China Expected to Be Big U.S. Market in ‘90s

If you want the real outlook for the world economy, follow the money. The young managing director of a small but global manufacturing company has just raised $84 million from U.S., European and Japanese investors to expand his business.

He will put the money to work in southeast China, the world’s fastest growing industrial area--and gateway to the great growth market of this decade and probably the next one too.

The expansion represents an enormous stride for Patrick Wang, 42, and his Hong Kong family company, Johnson Electric. Johnson--Chinese-owned despite its Anglicized name--is a leading manufacturer of small motors for appliances, toys and windshield wipers, doing about $180 million in annual sales worldwide. Investing $84 million means doubling its total plant and equipment.

“We need to expand; we’re getting a bit thin on capacity,” Wang says. Even he has been surprised by how much business is growing in his markets--especially in China, where Johnson Electric manufactures mostly for export. Economic growth in the coastal province of Guangdong is an astounding 25% a year. Even more impressive is that growth throughout the vast country of 1.2 billion people is now running 12% a year.

“China is going to be the big market of this decade for planes, computers and machinery,” Wang says. “And the U.S. is in the best position to benefit.”

U.S. governments, present and future, apparently agree. Secretary of Commerce Barbara Hackman Franklin announced Wednesday that she will lead a trade and investment delegation to China and Hong Kong from Dec. 16 to 22. Goals of the trip will be to “advance U.S. commercial interests . . . and continue to encourage economic reform in China,” Franklin said.

And President-elect Bill Clinton, who criticized China for human rights abuses during his campaign, had soothing words at a recent press conference about progress in China and the wisdom of keeping U.S. policy open and friendly.

For its part, the Chinese government Wednesday released two political prisoners jailed since the June, 1989, protest and massacre in Tienamen Square.

Behind the maneuvering, the reality is that China wants investment and the United States wants trade. This year, the U.S. will buy about $20 billion worth of Chinese toys and apparel, while China will buy about $6 billion worth of U.S. wheat, airplanes and machinery. There are hopes for much more. China has already asked to buy $2 billion worth of U.S. semiconductor-making equipment.

China, after years of false starts, seems ready to break out. An economy of about $500 billion in annual output today, it could build up very fast as its industrious people--60% of them now engaged in agriculture--get a taste for cash wages.

Indeed, that’s happening now in villages throughout China. Farmers, who for 10 years have had the right to hold land and earn money on crops, have produced agricultural surpluses. Now they are investing in light industry.

Wonders are reported. In Yining, near the border with Kazakhstan in central Asia, consumer goods shipped thousands of miles from coastal China are traded to former Soviet people for hard currency. Western-style mansions are built in Yining with the proceeds.

The Pearl River Delta, at Quanzhou or old Canton, has become the world center for manufacture of small appliances. Most are shipped to Hong Kong, which re-exports Chinese goods to the world.

Hong Kong is where Wang Seng Liang, a textile manufacturer who left China, set up Johnson Electric 30 years ago. Now 78, he remains chairman, and the company is run by his U.S-educated children--Patrick, a graduate of Purdue; Winnie, from Ohio University, and Richard, UC Berkeley.

They have built the company into a supplier to Black & Decker in the U.S. and Mercedes-Benz in Germany, with research facilities in Switzerland and the ability to raise capital globally through Morgan Stanley, the investment bankers. “It’s an exciting world these days,” says John Wadsworth, a Morgan managing director.

But there are shadows on the happy picture. Chinese government officials threaten to repress Hong Kong’s free-wheeling capitalism when the British colony reverts to Beijing rule in 1997. Inside China, the fear is that political reaction will throttle economic liberty.

Such threats can’t be dismissed. Politics has reversed economic progress plenty of times in history--Stalin killed farmers to destroy Soviet agriculture.

What grounds do global investors, and Patrick Wang, have for their confidence in China today? Growing Chinese government investments in Hong Kong, for one thing.

For another, the fact that economic liberalization in China continued even through 1989’s political crackdown. “Business investment in China has kept growing since Tienamen, and has built up the private sector,” Wang says. Indeed, state ownership in China’s economy has been fading since 1986.

The model, say experts, is Taiwan, where the Nationalist Chinese regime relaxed political control as the economy grew to world class. “Economic freedom now, political freedom later is the pattern China is looking at,” says David Kendick, head of monetary affairs in the Hong Kong government. “And seeing the chaos in Russia, the Chinese everywhere in Asia are convinced they’re on the right track.”

The result is an almost defiant confidence among Chinese business people today. Explaining why Johnson Electric allowed capacity to get “a bit thin,” Wang says, “I listened too much to economists”--whose stock in trade is to overestimate difficulties and underestimate possibilities.

But now he is listening to his own business judgment and investing heavily. There’s undoubtedly a lesson there for business people everywhere.