Bold Experiment

China's visiting capitalists

For China-bound travelers in decades past, the first glimpse of the People's Republic was often the sleepy border town of Shumchun, a short walk across a bridge from the British colony of Hong Kong. Visitors sensed immediately that they were in another country, a world apart from the bustle of capitalist Hong Kong. Men and women in baggy pants moved at quarter-speed in a changeless setting of rural stupor.

No longer. Shenzhen (the new spelling under the Pinyin system) is now a vast building site. Construction crews stir dust as they dig sewers, build roads and prepare foundations for factories and apartment buildings. Local women wearing skintight jeans made in Hong Kong sell U.S. and British cigarettes and cans of Coca-Cola from roadside stalls. Hackies hustle bewildered visitors, demanding as much as $65 an hour for riding in their dilapidated Japanese-made taxis.

Shenzhen is the heart of a thriving new 127-sq.-mi. Special Economic Zone where Western capitalists can do business. In addition to Shenzhen, there are two other free-enterprise zones on the southeastern coast, Shantou and Huli. Of all the economic reforms started by China in the post-Mao period, none flirts more intimately with Western-style capitalism than the SEZs.

Three years ago, Chinese officials invited Hong Kong makers of appliances, toys, shoes and garments to set up plants in Shenzhen. Western businessmen were told that they could export their products and share in any profits. Many Hong Kong companies quickly took up the offer, since rents were often 95% cheaper than in the crowded crown colony and wages 75% less than they were paying.

The pioneer investors, however, ran into serious problems. Workmanship was often shoddy. Employees were sometimes unfamiliar with wrenches and other basic tools. Chinese government officials demanded a role in plant management, such as naming supervisors, who often turned out to be more adept at political maneuvering than running a factory. Telephones, roads and other elements of economic infrastructure were limited.

Some of the investments in Shenzhen turned out to be near disasters, and several Hong Kong investors left in frustration. The Ford and Mitsubishi distributor in Hong Kong and the Chinese set up a joint venture to assemble trucks and buses in Shenzhen. But the plant has become a heavy money loser, operating at only a fraction of potential output because of haphazard management and the lack of skilled workers.

Peking officials, though, are determined to make successes out of the SEZS, and they have accepted some needed reforms. Government bureaucrats are yielding more and more management control to the visiting capitalists, who can now name their own local bosses in some instances. Soon foreign managers will have the leeway to hire and fire workers. Output was dismal at the Electrical & Electronics Ltd. appliance plant until Owner Y.K. Chen insisted on bringing in his own supervisors to direct the operation. The factory is now run by Yip Shao-Chen, 24, a woman from the ranks of the assembly line.

The Chinese are also working to solve some of the infrastructure problems. Peng Pang, deputy director of Shenzhen's External Economy and Technology Office, points proudly to the city's construction bustle as proof that there will soon be adequate telephone and road service. Says a British engineer in Hong Kong: "Shenzhen may look chaotic now, but all this digging means that by next year all the basic utilities will be installed."

Once wary businessmen are quickly pouring money into a bewildering array of enterprises. These include textile-dyeing plants, large-scale pig- and poultry-raising operations, hotels, shipbuilding yards and even a Pepsi-Cola bottling plant. The LMK Group, a Hong Kong textile and garment maker, has invested $14 million in a large dyeing factory in Shenzhen that will employ 250 workers. Managing Director Eddie Lo predicts that LMK will have an output of 6 million yards a month by mid-October, and he already foresees expanding the operation to include spinning, weaving and garment making.

Foreign investment in Shenzhen, and its separately administered industrial area of Shekou, now totals more than $550 million. There are already 430 projects in operation, and another 330 are under construction or development. While the SEZs are only islands of capitalism in a sea of Communism, the business techniques being practiced there could well have an impact on the whole Chinese economy.

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