Taipei Times / By Hsu Tung-ming
Confronted with Taiwan's current economic slump, should the new government loosen restrictions on the westward movement of businesses? With China on the brink of entering the WTO and with large international corporations having long since entered China to stake out positions, should Taiwan's high-tech industries bravely go west in order to maintain their superior position? How should government departments choose between intense global economic competition and national security? In the feverish debate of these issues underway in Taiwan, the focus usually seems to be on questions such as the true state of the economy, future prospects for the China market and national security. Analysis and judgements about the current state of the China market are harder to come by.
There are two contrasting attitudes in China regarding WTO entry. An extremely optimistic attitude is displayed by university students and members of the urban-professional middle class. For this group, no doubt the enormous influx of large foreign enterprises represents their greatest opportunity. Taking the bar exam, getting certification as an accountant, studying for an MBA or entering a high-tech enterprise have become the paths of choice for the younger generation. A pessimistic and cautious attitude has emerged, however, among the numerous small and medium-sized, privately-managed enterprises -- because after WTO entry, the competition they will face from foreign products is full of unknowns.
As for China's government, on the surface they are extremely optimistic, but in reality they have started to take some preventive measures -- as illustrated by the establishment of a second line of defense for the financial industry. China presently has four large state-run banks. Due to the overlap between politics and business these banks have suffered heavy losses from subsidizing state-run enterprises and bad loans. A sweeping reform of the banks would certainly provoke a severe reaction in society, but after entering the WTO, a healthy financial sector is of the utmost impor-tance. People have therefore already been summoned from the fields of economics and business to establish a second line of defense -- privatization of the banks is being carefully evaluated.
In fact, the Chinese government will probably have more to worry about than just the financial industry.
After entering the WTO, how will the numerous small and mid-size enterprises confront foreign competition? Although the Chinese market is awesome, what is worth noting is that from the beginning of reforms and liberalization to the present, 33 million individual businesses and privately run enterprises have been registered -- but only a handful run by native Chinese have been able to penetrate the national market. Even the state-run enterprises, which do have a national market and more resources than private enterprises, will have difficulty escaping the intense competition from large foreign corporations.
The Cai Kai film company is a good example. Cai Kai, with its 40-year history in China, used to be the market leader. But in 1994 Kodak entered the market and spent US$1 billion acquiring photosensitive materials enterprises. By means of a management system that "Sinicized" production, sales, marketing and personnel, Kodak took the No. 1 spot.
The "Kodak model" -- a large foreign enterprise making huge investments of capital and Sinicizing operations from production to marketing networks -- provides large foreign enterprises with a successful formula for invading the market. At present, many large foreign enterprises have locked up a portion of the monopolistic industries that enjoy huge markets, such as telecommunications, transportation, etc.
In addition, the numerous poorly managed state-run enterprises that have value locally for economic liberalization will probably also have difficulty escaping acquisition by foreign enterprises. Even as the slogans for the development of western China were ringing in the air, Norway's Eleken company, which produces carbon and carbon-related products, took a fancy to the rich natural coal resources in Ningxia. It spent nearly US$4 million, an astronomical sum in China's impoverished west, to buy up what had been poorly managed state-run enterprises.
What deserves attention is the powerful complementary relationship that exists between the state-run and private enterprises. The reform of state-run enterprises has produced large numbers of laid-off workers and private enterprises have taken in these people at the appropriate time. Statistics show that in 1997 and 1998, private enterprises absorbed as many as 6.5 million laid-off workers, slightly alleviating the problem of mass migrations that worries the Chinese government. The problem, however, is that after entering the WTO, if large foreign enterprises adopt the above-mentioned model for invading the market, then they may undertake streamlining measures to increase efficiency. A serious unemployment problem and greater disparities in wealth will then become the biggest problems in Chinese society.
After China enters the WTO, several large cities and special economic zones will undoubtedly be full of an urban elite that goes to work at large foreign companies. It is easy to imagine this group wearing European and US fashions -- cheaper after WTO entry -- or even driving foreign cars. But what about the rest of China? What is the future role of the Communist Party. Will it be a bureaucratic order that only takes responsibility for improving the investment environment and using public resources to solve the serious unemployment problem? Or will it be a team of professional managers who no longer have any ideological baggage?
Hsu Tung-ming is a freelance writer currently residing in Beijing.
Translated by Ethan Harkness
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