Recruiting in China

BEIJING — Li Jun is typical of China’s new middle class. Educated at university, he worked as a financial manager with a multinational firm in Shanghai. He recently bought a digital camera at one of the city’s ubiquitous electronics stores. The make? Kodak, an American brand. Li says he didn’t want to give his hard-earned money to Sony, Olympus, or any other Japanese company. It’s a sentiment shared by Zhang Yong, a deputy general manager at one of China’s leading securities companies. On the mention of Japan, he tenses up with hackles raised.

The fractious relationship between Asia’s economic giants — Japan, the world’s second biggest economy; China its fourth — has come to the fore again as Japan’s ruling Liberal Democratic Party on Sept 22 chooses a new leader to succeed Junichiro Koizumi as prime minister.

On Aug 15, Koizumi fulfilled his long-standing pledge to visit Yasukuni Shrine on the anniversary of Japan’s surrender in World War II. The shrine honors soldiers who have died fighting for their country, including 14 convicted Class-A war criminals whose names were added by the shrine in a secretive ceremony in 1978. Koizumi has visited Yasukuni every year since taking office in 2001, each time saying he went to pray for peace. Each time, China and South Korea condemned him for trampling on the feelings of the victims of Japanese military aggression.

Chinese “hatred” of Japan is balanced by a fair amount of materialistic love, too, as a visit to any modernizing Chinese city reveals. The fashions of Shibuya influence the denizens of Shanghai and Shenzhen as much as those of any other city in Asia. Hello Kitty is everywhere. Order a beer in a restaurant and you’re more likely to get Suntory than Tsingtao. Hondas, Toyotas and Nissans fight for space on the crowded streets.

More than 100,000 Japanese living in Shanghai

There are more than 100,000 Japanese living in and around Shanghai, according to the Japanese consulate, making it the third-biggest Japanese expat community in the world, after New York and Los Angeles. More than a million Japanese visit the city each year for holidays and business trips. There were more than 5,085 registered Japanese companies operating there at the end of 2005, from small restaurants to multi-national corporations. These days, they’re not only building factories to make cheap goods for rapid export, they’re opening local headquarters and selling to China’s increasingly wealthy consumers, too.

Among those entrepreneurs is restaurant owner Teruo Katayama. He predicts Shanghai will one day be like New York, so he wanted to get in on the action early. Similarly, Yuzo Sajiki and his business partner chose Shanghai as the first location for what they hope will be an international chain of hair salons. They settled on the city — after also considering Taipei, Hong Kong and Singapore — because the beauty industry is still developing. Sajiki, who trained in London and worked in New York, also felt an affinity with Chinese people. Others, like Akiko Mitani, a human resources consultant, went to learn the language to improve their career prospects. Mitani found love with a Chinese man and stayed.

For many Japanese in China, the dream turned sour in April 2005 when anti-Japanese protests started in Shenzen and spread across the country. On April 16, protests in Shanghai turned violent. Initially there was a festive atmosphere, according to witnesses such as journalist Dan Washburn, who also writes the Shanghai Diaries blog (www.shanghaidiaries.com). Things got ugly, though, as three different marches converged on the Japanese Consulate on Wanshan Road. Lines of paramilitary police protected the building, but stood by as protestors lobbed bottles, bricks and stones. Nearby, 20 Japanese restaurants and businesses were attacked.

There was no single trigger for the demonstrations, although at that time there was anger about a new Japanese history textbook that glossed over wartime atrocities. Japan was also bidding for a seat on the United Nations Security Council, and there was posturing over the ownership of the Senkaku (Diaoyu) Islands — and, of course, the festering issue of Yasukuni.

“The scale of violence was on a level we never imagined,” says Shigeru Toyama of the Japanese consulate in Shanghai. The police told the consulate that they had not given a permit for the demonstration. Under international law, it is up to the Chinese to compensate for the damage. Over a year later, the repairs have not been paid for, but negotiations continue. Initially, when the consul general visited the local government, they claimed that Japan was responsible for what had happened.

The Shanghai government said it tried to stop the protests, but independent reports indicate that the demonstrations had at least tacit support from the authorities. One blogger reported of a Red Cross Station set up near the consulate on the request of the local government. Later, the authorities — mindful of events in Tiananmen Square in 1989 — evidently became worried that the protests might trigger domestic upheaval. University students were required to watch videos about the demonstrations and told not to protest again. According to Toyama, many protestors were in fact dissatisfied with social conditions, and the violence was “not actually targeted at Japan,” he says.

That was initially hard to swallow for Katayama, who dreamed of becoming China's first Japanese restaurant chain to sell “okonomiyaki” and curry rice. Conveniently located on the route to the consulate, his business was ransacked, its screens, tables and chairs hauled outside and set ablaze. Emi Nakao, a translator and writer, says she was too scared to go outside and became wary of speaking Japanese in public. One girl was hit by a man on the subway because she was speaking Japanese on her mobile phone, according to Mitani.

Even so, “the aftermath was not so serious,” says Toyama. Some Japanese-owned businesses actually experienced a boost from the problems. Sajiki’s hair salon, Matinee, which was not damaged, saw customers increase as more Chinese came by with words of encouragement. It was a similar story at Katayama’s restaurant, Ajikura, when it reopened. He also got valuable publicity when his story was reported in media around the world. “Now 70% of our customers are Japanese, the other 30% Chinese and other nationalities, whereas before they were mainly Japanese,” he says.

Expats trying to help the relationship

By working in China, many Japanese feel that they are helping the relationship between the two countries, as well as making a living. Toshie Nakai decided to move to Shanghai 10 years ago after learning of the hotel boom in China. Now in charge of training at a five-star American hotel, she works with a team of Chinese and deals with cultural differences on a day-to-day basis. On the Chinese side, she had to instill among the workforce an ethos of customer service and hospitality; among her Japanese guests, she had problems with older men getting drunk in public wearing only yukata, behavior that seemed arrogant to Chinese. “I had to educate them,” she says. “They came here thinking they were visiting somewhere like a local Japanese hot springs.”

Japanese-language magazines, such as Hu-ism and Shanghai and Beijing Whenever, are doing their bit to close the gap. Akiko Hagiwara is a former editor of Hu-ism. “I wanted the magazine to focus on art and human interest stories,” she says, to communicate the culture of China to Japanese readers.

Carina Chen is an active advocate of better Sino-Japanese relations and formed the KIM cultural exchange group four years ago. (KIM comes from the Japanese words kako, ima and mirai, or past, present and future). KIM meetings attract up to 100 participants, about a 50-50 mix of Japanese and Chinese along with some other speakers of Japanese. On the day of the demonstrations, Chen arranged for Japanese scholar Tone Morimoto to talk to the Shanghai YMCA about the two countries’ relationship.

Chen went to Tokyo for a two-month exchange program when she was a high school student and expected Japanese people to be severe and unfriendly. Instead she found them to be kind. Lou Ning, a computer programmer, tells a similar story about his 16 years living in Tokyo, and agrees that mutual mistrust is a product of ignorance. Interestingly, they both feel that Japanese people often don’t like Chinese culture. “If I was Japanese and came to China, I would see so many things that I would find unacceptable,” Lou says.

Mixed Japanese-Chinese couples sometimes have more problems with Japanese relatives than Chinese ones. Akihiro Sawano, a deputy sales manager who lives in Shanghai, met his wife, Wang Min, when he came to China to work for a Japanese electronics company. His wife’s family had no problem with their marriage in 1999, but his own mother wasn’t happy and still hasn’t visited them. Sawano and his family mostly speak Chinese at home, although his young son, Ryo, is bilingual and goes to a Japanese school. Mitani also had problems with her family when she married her husband, Zhou Yunbo. “When we met, he couldn’t speak any Japanese, and they were worried that I’d be living in a Communist country,” she recalls.

Human-to-human contact between Chinese and Japanese invariably helps mutual understanding, Chen says. Conversely, misunderstandings are exacerbated and perpetuated by schools (although the irony of Chinese protesting about inaccurate textbooks was lost on demonstrators), and the media, which in China is tightly controlled by the state.

Recently, questions have surfaced about freedom of expression in Japan, too. A right-winger was recently arrested for burning down the house of Koichi Kato, a once-powerful politician who publicly criticized Koizumi for visiting Yasukuni shrine. The alleged arsonist later tried to kill himself in Kato’s garden in the traditional hara-kiri manner.

Koizumi protege Abe also reportedly worshipped at the shrine in secret earlier this year. If Abe is elected and again follows in Koizumi’s footsteps into the hallowed courtyards of Yasukuni as Japan’s leader, it won’t help thaw the icy state of Northeast Asian politics, whatever he prays for. Instead, it’s left to individuals — expats and locals, in Tokyo, Beijing, Shanghai and elsewhere — to maintain the bonds of friendship.

“Sixty years ago Japan was dark, like this 60-year-old kimono,” KIM founder Chen says in her fluent Japanese, pointing at a fabric in the antique shop she manages. “Now the culture is light. People change.”

The hope of Chen and others with a vested interest in Japan and China being friends is that politicians change too.

Minister of Labor and Social Security, Tian Chengping, has said that China faces pressure to provide jobs to the more than 100 million surplus rural laborers and that the situation is unlikely to change in the near future.

These comments were made Thursday when he gave a speech at American think-tank Brookings Institute in Washington.

Tian Chengping explained that in the coming years, 24 million people will need jobs in cities and towns. However there will only be 11 million jobs available, including posts made available by retirement. There will be 13 million surplus laborers in urban areas.

He said that in central and western regions and resource-exhausted cities, the pressure is even greater. In rural China there are 497 million laborers, approximately 200 million of which have migrated to towns or cities for work. However, there is still a 100 million surplus labor force.

Tian Chengping says China has made a great effort to create more jobs. Between 1998 and 2005, 19 million workers laid-off by state-owned enterprises were reemployed. At the end of last year, the urban unemployment rate was below 4.2 percent. A total of 36,000 employment agencies have been established.

Tian Chengping also talked about China's efforts to establish a social security system and to guarantee workers' rights. Those who neglect workers' rights can be punished according to law.

By People's Daily Online

By Steven R. Weisman The New York Times

Published: September 18, 2006


SINGAPORE Member states of the International Monetary Fund, yielding to demands from China and leading Western countries, have adopted a plan to modify the fund's power structure and take steps to expand the voice of China and other rapidly developing nations, officials said Monday.

The modification of the governance of the IMF, the international agency that monitors the global economy and rescues countries from insolvency, was widely described as the biggest step since the fund was established in the 1940's, the era when the victors of World War II created the vast cooperative superstructure for the world economy.

China's share of the votes at the IMF, which has 184 members, would go up only slightly, from 2.98 to 3.719 percent. The shares of South Korea, Turkey and Mexico, the other countries that gained more power from the vote Monday, was similarly modest. But it was hailed by the United States and other nations as a decisive reform.

"It looks like a small step forward, but it's a large step," said Henry Paulson Jr., the U.S. Treasury secretary, who was here for the annual meeting of the IMF and the World Bank and participated in morning-till-night sessions assessing the global economy and possible steps to assure its health.

The precise tally of the IMF members was not available early Monday evening.

In a separate development, a committee of finance ministers that oversees the World Bank endorsed in principle a plan by Paul Wolfowitz, the bank president, to crack down on corruption in the bank's lending, but not unreservedly. They added a proviso that the bank's board of executive directors, a separate group that oversees the day-to-day bank operations on behalf of donor and recipient nations, be able to override the way Wolfowitz carries out the plan.

Wolfowitz, a conservative intellectual who was an architect of the Iraq war as deputy secretary of defense in the first term of President George W. Bush, has stirred unease in the bank with his corruption policy. Many directors fear that it could be overly punitive and lead to cutbacks in aid to poor countries.

The finance ministers' committee also raised concerns, Wolfowitz said, involving the standards to apply to various countries and the question of how much the bank's resources should go to anti-corruption plans.

The finance ministers' committee issued a statement that supported the anti-corruption campaign but with what seemed to be muted wording. It backed the bank's "engagement" on the issue but demanded further information on implementation, and in a suggestion of unhappiness, "stressed the importance of board oversight of the strategy."

Some officials here indicated that the wording of the committee's statement reflected discomfort with Wolfowitz, but Wolfowitz said he was pleased the board had given him a green light to proceed with what has become a signature issue for him in his 15 months at the bank.

Throughout the meetings of the last few days in Singapore, much of the criticism of participating countries has focused less on the World Bank than on the overhaul of the IMF. The fund vote needed 85 percent of the 184 member countries' voting shares to be adopted.

The United States has about 17 percent of the vote and Europe in aggregate about 23 percent. Paulson and his European counterparts have spent much of their time here lobbying other countries to agree to the reform. Japan has 6.1 percent.

The vote was not very much in doubt, but many countries that voted in favor said they did so under protest and insisted that in a second round of discussions, also approved by the vote here, scores of countries will be demanding a bigger voting share for themselves.

The change in the fund governance was advocated by the United States and many European countries as a way of getting China and other developing countries to feel more invested in the international economic system.

The IMF is one of many institutions that American and European officials say are in need of change. There are fears of disaffection with the World Trade Organization, the successor of a global trade regime set up 60 years ago, following the collapse last summer of trade talks.

Western leaders also want to change the composition of the United Nations Security Council, adding some countries to the roster of five permanent veto-bearing members. But they have been unable to agree on which countries to add. The United States wants to add Japan and one of several developing countries seeking membership.

Wolfowitz has said that his organization, the World Bank, also needs to change its governance to give more say to China and other fast-growing countries in the developing world.

Under the surface of the IMF vote was another objective of the United States: to engage China in the fund as it expands its role in monitoring currency flows and exchange rates. Washington hopes that the fund will become another voice urging China to let its currency fluctuate more freely in relation to the dollar.

If there was one overriding consensus among European and American finance ministers, it was that China is artificially keeping the value of its currency low in relation to the dollar, and that this is an unhealthy pattern also being followed by Japan and other Asian nations.

The net effect, economists say, is that Chinese exports are cheaper than they should be, and its imports are more costly than they should be, aggravating the huge U.S. trade and current-account deficits that have turned the United States into the world's biggest debtor nation.

The gigantic American debt that the United States owes to Asian and oil-producing countries was widely seen as posing a major threat to the global economy, along with other threats like the failure of trade talks, rising oil prices and fears of a major new terrorist attack.

As a partial solution the United States wants China to let its currency, the yuan, float more freely in the marketplace, where it would presumably rise in value and lead to fewer exports to the United States. The flip side of an appreciating yuan would be a lower value of the dollar, but American officials never like to be seen "talking down" the dollar.

Paulson told reporters Monday that the Bush administration favored a "strong dollar." But when asked about a comment from Zhou Xiaochuan, governor of the People's Bank of China, the central bank, that the yuan might not rise in value if it were to fluctuate freely, the Paulson smiled broadly and said: "It was an interesting comment."

But many economists fear that the solution of stronger Asian currencies might create a new problem. If a decline in the dollar effective reduces the hundreds of billions in dollar-denominated securities held overseas, it could lead to a panic-driven sell-off of dollars, driving up interest rates with possible damaging effects to the U.S. economy.

Paulson, meeting with reporters, said the IMF vote marked an incremental bit of pressure on China to do something about its currency, and he aimed to reinforce American concerns when he goes to China on Tuesday for his first visit as Treasury secretary.

He cautioned against "immediate solutions or quick fixes" flowing from his trip, but he also said "that doesn't mean I don't like results."

Few other economists and officials here expect Paulson to get Beijing to move quickly on currency, despite the many years of relations he cultivated with Chinese leaders as head of Goldman Sachs, the investment bank he left last summer for his current post.

SINGAPORE Member states of the International Monetary Fund, yielding to demands from China and leading Western countries, have adopted a plan to modify the fund's power structure and take steps to expand the voice of China and other rapidly developing nations, officials said Monday.

The modification of the governance of the IMF, the international agency that monitors the global economy and rescues countries from insolvency, was widely described as the biggest step since the fund was established in the 1940's, the era when the victors of World War II created the vast cooperative superstructure for the world economy.

China's share of the votes at the IMF, which has 184 members, would go up only slightly, from 2.98 to 3.719 percent. The shares of South Korea, Turkey and Mexico, the other countries that gained more power from the vote Monday, was similarly modest. But it was hailed by the United States and other nations as a decisive reform.

"It looks like a small step forward, but it's a large step," said Henry Paulson Jr., the U.S. Treasury secretary, who was here for the annual meeting of the IMF and the World Bank and participated in morning-till-night sessions assessing the global economy and possible steps to assure its health.

The precise tally of the IMF members was not available early Monday evening.

In a separate development, a committee of finance ministers that oversees the World Bank endorsed in principle a plan by Paul Wolfowitz, the bank president, to crack down on corruption in the bank's lending, but not unreservedly. They added a proviso that the bank's board of executive directors, a separate group that oversees the day-to-day bank operations on behalf of donor and recipient nations, be able to override the way Wolfowitz carries out the plan.

Wolfowitz, a conservative intellectual who was an architect of the Iraq war as deputy secretary of defense in the first term of President George W. Bush, has stirred unease in the bank with his corruption policy. Many directors fear that it could be overly punitive and lead to cutbacks in aid to poor countries.

The finance ministers' committee also raised concerns, Wolfowitz said, involving the standards to apply to various countries and the question of how much the bank's resources should go to anti-corruption plans.

The finance ministers' committee issued a statement that supported the anti-corruption campaign but with what seemed to be muted wording. It backed the bank's "engagement" on the issue but demanded further information on implementation, and in a suggestion of unhappiness, "stressed the importance of board oversight of the strategy."

Some officials here indicated that the wording of the committee's statement reflected discomfort with Wolfowitz, but Wolfowitz said he was pleased the board had given him a green light to proceed with what has become a signature issue for him in his 15 months at the bank.

Throughout the meetings of the last few days in Singapore, much of the criticism of participating countries has focused less on the World Bank than on the overhaul of the IMF. The fund vote needed 85 percent of the 184 member countries' voting shares to be adopted.

The United States has about 17 percent of the vote and Europe in aggregate about 23 percent. Paulson and his European counterparts have spent much of their time here lobbying other countries to agree to the reform. Japan has 6.1 percent.

The vote was not very much in doubt, but many countries that voted in favor said they did so under protest and insisted that in a second round of discussions, also approved by the vote here, scores of countries will be demanding a bigger voting share for themselves.

The change in the fund governance was advocated by the United States and many European countries as a way of getting China and other developing countries to feel more invested in the international economic system.

The IMF is one of many institutions that American and European officials say are in need of change. There are fears of disaffection with the World Trade Organization, the successor of a global trade regime set up 60 years ago, following the collapse last summer of trade talks.

Western leaders also want to change the composition of the United Nations Security Council, adding some countries to the roster of five permanent veto-bearing members. But they have been unable to agree on which countries to add. The United States wants to add Japan and one of several developing countries seeking membership.

Wolfowitz has said that his organization, the World Bank, also needs to change its governance to give more say to China and other fast-growing countries in the developing world.

Under the surface of the IMF vote was another objective of the United States: to engage China in the fund as it expands its role in monitoring currency flows and exchange rates. Washington hopes that the fund will become another voice urging China to let its currency fluctuate more freely in relation to the dollar.

If there was one overriding consensus among European and American finance ministers, it was that China is artificially keeping the value of its currency low in relation to the dollar, and that this is an unhealthy pattern also being followed by Japan and other Asian nations.

The net effect, economists say, is that Chinese exports are cheaper than they should be, and its imports are more costly than they should be, aggravating the huge U.S. trade and current-account deficits that have turned the United States into the world's biggest debtor nation.

The gigantic American debt that the United States owes to Asian and oil-producing countries was widely seen as posing a major threat to the global economy, along with other threats like the failure of trade talks, rising oil prices and fears of a major new terrorist attack.

As a partial solution the United States wants China to let its currency, the yuan, float more freely in the marketplace, where it would presumably rise in value and lead to fewer exports to the United States. The flip side of an appreciating yuan would be a lower value of the dollar, but American officials never like to be seen "talking down" the dollar.

Paulson told reporters Monday that the Bush administration favored a "strong dollar." But when asked about a comment from Zhou Xiaochuan, governor of the People's Bank of China, the central bank, that the yuan might not rise in value if it were to fluctuate freely, the Paulson smiled broadly and said: "It was an interesting comment."

But many economists fear that the solution of stronger Asian currencies might create a new problem. If a decline in the dollar effective reduces the hundreds of billions in dollar-denominated securities held overseas, it could lead to a panic-driven sell-off of dollars, driving up interest rates with possible damaging effects to the U.S. economy.

Paulson, meeting with reporters, said the IMF vote marked an incremental bit of pressure on China to do something about its currency, and he aimed to reinforce American concerns when he goes to China on Tuesday for his first visit as Treasury secretary.

He cautioned against "immediate solutions or quick fixes" flowing from his trip, but he also said "that doesn't mean I don't like results."

Few other economists and officials here expect Paulson to get Beijing to move quickly on currency, despite the many years of relations he cultivated with Chinese leaders as head of Goldman Sachs, the investment bank he left last summer for his current post.

Winny Wang
2006-09-15
UNEMPLOYMENT will be a long-term problem in China as the country has a large population but insufficient jobs, Tian Chengping, minister of Labor and Social Security, said yesterday during a speech at the Brookings Institution in Washington DC.

Tian said more than 24 million people will find jobs every year in cities and towns in the next few years, while the country can only offer 11 million vacancies. The problem is much more serious in middle and western regions, he said.

In rural areas, about 100 million people are unemployed among the workforce of 497 million.

Tian said China has made an effort to decrease its unemployment rate. From 1998 to 2005, 19 million laid-off workers were reemployed, and the unemployment rate in urban areas remained stable at 4.2 percent by the end of last year.

The country has set up more than 36,000 job agencies

At a regular State Council meeting on July 25, Chinese Premier Wen Jiabao proposed that China should keep its urban unemployment rate within 5 percent in the coming five years.

Beijing Benz-DaimlerChrysler Automotive Ltd. (BBDC) celebrated the opening of its new manufacturing facility today at a ceremony which included government officials, executives, community leaders and more than 1,000 employees of the joint venture and its two shareholders, DaimlerChrysler AG and Beijing Automotive Industry Holding Co. (BAIC).

The hour-long ceremony included presentations of two vehicles produced at BBDC – the Mercedes-Benz E-Class and the Chrysler 300C. Local production of the Mercedes-Benz E-Class began ramping up last December, while production of the Chrysler 300C will begin soon.

"Almost a quarter of a century after DaimlerChrysler co-founded the first international automobile joint venture in China, the opening of the BBDC’s new manufacturing facility is another milestone in our long tradition in China," said Dr. Dieter Zetsche, Chairman of the Board of Management of DaimlerChrysler AG and Head of the Mercedes Car Group. "This brand new facility is tangible example of our continued growth in Northeast Asia and a major step towards realizing our ambitious goals in the fastest growing market in the world."

Zetsche was joined by Beijing Lord Mayor Wang Qishan; DaimlerChrysler Board of Management Member responsible for Corporate Development, Dr. Rüdiger Grube; BAIC Chairman An Qinghen; DaimlerChrysler Northeast Asia Chairman and CEO Dr. Till Becker, BBDC President Guenter Butschek, and other officials and executives.

With a total land area at the site of 2 million sq. meters, BBDC’s new facility is located in the Beijing Development Area (BDA) in Southeast Beijing. The 210,000 sq. meter facilities currently produce Mercedes-Benz E-Class and Mitsubishi Outlander sedans, and will begin producing Chrysler 300C sedans soon. The next-generation Mercedes-Benz C-Class is also slated for production. BBDC has the capacity to build up to 25,000 Mercedes-Benz vehicles, and 80,000 Chrysler and MMC vehicles annually, with room to expand as needed.

The overall manufacturing site includes a “Mercedes Car Group” facility, a “Chrysler Group / MMC” facility, paint shop and stamping facilities, as well as environmental, logistcs, and energy management centers. The Mercedes Car Group and Chrysler Group/MMC facilities each include separate body shops and assembly areas designed to accommodate the specifications for each brand. Both operations are flexible enough to introduce new models and to adjust particular volumes based on demand.

By adopting best practices in vehicle production and technology worldwide, the facilities’ main processes of stamping, painting, welding and final assembly set a new benchmark for the Chinese domestic automotive industry.

As in all DaimlerChrysler plants, the production system in China has been designed to ensure that any abnormality in the manufacturing process is properly identified and fixed. Both BBDC and DaimlerChrysler engineers have been training production colleagues to ensure that they are fully capable of meeting the high standards, and they are also empowered to continue to make improvements. The BBDC Automotive Technical Training Center, jointly built with Beijing Automotive Industrial School, trains employees on the DaimlerChrysler production system. The training center uses trainers from Germany, and will also send colleagues to train on the line in Germany.

Founded on August 8, 2005, BBDC is a joint venture between the Beijing Automotive Industry Holding Co. Ltd, and DaimlerChrysler. It is an expansion of the original Beijing Jeep Corporation, which was the first international automotive joint venture in China.

DaimlerChrysler and its partners are making significant investments in China for its ongoing and future projects to produce Mercedes-Benz passenger cars and vans and realize the production of heavy-duty and medium-duty trucks. The Chrysler Group will build the Chrysler 300C in Beijing, and license minivan production in Fuzhou (PRC) and Yangmei (Taiwan). DaimlerChrysler Auto Finance China became the first company in China to offer vehicle financing for both passenger cars and commercial vehicles. Additionally, DaimlerChrysler Northeast Asia imports passenger cars and commercial vehicles to Northeast Asia under the Mercedes-Benz, Maybach, smart, Chrysler and Jeep brands.

From the CEO of Infosys

Globalization and the convergence of information and communication technologies have dramatically boosted the power and speed with which businesses, organizations, and individuals can access, process, and adapt information. This has given rise to the knowledge economy, where markets can trade what has long been untradable: workers' education and skills. In the new dynamic, efficiencies in productivity growth are less important. Instead, growth is driven by the capacity of economies to create knowledge and innovate.

Three new innovation models are emerging. One is process innovation: wiring everyone to the same network and leveraging the cost, talent, and volume of an integrated global economy. Another is creating pint-sized products and services sold cheaply to masses of poor people. A third is innovating through local partnerships and networks to get around external hurdles, whether bad roads in India or bad government policy on IP in China. You see all three models in India. Boston Consulting Group put out a list of 100 emerging global companies; 21 of them were in India.

Initially, cost advantages attracted global companies to the emerging markets of China and India. China's Pearl River Delta quickly became a hub of low-cost manufacturing, and the country's manufacturing sector grew annually at 11.4% from 1993 to 2003. After economic reforms in 1991, India's large pool of low-cost, technically trained talent made possible that nation's growth as a global provider of IT services.

But today multinationals are beginning to leverage the skills of Indian and Chinese knowledge workers to innovate, and they are building strong R&D capabilities in these markets.

Innovation in China and India, however, has not grown on a truly global, commercially significant scale. Indian companies have yet to come up with significant innovations in entire product lines. Chinese outfits have launched clever but imitative products, and China's R&D capabilities lag those of Taiwan and South Korea.

China and India rank 49th and 50th in the world respectively in terms of productivity growth. Their economies face major challenges to improved innovation. They lack end-to-end logistics, effective infrastructure, and strong regulatory systems. By understanding such weaknesses, corporations can devise alternate strategies and business models to transform the two countries into growth markets.

India has poor infrastructure, low literacy levels for many people, and labor inflexibilities. So high-volume manufacturing has not taken off yet in a big way. Yet businesses are using technology and communication networks to build virtual, interconnected innovation ecosystems to overcome the gaps. A network can tap multiple sources of innovation, including entrepreneurs, research labs, and students and faculty in educational institutions, such as the Indian Institutes of Technology (IITS).

Unearthing specific consumer needs in emerging economies can also aid innovation. HP Labs in India identified power outages as a key factor limiting the access and utility of computers in rural areas, so it designed a community PC that can run on car batteries.

There's huge innovation in creating a high-volume, low-price business. CavinKare, an Indian company, began selling shampoos in the 1990s in cheap, single-serve sachets to make them accessible to the nation's rural poor. This business model was replicated by Unilever (UL ) and Procter & Gamble (PG ).

India absorbs about 4 million to 5 million mobile phones a month, and its mobile rates are about 1 cents a minute, the lowest in the world. Clearly companies have innovated: They figured out how to stay profitable even selling telecom services at a penny a minute. They're reaching consumers who are essentially not part of the formal financial system. If you can deliver to such people products or services in small units at a low price, the market is suddenly open to a much larger base.

In the end, innovation capability depends on economic flexibility. The U.S., with its entrepreneurial culture, relaxed labor markets, and free capital flows, continues to be the most innovative economy in the world. India and China need such an environment to bridge the growth and productivity gap between emerging markets and the developed world and to truly transform themselves into innovative, energetic economies.