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CHINA // A NEW WORLD OF ECONOMIC OPPORTUNITY

Bring your business to Bengbu! What the "Pearl City of China" lacks in convenient airline service _ the plane to Beijing goes just twice a week _ it makes up for in cheap water and electricity.

Or consider Zhengzhou. The air is so dirty you can barely see the sun, but the "home of Chinese civilization" brags of terrific rail and highway access.

And don't forget Shanghai. Thirteen million people can't be wrong _ this is the next Hong Kong.

As China's economic reforms approach their third decade, Chinese cities are falling all over themselves to lure foreign technology, management and money. Visitors are trotted through new industrial parks, feted at 20-course banquets, bombarded with glossy brochures and slickly produced videos.

The pitch is working.

McDonald's and Kentucky Fried Chicken box up Big Macs and hot wings on the edge of Tiananmen Square, where government troops brutally put down a pro-democracy rally in 1989. Procter and Gamble, unheard of in China 15 years aog, now controls 40 percent of the shampoo market. One out of every four planes Boeing produces is sold to the Chinese.

"It's like the California gold rush. No, that's not big enough _ it's like the New World was to the Europeans," says David Friedson, president of Windmere Corp. in Miami Lakes. At an average monthly wage of $60, Windmere employs 12,000 workers in southern China who turn out hair dryers, curling irons and toasters in factory space the size of 37 football fields.

Despite the enormous growth, huge problems remain.

Roads are poor, air service spotty. Coal-fire pollution is so bad some experts fear it could have a significant impact on global warming.

And China's economic miracle is but a mirage to hundreds of millions of its people. For them, this curious mix of communism, socialism and capitalism has meant no change at all.

For all of its gleaming office towers and five-star hotels, "China at the moment is certainly a developing country," says Mary Wong of the Hong Kong Trade Development Council. "The greater problem China is facing now is the uneven distribution of wealth. There still are some places a whole family has to share a pair of trousers, so they can't go out together."

Doing business in such a land takes a fortune teller's prescience and a gambler's patience. U.S. investors often face harsh criticism from home: that they've sacrificed jobs to the Chinese and shared technologies that might one day be used for not-so-peaceful purposes. They're criticized, too, for their seeming tolerance of serious human rights abuses.

But with 1.2-billion people, a fifth of the world's population, China is impossible for a foreign investor to ignore.

"We were lucky to get started as early as we did," says Windmere's Friedson. "China's evolution into a modern economy is irreversible."

In December, a group of U.S. journalists toured the economic peaks and backwaters of the People's Republic of China. The story of what eventually may be the world's biggest economy is perhaps best told in smaller pieces.

Coleslaw and 11 percent interest

Little Emperors.

That's the nickname the Chinese have for their brotherless-and sister-less offspring, products of a one family, one child population control policy.

What a nation of indulged "only children" might one day mean for world affairs is a question for psychoanalysts and social scientists. But for today's KFC Corp., it suggests this: a smart strategy for selling chicken to the Chinese.

"If we can get children to accept our product, they are KFC customers," says Jacob Tsui, manager of 10 Kentucky Fried Chicken stores in Beijing. "Everybody knows McDonald's pays attention to the kids market _ we must take care of our kids market because the competition is so strong."

To woo Chinese youngsters, KFC offers seasonal promotions _ pencil boxes for back to school, small toys during spring break, calendars for the New Year with coupons that keep kids coming back month after month. Just recently KFC began hiring "hostesses" _ attractive young women who help harried parents in the stores and do public relations in the schools.

Most importantly, Grandfather Sanders, as the colonel is known in China, got a sidekick.

"Because we think grandfather is too serious for kids," Tsui says, "we launched Chicki." The cartoon chicken, designed especially for KFC's Asian market, appears in ads and on posters.

So far, the strategy is a success.

"I take her here two or three times a month," says Zhe Li, as his 3-year-old crawls around a large indoor play area in the Tiananmen Square store. "Every day my daughter talks about it."

The three-story restaurant, a few steps from a big McDonald's, averages 2,000 customers a day compared with about 350 for a typical U.S. store. Even smaller KFC stores do about four times as much business as those in the United States.

Although the starting pay of $42 a month is not extravagant for foreign businesses, KFC has no problem hiring workers.

"Western-style companies are very attractive to local people, especially young people," Tsui says. The turnover is about 10 percent annually, far below the average for the U.S. fast food business.

Cracking the Chinese market has posed some challenges. Because they generally cook their vegetables, Chinese were slow to embrace cold dishes like slaw. Domestic potatoes tend to be tough and tasteless, so KFC boasts of its "100 percent U.S. french fries." The hot wings are hotter here, reflecting the Chinese preference for spicy foods.

There are deeper differences too. Traditionally the Chinese are a frugal people; their savings rate is among the highest in the world, encouraged by interest rates of almost 11 percent. Until recently there was virtually no consumer credit and most Chinese still try to save as much as possible so they can pay cash for houses and other major purchases.

"The Chinese have a tradition that you must save something for a rainy day," says Ma De Lun of the People's Bank of China. "It is not very common for a Chinese family to go out to a restaurant to have meals... Of course, the younger generation are more consuming, they like to go out and entertain themselves."

It's that generational shift on which KFC is banking. It has 60 stores in China now, plans to have 200 by the end of next year and at least 500 by the year 2000.

Notes Tsui: "People say, "I go to McDonald's or KFC because I'm a modern-style Westerner.' "

A 10-hour train trip

Bengbu may be the world's biggest city no one has ever heard of.

With 3.2 million people, Bengbu (BUNG-boo) is larger than Denver or Tampa Bay. But you won't find KFC or McDonald's here. In fact you won't find many Chinese who have the vaguest idea where the place is.

Some 500 miles south of Beijing, Bengbu is a typical inland city struggling to share in China's selective economic boom. The first areas China opened to foreign investment 20 years ago were along the coast _ and today they are thriving. Windmere's Friedson recalls that when his company opened a plant in southern Guangdong Province in 1981, it was impossible to drive a truck from Hong Kong; now it takes just an hour over a superhighway.

Bengbu doesn't have a superhighway. Its main street is being widened, not by heavy earth-moving equipment but by men with shovels.

Still, Bengbu keeps trying.

A hotel catering to Westerners opened a year ago on the Huai River, where oyster fishermen harvest the pearls that give the city its nickname. A policemen's band greets visitors to a new, largely empty industrial park. From atop an office building, the park's director motions toward a sea of boxy, Soviet-style apartments built in the last few years.

"Welcome to picturesque Bengbu," he says proudly.

But it wasn't Bengbu's man-made attributes that drew one Hong Kong company. It was the natural ones _ thousands and thousands of acres of tobacco.

Universal Processors Limited, which cures Bengbu tobacco and sells it to cigarette makers worldwide, is among thousands of joint ventures in China. For the most part these marriages between foreign businesses and Chinese companies have been happy. The foreigners get access to Chinese labor, natural resources and vast consumer market; the Chinese get foreign money and know-how.

Still, the relationships aren't easy.

Universal, a subsidiary of a Virginia company, spent years getting approval from myriad layers of Chinese bureaucrats before it finally began operations in November.

The electric power, while cheap, goes out often. The Western management staff, few of whom speak Chinese, have a hard time communicating with the workers, none of whom speaks English.

"If you see something going wrong now, you can't solve it now," says operations manager Kevin Thom. "You've got to go find someone to interpret."

While they praise the Chinese as cooperative and quick to learn, Thom and other supervisors have little contact with them outside of work. Instead, management lives in hotel-like quarters Universal built next to the factory.

What do they do for recreation? "We have videos," Thom says. "And a dart board."

Thom, whose wife and child live in Thailand, gets a leave every few months to return home. Because air service from Bengbu is so infrequent, he must first take a train to Shanghai, a 10-hour trip.

"In 10 or 15 years," he says, "We can only hope there will be a big improvement in doing business here. It's frustrating for them as well as us."

"A marketplace that's huge"

Like many other Chinese cities, Bengbu wants to build an international airport to lure more foreign investors. If it does, McDonnell Douglas Corp. will be happy to supply the planes.

Back in the '70s, the Chinese decided to develop their own commercial jet. Using an old Boeing as a guide, they produced two Y 10s. One of the planes crashed; the other is permanently grounded in Shanghai.

Based on that experience, Chinese leaders figured it was time to seek foreign expertise in aircraft manufacturing. Hence the birth in 1985 of a partnership with St. Louis-based McDonnell Douglas.

At a vast, drafty factory in Shanghai, workers produce doors and horizontal stabilizers for the MD-80 passenger jets. The parts are shipped to Long Beach, Calif. for final assembly.

Though many of the planes are sold to U.S. carriers, it is the Chinese market that has attracted not just McDonnell Douglas, but Boeing, Airbus and other aircraft makers. Consider these numbers: the United States, with 261-million people, has 10,000 commercial planes. China, with almost five times as many people, has just 400.

"We're trying to cultivate a marketplace that's huge," says Arlen Marsyla, a McDonnell Douglas vice president.

Marsyla pooh-poohs the idea that joint ventures using cheap Chinese labor are stealing jobs from Americans.

"We're not exporting jobs from the U.S.," he insists. "If we pulled out of here how long would it take for others to pour in? We probably wouldn't have our bags packed."

He laughs, too, at the notion China is gaining technology it could use to build advanced fighter planes, such as the McDonnell Douglas F-15.

"Do you see any high tech around here?" he asks, pointing to door-shaped sheets of metal. "Drilling a hole and shooting a rivet are not particularly new technologies. The basic airframe of an aircraft is not high tech anymore."

Nor does Marsyla dwell on the touchy issue of China's human rights record. The day after Wei Jingsheng, China's best-known advocate for democratic reform, is thrown back in prison for 14 years, Marsyla is asked if foreign businesses in China should be concerned _ or speak out.

"I'm not an expert in that field," he says.

Any personal opinion? "Yeah, but I'm not gonna give it."

Marsyla's reluctance to talk is not surprising. The matter of human rights rarely comes up among either U.S. or Chinese business people, who were generally delighted when the Clinton Administration in 1994 "delinked" economic issues from human rights concerns.

Now, the Chinese say, their biggest challenge is delinking the government from the economy. Despite the growth of joint ventures, half of China's economy remains based on state-owned enterprises, many of them inefficient operations padded with workers and kept afloat with generous government loans.

Not far from the airplane factory is Shanghai No. 2 Worsted Mill, a state-owned company that makes suits, sweaters and other woolen items. In recent years, the mill has been forced to take over several other government-owned mills that had management and marketing problems.

As a result, No. 2 Worsted Mill has 22,000 employees _ about four times as many as it needs, director Wan De Ming says.

This isn't as bad as it sounds, Wan hastens to add. Like most state enterprises, the mill provides its workers with free housing, medical care and other benefits. Firing them while China lacks a broad social safety net might create more problems than it would solve.

"As a state-owned enterprise we don't want to increase the burden on the government," he says. "If we lay off workers we would leave them to society and that would create a problem for the government."

+ + +

In a reception room in Zhengzhou, a gray industrial city in the Chinese midlands, the vice mayor is seated under a mural of swaying palm trees, puffy white clouds and turquoise water. He has just played for his guests a video touting Zhengzhou's attractions, narrated in flawless English to the music of Jefferson Starship's Nothing's Gonna Stop Us Now.

Certainly not a labor shortage. Zhengzhou is the capital of Henan Province, population 92-million. One of every 50 people on earth lives in and around Zhengzhou.

Like many of China's local government officials, Chen Yi Chu is not a lawyer nor a teacher but an engineer by profession. He has been to the United States _ New York, Boston, Disney World _ and he has seen the future. It is Western.

Does he ever worry that China is moving too fast, that it may be trampling its own rich culture and traditions in its zeal to embrace others?

The vice mayor pauses a minute, then smiles. "There is an old Chinese saying," he relates. " " It is not possible to raise a very good flower in a greenhouse.' "

_ Times researcher Kitty Bennett contributed to this report

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