Peking letting hinterlands deal for foreign enterprises

In a clearing below a litchi orchard just outside this south China city of 40 ,000, a San Francisco-based company called Chinamerican Corporation is putting up a little resort hotel. The first stage, now nearing completion, involves only 14 rooms, but additional units will eventually add another 27.

Modest as this Stone Flower Mountain Inn may be, it will be both the first international-standard hotel in the entire area and, more significantly, a property that is entirely foreign-owned.

Given past Chinese aversion to foreign control of anything in their country, it might be assumed that Chinamerican's management fought a long and difficult battle through Peking bureaucracy. Actually, neither of the company principals -- Lawrence H. Davis or Buck Lhu -- ever went to the Chinese capital; all negotiations, while protracted, were carried out right here in this relatively remote county seat.

Involved were officials of the Taishan China Travel Service, the local branch of the official Chinese organization that oversees all activities and investments related to the tourist industry's infrastructure. Peking, to be sure, approved, but the work was done here. Lee Fai, manager of the travel service, says with a smile, "We have the power to do anything we like."

That power flows, to be sure, from Peking through Guangzhou (Canton), which is the capital of Guangdong (Kwangtung) Province, in which Taishan County and this city are situated. Still, it's increasingly clear to those close to the Chinese investment scene that the reins over local authorities have been loosened to a degree unprecedented in the history of communist China.

Says a Hong Kong representative of a multinational company, "Forget about Peking; the action is in the provinces." How much or how little officials in any given province do depends, of course, on the imagination, ability, and energy of the individuals involved. Some do far more than others.

Still, the word from those actively involved with buying from China, or in selling or working to arrange for investments, is that deals once reserved only for the most senior officials in Peking are now being nailed down in Nanjing (Nanking), Shanghai, Xian (Sian), and towns like Taishan here. Admittedly, if Peking only decided to delegate authority down, not much might have happened. After all, why should a local bureaucrat get involved in difficult negotiations with foreign interests that could fail or incur central government ire?

Peking clearly considered that and provided its lower echelons with an attractive incentive. Local agencies may now keep as much as 30 percent of the foreign exchange earned by their export of goods and services. In this new era of pragmatism, the idea has caught on.

Actually, a "foreign-exchange incentive" was proposed some years back, but was forgotten in the frenzy of the Cultural Revolution. But with the end of that crippling period in communist China's history, this "profit sharing" program took off. It ties in nicely with the nation's desire to modernize with the least possible expenditure of its own hard-earned foreign exchange.

Benefiting, too, from the accessibility of lower-echelon officials and their authority to act are foreign investors seeking to come into China in what is popularly called compensation trade. This technique involves the outsider's providing capital, raw materials usually, technology, and management expertise -- all elements sorely lacking in China today.

For their part, Chinese officials, including those at the local level, can offer what they have -- land for plant sites and labor. The foreign investor typically then provides the machinery for a plant and probably pays for the factory itself. In exchange, he is paid back in the products which he sells abroad. Such an arrangement preserves both employment and technical skills. Depending on the terms of the agreement, the factory in time reverts to Chinese ownership, but the foreign investor continues to enjoy special privileges.