10 DECEMBER 1988, Page 13


Robert Cottrell looks at the

thin prospects for Western business in China

'DESPITE all kinds of political upheavals, crises, pressures, wars and dangers to her personal safety,' the Daily Telegraph re- ported last week, 'Mrs 'Thatcher's commit- ment to carry out reform has never swayed.' Her 'effective policies and mea- sures. . . conformed with actual conditions in Britain, rather than with ideology or theory.' Whereas, under Labour, 'pa- tients were denied admission to hospital, refuse was piled mountain-high, and socie- ty was thrown into chaos', Britain under the Conservatives had 'regained its sense of confidence and pride'.

Par for the course, you might think. Except that these quotations occurred, not in the Telegraph's own leader columns, but in a despatch from its Peking correspondent, who was in turn quoting an editorial from the People's Daily, the principal national newspaper of the Chinese Communist Par- ty. The obvious sub-text would be that China's leaders, or at least the ones to whom the People's Daily defers, are adverti- sing their own `Thatcherite' determination to push ahead with comparably controver- sial policies; the less obvious one, that the party is now so riven with cliques and feuds that its praise for Mrs Thatcher is a camouflaged cry for a new authority-figure closer to home. The second of these propositions is the less happy, but the more likely: for, ten years after the resurgence, China's reformers have lost their way.

How captivating China's reformers appeared in their heyday. Here was Deng Xiaoping in a ten-gallon hat at a Texan rodeo, bandying jokes with Jimmy Carter; there was peppery little Hu Yaobang com- ing to have tea with the Queen. Excited waves of early Western tourists flocked to sample unspoilt villages and unfinished hotels; Pierre Cardin opened up a branch of Maxim's across the road from Peking railway station; export credit guarantee departments around the world geared up for the forthcoming big orders. The Saatchis themselves could not have written a more pungent battle-cry than Peking's consummate one-liner: `To get rich is glorious!' Inevitably, as it then seemed, China was slipping its communist moorings and joining the 'West'. Today, East is still East, West is West, and China's politics bore or confuse us. Their fate has been relegation. While 'Gorbachev Leads Sweep of Politburo' runs across the top of page one, we might find 'China Steps on Reform Brakes' somewhere below the fold of page 16. The problem is partly one of show business: with Hu sacked, and Deng too old and weak for public performance, there are no active leaders with a twentieth of Mr Gorbachev's charisma. But it is a problem of substance, too. When Deng's China reacted against the political hysteria and economic chaos of late Maoism, the assumption was widely and quickly made in the West that the new iconoclasts intended an open-ended commitment to freedom, pluralism and capitalism. Peking was happy for the West to assume whatev- er it liked, so long as the misconceptions contributed to China's universal popular- ity. The result was the most remarkable 'honeymoon' in modern international rela- tions: businessmen and diplomats from the world's biggest and most prosperous com- panies and countries besieging with temp- tation and flattery the government of one of its poorest and most completely totalita- rian states.

Deng was China's star salesman, both commercially and politically. Funny and forthright, he succeeded in presenting Chi- na as a land of economic opportunity rather than social repression. He promised an acceptance of market forces, an 'open door' to foreign investors, and 'special economic zones' where government would keep red tape and taxation to a Hong Kong-style minimum. These were heady days for the Western traders, who had not seen much of a return out of China since the days of opium; the bravest put capital of their own into joint-venture manufactur- ing companies on Chinese soil, initially on an export-only basis but in reality lured by the hope of selling domestically when China felt secure enough to open up its own billion-strong market.

Foreigners might have been less starry- eyed about what Deng intended for Chi- na's future had they absorbed more of the propaganda served up for domestic con- sumption. Here, the sticks took their place alongside the carrots. Economic mod- ernisation meant embracing foreign capital and technology, but not foreign culture or politics. A liberal economy would not be the prelude to a liberal society. The Com- munist Party would rule more rationally, but would never tolerate any challenge to its power.

A British businessman who in 1978 overestimated the speed at which China was going to liberalise its economy might have lost a few tens of thousands of pounds through over-optimistic investment: a Chinese who overestimated the speed or direction of social change and acted accor- dingly could have lost much, much more. The best-known dissident, Wei Jingsheng, wrote and stuck up posters calling for the introduction of democracy. He is still serving the 15-year jail term with which he was rewarded, his mental health reportedly impaired by long periods of solitary con- finement.

If Western-style political reform was in reality a non-starter for China ten years ago, Western-style economic reform also appears this year to have ground more or less to a halt, sapped by corruption, political bickering and bureaucratism. While Mr Gorbachev's Communist Party Central Committee was approving its lead- ership re-shuffle this autumn. China's own CPCC was concluding a less dramatic but scarcely less important meeting in Peking. Worried by an inflation rate rising to- wards 60 per cent, evidence of endemic embezzlement, urban resistance to further rises in food prices, bank runs and hoard- ing, it decided that the country's highest priority should no longer be pushing ahead with still more liberalisation, but instead 'rectifying the economic order' and 'putting an end to confusion'.

What now happens will be determined more by party-political than by economic factors. Of Deng's two plausible succes- sors, the party boss Zhao Ziyang is identi- fied with the 'leading edge' of reformism, while conservatives have rallied around the Prime Minister, Li Peng. Zhao has suf- fered a reversal which his rivals have been quick to exploit, with the reactionaries enjoying a winter of opportunity. As a straw in the wind, the Financial Times recently quoted a Peking official arguing that the best way to deal with a soaring local aluminium price was to 'pass a law forbidding anyone to use aluminium window-frames'.

Even a rationally-applied economic squeeze, no bad thing for China in the long run, is a dreary enough prospect for its business partners. Already, imports from the West have been stagnant for three years when measured in depreciating US dollars; the much-heralded offshore oil- fields have proved illusory; and when China does buy big-ticket capital goods, it still cheerfully haggles for years at a time over a single contract. At US$680 million

last year, Britain's own exports were down about 20 per cent from their 1986 level, and might have been lower still had the government not offered Peking £300 mil- lion in cheap credit.

Those foreign investors who put money into some 4,000 joint-venture companies have done little or no better. Most still fight a losing battle against problems of corruption, red tape and currency shor- tages; most still cannot sell into China itself, and few make an adequate return. By the Chinese government's own, and probably thus optimistic, estimate, about one-third of the 4,000 are in loss, about one-third are breaking even, and only one-third are in profit. Since most of this last third is scarcely 'foreign' at all, with Hong Kong manufacturers shifting a pro- duction line across the border to cut costs, the pickings for Westerners have been slim. They may do better to cut their losses; for, in the longer term, China's natural foreign partner is not Europe or the United States at all, but neighbouring Japan, which can afford to wait until historic wounds are healed. Japan is not only a keen exporter of manufactured goods to China, but also a potentially vast customer for the resources, land and labour which China might sell or lease. It could, given the scope, thus trade just as happily with a poor China as with a rich one. The West, because it wants a customer rather than a partner, is more likely to be disappointed; it will be a fair while, for instance, before Mr Cardin's Maxim's in Peking makes half the profit of the humblest Chinese noodle shop in Paris.

Robert Cottrell is on the staff of the Inde- pendent.