American Firms Are Rocked by Turmoil in China
US companies reconsider investment plans. FOREIGN TRADE
OVER the short term, almost all United States companies have decided to pull their employees out of China until the political situation settles. When they go back - to salvage their investments - it is now questionable if there will be much new investment following them.
Experts on US-China trade believe the events of the past week are likely to kill any new US investments for the foreseeable future. ``Anybody thinking about going in is obviously going to wait at least six to 12 months to decide whether to make an investment,'' says David Lampton, president of the National Committee on US-China relations. Adds Roger Sullivan, president of the US-China Business Council in Washington, ``It's clear that any big-ticket items involving the central government are not going forward.''
Some businessmen with long experience in China are pessimistic about the future business climate. ``I'm not sure how this government can carry on without the support of the people,'' says G.H. Gleason, a vice-president at Foxboro Corporation, which has a manufacturing plant in Shanghai.
Mr. Gleason, who has 10 years of experience in China, says the violence is a shock to him. ``It is the same reaction as if you suddenly read that all the police in Baltimore were shooting students,'' he says.
Gleason says the future of his company's investment depends on what happens over the next several weeks. ``You just don't know who will end up in power. If there is a continuation of the strife, it may mean employees cannot get to the factory and it may mean there is no market for its products,'' Gleason says. However, he says, it is too early to consider pulling out of China.
At the very least, some companies expect the violence in China to delay their investments. Wang Chi-Chung, an official at the energy systems division at Thermo Electron Corporation, based in Waltham, Mass., expects a delay in the contruction of a $110 million cogeneration power plant. ``If the situation continues the way it is, it will at least delay it,'' Mr. Wang says.
The violence is also going to spill over to important US-China trade negotiations. For example, the Commerce Department has been negotiating provisions to ease the restrictions on high-technology goods shipped to China. This would make it easier to sell high-technology goods to the Chinese without going through a complicated licensing procedure. ``This all comes to a halt at this point,'' Mr. Sullivan says.
Even with all the bad news for investment, China experts believe it will also be difficult for the current Chinese leadership to halt the economic progress in the outer regions, where there has been greater autonomy. ``It just does not seem possible they will go back to central planning,'' Sullivan says. This may mean that the provinces - some with their own economic development offices in the US - will continue to try to sign deals.
But they will likely have a hard time. Some China experts believe the violence may ultimately have an adverse impact on the economic reforms enacted over the past two years.
``It could badly hurt such areas as quality control and the conformity to contracts,'' says Anthony Kane, director of the China Council, part of the Asia Society. In fact, Sullivan expects that the next round of bad news for business will be a series of government purges. Pro-business officials will be fired, he says.
These changes come at a time of accelerated trade between the US and China. According to the US-China Business Council, 350 US companies have 600 contracts in China. Investments totaled $3.4 billion. Last year, US business invested $370 million.
``A lot of companies were thinking of doing something this year,'' says Sullivan.