In September 2011, I flew to Paris to meet with the chief executive officers of some of the world’s leading luxury brands. They had all seen soaring sales to Chinese consumers and were eager to know more about the habits of China’s ultrarich. In just a decade, China has emerged from being a money-losing backwater for luxury brands to become the world’s second-largest luxury market. Chinese consumers have become the Japanese of the 1980s; wherever they travel, they shop for Louis Vuitton, Gucci, and Chloé and want a taste of the high life. Whole industries developed alongside Japan’s rise—from duty-free shops in airports to sushi bars sprouting up wherever Japanese businesspeople traveled—and fortunes were made. Traveling Chinese tourists and businesspeople could inspire the same phenomena.

Even middle-class Chinese aspire to buy luxury products, as Japanese housewives did before. It is not uncommon to see secretaries who make $800 a month buying $1,000 Gucci bags. They, too, will spark new cottage industries around the world for businesses smart enough to understand their needs.

As I walked along the Champs-Élysées, Chinese tourists were everywhere, rushing to Lancel and other elite brands’ flagship stores. Seemingly every other person in the Louis Vuitton store was Chinese. Sales clerks there told me that Chinese were driving so much of the sales of the most popular and expensive items that they had to limit the number of best-selling items each person could buy. My hotel—the ultraopulent Shangri-La, Paris’s latest five-star property—was full of Chinese businesspeople and tourists with their hands full of shopping bags.

With the shadow of the debt crisis looming over Italy and Greece, people asked me during nearly every meeting I had while in Paris, “Will China save Europe?” At the time, investors were hoping China would be the white knight to bail Italy out by buying its bonds. Even the rumor that China might step in to buy them caused global equity markets to rebound.

Two camps have formed in world opinion on how to view China’s rise, especially because it has emerged relatively unscathed from the financial crisis. One camp—which would include most businesspeople, like those senior executives I met in Paris, and investors hoping for a China-led bailout of Italy and the rest of Europe—views China’s rise as beneficial and a potential savior of the global economy and their own businesses. They want to make money and do not really care about ideological battles. More economic integration is good, they reason, not only because it generates more profits but also because it reduces the risk of tension and war, as interrelated economies and aligned interests force people to come together.

They remind others that international economic frameworks, such as the World Trade Organization, minimize military conflicts like those that consumed the world just a few decades ago. They also adhere to the view that companies and countries constantly need to evolve and innovate to seize advantages in changes in the world, rather than erecting tariffs and other trade barriers to maintain their strength. This group tends to view China as a mix of white knight and mystical superhero who can magically save the world’s economy and increase global security.

The other camp views China’s rise as a zero-sum game that will negatively affect the Western world’s ideological and economic dominance. They fear that China is a job stealer that manipulates currency in a mercantilist economic policy and that it is a potential military enemy, to the detriment of America. They also feel that the Communist ideological strain in China and the nation’s stance on human rights are misguided at best but most likely evil, and they believe both threaten the American way of life. The ranks of this group are a hodgepodge of differing ideologies, including leading liberal economists like Paul Krugman, union leaders, and more militant hawks.

Containing China’s growth and influence in global affairs forms the bedrock of these China hawks. They have always had a suspicious eye on China, but they were distracted by September 11 and leading the wars in Afghanistan and Iraq. Now that those wars are coming to a close, or lingering with less importance, these hawks are refocusing their attentions on China.

People holding anti-China opinions are gaining more currency in influential U.S. circles, as people seek scapegoats for America’s economic and political ills. Anti-free-trade sentiment is gaining hold again, even among policy makers, as backward-thinking people want to return to the old days of unchallenged American dominance rather than evolve to ensure continued strength. For instance, the U.S. Senate rejected President Obama’s job creation bill in October 2011 but approved one that allows the United States to slap tariffs on Chinese imports. Then-Republican presidential candidate Mitt Romney took a particularly strident tone on China, saying it “cheats” the international system by systematically exploiting other economies, stealing intellectual property, and hacking into foreign corporate and government computers.

The real answer of how China’s rise will affect the world will be far more nuanced than either camp will admit and will probably fall somewhere between the dovish and hawkish arguments. The philosophies of these two camps are largely shaped and perpetuated by people with very little on-the-ground knowledge of what China was and what it is becoming. Only rational thinking, based on objective and legitimate data about China, will ensure that corporations and countries properly understand how China’s disruptive rise will affect them.

As this book has shown, the end of cheap China is creating an optimistic consumer class that is poised to fuel revenue growth for those brands that can evolve and cater to their tastes. Companies and countries that can adjust to this new world order—as luxury-brand executives, and as brands like Nike and Starbucks, have done—will create new jobs and benefit from China’s growth. For them, China will likely become one of their largest markets (if not their largest) in the coming decade. They should stop calling China an “emerging market,” which underestimates the true power there, and instead view it as a changing market, one equally as important as those in the Western world.

However, free trade and increased trade volume helps the world in the aggregate but will naturally be painful for those companies and nations unable to evolve along with this new world order or adapt to global competition.

For example, consider what happened to the typewriter industry. Producers went out of business because consumers adopted the personal computer, whose development was driven by Steve Jobs at Apple, among others. Overall, consumers, producers of personal computers, and investors in these companies benefited from the shift, whereas the pain was very real for those in the typewriter industry who fought this evolution. Companies that taught typing realized their days were numbered; those that switched from training people on how to use a typewriter to Computers 101 did well, and those unable to make the switch went extinct.

It’s understandable that America and other nations being outcompeted by China might grow anxious. But it is important for these countries to suppress the urge to lash out in fear and anger and concentrate instead on staying ahead of the ensuing changes that will affect them.

A rising power will necessarily disrupt the status quo in political and economic affairs, and some nations and companies will decline, just as the typewriter industry did or in the way the United Kingdom lost its dominance to America after World War II. This is Darwinism at its starkest.

Italy is a great case study of how a country could benefit from China’s rise but also fall further into economic malaise, depending on how its business community reacts in the next several years. Unless Italy can modernize its production facilities or convince consumers to pay even higher prices for items put together by Italian master craftspeople, brands such as Zegna will shift more production to China, as they have been steadily doing since factories there began moving up the value stream.

Smarter Italian brands will see China’s rise as an opportunity rather than a threat. Some might keep manufacturing in Italy for some products, perhaps for more elite, handmade items, but also produce other, more mass-market product lines in China.

One Italian businessman I interviewed saved and even created jobs in Italy by building manufacturing operations in China for a fashion-accessories brand. He kept high-end production in Italy to emphasize brand heritage for marketing purposes but started producing lower-end products in China. Initially the Italian arm tottered, but the influx of revenue from the cheaper product coming out of China saved the Italian operations. He was able to hire salespeople in Italy to sell the Chinese-made product in Europe, while Chinese customers often demanded the Italian-made products. He was able to take a proactive approach to making money on both sides. His example clearly shows that China’s rise can create jobs for evolving companies, rather than steal them, as Paul Krugman argues.

One of the dangers bubbling up in the world is that American crusades against free trade are viewed by many in China and other non-Western markets with increasing anger. They believe America’s views are unjust and hypocritical. Chinese feel that Americans push for free trade only if it benefits them while being detrimental to China. In their view, Chinese are simply beating the competition, and they find it hypocritical that America is now trying to impose tariffs and other barriers to Chinese trade. Rather than seeing the situation as an undervalued currency granting their advantage, they believe they are winning in the market because they have a more efficient logistics system and workforce than America and fewer restrictive workforce regulations than countries like France.

They believe that it is China’s turn to rise because so much of America’s wealth has resulted from Chinese labor. There is palpable anger for America’s perceived hypocrisy, a loss of faith in its moral compass in the wake of Guantánamo, and a feeling that America is trying to keep China down. One influential Chinese told me he believes the 2002–2003 SARS (severe acute respiratory syndrome) epidemic was an “intentional initiative by the Central Intelligence Agency to keep China impoverished.” Conspiracy theories aside, the tension between America and China will rise unless calmer heads can prevail, which likely will happen only if economic growth gets back on track.

In the coming years, China’s new leaders, especially those promoted during the 2012 leadership transition, will have to appease this current of anger within China. As they try to build and maintain their power base, they will necessarily have to incorporate growing anti-American sentiment within China’s military and political establishment and in the general population. But they might not be able to keep as cool a head toward American anti-China rhetoric, as current and previous leaders have done.

As China takes on a larger economic role, will it be able to immediately assume a new global superpower role and jump-start the global economy, as those executives in Paris hoped? The reality is that China has far too many internal problems—from lack of affordable housing and medical care to an educational system that will prevent the country from being innovative—to allow it to be the hoped-for global savior. With so many still living in subhuman conditions like Winnie and Karen, who we met in Chapter 7, the majority of Chinese think the government should save its money by spending it on the nation to protect its own citizens, rather than waste it saving richer people in the developed world.

China should be viewed more as a teenage superpower: displaying glimpses of future genius but unable to maintain a consistent level of power. Like a teenager, it will need the education and cultivation that college, graduate school, and management training programs offer.

As China evolves, it will offer clues that companies and countries can use to adapt to the new role it plays in world affairs. These clues fall into three key areas:

1. China being a new hegemonic power: One key element in the rise of any superpower is how it will enforce and display its newly acquired power. Will China try to force its ideology on the rest of the world, as most great powers, like the United States, try to do? Does its recent aggressive posturing with its neighbors, like the Philippines in the South China Sea and Japan, foreshadow a return to war, or are China’s words and military maneuvers simply a jockeying for power in a new world system, much as kids duke it out on the playground at the start of a school year?
2. Economic growth hitting a wall: Will China’s soaring economy ever stall? More and more analysts, even relatively bullish ones, wonder whether its economy can sustain its 10 percent annual growth. They see looming, nonperforming loans in the banking system and overbuilding in the real estate sector as indicators that China’s growth miracle has stopped. Will this prove to be the case, or will the shift to an economy more reliant on domestic consumption and service industries and increasing urbanization bring continued decades of growth? Will improved medical care and social security benefits be enough to convince more Chinese consumers to spend more and save less? If the economic miracle has ended, will the government be able to address the tension that will undoubtedly arise from frustrated citizens unable to realize their version of the Chinese dream?
3. Reforming the political system: Will China’s citizens demand more political rights as they get wealthier, receive their education at foreign universities, and travel to democratic countries, where they will see different ways of life and definitions of human rights? If calls for reform escalate, will the government be able to evolve in a way that grants citizens more rights, or will it shrink from change instead and crack down on any hints of dissent, as Syria has so ruthlessly done? Will an all-out civil war erupt, as in Libya or Yemen, or will the continuing chaos in Egypt, where Coptic Christians worry about the rise of Islamic fundamentalism, prove to Chinese that it is better to coalesce around a single party? Will an evolving political system result in more democratic rights along the Western model, or will China’s leadership develop a new form of political system—a one-party, semiauthoritarian one that provides for a diffusion of power and checks and balances?

All these questions will need to be debated. This book has attempted to answer them by highlighting the Chinese people’s optimism and fears, which will influence China’s decision makers and force change on the country. Any change that develops will be consistent with China’s needs and historical conditions, rather than repeat what worked in America and the Western world. The country’s internal problems will limit its ability and desire to become an ideological, hegemonic power like America—even as it clearly has become an economic one. China will therefore become a very different superpower than the world has previously known—one whose power will be rooted less in an ideological, militant base than in economic growth.