Trade giant China remains dominant in the making and selling of so-called cheap items such as toys and clothing, even during the current global recession. But China aspires to compete with other countries in the trade of luxury items as well. NPR host Scott Simon talks with Nicholas Lardy, a senior fellow at the Peterson Institute for International Economics, a non-profit, non-partisan group based in Washington, D.C.:

SIMON: It’s estimated that China’s middle class is made up of at least 200 million consumers. Do they necessarily want to buy Chinese products when they get money?

Mr. LARDY: They’re interested in products from all over the world, particularly at the very upper end. There’s a premium placed in foreign brands, foreign products. Everything from expensive handbags to cars.

SIMON: So this would be Swiss watches, German automobiles, that sort of thing?

Mr. LARDY: Swiss watches, German automobiles, American automobiles – General Motors’ Buick is the second-biggest foreign brand – and a bourbon from Kentucky and a scotch from Scotland, and a broad range of commodities.

SIMON: This is something that could obviously benefit the U.S. economy.

Mr. LARDY: Yes. China’s imports last year were over a trillion U.S. dollars. So it’s certainly one of the biggest import markets in the world.

SIMON: Now, some of us remember when the term made in Japan was synonymous with inexpensive, dare I say, cheap goods. And of course in our lifetime that’s changed entirely. Made in Japan now means quality, particularly in the car industry. Is China trying to expand in the manufacture of high-quality items itself?

Mr. LARDY: It’s not only trying, I think it’s succeeding and it’s succeeding much earlier than Japan did for the simple reason that they’ve allowed foreign firms to play a much bigger role. We buy computers that say Dell or Toshiba and so forth – they’re all made in China. They’re made by foreign companies operating in China, assembling all the parts and components there.

So the goods are exported from China, but the vast majority of these consumer electronic products are absolutely world class, and the quality is extremely high. So by allowing foreigners to play a very large role in the production, China has moved up the quality ladder, I would say, much faster than Japan did in the 1960s.

A little over half of all of Chinese exports are produced by foreign companies operating in China.

– from NPR