China's economic power not in its companies

BusinessWeek recently published an article on China's economic power. Excerpt:

Rethinking the China Threat
Everybody knows that China is the world's next economic superpower. Each year, it gets billions and billions of dollars in foreign investment, powering its booming economy. The Middle Kingdom has more cell-phone users than anywhere else on the planet, and soon it will be tops among Net surfers, too. American consumers can't get enough of the low-cost TVs, DVD players, mobile phones, computers, and other gizmos that come out of China's factories.

For believers in the China-rising story, the latest sign of ascendance was the December announcement that IBM, one of the most venerable names in U.S. industry, was selling its PC division to Lenovo, the No. 1 PC maker in China. Lenovo is owned in part by the Chinese government.

All the hype about the Lenovo-IBM deal and China's might obscures one problem: For a country that's about to become such a powerful threat to the U.S., China has a tough time producing world-class companies that can compete with the likes of America's Dell and Hewlett-Packard, or Japan's Sony or Asia's Samsung. Sure, China has Huawei Technologies and ZTE, both of them growing providers of low-cost, high-quality networking equipment. But when it comes to consumer electronics, Chinese outfits just aren't in the same ballpark.

... [A]mid all the hype about China being a threat to the U.S., it's worth remembering that many of the upstart's potential global champions have a long way to go before they can achieve their lofty ambitions.

China's economic power lies mainly in its cheap labour and the sheer size of its economy. These advantages are best exploited by serving as a workshop for foreign companies' products. As yet, China's domestic companies do not have the business sophistication nor the branding appeal to dominate world markets. Chinese workers taking away jobs is not the same as Chinese companies taking market share.

But that is not to say they won't. It just takes a lot more time.