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U.S. Firms Lift Taboo on Doing Business in Beijing

TIMES STAFF WRITER

Seventeen months after the Chinese government put a bloody halt to pro-democracy demonstrations at Tian An Men Square, chilling that country’s business climate, U.S. companies are ending their unofficial moratorium on new investment in China.

U.S. firms in the first six months of 1990 struck joint venture deals at a pace roughly half that before the crackdown, according to Chinese government figures--a trend confirmed independently by Americans familiar with U.S.-China trade.

While some investment analysts say the Chinese may be overstating the resurgence, noting that many of the deals had long been in the discussion stage, even these analysts say U.S. corporate interest in China clearly is on the rise.

And now the Bush Administration--whose ambivalent relationship with China’s leadership has warmed slightly amid efforts to keep China part of the worldwide consensus against Iraq--is allowing its officials to promote commercial ties with the Chinese.

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The U.S. ambassador to China, James R. Lilley, is scheduled to speak tonight in Seattle at a trade conference whose promoters have invited U.S. business executives to “meet the largest delegation of Chinese business leaders ever to visit the United States"--some 300 bureaucrats eager to ink deals with American companies.

Lilley will be the first high-ranking American official since the Beijing massacre in June, 1989, to use a platform in the United States to encourage Americans to consider doing business with the Chinese.

It’s a forum fraught with controversy. An attempt to organize a similar conference in Seattle failed last spring amid protests that such events appease Communist hard-liners who seek American technology, but oppose American-style freedom. And the current conference has been the subject of similar criticism--some of it from the halls of Congress.

More broadly, the new surge of American investment is generating a debate: As American companies venture back into China, what role--if any--should they play in the human rights struggle in that country?

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On one side are human rights activists and some elected officials who want U.S. companies to take a more active role in support of the pro-democracy forces in China.

On the other are those who oppose overt corporate activism, contending that the very presence of U.S. firms is itself a liberalizing force in Chinese society. This faction includes the Bush Administration, other elected officials and many in business.

The controversy is forcing companies to answer always awkward questions about the political ramifications of their actions.

Among the U.S. companies that have struck deals with China this year are such giants as IBM, Avon, Coca-Cola, KPMG Peat Marwick and Polaroid. Some, lured by China’s inexpensive labor costs, look to manufacture goods in that country for export elsewhere. Others see major market potential in China’s huge population.

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In all, there were 154 contracts for U.S. investment in China signed in the first six months of 1990, according to a report recently issued by the Chinese. If that rate persists through the end of the year, the number of deals would break the record 276 closed in 1989.

The vast majority of last year’s transactions were concluded before the events in Tian An Men Square. In the aftermath of the deadly crushing of student protests, U.S. firms were reluctant to proceed with new ventures because of both fears of instability in China and worsening relations between the United States and the Chinese regime.

The U.S. government imposed limited sanctions on China, curtailing high-level contacts and suspending some economic assistance programs. But at no point did the government bar private U.S. investment in China.

It is not only Chinese government statistics that suggest business slowly is returning to normal. Independently, the U.S.-China Business Council, an association of U.S. firms with commercial interests in China, reported in a September newsletter that “U.S. investment . . . seems to be rising.”

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For example, Pfizer, a New York-based pharmaceutical firm, is negotiating for the right to establish a $25-million mining operation in China. Sources say Du Pont, Motorola, Procter & Gamble, Gillette, General Motors and Honeywell also are negotiating or considering possible deals.

“It’s a sign that the dust has settled,” said Richard Brecher, manager of the council’s investment advisory program. “Companies are discovering that--whether there’s political stability or not--projects can go forward. People are beginning to feel comfortable about doing business there again.”

However, the value of deals involving U.S. companies in the first six months of 1990--about $200 million--is not as impressive. At less than a third the value of 1989 investments, the number is evidence that post-Tian An Men projects are on a smaller scale.

U.S. companies are making deals now because they have more negotiating leverage with the Chinese government, said Kim Woodard, an analyst at A. T. Kearney, an international management consulting firm based in Chicago.

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“The Chinese are very anxious to get foreign investment,” Woodard said. “For those (companies) coming in now, the Chinese are very flexible.”

Huang Wenjun, commercial minister at the Chinese Embassy in Washington, contends that the pace of U.S. investment has actually accelerated since June.

It began to rise in May, he said, and continued strong in the summer months. Huang predicted that the contract value of 1990 projects will reach an all-time one-year high--surpassing the record $654 million in deals made in 1989.

“The prospects for U.S. investment in China are very bright,” Huang said in an interview.

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Huang and other Chinese officials have been taking that message to major American cities in a series of trade conferences this fall. In Los Angeles on Oct. 29, Huang sought to remove doubts about his government’s commitment to developing a more market-oriented economy.

“After what happened in Beijing in June (1989), some predicted an end to economic reform,” Huang told conferees. “China will never turn away from the ongoing process of reform.”

Indeed, reforms specifically designed for potential foreign investors have helped China lure some U.S. companies this year, said Anthony Russell, manager of China services for HongkongBank, the world’s largest financier of foreign investment projects in China.

The reforms, implemented by the Chinese government in April, are designed to give foreign investors more management flexibility. For example, Beijing eliminated a rule that prohibited non-Chinese from chairing a joint venture.

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However, human rights activists contend that American companies should be more concerned with political reform in China--not just economic liberalization.

Asia Watch, an organization that monitors human rights conditions in China, supports legislation introduced by Rep. John Miller (R-Wash.) that would require U.S. companies to adopt a set of principles to govern their conduct in China.

The legislation--an amendment to a bill that would have made American trade conditional on human rights factors--was approved by the House in October, but the Senate failed to act on the bill.

The proposal would prohibit American firms from using goods produced by forced labor and forbid companies from allowing any Chinese military presence at work sites. It also calls on companies to encourage freedom of expression among employees and to prevent government “political indoctrination” at their facilities in China.

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Companies that failed to comply with the principles would not be eligible to receive assistance from the U.S. Commerce Department or the American Embassy in Beijing.

“We don’t really have a position on whether U.S. companies should operate in China,” said Mike Jendrzeczyk, director of the Washington office of Asia Watch. “However, if companies go to China, they should promote human rights.”

Miller said he plans to resubmit the proposal in the coming session of Congress. Miller and Washington state’s two senators--Democrat Brock Adams and Republican Slade Gorton--have urged businessmen at the Seattle trade conference to address human rights concerns, as have protesters outside the conference hotel.

“I introduced the principles because I could see business and trade with China growing, and I know business can play a role in promoting human rights,” Miller said in an interview.

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However, the Bush Administration opposes Miller’s proposal. Such a proposal would discourage companies from launching ventures in China, said Kent Wiedemann, director of the State Department’s Office of Chinese and Mongolian Affairs.

“This would help those who want to isolate China,” he said. “This would result in an immediate and sharp decrease in trade.”

Wiedemann said the mere presence of U.S. business in China helps to accelerate that country’s move toward a more market-oriented economy. And market economies, he argued, tend to foster democratization.

And while some U.S. executives share that sentiment, others--including many attending the Seattle trade conference--do not believe that they can affect the political situation in China.

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William Garfinkel, director of Pacific operations for Reliance Electric, a Cleveland-based manufacturer of industrial and telecommunications equipment, said U.S. firms cannot hope to change China either by helping it prosper or by embracing activist principles.

“The Chinese themselves will decide their future direction,” Garfinkel said. “We don’t have great clout. We don’t have it in small countries. How can we have it in a large country like China?”

Times researcher Doug Conner in Seattle contributed to this report.

U.S. CORPORATE INVESTMENT IN CHINA

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If U.S. investment in China continues at the pace of the first six months of this year, the total number of deals in 1990 will exceed the level in 1989, when a boom was cut short by the June crackdown on pro-democracy forces. The size of the average investment this year has been much smaller, though, indicating that U.S. companies are returning to China cautiously.

Number of investment contracts: 1988: 269 1989: 276 1990: (projection) 308 Value of committed contracts, in millions of dollars: 1988: $384.3 1989: $645.4 1990: (projection) $400 Source: U.S.-China Buisness Council, Chinese Embassy.


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