Chinese Trade Surplus Soars in July

Paul Michelman used the Harvard Business Review Conversation Starters blog Friday to highlight a piece of news that was easy to miss amid all the howls of pain emanating from Wall Street:

China's trade surplus "soared to its second-highest monthly level on record in July," WSJ.com reports. Given analysts expectations for easing growth, this is particularly surprising.

U.S. companies have underestimated their Chinese competition and four groups of Chinese companies are capitalizing on this error:

1. National Champions -- These domestic leaders build global brands by identifying segments that global market leaders have dismissed because volume is too low or profit margins negligible. (Example: Haier's conquest of the mini-fridge market)
2. Dedicated Exporters -- Leveraging their economies of scale, dedicated exporters set their sights on the external market. They first break into mass markets, where their low production costs give them an edge. Then they develop expertise with crucial technologies... to migrate to specialized, high-value markets.
3. Competitive Networks -- These networks comprise hundreds of small, specialized, entrepreneurial companies located in one limited geographical area.... With scant bureaucracy and overhead, they're flexible, low-cost producers. They thrive in markets requiring quick responses to changes in demand. (Example: the Shengzhou fashion network supplies 250 million ties annually)
4. Technology Upstarts -- The Chinese government built a large infrastructure for scientific and technological research, then required state-owned laboratories to obtain funding by commercializing their technologies. In response, research institutes have spawned companies.

Image of Chinese factory by openDemocracy, CC 2.0)