Foreign Firms’ Confidence in China Is Shaken
The allure of doing business in China--investing in the vast economic potential of this slumbering socialist giant and gaining a toehold in a market of 1.1 billion consumers--may have been shattered by the anti-democracy massacre 10 days ago on Beijing’s Tian An Men Square.
Once the political situation stabilizes over the weeks and months ahead, the foreign corporate executives who hurriedly evacuated China are expected to return and resurrect a semblance of business-as-usual. But a deep sense of mistrust seems likely to persist, making investors wary and possibly causing serious harm to China’s fragile economic ties with the West.
A U.S. diplomat in Shanghai, the nation’s industrial center and largest city, said he has been recommending that American corporations delay investment plans indefinitely.
“I don’t think it will be very long before this place comes unglued,” said the diplomat, who spoke on the condition of anonymity.
Hotels Nearly Empty
Already, about $250 million worth of planned U.S. direct investment in Shanghai has been put on hold, the official said. The city is the focus of American business activity in China, drawing some $650 million--about one-third--of America’s $2-billion cumulative investment. That figure does not include significant U.S. funds channeled through Hong Kong-based companies.
The city’s inns are virtually deserted these days, with the 800-room Shanghai Hilton International operating at an 18% occupancy rate and several other hotels closed down temporarily. At least five new deluxe hotels are under construction, but it may be years before China redeems itself as a travel destination and brings back the tourist industry that was booming until the government declared martial law in Beijing on May 20.
Testifying to the suddenly moribund international business climate here is the $135-million Shanghai Center, a hotel, office building and convention facility being built by a U.S., Japanese and Chinese joint-venture in the heart of the city. Construction has ground to a halt, and the foreign engineers and architects have fled the country.
Workers Evacuated
McDonnell Douglas, along with Volkswagen one of the two largest foreign investors in Shanghai, ordered its expatriate staff to leave the assembly plant here for the company’s MD-80 family of airliners and to take temporary refuge in Hong Kong. A spokesman at the company’s St. Louis headquarters denied reports that it had shelved plans to buy out the Chinese assembly operation in an investment rumored to be worth more than $100 million.
Some Chinese officials have begun to express concern about the crisis in foreign confidence. Shanghai government authorities have quietly contacted the few foreign businessmen beginning to trickle back.
The official news media have profiled a Japanese business leader who stayed on through the panic--with his wife. And senior leader Deng Xiaoping made remarks Friday, in his first public appearance since the crackdown, suggesting that China would not backpedal on its economic reforms and open-door policy of the past decade.
Lingering Mistrust
The optimistic outlook is that business will soon be back to normal, despite the atmosphere of political terror prevailing as the Deng regime consolidates its grasp over the populace, following up the military slaughter of protesters with mass arrests and Orwellian propaganda.
“My personal opinion is that this confusion will last for a while, but in two or three months the situation will return to normal,” said Wang Zhengyi, a consultant with the Shanghai International Ventures & Consulting Corp. “There may be some lingering mistrust but that can’t be helped. I’m a little worried about what’s happening now, but I have confidence in the future.”
But the pessimistic view is that economic instability will persist as long as the government resorts to extraordinary measures in repressing the democratic urges of students, intellectuals or reformist Communist Party members.
“Political and economic reform must go hand in hand,” said Norman P. Givant, a Shanghai-based American lawyer practicing international business and investment law. “The government cannot regress to the Maoist days of the 1960s and expect the economy to go forward on the path of the 1990s.”
Givant, co-president of the U.S. Chamber of Commerce in Shanghai, warned emphatically that China could return to self-sufficiency in the economic sphere, “frightening away foreign investors and undoing the work of the past 10 years,” unless it “calls off its vendetta and tries to see some sort of accommodation with other voices in this society.”
Ready to Jump In
But Japan, which currently trails Hong Kong and the United States in total direct investment in China, takes a somewhat different approach to risk assessment. Many Japanese businessmen based here have toughed it out over the past couple of weeks, staying on with their families even though it appears that little business is actually being done while Chinese partners are caught in a state of official limbo.
Indeed, the Japanese appear poised to assume a lead role as the indignant Americans and jittery Hong Kong Chinese begin to withdraw or hold back on new projects.
The key is “patience, tolerance and flexibility,” said Kyoji Saito, general manager of the Shanghai Office of Marubeni Corp., one of Japan’s leading trading firms.
“We think once China’s leaders consolidate their power, there won’t be any hard-liners,” Saito said. “They will establish a frame of orthodox, ideological socialism, but within that frame they will keep carrying out economic reform. That is the only way for China to remain an important member of international society.”
Ironically, the very economic reforms being championed by Western investors have led to some destabilizing conditions, foreign analysts say. With the introduction of market economies phasing out central control on industrial production, raw materials have gotten scarce and costly. Funds, especially convertible currency, are increasingly hard to raise. And the energy supply has been spotty.
“I would never recommend anyone starting a new business or making an investment in China,” said Mardi M. Mastain, managing director of Shanghai-based Export Import of East Asia, a consulting and trading firm. “It’s just too unpredictable.”
Expects More Problems
Mastain, 30, started her business with a partner here four years ago and has painfully mastered the intricacies of working through the Chinese bureaucracy to solve routine business problems. Export of cotton shirts has been the mainstay of an increasingly lucrative business that grosses almost $10 million a year in sales.
But it is getting difficult to obtain letters of credit from nervous clients in the United States, and she anticipates more problems on the Chinese side.
“Everything will be blamed on the new political situation,” Mastain said. “It’s going to be a new excuse why we can’t get yarn or ship the goods on time.”
She and her partner are now looking into opportunities in Vietnam.
The potential that the hard-line political crackdown could result on the kind of xenophobic convulsions that have occurred in the past is in the back of the minds of many foreigners, even Marubeni’s Saito. He believes that a hasty vote of no-confidence by U.S. investors--or sanctions by Congress such as the withholding of key transfers of high technology--could trigger anti-American hostility here.
“One thing we are really worried about is that such thinking will expand to all foreigners,” Saito said.
Meanwhile, the rhetoric of the government’s shrill ideological crackdown on counter-revolutionary “bourgeois liberalization” remains remote from ordinary Chinese. Shanghai’s nascent bourgeoisie, delving successfully into private entrepreneurship under economic reforms, remains largely unconcerned with politics.
“I don’t think about democracy or politics. I hear it and let it go,” said a 28-year-old woman who quit her factory job four years ago when her parents set her up in a private retail shop selling clothing near Yuyuan Gardens, in Shanghai’s old Chinese quarter. “All I care about is making money and getting enough to eat. Life isn’t easy, but it’s getting better.”
IN CHINA’S BIGGEST CITY, BUSINESS JITTERS
Shanghai, China’s industrial center and largest city, is the focus of American business activity in that nation, drawing some $650 million, or one-third, of America’s $2-billion investment in China. But political unrest has dampened the influx of U.S. dollars to Shanghai:
McDonnell Douglas, one of the two largest foreign investors in Shanghai, has ordered its expatriate staff to take temporary refuge in Hong Kong.
Hotels are virtually deserted, with the 800-room Shanghai Hilton International operating at 18% occupancy rate and several other hotels temporarily closed.
Construction of the $135-million Shanghai Center, a hotel-office-convention complex being built in a U.S.-Japanese-Chinese joint venture, has ground to a halt, and the foreign engineers and architects have left.
A U.S. diplomat in Shanghai is recommending that American corporations delay investment plans indefinitely and says about $250 million worth of planned U.S. direct investment in Shanghai alone has been put on hold.
