I told you ... everybody is going to Dalian,China .... 1292

While in Hong Kong over Xmas I saw a business report on Dalian (northeastern China, near Korea) on CCTV, pushing it as the gateway for trade in Russia, the DPRK and South Korea (though I can't imagine what kind of trade goes on with North Korea, certainly didn't see any DPRK products in the stores, and it's not top of the list on tourism either). Given the push for deregulation across China I would expect it to be highly compebreastive with India, though the outsourcing isn't from the US but South Korea (there is a large ethnic Korean community in that part of China, augmented by a steady flow of refugees from the DPRK). Interest rates are low and there's ready capital in the Shanghai, Shenzhen and Hong Kong stock markets (and indirectly from Taiwan).

My own sense from visiting with some Chinese companies is that China as a whole isn't all that interested in the outsourcing market and doesn't see it as a strategic move. The news on TV and in the papers was all about upgrading the quality of exports for existing factories, and expanding domestic production into western China. Anyone who's been to the gigantic malls in Hong Kong or the packed casinos in Macau can see the domestic mainland market is quite large and very lucrative in itself, albeit fueled by exports. I'd tend to agree with what China is doing. Outsourcing is a precarious business that can evaporate overnight, and it doesn't contribute much to building local markets.

As for infrastructure there is an electrical power crunch on the mainland, papers had stories of some factories switching to graveyard shifts to balance demand. The gas pipeline from the fields in western China was completed last week, which will alleviate some of the immediate problems around Shanghai. Compebreastion for energy is brutal though, the news also carried the story of how a Japanese company managed to convince the Russians to divert a major oil pipeline in Siberia away from China to a terminal near Vladivostok, so the oil could be exported to Japan instead of China. I'm not sure that it's any better in India though, at least China does have some domestic resources, plus nearby fields in the South China Sea.

The communications infrastructure in China is impressive. In Hong Kong there's a cell phone store about every block, more common that 7-11s and McDonalds (just as ubiquitious in HK as in the US). Broadband internet is everywhere. The transportation system in the city was also first rate, quick and dirt cheap.

China also has one big advantage over India in the IT sector. A major percentage of all the computers in the world come out of Chinese factories, compared to a miniscule percentage from India. It shows in the widespread availability of cheap PCs. (Yeah, I visited Sham Shui Po in Hong Kong, systems and components were being sold on street corners like burgers and fries.)

My impression from the short trip is that China these days is like the boomtown gold rush days in the western US, wide open for anyone with an idea and some capital to develop it. As one businessman told me during lunch, "China is the most capitalist country on earth. If you have any ambition this is the place to be." Jack Peachicken