David Rohde

Update: My apologies. In the first version of this column, I confused two different Camaro models. A corrected version is below.

SHANGHAI –When the third film in Hollywood’s Transformers franchise debuted here in July, vast numbers of young Chinese flocked to movie theaters — and Chevrolet dealerships. Wealthy moviegoers wanted to buy one of the film’s half-car, half robot main characters, a bright yellow Chevrolet Camaro coupe called “Bumblebee.”

“Everyone knew Bumblebee,” said Richard Choi, the director of sales and marketing for Chevrolet in Shanghai. “I had to get the press guys to call it Camaro, not Bumblebee.”

Over the summer, Chevrolet dealers in China sold about 350 400 bright-yellow Camaros. A separate Camaro model specifically designed to look like “Bumblebee” sold 2000 units worldwide, but will not be available in China until December. nearly one-quarter of the 2,000 “Bumblebee” Camaros the company sold worldwide.

Chinese observers say Chevrolet, though, could have sold vastly more Camaros in China. Chevrolet built the specialized Camaros each Camaro in the U.S. only after it received specific orders, creating a three-month-delay in delivery that frustrated Chinese consumers.

At the same time, transportation expenses, as well as Chinese tariffs and currency manipulation, make a Camaro cost roughly twice as much to purchase in China — approximately $70,000 — as it does in the U.S.

Choi, the Chevrolet sales director, downplayed the delivery time and said the Camaro sales showed that American brands can soar in China.

“The question isn’t only about how we get more Camaros to China,” Choi said. “But also about how we get more products — like Camaro — to China that inspire and energize the Chinese market.”

Chevrolet’s “Bumblebee” experience shows the promise and perils of marketing to China’s burgeoning middle class, a strategy some economists say American firms can use to help revitalizing the U.S. economy. They argue that if the Chinese middle class begins buying more consumer goods it could play a central role in reviving the world economy. And if American firms can penetrate the lucrative Chinese market, they could create desperately needed jobs in the United States.

The track records of Chevrolet and other American firms in China show the realities of that approach. They also provide one set of answers to a central question I will repeatedly examine in this column. Does the rise of a middle class in China and other emerging market countries necessarily mean the American middle class must shrink?

Four other journalists and myself are are visiting China this week on a trip organized by the China-United States Exchange Foundation, a non-profit group run by businessmen with close ties to the Chinese government. Henry Kissinger and former Treasury Secretary Robert Rubin serve as honorary advisers to the group, which also organizes visits to China for retired American government officials and military officers. Reuters is paying the full cost of my trip.

China presents challenges for smaller firms as well. On the 21st floor of the gleaming “China Fortune” office tower in Shanghai, another American company is trying to establish its own beachhead in China’s burgeoning economy.

In a public-private partnership I wrote about last month, engineers in a Bowling Green, Kentucky shopping-mall-turned-high-tech-incubator designed a valve that reduces the air pollution spewed by diesel engines. Today, four Chinese truck manufacturers are interested in purchasing the valve to comply with tightening air pollution regulations.

“The Chinese market needs this technology,” said Houman Kashanipour, president of the American firm, PurePOWER Technologies. “We hope to take this technology around the world.”

The company, which is headquartered in Columbia, South Carolina, is taking advantage of government-supported research, manufacturing sophisticated high-end products and trying to export them to growing economies around the world. The firm has sold 10,000 valves and other devices to reduce diesel emissions to a Swiss company. It is also aggressively marketing its products in Brazil.

But its efforts here in China is stalled. PurePOWER’s parent company, the truck manufacturer Navistar, has been waiting for eighteen months for Chinese officials to approve its joint venture with a Chinese firm. Until the application is approved, PurePOWER cannot begin distribution in China.

Unlike the United States where free-market advocates deride the role of government, the Chinese state has played a central role in creating, supporting and expanding businesses here. In addition to privatization, cheap government loans and massive government-funded infrastructure projects drove China’s boom. The Chinese government also required foreign companies to create joint ventures with Chinese firms that, fairly or unfairly, allowed local companies to learn valuable manufacturing and business practices.

“China is a very big market,” said Arthur Kroeber, the managing director of the Beijing forecasting firm Dragonomics. “And the government has been successful in using that market size as a point of leverage to exact terms from foreign investors that other countries can’t get.”

At the same time, many joint ventures are highly profitable for foreign firms. Chevrolet, which launched in China six years ago, is slowly gaining market share. Last year, it sold a record 543,700 cars in China.

Overall, European and Japanese brands have stronger reputations in China than American brands, but American popular culture and marketing can also be potent. As in the United States, Apple’s magic made the iPhone a status symbol among wealthy Chinese. And brands that arrived early in China — such as Buick, Kentucky Fried Chicken and Procter and Gamble — sell well.

Those successes show that, for all the attacks from American politicians on Chinese currency manipulation, American companies can find profits in China. The trick for American officials is to find effective ways to support pioneering American companies.

From China, the “all government is bad” versus “all business is bad” political debate in the United States seems absurdly simplistic. Republicans are wrong to believe that the free market — and the free market alone – magically creates thriving companies. Democrats need to see the support of innovative businesses as a core goal of government.

And while the financial crisis caused many people in developing countries to believe China’s economic model has trounced the American model, a dizzying wealth gap continues here. Household income represents 50 percent of China’s GDP, one of the lowest rates ever recorded.

Instead of re-investing staggering profits in its infrastructure projects, the Chinese government must decrease high housing, health care, education and pension costs for average families. Chinese will spend more of their earnings — and drive global growth — when they are more secure about their future.

Americans, meanwhile, should accept that large-scale manufacturing will never return to the United States. Labor costs are rising in emerging market countries but remain exponentially lower. Companies that base low-skills manufacturing overseas but retain their design, marketing and headquarters in the U.S. — and return the lion’s share of their profits home — may be the best of a series of bad economic options for America.

Innovative firms will find ways to profit from the rise of the Chinese and emerging market middle classes. The American middle class needs more “Bumblebees” and PurePOWERS overseas, and less ideological babble in Washington.

PHOTO: A visitor looks at a Chevrolet Camaro Bumblebee from General Motors during a local automobile exhibition in Shenyang, Liaoning province July 7, 2009. REUTERS/Sheng Li

Update: Sorry, in the first version of this column I confused two different companies. The corrected version is below.

BOWLING GREEN, KENTUCKY–For decades, this bucolic corner of southwestern Kentucky depended on Corvette sales from the local GM plant for its economic life. Now, it’s trying something different.

Last year, the state university opened a “Confucius Institute” that offers nighttime Chinese language classes to local business people. An American auto parts company chose to create 280 new manufacturing jobs here instead of Mexico. And government officials brag about the 19 companies from India, Japan, Finland, Germany, Israel and other foreign countries that have invested locally.

“We just came back from China,” Ron Bunch, the head of the Bowling Green Chamber of Commerce, told me as he escorted Chinese investors around town. “We’re starting an Indo-Kentucky Chamber of Commerce.”

Even the town’s old economy hallmark – the GM plant that is the world’s only producer of Corvettes – is expanding. Fruit of the Loom, which is headquartered here, is slowly growing as well.

While the middle class agonizingly shrinks in other parts of the United States, Bowling Green, Kentucky boasts a growing number of jobs and a lower unemployment rate – 7.9% — than the national average of 9.1%.

“It’s about not fearing globalization,” said Brian Strow, a former city commissioner. “But being an active participant.”

Bowling Green is reinventing itself. Pragmatic, diverse and not politically polarized, this city of 100,000 residents increasingly sees itself in a global context. It is slowly finding its way and providing a sign of hope for America’s beleaguered middle class.

After working as a foreign correspondent and investigative reporter for The New York Times for the last fifteen years, I recently became a columnist for Reuters. The primary focus of my column, “The Global Middle,” will be the state of the middle class inside the United States and around the world.

While the American middle class has struggled in recent years, a new global middle class is emerging in countries like South Africa, Brazil and Turkey. Worldwide, an estimated 70 million people join an “emerging market middle class” each year, earning incomes of $6,000 to $30,000 annually. Economists predict they will surpass the Western middle class in global spending power within twenty years.

This column will examine which economic policies help create middle classes. What lessons from abroad, if any, can be applied to the United States. And whether growing middle classes overseas inevitably mean a shrinking middle class in the United States.

For me, and many others, the creation and preservation of middle classes is vital. Two decades of covering political, religious and ethnic conflict around the world has convinced me that the single largest instrument of stability in any society is a middle class. Whatever their nationality, members of the middle class tend to reject extremist leaders. They try to make governments more effective. And they often cherish the same values, particularly merit, justice and stability.

I plan to visit Bowling Green and other communities inside and outside the United States to see firsthand what is occurring on the ground. My goal is to move beyond political posturing, news media hyperbole and academic theory. Here in southwestern Kentucky, community leaders are trying to innovate, export and educate their way out of Washington’s economic and political paralysis.

There are hurdles, of course. Over the last two years, only 2,200 jobs have been created in a community of 100,000 people. A taxpayer-financed, $25 million industrial park on the north side of town is attracting fewer tenants than hoped. And the desperate courting of foreign investors is a marker of the end of American economic omnipotence.

The Confucius Institute here is one of 74 that have opened on campuses across the U.S (and 322 worldwide) that are affiliated with a non-profit based in Beijing. Critics have said the Chinese government controls the organization and some have even accused it of corporate espionage.

And yet Bowling Green has few other options and a long history of welcoming foreigners. A refugee resettlement center since the 1970s, the city has large Vietnamese, Bosnian and Burmese communities. Thirty languages are spoken in local public schools.

The city defies traditional labels and limits. Neither Rust Belt nor rural, it has diversified from an economy dependent on Corvette sales to mix of services, technology and light manufacturing

While it is the hometown of Sen. Rand Paul, it is neither blue nor red. All local government offices are non-partisan. When party is identified, local Democrats are fiscally conservative. Local Republicans say government plays an integral role in economic growth. The local economic development philosophy is to add small numbers of jobs to existing companies, rather than courting potential white elephants.

“Our greatest strength has been staying the course,” says Kevin DeFebbo, the city manager. “There is a great practicality here.”

Lastly, the town has a college, Western Kentucky University, that is no ivory tower. Increasingly, the university is the region’s economic engine. In 2001, the university and state purchased a 300,000 square foot local mall on the south side of town and turned it into a research center that holds laboratories, private companies and a high tech start-up incubator.

One of its fastest growing tenants is Pure Power Technologies, a spinoff of a local carburetor manufacturing company. the research and development arm of a local heating and garden tool manufacturing firm that went bankrupt in 2008 after losing jobs overseas and being bought and sold by a series of private equity firms. Today, it creates develops and designs diesel engine control systems. Its director travels widely overseas to drum up new business. president is a university graduate, as are all eighteen of its employees.

“He’s in Brazil today,” said Doug Rohrer, a former business executive who runs the center. “He’ll be in China on Monday.”

What works in Bowling Green may not work elsewhere. Other communities lack the resources that exist here. But there is real change in this area. I will write more about Bowling Green and its efforts to fight back, and track over time its success or failure. For now, business people, local officials and teachers are engaging the outside world and succeeding. An odd mix of Corvettes, American pragmatism and foreign investment is helping Bowling Green’s middle class claw its way back.

PHOTO: Corvette fans look over the new 2006 Z06 Corvette during its roll out for Corvette fans and the general public. REUTERS/John Sommers