China's economic miracle is prey to political winds from afar

March 09, 1992|By Robert Benjamin | Robert Benjamin,Staff Writer

SHENZHEN, China -- Nearly every American child would view Harbour Ring Industries' huge factory as a sort of Santa's workshop.

Here 300 different toys are turned out for the U.S. market -- Disney figures, Garfield dolls and Teen-age Mutant Ninja Turtles.

This factory and five others in Guangdong Province's Pearl River Delta have brought rocketing profits to Harbour Ring's Hong Kong owners. The toy company's 10,000 workers also have prospered, with incomes as much as five times the national average.

In a nutshell, this is the success story of Shenzhen, the Pearl River Delta and Guangdong Province, one that began 13 years ago with the onset of Chinese senior leader Deng Xiaoping's economic reforms.

Like all Chinese leaders since the 19th century, Mr. Deng was faced with the problem of how to make strong and rich an impoverished land with a crushing population load. He pragmatically chose to graft capitalism onto parts of China's failing, centrally planned economy.

And he began by creating the Shenzhen Special Economic Zone adjacent to Hong Kong as a buffer area where foreign investment would be reaped but Western influences contained.

Mr. Deng was right on the first count and wrong on the second. At the core of the world's fastest growing economy is a heavy reliance on foreign cash, along with a growing imprint of the West.

And as it has turned out, both factors have left Mr. Deng's economic miracle directly vulnerable to political decisions that will be made far away from Guangdong -- in Washington and Beijing.

The popularity of Harbour Ring's Ninja Turtles in the United Statesreflects Guangdong's new financial strength and its most pressing worry, the future of U.S.-China trade relations.

The toy company is one of the province's 15,000 foreign-funded ventures, representing half of all foreign companies in China and $20 billion in investment -- 80 percent of which comes from Hong Kong.

Hong Kong companies now employ 2 million manufacturing workers in Guangdong, three times those in the colony. Before its takeover by China in 1997, the colony and China's richest area have become deeply dependent on each other for financial survival.

Guangdong now exports 30 percent of its industrial output, accounting for almost one-fifth of all Chinese exports. The United States is China's single largest overseas market, particularly for clothes, shoes and toys.

But to maintain its soaring sales in the United States, China must retain its most-favored-nation trading status, allowing Chinese exports to enter the United States under the lowest tariffs. But since the 1989 Tiananmen Square massacre, annual renewal of this profitable trading status for China has been subject to increasingly heated debate in Congress.

Last month, the Senate passed a bill linking MFN renewal this year to improvements in China's record of human-rights abuses, arms proliferation and trade malpractices. The Senate tally was just eight votes shy of the number needed to overturn President Bush's quick veto -- a veto the Democrats surely will make an election issue.

Guangdong also is threatened by a U.S. trade investigation of Chinese market barriers to U.S. exports, an inquiry that could lead later this year to prohibitive tariffs on selected Chinese exports.

To protect themselves, Guangdong's state industries are rapidly increasing sales in China's domestic market, and exporters have begun exploring new overseas markets.

But some U.S. clothing, shoe and toy buyers already are requiring Asian suppliers to limit goods produced in China. And some exporters to the United States, such as Harbour Ring's Hong Kong owners, are shifting production to other Asian nations, particularly Indonesia, where wages are even lower than in Guangdong.

"Everyone here, including common workers, worries about China's relations with America," says Koo Chung Kit, a Harbour Ring manager in Shenzhen. "We've had to prepare ourselves for the worst."

In the disco atop Shenzhen's best hotel, the rhythms are American, the videos from Hong Kong, the dancers from all over China.

Some dance coolly, some heatedly. None dance together. Each concentrates on his own image in a huge mirror along one wall. Each is working out his own version of himself.

The rise of such individualism has gone hand in hand with the transformation of Shenzhen over the past 13 years from a sleepy fishing town of 70,000 to a city of more than 2 million. It also represents Guangdong's underlying political problem.

Under Mr. Deng's reforms, Shenzhen's economy has grown by 50 percent a year. It has become China's largest source of foreign exchange and the nation's most modern city, with a living standard far above the national average.

Factory workers here often earn $100 a month, less than one-fifth of Hong Kong's average factory wage but more than twice China's. Their housing would strike envy throughout China.

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