China In Turmoil : Strife May Hurt U.S. Firms in China : Analysts Say Operations Could Be Stalled for Year or More

Just days after expressing confidence that conditions for U.S. companies in China would not worsen as a result of unrest there, some observers predicted Sunday--after a weekend of violence--that American firms could find their Chinese operations impaired for a year or more.

“I don’t think any of us expect a quick end to the hostilities,” said Eric T. Kalkhurst, a business consultant in neighboring Hong Kong whose clients include small and medium-size American and European investment groups. “Up until a month ago, China seemed a very stable business climate. But we expect foreign investment in China to be adversely affected for at least a year or more.”

Recently negotiated contracts may have to be rewritten in light of the different business conditions, Kalkhurst said, and that could delay projects a minimum of six months.

Reconsideration Likely

“Clearly some firms are going to be reconsidering their positions now,” added Richard Brecher, investment manager for the U.S.-China Business Council in Washington, D.C.

Senate Democratic Whip Alan Cranston of California and conservative Republican Sen. Jesse Helms of North Carolina were among the first to urge a reassessment, calling on the United States to immediately halt sales of military equipment to China.

But California firms surveyed by The Times--including toy maker Mattel, computer maker Hewlett-Packard, the Atlantic Richfield oil firm and Douglas Aircraft--said they would attempt to keep offices and plants open.

“We’re staying in close contact with the government, and we are prepared to follow whatever advice comes from the (U.S.) Consulate’s office,” said Don Hansen, a spokesman for Douglas Aircraft.

Companies contacted late last month reported few problems at their operations in China and had predicted that long-term business conditions would not worsen even if new Chinese leadership emerged, noting that the nation needs Western investment and technology.

Restricted Travel Advised

Although most firms planned to open today, many have cautioned employees in China to restrict travel and stay away from crowds. Several American firms reported that as a result of the violence, they planned to move their executives in China to the safer confines of the British colony of Hong Kong, off the South China coast.

The violence in China could have an effect on the business atmosphere in Hong Kong, which reverts to Chinese control in 1997.

Hong Kong officials Sunday moved to reassure the international community that the colony’s situation is stable. Hong Kong Gov. David Wilson, in a statement directed to Chinese communities around the world, said: “It would be quite wrong to think that there is any confusion here, and in the days to come I am sure that the people of Hong Kong will go on behaving with restraint and with a sense of care for Hong Kong.”

Yet economists and business executives feared Sunday that the violence in Beijing could, in the short term, prompt Hong Kong residents and businesses to send more of their money out of the city.

“With the uncertainty taking place in China, capital outflow is going to accelerate,” said Joseph Wahed, chief economist at Wells Fargo Bank. “The U.S. will be a prime recipient (of Hong Kong capital) as well as Australia and Canada.”

But Wahed also cautioned that Hong Kong has gone through “numerous ups and downs in the past and has proven to be a very resilient area.”