With a gross domestic product of about $6.4 trillion and a growing consumer base that has yet to buy a lot of the tech products that fill American households, China is a nation ripe with economic opportunity. American companies, like kids to candy, are taking a bite.

Like the tech companies that already have billion-dollar stakes in China, food chains also are getting into the act. Hooters, for example, recently brought its highly successful combination of chicken wings, cold beer, and scantily clad waitresses to Shanghai, joining a number of other well-known U.S. restaurants there—Kentucky Fried Chicken (1,000 stores), McDonald’s (567), and T.G.I. Friday’s (5).

“Given its sheer consumer size, phenomenal economic growth, and increased market openness, winning in China has unsurprisingly become a top priority for many multinational corporations that see the market as a prime opportunity to catapult themselves into position for global leadership,” says Yadong Luo, professor of management and the Emery Means Findlay Jr. Distinguished Chair in Graduate Business Studies in the School of Business Administration. Luo has authored many books that are considered “musts” for anyone interested in the rapidly changing Chinese market.

“China used to be perceived as one economic world,” says Luo, “but now it has the first (Shanghai, Beijing, and Shenzhen), second (coastal and provincial capital cities), and third worlds (interior rural areas) all combined. China used to rely on foreign capital and government investment to sustain its economic growth, but now 80 percent of its investment comes from Chinese people.”

While the United States has been trading with China since the 1970s, mostly through Hong Kong, nothing has spurred the country’s economic growth more than its entry into the World Trade Organization (WTO) four years ago. In 2003, two years after China became a member of the WTO, trade between the United States and China topped $170 billion, with imports from China exceeding U.S. exports by more than $125 billion.

Luo and other experts project China will be the world’s largest economy by 2050. But while China is seen as an economic genie in a bottle, high tariffs imposed on imported goods and the counterfeiting of products are just some of the problems U.S. companies face in doing business with China. Theft of intellectual property in China accounts for up to $50 billion in annual losses worldwide—$24 billion to U.S. producers alone, reported William H. Lash III, U.S. assistant secretary of commerce, last August following meetings with Chinese trade and legislative officials. Everything from DVDs to golf clubs is pirated, and the problem is costing more than billions of dollars in lost sales. In one recent case, the deaths of 12 infants from malnutrition were linked to the sale of counterfeit milk powder sold in an eastern Chinese city.

“Counterfeiting has been imbedded for so long in China that I don’t expect that it’ll be solved any time soon,” Luo says.

While copyright and patent laws exist in China, violators are rarely prosecuted, Luo says. Beijing has promised to step up enforcement, “but regional governments do not have an economic incentive to enforce the laws because they want to see high growth of production and employment in their regions.”

Urging Chinese officials to enforce intellectual property laws to encourage foreign business is one reason Greg Mayback, J.D. ’92, joined a Broward County, Florida, delegation of business leaders and government officials on a trade mission to China last May.

“They have a culture that says copying is perfectly fine. Now they know that in order to be in the global marketplace, they have to protect intellectual property rights, inventions, and creations,” says Mayback, an attorney who oversees the patent prosecution department for Feldman Gale, a Florida-based intellectual property litigation firm. In this position, Mayback targets technology business interests in China. “You look at the number of patents now coming out of China, and that’s why I came in.”

Mayback, who has helped educate Chinese attorneys and business officials about U.S. patent law during his travels there, agrees that a crackdown on piracy is key to stimulating interest in China. “The more U.S. companies know that their products are going to be secure in the same way that a German company knows its products will be secure in the United States, the more flow of American business there’ll be into China.”

Preventing piracy alone won’t be enough, considering the enormous trade deficit with the country. China accounts for more than a quarter of the total deficit between what the United States sells abroad and what it imports, which the Department of Commerce reports reached an all-time high of $60.3 billion in November.

hina’s continued suppression of the value of its currency is another area of concern. Because China links its yuan directly to the U.S. dollar, which has declined significantly against the euro over the past three years, Chinese companies have gained a huge competitive advantage.

“That means Chinese goods become even cheaper, and it’s very hard for us to compete with something like that,” says June Teufel Dreyer, a political science professor in the School of Business Administration who formerly served as senior Far East specialist at the Library of Congress and Asia advisor to the U.S. Navy’s chief of naval operations. “There is never a situation where something is good for one country as a whole and bad for another country as a whole,” she adds, “because cheap Chinese goods means lots of inexpensive things for Americans to buy at WalMart. On the other hand, if Americans are losing jobs, they can’t buy anything.”

Dreyer is now in her second two-year term of an appointment to the U.S.-China Economic and Security Review Commission, which monitors, investigates, and submits reports to Congress on the national security implications of the bilateral trade and economic relationship between the two countries. The Washington, D.C.-based think tank also makes recommendations for legislative and administrative action. One of those recommendations was to slap tariffs on Chinese goods in an effort to reduce the trade deficit with China and to encourage the country to float its currency. Recently, U.S. Senator Charles Schumer of New York introduced a bill to that effect. “It wasn’t meant to be taken as anything but a pressure point,” says Dreyer.

Despite the pitfalls, American companies interested in doing business with China should not be deterred because China’s economy promises only to get better. On the horizon: the 2008 Summer Olympic Games in Beijing, which will require 140 new hotels and four new subway lines in the capital. China agreed to a series of important commitments when it joined the WTO, and Beijing has shown efforts to modify laws to comply with WTO rules.

“American firms in service sectors will have much more opportunities in China,” says the business school’s Luo, pinpointing the banking, insurance, law, advertising, retail, and hospital sectors as those that would do well in the country.

But as new American interests continue to sprout in China’s large cities, will the common Chinese citizen benefit? “You have Starbucks and Hooters in Beijing and Shanghai, but the hinterland of China is pretty much untouched in many ways,” says Dreyer.

Noting China’s emerging middle-class consumers, Luo says U.S. firms should concentrate more of their efforts on second- and third-tier cities. “The purchasing power of consumers in some countryside areas, such as the Yangtze River and Pearl River delta regions, is actually very strong,” he says, adding that China has about 170 cities with populations of more than one million.

With these 170 million potential new cell phone users, Xbox players, and latte drinkers, it’s no surprise that businesses around the world are frothing with excitement.