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SCMP Reporter

ENTHUSIASM for doing business in China still runs high, with 85 per cent of the foreign-invested firms interviewed by the Bank of East Asia saying they were 'very satisfied' with their investments.

  After interviewing 53 foreign ventures, including 50 joint ventures and three wholly owned enterprises, the bank's research department found only three that said that 'in hindsight they would not invest in China'.

  Four would not comment, but the majority were optimistic and said 'they still considered China a very lucrative market'.

  Most foreign investors said the biggest problem was a shortage of skilled labour and management expertise, but 'inefficient government services' took a close second.

  Third on the problems list was China's inadequate legal structure and high inflation rate.

  The Chinese partners pointed to a lack of product demand, due to poor market research, and differences in management styles as among the most troubling problems.

  Still, more than 80 per cent of foreign investors said they were satisfied with their Chinese partners, even though some could not understand what were taken to be international business practices.

  Eight-six per cent of the Chinese companies were pleased with their foreign partners, although they complained that foreign partners could be over-protective in areas such as technology transfer.

  'Joint ventures can only succeed if partners are willing to respect and trust each other,' the report concluded.

  'From the very beginning, they also need the patience to understand their partners' culture, reasoning and business style to ensure smooth co-operation and satisfactory results.'   Foreign investors said the Chinese Government could improve the investment environment by offering more favourable terms, improving the legal system and lifting restrictions on domestic production.

  More than 50 per cent of the foreign investors said the government provided enough support, but nine believed that assistance had not been forthcoming.

  The Chinese Government has other worries besides meeting the needs of foreign investors, including handling its growing unemployment problem.

  In a separate analysis, the Bank of East Asia estimated that if state enterprises were to release all redundant workers this year, the urban unemployment rate would jump from 2.9 per cent at the end of 1994 to 14.3 per cent. The number of urban unemployed would increase from 4.8 million to 27 million. Urban workers represented only a fraction of China's unemployment problem.

  The bank reported that up to one-third of the 120 million surplus rural labourers constituted a floating unemployed population. That compared with an estimated 22.2 million redundant staff in state enterprises - about 20 per cent of the state enterprise workforce.

  The central government had begun addressing the problem by offering re-training programmes, providing limited-term relief for workers fired from state enterprises and attempting to control the flow of migrant workers.

  'In the coming years, it is highly probable that the number of job seekers will exceed the number of jobs created,' the report said.

  'To close the gap, the government needs to create more jobs and control the number of job seekers. It also makes sense to improve labour mobility, so the unemployed workers will not stay jobless for too long.'   The bank cautioned China to steer clear of excessive regulation, such as social security and minimum-wage requirements, which might raise the cost of labour and reduce demand.

  The government should also strive to create a level playing field for the non-state sector, which would facilitate growth and create more jobs.



Investors bullish on mainland business