continued. But the dynamic is much bigger than that, and much less visible, he said.

"Every month, 1.5 million to 2 million people pick themselves up, walk off the farm and into an urban industrial present out of a medieval past, into a construction site, into industry," he said of China's shifting population. "When they get to Shanghai they get to a city that looks like it was imported from the middle of the 21st century. But look closely and you'll see collections of rural communities. They're building it, but they're still very much people from the countryside." Putting it another way, he reminded the audience that "the rounding error in their census is the size of our whole population."

Virginia Gov. Tim Kaine (left) visits with outgoing IAMC Chair Charles McSwain prior to addressing the opening session of the IAMC Professional Forum in Williamsburg.

One illustration is Shenzhen, which in 15 years has gone from a fishing village to a city of 10 million people. And China has plans for 11 brand new cities of 1 million or more. Exploring the reach of that urbanization was central to Fishman's research in China, which he described in terms of a bus ride out of the megalopolis, past the satellite cities of a mere 4 million people, to the "tiny backwater" of Rudong, which only has 1 million people but is building a port that will be as big as the Port of Virginia. How thriving is the city? Fishman described the optimism of the pedi-cab driver he talked to: "And when the pedi-cab driver thinks things are okay, you know things are hoppin'."

But even so, he found out, much of China's food markets, for instance, still source most of their goods from relatively nearby, in direct opposition to the worldwide sourcing the typical U.S. grocery consumer encounters. That makes current Chinese infrastructure plans all the more promising, he said.

"Think about the rail system they're building, and a highway system with 50 percent more mileage than that of the U.S. Those will get goods out of the country and goods into the country. It will change the economy in such a way as to make today's economy look like it's in the Model T stage."

At its heart will be 85 million new entrepreneurs like the tofu business founder he met, nicknamed Little Rocket. Also at its heart will be cheap knockoffs. Down the street from the busiest IKEA store in the world, Fishman explained, was another blue and yellow store called "IDEA." Meanwhile, in the country's growing car industry, assembly is not a sequence of robots and conveyors, but instead "500 guys in blue jumpsuits, assembling cars out of the bits and pieces of China's automotive industry."

In fact, in one shop, he said, those vehicles "happen to look exactly like Jeep Grand Cherokees," he said. He was informed that he could buy a deluxe model in the Middle East for US$12,500. "They misread my reaction, and thought I thought it was too expensive," Fishman said. "The discount model is $8,000.

"And I had this vision of cars as impulse items at COSTCO," he said. "I go in for my 2,500-piece bag of candy, and come home with a knockoff Jeep Grand Cherokee in fire engine red."

The cost of that consumer paradise, however, may indeed be cause for alarm.

"I wanted to match the labor cost in China to the hiring records of slave labor in our American history. In the mid-1850s, in constant-dollar analysis, you could hire a slave for five times the price that it costs to hire a woman to sew in a factory today. What aobut the Chinese laborers who came to build the railroads? They made between six and seven times what a young woman makes today in that factory. Ford just announced it was going to try and buy out 75,000 workers, with up to $140,000. The hourly cost was $72 an hour. A common wage in a Chinese factory is between 25 cents and 60 cents an hour."

The combination of urban in-migration and dealing with such straggling wages in a rapidly developing economy may mean some conflict in the near future, said Fishman.

"There is a lot of dissent that the regime cannot accommodate — about 290 public disturbances in China every day. So far the government has been able to keep that dissent from networking. But Beijing is going to cast out 1 million workers for the Olympics. The coming out party may be a great clamping down party."

It is against that backdrop that Fishman counsels just-in-case scenarios, endurance and patience: "There's no quick strategy."

In an interview with Site Selection, Fishman said a few things have changed since he reported the book.

"A lot of the initial and abject fear has already been processed," he says. "People are now taking that fear and figuring out what their game plan is. You have to be afraid of China in order to address China. In the U.S., the fear of China started with awareness in the biggest companies, and the most far along [today] were the first to be afraid."

Small manufacturers continue to be the most threatened, and the least able to marshal resources to go to China. But their efforts to band together are frequently at odds with the more confrontational policy emanating from the nation's capital. Part of the reasoning behind that confrontational style is the rampant intellectual property theft in China. Defense companies, says Fishman, "are in a completely different economy than the rest of American industry, and they have reason to be afraid. When it comes to the defense industry, not only are there IP challenges, but you have a government that feels like IP theft is part of their national security plan. That has a ripple effect on the rest of industry. So far what's happened in China is advanced technology comes into China in the consumer sector, then gets to the military. That's the opposite of what happens here. The big concern is they can get technology off the shelf, far cheaper than proprietary technology here."

That risk may help small and medium sized U.S. manufacturers in the end, as multinationals subsidize some of suppliers' large expenses in setting up shop in China in order to mitigate their own risks and retain partners already familiar with their supply chains and industrial processes.

However, Fishman says, "One thing that's interesting for me to see since the book came out is this exporting of the Chinese style of business engagement, which relies on networking with your peers and competitors. We all have bits and pieces of knowledge, but none of us knows enough. There are all kinds of secrecy barriers, and the China equation forces us to talk to each other. In China they get together to make sure everybody can make it."

That will help in practical ways too.

China Inc. author Ted Fishman's first-hand accounts of the Chinese industrial economy and its meaning for U.S. companies and citizens had attendees on the edges of their seats.

"If you speak as a trade group on China that is troublesome or contentious, you protect your members individually, because if you take a stand individually, you pay a dear price of being ostracized," says Fishman. "Confrontation in China is never rewarded."

At the same time, the easy openness of the U.S. can be problematic.

"How do we build our competitive advantage if all of our institutions are equally open to our competitors?" asks Fishman, citing as examples the rising profile of Asian applicants to the University of Chicago's business school and the schooling of Chinese citrus agronomists at the University of Florida's citrus research center.

Fishman says one clear difference for U.S. manufacturers is their employment of robotics. He says the ruthless efficiency of industry inside the factory needs to be replicated outside the factory.

"Highways, ports and systems have to work in a way that a low-cost economy can't match," he says. "It's a kind of arms race in logistics. If we have a super-efficient economy that can move things, we can compete with any economy no matter what the wages are. We need the technologies to build this system, and need communities to bet the ranch. In a very important way, the Internet created globalized China, but the most important network of all is the network we've been building in this country for 150 years — rail, highways, canals. The big highway authorization bill coming up in three years should be as important as any on the national agenda. We don't have a national plan for that, we have a lot of local plans. So what happens if we do get something like that? We don't just compete, we become a country that gets richer and richer as China gets richer and richer."

Thus emerges the central question, says Fishman: "How do we lasso our fortunes to China so that through increased productivity and smart systems we get a wealth multiple that's kicked off by China's emergence in the world? They ship us more and more stuff, we have the economy that can move it without labor-intensive systems, so our people can be refocused on higher margin endeavors."

He cites Hong Kong as Exhibit A: The city lost 95 percent of its industrial base in five years as business started moving into China. "Manufacturing moved out of Hong Kong faster than any place it's moved ever," he says. "Now it has one of the highest per-capita economies in the world. They figured out that being an enabler can make you even richer."