A 1998 survey by consulting firm A.T. Kearney found that more than one-third of multinationals were losing money in China, and an additional 25% were barely breaking even. In 1999, when the American Chamber of Commerce in China polled its members about how long it took their local operations to post a profit, many of them responded by writing humorous notes on their forms.

That situation has changed faster than many executives expected. Today, China represents not only a fast-growing source of revenue for many multinational companies, but also a growing source of profit. The change has given those companies and their shareholders a sometimes-overlooked stake in the continuation of China's rapid transformation into a global economic powerhouse.

Though better known as a prodigious exporter, China has become the world's biggest market for cellphones, with more than 500 million wireless subscribers; that makes it crucial to companies such as Nokia Corp. and Motorola Inc. It is second only to the U.S. in number of Internet users-162 million-one reason why Sun Microsystems Inc. expects its revenue in China to double within three years, surpassing Japan as Sun's biggest Asian market.

China is the world's second-biggest market, after the U.S., for personal computers and cars. It also accounts for a huge share of global demand for commodities such as iron ore, driving growth for big mining interests such as Rio Tinto PLC.

An analysis by San Francisco-based Revere Data of filings by companies trading on U.S. stock exchanges shows that only 44 reported that 5% or more of their 2001 revenue came from China. By 2006, the number had leapt to 108. The true figure is almost certainly higher, because many companies don't disclose revenue by country.

Overhauls brought by China's entry into the World Trade Organization in 2001 have opened markets and trimmed red tape. Per-capita income has tripled over the past decade, helping increase consumer spending, and a construction boom has boosted demand for commodities and heavy machinery.

This year, China for the first time will contribute more to global economic growth than any other country, including the U.S., according to estimates by the International Monetary Fund. With its economy expanding at a rate of more than 11% so far this year, China is on track to surpass Germany as the world's third-largest national economy by dollar value, although its annual output is still less than one-quarter of the U.S.'s at market exchange rates.

In surveys by the U.S.-China Business Council and the European Union Chamber of Commerce, more than 80% of respondents said their China operations were profitable last year.

As a result, China is becoming much more important to investors world-wide, even those who don't own shares in a single Chinese company.

"China is too big to ignore, so you always have to have a view of what's happening there," says Brett Gallagher, deputy chief investment officer for Julius Baer Investment Management in New York.

The huge growth potential of the country's domestic market also shows why so many people in business and government are concerned about the growing friction between China and its major trading partners, the U.S. and EU, over China's currency policy and, more recently, the safety of China's exports.

That potential is transforming the way companies do business. Pharmaceutical company AstraZeneca PLC, whose predecessor company started off in China in 2000 with a manufacturing plant and a sales operation, has expanded its clinical-trials program in the country, added research staff and opened a purchasing operation. That might seem like a lot of effort for a market that last year generated $320 million in revenue, or less than 2% of the company's global total of $26.5 billion. But AstraZeneca expects sales to grow 25% this year and for China to be its third-largest market within five years.

China "is an emerging market, but it's also a market of huge scale. It's a mixture of two worlds. So it gets a very high level of management attention," says David Smith, AstraZeneca's London-based executive vice president of operations.

Yum Brands Inc. also has changed how it runs its business to reflect China's clout. With its KFC and Pizza Hut restaurant chains having taken off in the current decade, China is now, by far, Yum's most important growth market. In the first half of this year, the China division, which includes small operations in Taiwan and Thailand, accounted for 70% of the company's profit growth over the same period last year. In the most recent period, Yum would have reported an operating loss if not for the $65 million in operating profit from China.

That is why Yum gives its China division, led by its president, Sam Su, a lot of autonomy to make investments.

"There's a lot of things we do a little different here than in the rest of the world," he says. China's importance is also reflected in pay: Mr. Su was Yum's second-highest-paid executive last year, after the CEO, earning $3.8 million in total compensation.

Intel Corp. has made similar changes, as China's share of its total revenue rose to 14% last year, from 6.4% in 2000, the first year it started reporting China sales separately. This year, it made China a separate business unit, one of five globally that reports directly to headquarters in Santa Clara, California.

"China is the only country outside the U.S. with such an extensive and full operation" for Intel, says Wee Theng Tan, president of Intel China.

"Every part of Intel's business is represented here in China."

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