Bold Approach to Foreign Investment in China : Development: For the first time, authorities are allowing outsiders to design an area from scratch, then manage it.

An artist’s rendition shows tree-lined streets, high-rise office and residential buildings, neat rows of factories and warehouses and a busy port.

That is at least 15 years away. Now, the 7,680 acres is little more than weeds, cactus and piles of rock and sand.

But the Yangpu Economic Development Zone, on Hainan Island off China’s southeast coast, represents a daring new approach to development for the world’s most populous country.

For the first time, authorities are allowing a foreign company to develop from scratch and then manage Chinese land.

Since the late 1970s, when China began permitting foreign investment, cautious bureaucrats have pushed foreign firms toward joint-venture manufacturing, mainly for export. Many other areas of the economy were off limits, including sales to the domestic market and infrastructure development.

But economic growth rates of more than 10% a year have strained China’s roads, power grids and harbors to their limits. Mountains of freight pile up at railway stations, waiting for transport. Power outages regularly force factories to halt production for hours or days.

Lacking the funds to build all the facilities that localities are clamoring for, the government has turned to foreign investors.

In April, the State Council, China’s Cabinet, announced that major infrastructure projects throughout the country were open to foreign firms--including power stations, railways, highways, ports and telecommunications networks.

All these were once considered vital to national security and therefore off limits to foreigners.

Under the new policy, foreigners may build and operate the facilities for 15 years or more before transferring them back to Chinese control. In most cases, the facilities will operate tax-free for the first five years and be taxed at only half the usual rate for the next five years.

The government hopes to persuade foreigners to invest at least $10 billion in various projects under a $175-billion program that would develop areas along a 1,000-mile stretch of the Yangtze River--from Shanghai to the southwest province of Sichuan.

Already, Wharf Holdings Ltd., a leading Hong Kong real estate concern, is planning to build a container terminal and industrial park in Wuhan--a major city on the Yangtze about 700 miles west of Shanghai--with hopes of turning it into a transportation hub.

The Yangpu project goes a step further. The developer, Kumagai Gumi (Hong Kong) Ltd., has not contracted to build just a power station or a port. Kumagai Gumi and its partners have been given free rein to turn more than 7,000 acres on Hainan’s northwest corner from barren land into a booming port and industrial and commercial center. Chinese media have put the total cost at $17 billion.

Kumagai Gumi Hong Kong, a property developer in the British territory, is partly owned by Japanese construction giant Kumagai Gumi. It approached Beijing with the idea in 1988.

For conservative leaders who opposed it, Yangpu evoked memories of the foreign “concessions” in Canton, Shanghai and other cities in the 19th Century. Backed by armies, the foreigners effectively stripped away Chinese sovereignty within the concessions, establishing their own laws, courts and police and making the Chinese second-class citizens.

The military crackdown on the 1989 democracy movement strengthened the conservatives, and the project was shelved. It was revived only after senior leader Deng Xiaoping called for faster free-market reforms early last year.

“Four years ago, people did criticize this,” said M.T. Wong, chief engineer for Kumagai Gumi. “They wondered why (China) should give away a good piece of land like this. But actually, we are bringing them business profits without any effect on their sovereignty.”

Hainan officials invited central government authorities to Yangpu to “show them that this area is nothing but grass, so (they have) nothing to lose,” he said.

China will control Yangpu’s police, judiciary and customs and will collect taxes. But it has given Kumagai Gumi a free hand in all other matters, from the layout of the land to sales to the day-to-day management of the zone.

Now that Yangpu is off the ground, the southern Hainan city of Sanya is trying to follow its example. Billed as “the Hawaii of the Orient,” Sanya wants to lease 25,600 acres to foreign investors for 50 years and have them develop and manage an international tourist center, according to Mayor Wang Yongcun.