It is difficult to conceal the sense of bullishness in any China commentary these days and not to get carried away by the sizzling activities that are transforming the market practically every minute. Indeed, trying to capture developments in the world's most exciting economy in a one-page article is a near impossible task.

"What is stunning about China is that for the first time we have a huge, poor country that can compete both with very low wages and in high tech," says one Harvard economist. "The myth that US will remain as the knowledge hub while China plays the role of sweatshop is no longer true."

China continues to dazzle the world with its spectacular GDP growth of 9% for the past two decades. Foreign direct investments, estimated at over US$ 50 billion a year, continue to pour into China at an astounding rate, fueling the growth of infra-structure projects, industrial zones and research centers. With an extraordinary ability to mobilize workers and capital, China is widely tipped to overtake the USA as the world's No.1 economy by mid-century.

What propelled this exhilarating growth is the availability of human resources – Chinese brains are young, cheap and plentiful. The Chinese education system rolls out millions of university graduates every year. It is predicted that by 2010, China will produce more science and engineering PhDs than the USA. In the area of consumer electronics for example, the consensus is that China will leap from being a follower to a leader in a few years' time. Yet in rural areas and third, fourth-tier cities, wages have remained low at 50 cents an hour.

Despite cynicism about the viability of the China market a couple of years back, over 70% of foreign companies operating in China are now profitable, according to a recent survey. Many of them are operating in the Consumer Goods, Healthcare, Telecommunication, Retailing, Technology, Automobile and Manufacturing Sectors, where the market has long been open to foreign companies. The outlook is relatively bleak for industries like Financial Services, Media, Insurance, Property and Tobacco, where outside operators continue to run into a stone wall, opaque legislation and all sorts of protective measures. In any event, companies realize that it is imperative to succeed in this critical market at whatever costs. "It will be between those who get it and are fully mobilized, and those that are still pondering."

On the other side of the picture, benefited by low wages, vast internal markets, unparalleled economies of scale and support from the government (often in the form of cheap loans from state-owned banks), China's multinationals are fast emerging as serious players on the global platform through eye-catching international acquisitions. Given the growing number of China 'power brands', it only remains a matter of time that these players mature to become true world-beaters.

To fend off criticism, China has continued to make structural changes in her system after WTO admission. Nevertheless, she has demonstrated to the Western world in no uncertain terms that she will dictate the pace of reform, and refuse to be bullied on issues like currency revaluation, removal of import tariffs and the opening up of the financial services sector. It would be disastrous if foreign companies or governments read the situation wrong and decide to exert pressure which will achieve the exact opposite of the desired outcome.

The Challenges Ahead

The positive factors cited above do not mean that China has suddenly become an easy place to do business. Landmines exist and are abound - foreign companies have to deal with infringement on intellectual property rights, violation of contracts, rampant corruption, fierce local competition, eroding margins, ecological concerns, growing capacity sluts and an un-level playing field, just to name a few obstacles. Last but not least, they will have to strive hard to retain its skilled workers and well-trained managers and keep them motivated.

Multinational companies are also quick to discover that China is not a monolithic market. The country, with 1.3 billion citizens speaking more than 100 dialects, is wildly diverse. For instance, the disparity between rural and city person per capita income can be as much as 3 times, sometimes 4/5 times in more remote provinces. To succeed in China, companies need to understand the psychographic profile of Chinese consumers, their emotions and what they identify with in a brand. Distribution is a huge challenge in China.

Early entrants to the market had already learnt the lessons – that "guanxi" or connection still rules, the one-size-fits-all mentality does not work and diversification is essential. Another accelerating trend is that technical and managerial skills in China are becoming more important than cheap assembly labor. "Cheap labor, yes, but no cheap manager," observed one Human Resources Director of a foreign enterprise. Yet make no mistake about it – China will stay dominant in mass manufacturing and it will be a long time before any other nation can challenge its ipso facto status of 'Workshop of the World'.