Shanghai beckoning overseas investors

Shanghai is swinging open its doors to investors from abroad. China's largest city is offering a range of concessions to foreign enterprises in an attempt to catch up with other Chinese provinces in the quest for foreign capital.

The concessions include tax reductions, larger repatriations of earnings from joint enterprises, earnings in foreign exchange, and access to the Chinese consumer market.

The development of Shanghai is seen as vital to China's overall economic plans. The government wants to quadruple national industrial and agricultural output by the year 2000. Shanghai has 1.2 percent of China's population, yet it already produces 15 percent of the country's industrial and agricultural output and 20 percent of its exports.

The Shanghai Trust and Investment Corporation (Stico) now has the power to authorize foreign contracts worth more than $5 million, and the municipal government has been granted almost complete autonomy in the area of foreign investment.

The moves come after Shanghai, once home base to the infamous ''gang of four, '' managed to attract only $200 million in pledged foreign investment in the past three years. During the same period, the Shenzhen special economic zone in Guandong Province drew $1.8 million in pledged investments from abroad.

Until now, Shanghai has been unprepared and therefore hesitant about courting foreign investors, according to the general manager of Stico, Hsu Bangfai.

''We were not so well experienced in joint ventures,'' he says. ''The past few years we have been groping, but time is up. In the next few years things will be developing very fast. We are preparing for that uprise now.''

But Mr. Hsu says Shanghai will not become a special economic zone like Shenzhen. Stico, which handles all of Shanghai's dealings with foreign companies, wants to remain flexible in the incentives it can offer.

''We will give incentives to foreign businesses, but concessions will be decided according to the merit of each project; we will be guided by mutual benefit,'' Mr. Hsu said. ''We have more autonomy now, we can decide things on the spot.''

The tax concessions possible for foreign businesses include reductions in local taxes on joint ventures involving technology-intensive industries and cuts in import duties on equipment these ventures import to China. Shanghai is also offering opportunities for reductions in industrial and commercial taxes.

China's large foreign-exchange holdings, estimated at more than $10 billion, mean Shanghai is also able to offer foreign companies concessions other than tax cuts.

Previously, joint ventures were encouraged to export their products so China could earn more foreign exchange. But Shanghai is now offering selective foreign enterprises the chance to sell goods in the local market. Already one Hong Kong company, manufacturing woolen garments in a Shanghai joint venture, has been allowed to sell its product in China.

Mr. Hsu said that joint ventures manufacturing import substitutes would also be allowed to earn profits in foreign exchange. For example, Schindler, a German company that manufactures elevators in Shanghai, has been allowed to convert its earnings into foreign exchange, he said. Renminbi, the Chinese currency, is not transferable outside of China.

Stico has also applied to Peking for the authority to allow some foreign companies participating in joint ventures in Shanghai to remit a larger share of their profit outside of China.

And Shanghai wants their investors to feel at home. It plans to build a residential town for foreigners and an industrial estate. More than 100 enterprises are planned for the Minhang industrial park, where 120 hectares (300 acres) of factories are to be built for the manufacture of textiles, electronics , building materials, and processed foods. A number of companies are already knocking at Shanghai's industrial park door.

''A lot of foreign companies are interested, but we are holding them back until the infrastructure is ready, then we can start negotiating,'' he said. Construction of Minhang is scheduled to begin later this year.

Even without the industrial park, Mr. Hsu believes Shanghai has much to offer outside investors.

''Our infrastructure is quite good; we have a big labor force, skillful and experienced; and we have plenty of research institutes,'' says Mr. Hsu, who is not reticent about calling on Shanghai's notorious past in the quest for foreign capital. ''Shanghai, historically speaking, has had good contact with many parts of the world.''