Changes in China pose promise, challenges for Washington state

SHANGHAI, China — China's mix of opportunities and challenges confronted James Gwertzman as soon as he walked into an Internet cafe in Shanghai.

There was his company's "Zuma" video game, installed on every computer in the room. PopCap's games had become popular long before the small Seattle company even started selling them in China.

"Everyone already knew the brand and had been playing the pirated version for a year," he said.

Gwertzman, director of business development for PopCap, chose to see the glass as half full after his September visit. At least, he said, "We'll have a strong brand presence there."

Many companies find China full of complications but too big and important to ignore.

With an economy that in many ways is more closely tied to China than any other state, Washington sits at the epicenter of America's relationship with this emerging powerhouse. From giants such as Microsoft and Boeing to smaller firms such as PopCap, local companies are investing time and money in China and looking toward its 1.3 billion consumers as a vital market.

But China's rapid economic rise also has produced tensions with the United States over issues such as intellectual-property theft, the growing U.S. trade deficit and competition for raw materials and energy. At the same time, China's historic social and economic transformation faces a range of internal pressures, such as the widening gulf between poor rural areas and wealthy urban centers.

Such issues are leading the agenda of President Bush's visit to China this week and his meetings with Chinese President Hu Jintao.

Later this month, a Seattle-area trade mission will visit the booming manufacturing centers of the Pearl River Delta in Southern China, providing another window into the country's role as customer and competitor.

And in mid-December, eyes will turn toward Hong Kong as the World Trade Organization (WTO) meets to hash out an array of global business issues, many of which will influence the U.S.-China relationship.

For Washington state, one of the top issues concerning China is widespread piracy of intellectual property — everything from software code to trademarks of well-known consumer brands. Theft of intellectual property happens all over the world. But China, the world's center of low-cost manufacturing, is considered one of the worst offenders.

Not just Microsoft is losing out: The problem affects state businesses from biotechnology companies (for example, fake versions of Cialis, the erectile-dysfunction drug made by Bothell-based Icos) to apple growers (Washington labels being put on Chinese apples).

The United States has started an investigation through the World Trade Organization to pressure the Chinese government for information about its intellectual-property enforcement practices, potentially the first step toward filing a WTO complaint and imposing trade sanctions.

Chinese authorities maintain they are making progress.

In the meantime, "You kind of have to be there, but be very careful how you go about it," said Robert Hamilton, international trade adviser to Gov. Christine Gregoire. The governor led a trade mission to China in September.

China's supercharged growth, while drawing the world's attention, carries its own problems.

The gap between rich and poor could threaten social stability. Corruption and dissatisfaction with local officials in the one-party state have fueled tens of thousands of small-scale protests, even by the accounts of China's official press. The economy's hunger for resources has already whipsawed world markets for such commodities as cement, steel and oil. And as China's rural areas are linked through trade and travel with the rest of the globe, the developed world must share their concerns about the emergence of new diseases such as SARS and avian flu.

The striking contrast between rich and poor can be seen in a small street behind the bustling retail district of Nanjing Road, home to some of the most-expensive real estate in the country. Liu Jinrong, a farmer from Hunan province, arrived in the city 10 days ago looking for work. All day she had been standing in front of a public trash bin waiting for valuable bits to pick from what others had tossed inside. A bag tied to the back of her bicycle contained one black leather shoe, a dingy umbrella and an unopened package of tea.

Farming does not bring in enough money to pay for her children's high school, so Liu, 41, said she is trying her luck in Shanghai. So far it hasn't been much better.

"There's no work to be found here for me," she said.

A few blocks away, outside a Ferrari dealership in a new plaza called Tomorrow Square, a young woman sat on the busy sidewalk holding her baby and collecting change in a paper cup.

At the same time, China's booming economy is opening doors for people such as Bao Chen, 49, the owner of a small trading company in Shanghai. Part of the country's growing middle class, Bao recently bought his first car, a Soueast wagon made in China, for about $20,000. While he drives it in China's wealthiest city, some of Shanghai's other residents are barely able to afford repairs on their aging bicycles, which now seem like relics of a different era.

One of Bao's main worries is that a textile dispute between the U.S. and China could damage his business of supplying clothing for the American market. He added that the two sides need to cooperate more so both can prosper.

While China's economy has made great strides, it's still far behind the United States, he said.

"Our potential is huge," he said, "but it will take another 20 years to reach."

Seattle Times business reporter Kristi Heim, who speaks Mandarin and has reported frequently from China, is traveling on a World Affairs Journalism Fellowship from the International Center for Journalists. Kristi Heim: 206-464-2718 or kheim@seattletimes.com

Seattle Times photographer Alan Berner has traveled extensively in Asia and once went around the world reporting on environmental conditions in a dozen countries for Earth Day. This is his first trip to Shanghai and Beijing. Alan Berner: 204-464-8133 or aberner@seattletimes.com