Michael Cai grunts as he rummages through a pile of 500 stuffed animals in his Shanghai storage locker. "It's in the back here!" he says, pushing through a stack of plush Winnie the Pooh and Tigger dolls. Finally, he locates what he's looking for: a pink pillow in the form of a pop-eyed pig. He unfolds it--and it turns into a blanket. "It's the best-selling item we have abroad!" he beams. "Foreigners love it!"

Two years ago, the 24-year-old Cai was a brand-new college graduate just hoping to eke out a living. Now he runs a tiny international business, buying toys from local factories at ultracheap prices and hawking them on an eBay store (51Toy.com). Last winter, he was pulling down $6,000 in monthly sales, with a profit margin as high as 40%, which puts him in the top fifth of earners in China--better than most white- collar workers. Almost 90% of his customers send their payments to him online. "The Internet," he says through a translator, "is how I reach the world."

Meet the next wave of Chinese capitalism: the microretailer. It used to be that we only bought "Made in China" goods from commercial giants such as Wal-Mart or Target. But as e-commerce takes hold in China, the country's retail sector is democratizing, and mom-and-pop stores are getting into the game, selling goods directly to folks in Boise, Idaho, pinging e-cash back and forth across national borders. The old China was the soccer ball of dubious provenance that you bought at the mall; the new China is a friendly guy named Zhang with an apartment full of custom-made MP3 players and 2,000 positive reputation points on eBay.

"This is going to be enormous," says Mary Meeker, a Morgan Stanley analyst who wrote a report on the Chinese Internet last year. "China is already one of the most entrepreneurial societies around. This is supercharging it."

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