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A landmark move for China Inc.

IBM's sale of its PC unit to a Chinese firm is the latest sign that a new giant is rising.

By Staff writer of The Christian Science Monitor / December 9, 2004



OAKLAND, CALIF.

In a moment on Wednesday, the gathering might of the Chinese economy became as imposing and obvious as the Great Wall. This was no economic forecast - no set of percentages and decimal points that hinted obliquely at the power that 1.3 billion shoppers could someday wield. This was news that a Chinese company had agreed to buy one of the most venerable product lines in the history of American technology: IBM's PC business.

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The deal, announced in Beijing, evokes images of the 1980s, when Japan swept through the American marketplace in sorties of Sony TVs, turning homegrown companies like Zenith into free-market flotsam. Indeed, in coming years, a tide of Chinese cellphones and refrigerators could find their way into American homes. Yet China Inc. goes beyond that.

The IBM deal symbolizes one of the first waymarks of the new economic order, as China not only adds innovation to its well established assembly-line ethic, but also opens its borders to the global marketplace with an eagerness - and a population - that Japan could never match.

And while the upshot is not likely to lead to the collapse of the American business machine, it does point to the seemingly inevitable rise of a challenger to the economic hegemony America has enjoyed for nearly a century.

"It's still ramping up ... but China is already the greatest engine of growth and the greatest agent of change in the world," says Donald Straszheim of Straszheim Global Advisors in Los Angeles. "It's going to have a lot more heft, and Americans will have to get used to it."

It is already taking some adjusting. China's construction boom has created a worldwide shortage of materials such as concrete and plywood, driving up the cost of housing construction across America. Preparations for the 2008 Olympics have exacerbated worldwide steel shortfalls. And analysts suggest rising Chinese consumption of gasoline has played a significant role in $2-per-gallon gas.

The impact of Chinese tech firm Lenovo's bid to buy IBM's PC division, however, is more symbolic. Unlike the 1980s, when Japan swooped in to snatch the lucrative consumer electronics market from American corporations, Lenovo is merely taking a business that IBM is eager to offload. In the $1.75 billion deal, IBM may actually gain ground in the Chinese market through partnership: It will hold a 19 percent stake in Lenovo, and one of its top managers will become Lenovo's chief executive. And, to some analysts, it's not losing much. By today's standards, the personal-computer market is Stone Age stuff, with prospects of only modest profits in the US. IBM plans to focus on more profitable software and consulting ventures.

Yet the deal should put the world on notice. China might not be buying Rockefeller Center just yet, but its businesses are at last looking beyond their own borders (Lenovo plans to move its headquarters to New York). "It's an example of the kind of mergers and acquisitions were going to see more of," says Mr. Straszheim. "China will be buying brands to buy reach, to buy marketing, and to buy managerial experience, which they don't have."

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