Will “Made in America” sell in China?

When the third film in Hollywood's Transformers franchise debuted Shanghai in July, vast numbers of young Chinese flocked to movie theatres — 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 400 bright-yellow Camaros specifically designed to look like "Bumblebee," 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 specialised Camaros 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 revitalising 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 visiting China this week on a trip organised 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 organises 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, 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 privatisation, 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. Labour 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.

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David Rohde is a Reuters columnist.