Book Review: The China Dream - the elusive quest for the Greatest Untapped Market on Earth

In the mid-19th. century, a Lancashire mill-owner reckoned that "if only the Chinese could be persuaded to lenghthen their shirts by a foot, the cotton mills of Lancashire would run for ever." And therein, as Joe Studwell's excellent book, "The China Dream" clearly shows, lies the lure of China. With a quarter of the world's population, China must surely emerge as the largest untapped market on earth? Sadly, not so far.

In the 1990s, with Deng Xiaoping's pronouncement "to get rich is glorious" ringing in their ears, western corporations, politicians and businessmen flocked to China with the promise of huge returns on their investments. Completely ignoring the fact that the Chinese economy was still in the tight grip of the communist bureaucratic central planners, the West poured hundreds of billions of dollars into joint ventures which never, ultimately, bore fruit. The China "gold rush" was predicated on the promise of an emerging domestic market which has simply not emerged. Nor is it likely to for the forseeable future, as at least 900 million of the supposed 1.3 billion Chinese "consumers-to-be" are landless peasants with little disposable income. The Chinese government still stands solidly behind the urban industrial behemoths that communist economic theory enshrined. These state-owned enterprises account for a vast slice of China's economic activity, despite the fact that most of them would be bankrupt in any genuinely open market economy. They survive on an ever upward spiral of government-backed bank loans, as many as 70% of which are non-performing, and unlikely ever to be repaid.

According to Joe Studwell's analysis, China's record growth figures are a combination of artificially manipulated government pumping and blatantly false statistics. The few companies that have done well in China are those, mainly based in Hong Kong and Taiwan, which use China' extremely cheap labour force for low added-value manufacturing. They are geared entirely to export, but this is an export market which does not do much for China's moribund domestic economy. The huge SOE account for 40% of mainland China's exports, but the reality is that these products are effectively dumped abroad at a loss which the government controlled banking system is obliged to subsidise. The very few foreign companies that actually profited by their China adventure were those which made things like mobile phones which the Chinese could not yet make for themselves, or those which simply ignored the state-imposed licensing laws and operated illegally.

Joe Studwell closes with the extraordinary story of USA's General Motors, who poured US$750 million into a joint-manufacturing scheme to produce Buick cars in China for the domestic market. Expecting to sell 1 million cars per annum by the year 2000, GM's venture peaked at a disappointing 30,000 as the millennium dawned. GM still hopes to do well in China, but not before 2025!

The China Dream is an astonishing book, and gripping reading. Even if you don' know your GDP from your pet gerbil, the sheer pace of the book, and scale of the greed-driven lunacy it depicts makes for enthralling entertainment. This book should be at the bedside of every CEO and every politician who still thinks China holds out hope for the fortune-hunter. First-class.