In one of the most famous Chinese historical legends - The Three Kingdoms - author Lo Guanzhong commences with the following poem:

"The conflicts and winning-losing soon turned into the vast emptiness, But the mountains and rivers (the land) remained as always."

The last emperor was dethroned over half a century ago. There are no more kings in China apart from those who continue their reigns in the subterranean empires of their tombs. Yet the Kingdom itself has remained and is as strong as ever as the new center of world attention.

Much of the world had to take cover for the worst after the 9/11 attack on the World Trade Center Towers in New York. Destructive "secondary explosions" sent the world's economic system reeling in pain. However China has practically stood alone with GDP growth of 7.3%, and attracting 50 billion dollars in direct foreign investment in 2001, approximately 5 times of the DFI in all of Southeast Asia for the same period.

Here are a few more statistics for those who enjoy these "dry stuff." (Please note that $1 USD is approximately 8.27 yuan)

1. Total private saving is 7 trillion yuan as at the end of 2001
2. Total retail consumption in 2001 stood at 3.76 trillion yuan
3. Total investment in real estate development - 485.7 billion yuan
4. Growth in real estate development - 30%
5. Growth in residential housing sales - 30%
6. Automobile sales in 2001 - total 2.15 million units
7. Automobiles produced in 2001 - total 2.14 million units
8. Household ownership of color TV, washing machines and refrigerators as of the end of 2001, approximately 90%
9. Imports-Exports equal to approximately 20% of GDP
10. Reserves of foreign currency - well over $200 billion USD
11. Number of mobile phone subscribers (July, 2001) - 120.6 million
12. Expected GDP growth to continue at 7-7.5% during the next 5 years
13. The salary earned by one American worker can hire 50 Chinese workers
14. The salary earned by one European worker can hire 40 Chinese workers
15. The salary earned by one Japanese worker can hire 30 Chinese workers
16. Nearly 400 of the Fortune 500 has invested in over 2000 projects in China, as of the end of 2001
17. China earmarked a nearly 200 billion yuan investment to host the Summer Olympic Games of 2008 and is actively bidding for 2010 World Expo.
18. Bayer plans to invest 3.3 billion Euros in Shanghai by 2008
19. While laying off 30,000 persons around the world, Acatel is planning to hire 25,000 more in China.
20. Motorola announced that it plans to invest $6.6 billion USD more in China, while Nokia will increase it's investment in China by $4.1 billion in the next 5 years.

No wonder all eyes are on China appearing to be the last oasis in this world with a major thirst for new economic opportunities. The multi-nationals and Fortune 500's have changed their stance from wait and see others to trying to get in before others. Rather than using China as the junk yard for their obsolete technologies and retired executives as they did in the past decade, many hi-tech companies have now established their world R&D centers in China. Bill Gates himself has visited China and met its leaders many times, moving Microsoft's international software development center to Shanghai. The Chairman of General Motors declared that "Shanghai General Motor will be a Chinese company rather than an American company in Shanghai!" A weekly TV program brainstormed about Jack Welch's management and whether and how to adopt it in China's state enterprises.

Thus the legendary Middle Kingdom arises again in this new Era of the Knowledge Economy - because that is what China has always been best at...

The Dragons: If you have ever been in China talking business for more than 24 hours, you would certainly have heard about the "yi tiao long" or "one (complete) dragon operation". 'Yi tiao long' essentially means a fully integrated operation that attempts to cover all phrases involved in the production and distribution of a series of products.

The dragon enterprise is quite possibly a result of the era of resource and opportunity scarcity, causing mutual distrust. Chinese enterprises, especially state enterprises, try to construct themselves as comprehensively vertically and horizontally integrated - to be completely self-contained and self-reliant from manufacturing to sales, from raw material supply to finished product and including scrap and by-product trades. One of the most repeated old Chinese adages is "Let the fertile water not flow into others' farm land" The larger state enterprises even operate their own schools, and hospitals. During the early days of the opening up, attempts by some governmental agencies and state enterprises to build and preserve their own dragons were even more pronounced. As it turned out, most of those dragons suffered from in-breeding and became overweight due to their inherited burdens and other weaknesses due to this avoidance of competition. Eventually, most sick dragons were cut off from the subsidy pipelines of central and local government to shape up or face bankruptcy. According to official figures, approximately 25 million workers have been laid off by failed state enterprises thus far in the process of opening up and economic reform up to the end of 2001. (Note: Of the 25 million laid-off workers, 3 million opted to retire, and 17 million have been retrained and redeployed).

The Zebras: The central government made frequent and repeated calls for state enterprises to learn from foreign enterprises to try to improve their management and production efficiency. It was hoped that modern and western technical know-how and management methods would help facilitate the improvement of state enterprises, and simultaneously accelerate the process of economic reform within the market economy system. State enterprises responded to the call with differing intensity and means. In most state enterprises reform and modernization took on only superficial forms. Nothing changed in real and/or concrete terms. Margaret Yu Yafei's article "Putting PR into the PRC" referred to these half-hearted reformed state enterprises as "zebras".

Why "zebras"? - "...State enterprises were told to use the zebras instead of horses in order to change their management and efficiency. Rather than giving up their "horse" manner of doing things, their simply painted black stripes on their horses and pretended that they had already changed to the zebras...."

The Dogs: The mushrooming and prospering enterprises along the east coast of China were called "The Dogs" by a state councillor touring the city of Wenzhou in Zhejiang province . In this case, however, it was no insult. He saw those coastal enterprises as three little dogs entrapping and killing the zebra. One of them bit the zebra by the front leg, the other by the neck riding on its back, and a third one ate up the zebra's rear leg. Together the 3 small dogs killed the zebras.

Those enterprises in Wenzhou, Zhejiang are so well organized that they focused on the market rather than the "yi tiao long" enterprise. Wenzhou is famous for the production of leather shoes. With the scale of shoe manufacturing in that city, enough to sell a few pairs of shoes to every man and woman in China and more, the enterprises divided up the jobs amongst themselves. Wholesale centers specialized. The "shoe sole wholesale center", "shoe decorative item wholesale center", and "shoe top cover material wholesale centers in Wenzhou city each consisted of hundreds or thousands of highly specialized suppliers. The extreme specialization and economy of scale thus achieved enabled them to produce both the best quality and economically priced shoes in China, and perhaps the world. When the dogs of Wenzhou work in a team, the zebra's days were no more.

As China enters the WTO, there is no question that government policy will allow the fake zebras to be eaten up by the dog packs or to face up to the real zebras when protective fences are removed.

The TV news camera reveals a scene perhaps similar to the recent bank rush in Latin America with customers jamming every bank teller window. You might even think that this is a scene from Argentina or perhaps Thailand or Indonesia. Actually it's the crowd competing to buy their share of the new issue of 60 billion yuan 5-10 year Chinese government bonds. The entire issue was sold out within an hour. Some of those prospective bond buyers were said to have lined up in front of the bank since 2 am. waiting for the bank to open. Amazing... but why?

Just a week before the offering of the bond issue, Chinese central bank announced a reduction of interest rate on bank deposits, the ninth time within the past two years. Facing the prospects of further decrease in interest rate coupled with the recent erratic trend in the stock markets, they rushed for the government bond as the more secured investment with better guaranteed fixed returns.

Last year, YingGuang Xia, a popular listed company that had created many Cinderilla stories among stock speculators crashed amid reports of falsifying financial reports. The crash caused both of China's stock exchanges to reverse their "up and up" trend initiated by the government's consumer spending stimulation package a year before. The company had reported millions of dollars of export sales of its "high tech" products to non-existent foreign customers. The "post mortem' audit discovered actual export sales to be less than 1% of published reports. Wary Chinese investors looked for alternatives for their hard earned hoarded treasure looked to alternatives. Insurance has found more favor from Chinese buyers. Some scooped up apartments for rental incomes. The 60 billion yuan government bonds were certainly a scarce product compared to the potential demand.

The following is part of my reply to a question from a reader on the APMF Network Discussion Board about the prospect of a war across the Taiwanese Strait to force unification.

If you are familiar with Sun Tze's Book of Warfare, you will understand that China is applying the top-most of all warfare tactics toward Taiwan at this moment. According to Sun Tze, the top most of all winning strategies is "To win without fighting." That is going to be what happens. Here's how...

1. With hundreds of thousands of Taiwanese businessmen now in mainland China plus thousands of Taiwanese students in mainland universities, you can bet that hostilities will melt away and be replaced by gradual mutual acceptance and dependencies. With the richness of Taiwanese capital, technology, world marketing experience and global market network, plus China's tremendeous domestic and international potential, one needs to be the most foolish of all fools to be thinking of giving up all these advantages by thinking about starting a war across the strait.
2. For more than 5 years already, both sides across the strait have been, knowingly or not, paying more respects to the late Dr. Sun Yat Sen, the founder of the China Republic from Manchu's rule. I would not be surprised that this common point of respect plus many others in Chinese history will be used to join more and more people across the strait together.
3. If you were in mainland China or Taiwan now, whoever you might be, whatever position you might be in, my question to you is, "What could you gain by a war across the strait?" Yes, some competing nations would very much like to see one, because that's the only way to halt the reunification of the Great China as one of the world's main economic and political powers. However, historically the country has repeated the process of "breaking up after long period of unification and unifying after a long period of separation," many times already. History will repeat itself.
4. Judging from the extent of fireworks and fire crackers lit up from Christmas through New Year, Chinese New Year and the Lantern Festival, I would not be surprised by an increase in China's military spending. I would have to guess that they are increasing the capacity to produce more explosives for the fireworks and firecrackers in preparation for more celebrations to come, as more and more Chinese will be lighting up more of these on more occasions. This could well be the biggest reason for the recent increase in Chinese's military spending.

Here are two opposite views from two equally respected experts featured in a recent issue of Economic Outlook from Shanghai:

Yang Fang: There has been pressure to revalue the RMB upward since 1994 due to the continuous huge trade surpluses. In 1997, amid the waves of devaluations in Southeast Asia, the stable RMB actually has appreaciated 15% in the relative sense. At that time people were speculating a RMB devaluation which never happened. As the U.S. economy and stock market slowed down, especially since the 9/11 terrorist attacts, many Asian economies were shaken by worsening export and direct foreign investment prospects. A devaluation of the RMB will certainly pronounce a dead blow to many East Asian economies. As China enters the WTO, imports are expected to increase significantly along with an increase to a lesser degree of exports. If any trade deficit might surface, it would be more than compensated by the $600 to $1000 bilion USD expected in direct foreign investment. During recent years, the RMB has already relatively freely circulated in many neighboring countries in becoming an international currency, thus widening its demands and further stabilizing it. Thus, there is no reason to devalue the RMB in the immediate future. If the US dollar remains stable, the RMB will also remain stable. If the US Dollar depreciates, it will be tantamount to a revaluation of RMB upward.

Zhaong He: Kauffman of Princeton University contends that the Japanese government's attempt to rescue its economy by increasing government spending will prove to be insufficient. Only when the Japanese central bank cooperates with the Japanese government to allow the Japanese yen to devalue can the domestic tight money situation be corrected. Andy Xie, a Morgan Stanley economist sees the gravest threat to the Asian economic recovery to be a massive devaluation of the Japanese Yen. In Xie's memorandrum to his clients, he notes: "Since exports amounted to only 10.7 % of Japanese GDP, the need to resolve the domestic tight money condition has much higher priority. Thus, a new round of Japanese yen devaluation will be a massive one that will be followed by a series of devaluation of other Asian currencies. Under the circumstances, it would be difficult for RMB to remain unaffected. Most likely, it will depreciate."

My view is that a devaluation of the RMB is extremely unlikely. Exports accounting for 20% of China's GDP at this moment will become less and less significant to the Chinese economy. A stable RMB is of vital importance for China to assure its continued economic stability and growth. Any depreciation of the RMB will lead to domestic inflation and will caused political chaos. A weaker RMB will prove to be undesirable since it will increase the cost of capaital goods imports needed to upgrade state enterprises. Considering the Chinese policy to hold the RMB stable amid the 1997 Asian financial crisis, I would agree with Yang that there will be no depreciation of RMB in the next 5 years. If anything at all, it will revalue upward on account of its real perceived value and increased demands.