Within the context of a more than $2 trillion dollar GDP--No. 4 position just behind Germany--China, with its double digit growth, is becoming not just the world's manufacturer but the supply chain king. Airfreight is building, its gateways are surging and its warehouses are bulging at the seams. The first quarter of this year saw an overall economic growth of 10.3% over a year ago. In 2004, China exported $593.4 billion in goods while importing $561.4 billion. This is a far better balance of trade than the United States. In 2005, the U.S. exported $34.7 billion to China while China exported to the U.S. $196.6 billion. The majority of China's exports go out from the ports of Shanghai, Hong Kong and Shenzhen. Together, they handle more than 55 million shipping containers a year. However, airfreight is accounting for more of their high-tech products transport and some other more sensitive or costly goods.

The Anchorage Economic Development Council expects China's air business to continue to grow by 10% a year for the next 20 years. Another consequence of growth is the expanding need for warehouse space and coping with increased inventories and longer supply lines. There is a move in China toward adopting warehouse management systems to accommodate these needs. Warehousing is a growth business. One company, ProLogis, indicates they are planning new distribution parks in Quindao, Hangzhou, and Ningbo (all coastal cities) that comprise 3 million square feet of space. Companies like Wal-Mart (nyse: WMT - news - people ) have their own growth pattern in China. The discount retailer already has 56 stores and is the single largest buyer of Chinese products. If Wal-Mart were a country it would rank eighth among China’s world trading partners. China's logistics costs for 2004 were $351.6 billion.

They have increased appreciably since then. More than 20% of the nation's GDP is spent on logistics compared with 8% for the U.S. As a percentage of GDP, however, China's costs have started to come down, indicating an improvement in logistics. Part of their costs involves substantial tolls and a proliferation of small trucking companies that lack efficiencies of scale. The good news is that China invested $87.8 billion in 2004 in logistics infrastructure, with 83% of that devoted to transportation improvements. Over the next 15 years, the nation plans to build more than 30,000 miles of expressways. China is clearly the place to do business for many. Forbes studied 610 Chinese cities in terms of being best for doing business.

At the top were Hangzhou, Beijing, Shanghai, Wuxi and Ningbo. The three major economic regions consist of the Bahai Sea River (Beijing), the Yangtze River Delta (Shanghai) and the Pearl River (Guangzhou and Hong Kong). They are the engines fueling China's economy and run largely off coal from the west of China. The enormous increase in manufacturing has consequently hobbled the Chinese environment with an enormous pollution problem in the air, water and on the ground. Still, the result is an infrastructure that has made China a formidable industrial power. Rick D. Blasgen, president and CEO of Council of Supply Chain Management Professionals (CSCMP) recently visited China. "The infrastructure was what hit me the hardest," says Blasgen. "Here in the U.S. we have strong regulations, for instance, regarding the transportation of refrigerated perishable goods. In China you see 'frozen' foods being delivered in a taxi cab. On the other hand, we found that they wanted our [CSCMP] help across the board. Help in general logistics and supply chain knowledge, in education, in a deeper understanding [of] third party issues and in providing services building supply chain networks." "It is important to realize that they, unlike us, build what they want where they want, as was the case with the new 32 kilometer-long Donghai Bridge to their huge and new Yangshan Port. They want it, they get it," Blasgen says.

Mediation of disputes in China is not by the same set of rules as in the U.S. and Europe. However, with their emergence into the arena of the World Trade Organization, China is bound to change some of its ways and reflect more closely the commitments of the WTO. As a gauge of China's growth, trade with the U.S. has increased dramatically from $121.5 billion in 2001 to $260 billion in 2005, according to the U.S.-China Business Council. The figures of trade by air are significant. In 2005 about $61 billion worth of goods came into China by air. Manufacturing is often a gauge of industrial/political dominance. China is already the world's largest producer of steel and a major player in cement, tractors, cloth, telephones, micro-computers, automobiles and color TVs. In China, manufacturing takes place among other places in "Sock City," or Zhuji; and in "Shoe City," or Jinjiang. The figures are staggering. In Jinjiang there are 3,000 enterprises devoted to shoes and 350,000 workers making 700 million pairs of shoes a year.

China's industrial growth rate hovers above 10% a year. Michael Topolovac, the CEO of Arena Solutions, sees that his clients, who are taking up the challenge in China, are facing a "fierce global competitive environment." "One of the major shifts our customers have seen over the last ten years or so is having to compete not just with much better funded larger companies, but also on a global scale," says Topolovac. "On top of this, they have seen their product development cycles get reduced from years to months, as well as time in market life cycles reduced as well... sometimes from five to six years down to five to six months.

All of this is happening with increasing downward price pressure. In order to compete in this environment companies are looking to employ extended supply chains that gain them both leverage and coast advantages, and to a degree, these mid-market companies are realizing that it is important for their supply chains to compete just as much as their products." Topolovac believes that China can play a key role in helping companies survive in such an environment. "A vast majority of the companies we see today are either currently outsourcing to China or intend to do so in the near future," he says. "It is not a move without significant business challenges." With respect to communication and IT infrastructure challenges and intellectual property, "our customers now find their enterprise now extends beyond their four walls, and as such, they see a key need to maintain control of their intellectual property," Topolovac states. Doing business in China is never less than challenging as social, political and economic forces change the landscape along with the smog. The Chinese will in time take care of the smog as they continue to convert from coal to oil and other energy sources. This will likely encourage even further growth in internal and international supply chain activity.