The turmoil in China has changed that nation's business scene dramatically. Recent developments have shaken--and in some cases, crushed--the confidence many U.S. companies have had in their ability to prosper in the massive Chinese market. And as questions are raised about whether business will return to normal after the unrest subsides, projects are being put on hold.
For the long term, however, prospects for U.S. business in China remain bright. Now that economic reforms have unleashed rising expectations among the Chinese people, there is no turning back from economic progress--even if the Chinese government continues its pattern of taking two steps forward and one step back.
Experienced China watchers have learned to expect that sort of pattern. Mounting difficulties in the economic reform policies foreshadowed the sudden swing back toward conservatism. Earlier this year Winston Lord, former U.S. ambassador to China, warned that the 10-year-old reform program might be on the verge of "retrogression" and that a full "reevaluation" of relations might be required.
Some companies acted quickly. Nike Inc., the sports shoe maker, decided months ago to turn its Chinese-owned factories over to Taiwanese and South Korean managers. Hewlett-Packard also lowered its profile in China.
What did Lord and some of these U.S. executives see that others didn't? That under the more liberal economic policies being tested in China, progress in some areas brought problems in others. Record inflation emerged. So did unemployment, bankruptcies and shortages of key materials such as fertilizer.
In response, the Chinese Communist Party last September passed a wide-ranging readjustment plan to restrict credit, price rises, production, investment and consumption. But this tightening of economic controls made many people unhappy, too. Farmers weren't paid for all of the produce they sold to the state; workers got smaller bonuses and factory managers, along with local and provincial government officials, couldn't get the capital they needed for special projects. Many of these people sympathized with the students in Tien An Men Square; the recent demonstrations were a call for an improved standard of living as well as for a more democratic government.
In the light of the events earlier this month, it might come as a surprise to recall that in 1986, Deng Xiaoping was Time magazine's "Man of the Year." But it was Deng who began to modernize China's economy with a pragmatic approach often characterized by his famous words: "It doesn't matter whether the cat is black or white as long as it catches mice." Meaning that what was really important about economic programs was whether they worked or not.
Under this liberal approach a number of experiments were conducted in an effort to free enterprise from central planning. Special economic zones were set up along the coast, and provinces and key cities were allowed to conduct business without clearing every transaction through Beijing. The industrial and agricultural sectors were allowed to conduct some private enterprise, and China's economy began to move forward.
While reform was being attempted economically, no such advances were occurring politically. This situation created two camps of Communist leaders, which Deng tried to balance against each other. The reformists, led by party General Secretary Zhao Ziyang, were interested in rapid economic progress. The conservatives, represented by Premier Li Peng, were devoted to cautious and slow change. Whether the reformers or conservatives prevailed in the power struggle would determine how fast China progressed, but it would not change the general direction of the economy or supply the goods and services China needs.
Strategies for American business must be on hold until tensions ease, but unless problems persist, the opportunities offered by the greatest potential market in the world will still be there. It is also unlikely that the Chinese leadership, especially Deng, would abandon the economic reforms. Steps will be taken to prevent the suppression of the democratic movement from undoing completely the progress of the last decade, which opened the door to U.S. businesses.
In the past, American firms have struggled because they haven't understood the "yin" and "yang" of selling to China. It is not because our products are wrong. Viewing the process of selling to China as an interplay of negative and positive elements that grow out of each other is essential to success in business there. A series of decisions, first liberalizing and then restricting foreign trade, has characterized business with China in the past and has confused U.S. companies, but things will continue this way regardless of who is in power.