Special zone comes to grips with tough economic reality

PUBLISHED : Monday, 14 December, 1998, 12:00am
UPDATED : Monday, 14 December, 1998, 12:00am


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One of the first things you see when you arrive in the terminal of Xiamen's elegant airport is an advertisement from Dell Computer with a hotline number inviting you to place your order.

The US firm has chosen Xiamen as the site for the factory that will supply the whole of the mainland with computers tailor-made to the requirement of the customer, a formula it has used worldwide.

It was the best piece of news this year for a city heavily dependent on foreign investment and markets that is increasingly feeling the draught of the Asian crisis.

'Next year will be difficult,' said the city's Communist Party chief, Shi Zhaobin.

'Southeast Asia accounts for 40 per cent of our exports and used to account for 60 per cent of our tourists.

'The number of foreign visitors this year fell, although those from within China rose 9 per cent.' In the first 10 months, exports rose just 1.7 per cent, while imports increased 6 per cent, and actual foreign investment rose 0.3 per cent to US$1.29 billion, with projects from the US and Europe offsetting a drop in investment from Asia. There was no investment at all from South Korea.

The more than 4,000 foreign-invested firms account for more than three quarters of Xiamen's industrial output and half of its exports.

Today's Xiamen is a creation of the Dengist era. Before 1978, its excellent harbour was occupied by the navy and it exchanged shells regularly with the Nationalist garrison on Jinmen, two kilometres away. State investment was negligible.

In 1980, Beijing reversed course and declared the city one of four special economic zones, with the responsibility of attracting investment from Taiwan.

Xiamen should be thankful for its history. It has none of the giant corrupt and inefficient state factories of the interior, nor their pollution, making its air and water among the cleanest of any mainland city.

There is a large lake in the middle of the downtown area and limited traffic congestion. Mr Shi boasts that 35.6 per cent of the city is covered by trees or park.

Officials have made the environment a big selling point, saying that it was one of the factors persuading Dell to come.

Other facilities to attract foreigners include three golf courses and an international school, offering classes in English.

The hope of direct links to Taiwan is another card.

Paktank general manager Wim de Ridder said that was one reason his Dutch company, with a mainland firm and a Hong Kong firm, invested US$65 million in storage tanks, with capacity of 200,000 cubic metres, for oil and petrochemicals.

'When there are direct links, we will be well-placed to supply Taiwan with oil products,' he said.

The other big fish the city is keen to boast about is Eastman Kodak, which is building a US$600 million facility in the same zone.

For Hong Kong Aircraft Engineering Co (Haeco), the attractions of Xiamen are its low labour and land costs and user-friendly business environment.

Together with Cathay Pacific, Singapore Airlines, Japan Airlines and local partners, Haeco is spending US$117.2 million on two hangars, each able to repair three aircraft at the same time.

The first started operations in January 1996 and the second will begin on April 1 next year.

'We must change the traditional work attitude,' Singaporean maintenance manager Chew Boon Pin said. 'So far we have been quite successful in instilling discipline.

'We spend HK$400,000 to train staff in Hong Kong for two years, after which they must work with us for eight years.' About a dozen of the trainees had left before the end of their 10-year contract and Haeco had successfully taken them to court, forcing them to pay back the cost of their training, he said.

The downside for an investor is the lack of a large domestic market. Fujian has 33 million people, making it one of the smallest mainland provinces. Companies aiming at the domestic market usually prefer the Pearl River delta, the greater Shanghai area or the Beijing-Tianjin region.

So, with the external environment likely to deteriorate next year and no sign of Taipei allowing direct links, it all makes for a nervous year ahead for Mr Shi and his comrades in the city government.

To diversify the risk, they are spending nearly US$100 million on a complex that will be home to an annual Chinese trade and investment fair held each September and aims to attract conventions and meetings.

Like other special zones, Xiamen has attracted thousands of mainland migrants, driving taxis, serving tables in hotels and restaurants, building skyscrapers and waiting for male clients at Fortune Castle, the city's most popular night spot.

'All the ladies there come from outside Xiamen,' said one taxi driver, from Harbin in the far northeast.

'The price for their service begins at 50 yuan and can go up to more than 1,000.

'Things are very bad where I come from. If I could have found a job there paying 400 yuan (about HK$372.40) a month, I would have stayed with my wife and child and look after my sick mother. But I could not. Thousands are out of work.

'Some let their wives work as prostitutes to earn money to live on. That is how bad things are.' Southeast Asia accounts for 40 per cent of our exports and used to account for 60 per cent of our tourists