FACING potential losses of millions of dollars in overseas investment, China is attempting to lure back foreign firms with political risk insurance following its June military crackdown. China's state insurance company announced Sunday that it will cover foreign investors against ``war, warlike operations, insurrection, strike, and riot.''
Foreign businessmen and Western commercial attach'es in Beijing responded skeptically to the offer, however, saying that the lack of credibility of China's leadership and the threat of further political unrest undermines confidence in such insurance.
``The Chinese are providing risk insurance against themselves - but they say nothing happened [in Tiananmen Square],'' says one Western commercial attach'e, referring to Beijing's suppression of protests in June.
Hundreds of foreign companies recalled their Beijing representatives shortly after the June 3-4 crackdown. Many of the executives have yet to return as their firms reassess the stakes of doing business in China.
``Companies are taking a more careful look at investment in China,'' says Dean Lee, secretary of the American Chamber of Commerce in Beijing. ``It's only natural to be more prudent,'' he adds.
Foreign banks have given China a high-risk credit rating since the military assault, and loans available to China now bear greater interest rates, the commercial attach'e says.
Several Western governments have suspended trade support programs - many of which included political risk insurance - for businesses trading with China. And many US insurance companies are unwilling to provide life insurance for American citizens residing in China.
China's offer of political risk insurance marks an attempt to fill the gap left by apprehensive foreign insurers.
``The Chinese are sensitive to the fact that so many companies have taken a `wait-and-see' attitude,'' says Laurence Bates, an attorney at the Beijing office of the US law firm Paul, Weiss, Rifkind, Wharton & Garrison.
The question of how to cover against political risk ``comes up all the time'' in joint-venture negotiations between Chinese and foreign firms, Mr. Bates says.
Until recently, China's state-run People's Insurance Company did not regularly include political risk clauses in its coverage, Bates adds. It provided such insurance only at a price most firms were unwilling to pay. But now the company is offering ``more flexible rates and conditions,'' company representative Wu Yuan told the official China Daily newspaper.
China's apparent recognition of the lack of security foreign firms face in doing business here is ``a step in the right direction,'' Mr. Dean says. However, he and other executives say potential investors will be cautious in relying on Chinese government-backed insurance. ``If they offer political risk insurance, it should be somehow enforceable outside of China. If it is backed inside China, there could be an enforcement problem,'' Dean adds.
Beijing-based businessmen also complain that contrary to its effort to draw investment, China has recently imposed financial and managerial restraints that are discouraging joint ventures and other cooperation.
As part of a tightening of credit, China has prohibited five of its major financial corporations, including the Bank of China and the China International Trust and Investment Corporation (CITIC), from providing loan guarantees for Chinese-foreign joint ventures, they say.
Lacking such guarantees, many foreign banks are unwilling to provide loans to the joint-venture projects, they say.
In a related issue, Beijing's Tourism Administration has pledged to pay compensation of $100,000 for any foreign tourist injured or killed while touring the capital under martial law.