[OUTLOOK]Preparing for the giant's arrival

I visited Shanghai again a few days ago for an international conference held by the World Bank. On my visit, I had the chance to affirm for myself the vibrant energy of the Chinese economy, surging every year as Korea's did during our early development.

Again, as I had during a previous visit to Beijing, I felt the ever-growing confidence emitted by the Chinese authorities and policy-makers about the nation's economic development. There are doubts, of course, about the validity of this Chinese economic boom. Certain skeptics of China's economic ascent claim that many of the statistics put out about the Chinese economy are exaggerated. Several experts also point out that beneath the surface of visible growth lies a problematic structure consisting of deficit-plagued financial institutes and inefficient state-run enterprises running on the wrong concept of centralized resource distribution.

It is possible that there are certain exaggerations and inaccuracies in the statistics. China is a very big country going through a very big change and there are very big differences in the economic growth of the coastal region and the inner region. Also true is that a structural problem of this very big economy is not to be underestimated.

However, some 400 companies among the top 500 in the world have already pitched their tents in the Chinese market and an annual average of $40 billion of foreign direct investment have found their way to this country, ensuring that the potential of China's economic growth is stronger by the day. It is also a fact that competitive businesses from the United States, Japan and other parts of the world are pursuing the investment strategy of setting up their manufacturing base camp in China. Other developing countries are worrying about a "black hole" situation, where China draws all foreign direct investment. As a result, China is now emerging as a super manufacturing power in today's world economy. That is why some economists are warning about the danger of the world economy becoming too dependent on China's manufacturing industry.

The impact on the world economy of China's manufacturing industry being disabled by a natural disaster, war or terrorism, they say, could be a disaster similar to the fallout that would ensue from a major disruption of oil distribution from Saudi Arabia.

One thing for sure, China's economy today is not all exaggeration and illusion. China also has the advantage of a young population, which guarantees the prolonged high growth of its economy, given the appropriate leadership and policies based on the correct vision and historical insight.

There are some people who even foresee China's economy catching up with the United States by the year 2020. Is Napoleon's prediction, "When China awakes, it will shake the world," coming true?

As a country located next to China, we must try to take full advantage of China's "neighbor effect." China is not only the potential center of the world's manufacturing but also the world's biggest consumer market. The potentially positive influence of having such a neighbor is enormous. What we need to do above all else, being one step ahead of China, is to concentrate on restructuring our industry to advance our knowledge intensive industry so that we can maintain a supplementary relationship with China's economy. In addition, we should try to become a center providing financial and distribution services and the software that the Chinese economy needs. For us to make this happen, we need to persuade the international businesses aiming to provide China with goods and services to form strategic alliances with our businesses. That would in turn mean that we would need to provide foreign companies with the best conditions to do business in the region.

We need to expand our hardware infrastructure and renovate our commercial systems and laws to fit global standards, securing the transparency and fairness of all operations. Also, we need to double our efforts to establish a more productive labor-management relation and to heighten the flexibility of the labor market. While working on these tasks, it would be desirable that we refrain from using phrases such as constructing "the center of Northeast Asia" that could bring needless misunderstandings and bad feelings from neighboring countries.

Once more, to emphasize, only when we follow a consistent policy based on strong strategic determination and a long-term vision for the entire country, not just certain parts, with the best environment for business, can we ultimately become a strategic point of industrial activities not only in the region but in the world as well.

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The writer is the chairman of the Institute for Global Economics.

by Sakong Il