By Eva Cheng
Led by Washington, most advanced capitalist countries imposed economic sanctions on China after the Tiananmen massacre in 1989. The sanctions are still partially enforced, though now confined to "sensitive" technologies. But the big dollars started to roll into China only after 1989.
China is among the most profitable destinations for investment and as a market for goods. China Daily boasted in mid-1994 that some foreign investors' profit rates in China were as high as 220%, naming a US Johnson & Johnson pharmaceutical subsidiary as the best performer.
Not all foreign companies are doing that well. But they generally make more than they can get elsewhere, and with sufficient safety. This is particularly attractive for capitals from Hong Kong and Taiwan, which are mostly small and can ill afford to take the bigger risks associated with investing far from home.
Such capitalists account for the bulk of foreign investment in China, those from Hong Kong dominating Guangdong province and those from Taiwan, Fujian. They pioneered foreign capital's venture into post-Mao China in 1980, when investment was confined initially to four special economic zones offering lucrative tax, land and other concessions.
Joint ventures
Foreign capital had to have local partners in the early years. But the joint venture fever did not take off until the mid-1980s, when Hong Kong- and Taiwan-funded assembly sweat shops — using little technology and often polluting — sprouted in the special zones. Their products were mainly for export and were shipped through Hong Kong.
This created a big increase in energy demand and a huge traffic of materials and finished products between Hong Kong and southern China, seriously straining infrastructure.
There were pressing demands for more power plants, roads, rails and ports. But, with a few exceptions from Hong Kong, few foreign capitalists who were big enough found the risks worthwhile.
Before 1989, the biggest foreign investments were the US$1.85 billion Shajiao power plants in Guangdong, underwritten mainly by Hong Kong's Hopewell Holdings and funded largely by foreign bank loans guaranteed by the Chinese government.
Apart from these and a few plants elsewhere, the largest foreign commitments were hotel projects, which dotted China's tourist hot spots and did not require a large amount of capital.
Things changed after Tiananmen. While the US and European countries were talking about sanctions, another Hong Kong company, New World Development, sealed a massive deal to build a power plant in Zhujiang in Guangdong, key roads around Guangzhou and an expressway linking Shenzhen to neighbouring areas.
Bigger Hong Kong concerns soon followed, committing to major infrastructural projects, including highways, ports and container terminals.
A grand scheme was pushed by Hong Kong's Wharf group to upgrade transport links to and the port facilities in Wuhan, central China, a clear expression of confidence in the spread of Beijing's capitalist drive. Beijing's brutality seemed to have won foreign capital's confidence.
Deng Xiaoping gave the initial push. His high-profile visit to Shenzhen in early 1992 was a declaration of determination to continue capitalist restoration, addressed partly to opposing forces within the Communist Party. It was backed in May by the extension of tax and other concessions to nearly all of China's 300 "open cities" .
This led to a rush of other foreign capital, focusing on the Yangtze River delta, where Shanghai is strategically located, and the north-east.
Rivalries
The fiercest battle was among US, Japanese and European capitalists in the production — mainly parts and their assembly — and sale of capital goods. The vehicle sector is a key battlefield. Power, transport (land and air), computers, telecommunications and other high-technology areas (including military facilities) also heated up.
Contracts with a total value of US$110 billion were signed in 1993 alone, twice 1992's level and roughly the accumulated total of the previous 13 years. Though only US$26 billion of the 1993 amount came through, it still made China the world's second biggest recipient of foreign capital, after the US.
A big drop in foreign investment in 1994 did not have lasting significance. It was a response to the introduction of a hefty property appreciation tax and hit mainly speculative property projects — led mainly by Hong Kong capital — which mushroomed in the south and later in Beijing.
Despite Washington's threats about withholding business to punish Beijing for human rights violations, US commerce secretary Ron Brown went to China in August 1994 to win deals worth US$6 billion, many at the expense of rival foreign bidders.
This alarmed the European Union, which in early 1995 announced a new policy to strengthen economic relationships, backed by an increased aid budget.
US capital felt the pressure. A few months later, the American Chamber of Commerce urged the government Export-Import Bank "in the strongest possible terms" to back US companies bidding for contracts in the multibillion-dollar Three Gorges Dam project.
After refusing to back a EU resolution in April condemning Beijing's human rights record, French President Jacques Chirac led a fleet of "captains of industry" to China a month later to "offer expertise" and technology. Apart from military jets and other investments, France was contracted to build two nuclear reactors in southern China, one of which has already been completed.
Despite China's frequent failures of satellite launches, including two this year, the US Hughes Space and Communications continues to express confidence in China's technology. It is China's main satellite supplier, a relationship begun in the mid-1980s.
Ford, General Motors and Chrysler all have production facilities in China, churning out hundreds of thousands of vehicles. They are rivalled by European producers such as Daimler-Benz, Volkswagen, Robert Bosch GMBH, Porsche, Citroen and Peugeot, and Suzuki, Toyota and other manufacturers from Japan.
Some vehicles are for export, but the most talked-about target is an affordable family car tailored to China's needs.
Open doors
Beijing tried unofficially in 1994 to limit the profit rate of foreign capital in power projects to 12-15%, and greatly limited the guarantees that state authorities could provide for foreign parties' bank borrowing. That produced a big outcry from foreign capital, threatening to shift investment elsewhere, but few did.
Beijing still bans foreign control and operation of telecommunications networks, though the manufacturing of parts is permitted.
But foreign firms come through the back door. That's what Britain's Cable and Wireless did, through its subsidiary Hong Kong Telecom, which is also owned by Beijing's international investment arm, China International Trust and Investment Corporation (CITIC). Hong Kong Telecom plans to spend billions after being invited to help develop a Beijing-Hong Kong fibre optic link and a mobile phone network.
The Ministry of Posts and Communications' monopoly over telecommunications was broken three years ago, when a second network operator was approved, owned by China's four biggest conglomerates — CITIC, China Resources, China Merchants and China Everbright, all of which have extensive overseas investments — and backed by the Ministry of Electronics Industry, Power Industry and Railways.
Despite complaints and even high profile litigation by foreign capitalists against Chinese partners, more of them, with bigger chequebooks, are going into China.
Citicorp chair John Reed estimated two years ago that China needed US$55 trillion — or three years of world GNP — to develop fully. He expected that the real benefits would come through in 10-15 years rather than the next two to three, and indicated the sums at stake: "I'm the chairman that wrote off US$4 billion of cross-border debt [by Third World governments in the '80s], so I have some appreciation of what can go on".
Manufacturing growth in Guangdong dipped somewhat recently, related to the availability of even cheaper sweatshops elsewhere in Asia. The activities of Hong Kong and Taiwanese capital, hitherto of low technology, are set for an adjustment. But their commitment seems to be growing and becoming more long terms.
Hong Kong capital dominates a feverish property sector. Speculation aside, there is a solid demand for residential property, coming from China's new rich and those funded by overseas relatives. A recent speed-up in the dismantling of social welfare, of which subsidised housing was a key component, also pushed up demand.
Hong Kong's prime developers, New World and Cheung Kong, are jointly taking up 70% of a 10-year project that costs at least US$3 billion to provide "low-cost" housing to 700,000 people.
Despite repeated warnings from Taiwan President Lee Tang-hui — and Beijing and Taipei's exchanges of military threats since 1995 — more Taiwanese companies went into China than anywhere else last year. More than 35,000 of them have done so since the 1980s, bringing in US$16 billion, according to Beijing's figures.
Kuomintang Standing Committee member Kao Ching-yen made the biggest ever Taiwanese investment in China last November, in a food-processing chain. In April, Formosa Plastics committed US$3.2 billion in a coal-fired power plant in Fujian, 16 times Kao's investments.
Another Taiwanese concern, Acer, revealed a few months ago plans to build its first plant in China to assemble computer motherboards.