ILLUSTRATION FOR TIME BY C.J. BURTON

The Wealth Effect
	From booming consumption to a looming trade war—a special report on how China is transforming the global economy
	By Michael Elliott

Posted Monday, May 9, 2005; 20:00 HKT
The China trade has always been a magnet for dreamers. All those people! All that demand! All those riches to be won by satisfying it! In the 19th century, the dreamers were captains of clipper ships and owners of cotton mills and oil-company salesmen peddling cans of kerosene in villages way up the Yangtze, all of whom saw China as a source of wealth that would set them up for life. And now it's CEOs of home-improvement chains and sports-goods marketers and vintners and golf-course designers—and a hundred other trades and professions—who have been seduced, who know to drop a sleeping pill for the 16-hour flight over the Pole from New York and can talk until you're bored stiff of the best hotels in Chongqing and Shenzhen or of the finest restaurants in which to seal a deal in Guangzhou and Beijing.

Some—many—will lose their shirts. Others will have their ideas and goods ripped off, in a culture where intellectual-property rights—let's put this charitably—are not yet fully accepted as a vital undergird to commerce. China's not a sure bet; for all the hype, remember that most Chinese are poor, which is why the total size of China's economy is still not much more than that of Italy. But if there is one thing on earth and in economics that is certain, it is that the Chinese economy will continue to grow, and do so at a rate that few others will match. As our special report in this issue demonstrates, there really are fortunes to be won by those who take the time and trouble to understand what Chinese consumers want. (The Sex Pistols and G-string underwear? Who knew?)

But it isn't just China's consumers who are changing the way the world economy works. Increasingly, Chinese innovators—with the help of a vast new generation of young scientists and engineers—are poised to transform global supply chains. This shouldn't be surprising; for most of recorded human history, China was the most technologically advanced part of the planet. Technological innovation, as it always does, bred wealth; until 1300 or so, calculates economic historian Angus Maddison of Groningen University, the average Chinese was richer than his Western European counterpart.

Then China fell into its long decline, shut off from the inventions that transformed and enriched the Atlantic region. But now China has reconnected with the world's scientific and technological mainstream. As Chinese consumers shape the demand that drives factories and offices thousands of miles away, so its universities and research parks produce the ideas and breakthroughs that may one day change all of our lives. As the following stories show, that's no dream; it's the way our world is now.

	Betting on the Shanghai Boom [Apr. 25, 2005] Investors are snapping up apartments in China's go-go cityŃbut will it all fall apart? Global Business: Let It Rain! [Mar. 28, 2005] An Žlite group of venture capitalists, bankers and lawyers is bringing billions to China Patriot Games [Nov. 22, 2004] Stoked by nationalism, a new generation of Chinese feels growing hostility toward Japan China's Quest for Oil [Oct. 18, 2004] The Middle Kingdom can't find enough oil to meet booming domestic demand—and the world is paying the price at the pump Time to Cool Down [May. 17, 2004] Why the inevitable slowing of China's roaring economy won't hurt as much as Asia thinks it will Too Much, Too Soon? [Nov. 17, 2003] China is making more cars, TVs and washing machines than it can consume. Eventually, this glut could swamp the world More Related Items | Search all issues of TIME Magazine