HARD-LINE POLICY DELAYS HAINAN PORT PROJECT

Hainan's reformist leaders are stepping up pressure on Beijing to approve one of China's boldest foreign-investment projects: the construction of a multibillion dollar free port on the island.Hainan province signed a letter of intent on Sept. 16 with the Japanese developer Kumagai Gumi (Hongkong) in an attempt to push through the long-delayed plan, which awaits a final go-ahead from the State Council, China's cabinet. Kumagai officials in Hong Kong remain skeptical, however, that the province can persuade Beijing to grant developers the autonomy they need to make the project succeed. "Unless Beijing agrees to a hands-off policy, nothing will go ahead," says a spokesman for Kumagai Gumi (HK), which is 35 percent owned by a Japanese construction giant. "So far, we have heard nothing positive from Beijing." The deadlock shows how political uncertainty and hard-line policies adopted since China's 1989 crackdown on prodemocracy protests have stifled foreign investment in Hainan. Negotiations for the project have been going on since 1988, when Kumagai signed a renewable, 70-year lease for exclusive use of 13 square miles of barren land at Yangpu on the island's northeast coast. Kumagai planned to build the infrastructure for a huge industrial park and city on the land, and then sub-let space to other investors. The project would cost about $6 billion. But in June 1989 the deal ran aground. Communist Party conservatives, arguing the lease smacked of "colonialism," ousted a key supporter of the project, party chief Zhao Ziyang. Beijing later said the lease would "not jeopardize China's sovereignty." But a dispute arose over China's attempt to tighten controls over the development by offering the land in parcels of just 2 to 2.5 square miles each.

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