"Foreign companies are not being stupid," Huang said. "Even in many of the capital-intensive industries, you see Western firms making good profits because domestic firms are so weak."
To remedy this situation, some domestic firms engage in joint ventures to gain from foreign knowhow. Just this week, Citigroup said it will purchase a minority share in China's Shanghai Pudong Development Bank. The foreign firm has less to loose and the Chinese partner has more to gain from such joining of hands.
The auto industry, for example, has proved ripe. Though the government once tightly controlled nearly all aspects of production, investment and sales, it has relaxed its grip in recent years.
A more genial regulatory environment has paid off for GM. After its initial frustration, the company agreed to open a modern factory with a Shanghai partner in 1997. Critics derided GM for agreeing to invest US$1.5 billion in China after flopping miserably. Many also argued that its decision to make a high-end Buick sedan geared to Chinese executives looked risky.
The Buick sold briskly, however. Late last month, the company unveiled a remodeled Buick tailored to the local market. It has a bright chrome grill and a plush interior, with DVD players on the back of the front seats for people who ride in the rear. GM has had little trouble adding models, including several aimed at Chinese families. The company had hoped to sell 100,000 vehicles annually after five years of operation, but it reached that annual target in November, a year and a month ahead of schedule.
Like GM, many other multinationals stumbled before finding their footing. Microsoft found trouble almost as soon as it began marketing its Windows software in 1995. It peddled a version of the program translated into Mandarin by Taiwanese employees, who embedded some standard Taiwanese anti-communist phraseology in the Chinese-language entry system, alarming users in China.
Beijing has also encouraged local companies to adopt the Linux operating system, the free rival to Windows, because of domestic fears that the American government could use the secret Windows software code to gather information surreptitiously, a suspicion Microsoft called unfounded. Moreover, some 90 percent of Chinese computers run illegally copied versions of Microsoft's software.
Yet Microsoft has begun to turn things around. Late last year, it persuaded nearly all the major Chinese computer makers to pre-install -- and prepay Microsoft -- for the latest operating system, Windows XP. The Chinese news media have reported that the payment is nearly US$80 a computer, not much less than what American computer makers pay.
"China is really improving the environment across the board for software makers," said Tom Robinson, one of Microsoft's Asia executives.
In the hypercompetitive market for consumer electronics, where nearly all the major international brand names have battled local companies, no one makes a consistent profit, industry analysts say. One exception in 2001 was Toshiba's joint venture in the northeastern city of Dalian, where it makes high-end projection TVs for wealthy Chinese.
"Of the 70 companies making color television in China, just one, ours, made a profit in 2001," said Nobumasa Hirata, the chief executive of Toshiba China, citing Chinese government statistics. "That shows that it is difficult, but that it can be done."
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