According to a new report by the Conference Board, Chinese firms still operate at productivity levels well below their foreign counterparts. But, they made startling progress in the early years of this decade. These gains were possible because of the adoption of advanced technologies, recruiting of a higher quality workforce, and rapid restructuring of firms into modern, competitive businesses. There's too much investment in manufacturing and too little in social infrastructure (health, education, social security, low-cost housing, environmental cleanup). China should reduce net exports and shift the incentive in favor of services, which remain relatively under-developed, but offer enormous potential for future employment growth.