Gymnast Cheng Fei is learning a tricky new balancing act. At the age of seven, she was drafted into China’s state-funded sport system. All it ever wanted out of her was Olympic gold, and she’s complied. Now commercial sponsors also fancy a piece of Cheng, at 18 a triple world champion. But under state rules, athletes are “managed” by their trainers, and only pocket half their endorsement proceeds. Meanwhile the state gymnastics federation is carefully limiting such transactions, stresses Xie Chunhui, of its marketing department. So when officials informed Cheng of her first solo advertisement—shot for a brand of toothpaste earlier this year—“she really didn’t get the concept” recounts pal Liu Xuan, a former Olympic champ turned screen starlet. She tells Newsweek that Cheng whimpered: “Is it alright if I don’t shoot it? I need to train.”

For half a century, Chinese athletes knew nothing but training. Patterned after the rigid Soviet model, China’s sports machine has been tarnished by 90’s tales of doping which sank its female swimmers and of neglect that left one ex-wrestler scrubbing people’s feet for a living. Even today, the state builds, owns and effectively operates athletes from wee youth through retirement. Coaches’ careers still hinge on gold medals, and the guiding ethos remains glory to the nation, at most any cost. But in the past decade, the market has muscled in; today the business of sport rakes in approximately USD 5 billion a year, five times more than a decade ago. With that have come ads, agents, paparazzi and now blogs, thrusting cloistered kids into a dual role as celebrity jock stars.

As the Beijing Olympics draw near, the sports system as a whole is leading a schizoid existence. Long-awaited reforms to free up the market and spend instead on fitness for the masses have been delayed, experts say, precisely because of the old-fashioned obsession with medal supremacy in 2008. The ranks of state recruits have swelled. China went to Athens in 2004 with its training wheels on—80 percent of the team were Olympic rookies—and finished three golds shy of the United States. It would beat the USA by eleven were the Games held today, the British Olympic Association concluded not long ago. “Right now, everything is about 2008,” sums up Hong Kong agent Rey Chiu, who represents Liu.

Technically, federation officials remain the state-appointed agents of active athletes. But the more marketable the star, the more likely he or she will gain private representation—as Houston Rockets big man Yao Ming so amply showed. In turn, state teams are dangling fatter and fatter medal bonuses: up to hundreds of thousands of dollars in cash, plus villas and cars are dangled before state teams as medal incentives.

No one has settled into the double life of Chinese Olympians better than hurdler Liu Xiang. He’s restricted himself to missing about 20 days of training a year to pitch for the likes of Visa, Amway and Coca-Cola. But even the magnetic Liu, the 110-meters world record holder, had an ad pulled by authorities because it featured him and an actress playing a “concubine.”. (Earlier diver Tian Liang, who took gold in Sydney and Athens, was banished to his provincial team in 2005 for unsanctioned wheeling and dealing.) He’ll only be invited back in 2008 “if the team needs him,” says agent Li Wei.

Beijing can afford to be picky. With less than a year to go, the level of corporate support is setting Olympic records, says Terry Rhoads, co-founder of Shanghai-based sport branding firm ZOU Marketing. Companies shell out anywhere from $50,000 to $5 million a year, depending on the sport and the terms, he says. His client UPS backs the defending champion women volleyballers. Adidas is paying an eye-popping $80 million to outfit Beijing Games workers and Team China in its warm-ups. Underneath, 23 of China’s 28 squads will don Nike uniforms.

To the many competitors in the West who depend wholly on corporate sponsors, this manic socialist market system does have its appeal, maintains short-track speed skating legend Yang Yang. She says American friends who must raise their own funds to fly to some meets envy the largess of China’s system. Now a TV presenter and Olympic ambassador, she says her generation was lucky it grew up learning to chiku--“eat bitterness”. She just worries about Cheng Fei’s generation and beyond. “They’re too spoiled.” Then again, perhaps they deserve to be.