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Cost of Doing Business in China Keeps Soaring

March 22, 1985|JIM MANN | Times Staff Writer

PEKING — Stephen E. W. Mulder recently found a way to save his company some money. He landed an apartment in Peking that rents for $72,000 a year.

In U.S. terms, this may not sound like much of a bargain. In fact, Mulder points out that, in the entire state of Indiana, where his company, Cummins Engine Co., has its headquarters, there probably isn't a single apartment as expensive as the one he has rented.

But as a foreign businessman in China, Mulder's standards are different. At the moment, he and his wife and three children are living in the Great Wall Sheraton Hotel, where the rent for his three-room suite is more than $125,000 a year, and where monthly laundry bills alone run up to $400.

"My personnel director back home asked me if I had thought of a laundromat," said Mulder, laughing at the incongruity of the idea. The laundromat has not yet become a feature of Chinese life.

Mulder's difficulties are typical of those encountered by foreign business executives here. Representatives of private companies stationed in Peking say that it has begun to join Tokyo and New York among the most expensive cities in the world.

Exorbitant Rents

Recently, the European Economic Community's Peking-based counselors issued a detailed report criticizing the living conditions for foreign business officials here. The report said problems encountered by businessmen "are now so serious as to act as a deterrent to some companies setting up offices here." The study complained mainly about exorbitant rents for offices and housing, but it also discussed other difficulties of life in China, such as finding adequate staff and arranging travel.

Actually, complaints about the costs of doing business in Peking arose five or six years ago when international companies first responded to China's open-door policy by stationing representatives here, and China welcomed them by hiking its rents and other prices.

Yet businessmen here say there is a marked difference now.

"Three years ago, Peking was expensive in comparison with what you got for your money. But in absolute terms, compared to Tokyo or Hong Kong, it was still cheap," said Herve Pauze, Peking representative for the giant French petrochemical firm Rhone-Poulenc.

"Now, it has become expensive in absolute terms," he said. "When I got here, we paid what seemed like a high price for a dirty little hotel room, but it was much less expensive than Tokyo. Today, the room is still small and dirty, but the price is the same as you would pay in Tokyo."

Pauze is living in a two-room suite at the Peking Hotel. When he first arrived in 1981, he was required to pay 3,600 yuan per month--about $1,300 at current exchange rates. Since then, the rent has been raised every three or four months. He now pays 8,400 yuan ($3,000).

"We still have the same good-looking cockroaches, the same rats in the corridor," Pauve said cheerfully. "It's still overheated in the winter and overcooled in the summer."

The Chinese rationalize the high prices as a means of avoiding what could otherwise be construed as exploitation by foreign businessmen of the country's low wage structure. Very few Chinese workers earn as much as $50 a month. The Chinese version of a millionaire--that is, someone considered remarkably wealthy--is an individual who amasses 10,000 yuan (about $3,600).

Some executives here view the high rents as a sort of indirect tax or license fee for the right to do business in China. In fact, the astronomical prices for housing and office space apply primarily to the foreign business community. The Chinese house diplomats, journalists and foreign teachers and advisers in special walled compounds set aside exclusively for them, where the rents are considerably lower.

The high rents also reflect the extreme scarcity of housing and office space for foreign companies in Peking. Until now, most businessmen operating here have been forced to live in hotel rooms simply because there was no apartment space available. This year, for the first time, some newly constructed apartment buildings for foreign business representatives are being completed.

$72,000 a Year

The Mulders are moving into a complex that will open within the next few months next to the Lido Hotel on the edge of town. Compared to his hotel room, it will seem like a palace. He will have three bedrooms, a kitchen, living room and washer and dryer.

The $72,000 a year that Mulder's company will pay for these amenities does not include utility charges and a $300-a-month management fee. Mulder and other renters are required to sign a three-year lease, to pay a full year's rent before moving in and to give a security deposit of three months' rent.

"They know we don't have any choice," Mulder said. "We've got to live someplace."

After paying huge sums for office space and housing, the business people stationed in China find they are also required to pay equally astonishing amounts to the Chinese customs bureau to import the equipment they need.

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