China trade: chickens, Deng's computer, creeping capitalism

Early in the Reagan administration, two of its leading capitalists sat down with China's boss, Deng Xiaoping, and heard an unexpected request. ''Where,'' the diminutive but forceful Chairman Deng asked, ''is the computer system I asked Dr. Kissinger to sell us?''

The two Americans, Treasury Secretary Donald T. Regan (former chief executive officer and supersalesman at Merrill Lynch) and Export-Import Bank president William Draper III (former San Francisco venture-capital whiz), were nonplussed.

Then the communist leader of China's tack toward capitalism explained: He had been impatiently waiting since the mid-'70s for a computer package that would allow Peking to take a modern, multifaceted census. Without such a census, economic planners could not know whether there were 800 million or 1 billion Chinese. What's more, no one would know how many stoves, bicycles, radios, fruit growers, welders, etc., were loose in the land.

That lack of exact demographic knowledge was one of several reasons for the often-halting start to China-Western trade as it resumed in the past decade. Basic resource contracts, such as those for offshore oil-drilling rigs, were made early and stuck to. But other commerce went through a roller-coaster ride of contracts made and canceled, hopes rising and waning, debates over tax and investment law, and bureaucratic delays.

On the Chinese side, Deng and his designated successors watched their modernization campaign encounter a dilemma. They were caught between (1) wanting to decentralize authority and stimulate competition and private incentives; and (2) not wanting to lose central control of local bureaucrats and budgets. The latter was partly an ideological fear. But it was also an economic one. Exuberant local managers sometimes went on a capital shopping spree that threatened the nation with red ink. (Deng wanted to import American technical know-how, not such modern notions as huge budget deficits.)

President Reagan's summit trip this week is more than anything else a show of permanence for Chinese-American relations. It says to the world that United States leaders, no matter what their ideology, enthusiastically approve of their ties to the most populous communist nation. And the seal of that approval is new steps to make US-China trade both larger and more normal in nature.

At each period of an open-door policy in China, specialists have warned ambitious salesmen that the ''market of a billion pocket books'' was not as lucrative as it might appear. In the past decade there have been many false starts. But both investment and trade are growing now. And the growth rate is likely to increase.

Japan will almost certainly continue to be China's biggest trading partner. Doak Barnett, a Johns Hopkins University professor and longtime China authority, explains that the two nations' economies are complementary, and Japan's integrated banking-manufacturing-trade structure makes investment in big energy or steel projects easy.

American companies are likely to continue getting contracts for large-scale agricultural exports and for basic resource extraction (offshore oil, coal, other minerals) and will increasingly win contracts for a wide range of high-technology products, including nuclear power and hydropower.

American and European oil consortiums are already test-drilling from platforms in the Pearl River Basin of the South China Sea. Early test wells have shown little result. But some geologists, noting the type and range of likely offshore formations, believe petroleum finds there may turn out to be as much as 2 to 21/2 times the size of the big North Sea field.

The legendary East-West capitalist, Armand Hammer, is closing in on his contract to extract Chinese coal from the world's largest open-pit mine (1.4 billion tons) in Shanxi Province.

The great trading companies of Japan have established regional offices throughout China to ascertain local needs -- from steel mills and earthmoving equipment to cameras and bicycle tires.

But another major group of entrepreneurs may prove to be as important as Japanese and American investors and traders. They are the enterprising overseas Chinese.

Ezra Vogel -- chairman of Harvard's East Asian studies program, author of the best seller ''Japan as Number One,'' and a frequent visitor to China -- points out that already, expatriate Chinese have filled three types of roles. They have been investors in China's ''special economic zones,'' which offer incentives to foreign firms. They have served as middlemen in arranging big deals in their ancestral land. And they often arrive as executives of major foreign corporations.

In some cases, these enterprising overseas Chinese have also created profitable businesses for teaching management techniques to agricultural, industrial, and service managers on the mainland.

The Peking government has been adroit in appealing to wealthy overseas Chinese as investors. The special economic zones appeal to specific groups of these expatriates. June Mei of the National Committee on United States-China Relations points out that the most active zone, at Shenzhen, lies next to Hong Kong, from which the bulk of overseas Chinese middlemen, investors, and traders come. The zone at Zhuhai lies opposite the trading center of Macao. Shenzhen has attracted some $1.5 billion in new or planned factories -- most of them using low-cost labor for assembling inexpensive quartz watches, radios, tape recorders , and even such fad products as Cabbage Patch dolls. Xiamen (formerly Amoy) is an ancestral home for many successful Chinese in Singapore and Malaysia.

Chaozhou (which is not a zone) has attracted investment from some of its emigrants to Thailand.

Chinese laws make it easier for overseas Chinese who have not adopted local citizenship to sell to the Chinese market from these zones, where Peking provides land and labor, and foreigners provide capital and know-how. But even Chinese who are citizens elsewhere often enjoy favored entree to China.

Architect I. M. Pei is an example of the blending of skill and ancestry that succeeds. His Fragrant Hill Hotel, outside Peking, is a dramatic showpiece. An international conference of physicists held in China a few years ago was carried on in Chinese, a linguistic show that did not obscure the fact that the stars of the meeting were Chinese-Americans.

And then there was the Chinese-American businessman from Los Angeles who helped set up an American-style mass-production chicken farm north of Canton. Chicken is prized as a very expensive meat in China. The high-density chicken farm was intended to lower prices. But when the first birds hit local tables, the Cantonese -- justly proud of their world-famous cuisine -- didn't like the new taste. So the chickens became part of China's export trade.

Another overseas Chinese venture, more successful with local palates, involves a Hong Kong woman who is teaching Chinese farmers how to provide sophisticated foods for airline and tourist-hotel meals.

Needless to say, all this enterprise from expatriate Chinese is having an increasing effect on the mainland, where inefficient, rigid work patterns ingrained for a generation under Mao have been hard to undo.

When this columnist talked to one of China's leading economists, he proudly recounted the tale of two young men from a commune in Peking.

Hearing Deng's call for competition, they had hesitantly left their stodgy state furniture factory and started a custom-design furniture business. Customers flocked. Very soon, said the economist, they had a backlog of orders six months long.