By Stephen Brookes
In Beijng, Shanghai and Hong Kong for Insight Magazine

Mao Zedong must be turning over in his casket.

Let's hear it for capitalismTwo blocks away from his mausoleum in Tiananmen Square, the new McDonald's is churning out Big Macs and strawberry shakes, competing for China's fast-food dollar with the Kentucky Fried Chicken at the other end of the square. Smartly dressed Beijingers finger wads of cash as they inspect Sony video cameras in an electronics store, the streets are clogged with Nissans and Toyotas full of foreign investors, and gangly yellow construction cranes loom over construction sites, where ancient shop-filled alleys are being demolished to make room for high-rise office buildings and five-star hotels.

Workers' paradise, or quick-buck boom town? Welcome to the new China. The giant portrait of Mao that hangs on Tiananmen Gate still gazes sternly over the Great Hall of the People and the Monument to the People's Heroes. But it's also a witness to the most profound revolution China has seen since the Communist Party took control of the country in 1949. As Beijing's bureaucrats peel away the regulations that have strangled the economy for decades, China is lurching toward a self-styled "socialist market economy" that could turn it into the global economic success story of the 1990s. Forget the drab slogans promulgated only a few years ago -- "Stability Above All" and "Hard Work and Plain Living." From Beijing to Guangzhou, the word is out from senior leader Deng Xiaoping himself: "To get rich is glorious."

China's rush to prosperity isn't limited to Beijing, either, or to the cities in the South that feed off Hong Kong's nearby wealth. Shanghai is growing so fast that planners are laying the groundwork for a whole new metropolis right across the Huangpu River. Rural areas are being developed into profitable industrial townships and private enterprises are springing up throughout the country -- 500,000 in 1992 alone. China is breeding its first crop of millionaires, and a generation of small-scale quiyejia -- entrepreneurs -- is eagerly testing the waters. "Everybody wants to do this," says Xia Deming, a 39-year-old former cement worker who quit his job last year to open the tiny Fragrant House noodle shop near Shanghai. "I'm making money!"

In its long march to riches, however, China still has a ways to go. There may be Benetton shops in Guangzhou and expense-account karaoke bars in Shanghai, but China's per capita gross national product is still only about $370 a year. Since the early 1980s, however, the economy has been growing at an average of 8.6 percent a year, spearheaded by the provinces along the coast. And with a domestic market of 1.1 billion people, a well-educated work force, a tradition of entrepreneurship and access to capital from Chinese living in Taiwan, Hong Kong and elsewhere, the country is poised to take off.

"China isn't going to replace Japan as the economic leader in the area for a long time," says Frank Martin, president of the American Chamber of Commerce in Hong Kong. "But the fact is, China is the fastest-growing economy in the region -- if not in the world."

The fuel driving this economic renaissance is a package of reforms designed to let the economy respond to market forces, without giving up too much central government control. China has been flirting with a free economy since 1979, when it loosened restrictions on agricultural production, allowed people to set up small businesses and established "special economic zones" along the coast. The economy boomed during the 1980s, despite a slowdown after what the Chinese refer to as "the events" of 1989 in Tiananmen Square. But the shift to a market economy only really gained momentum a year ago, when Deng Xiaoping made a well-publicized trip to prosperous Guangdong province and praised what he saw.

Armed with Deng's blessing, reformists in the government were able to cement their views at the 14th Communist Party Conference in October, when General Secretary Jiang Zemin proclaimed that a socialist market economy is now officially the government's goal. "Reform is also a revolution, a revolution to liberate the productive forces," he said. "It is the only way to modernize China." The new plan is "no minor patching up of the economic structure," he declaimed, "but a fundamental restructuring of the economy."

Fundamental may be putting it strongly -- Beijing's slow-moving bureaucracy is still toeing the cold waters of capitalism before jumping in, and Jiang didn't divulge details of the plan. But something is happening.

The government says it wants to replace centralized planning with free markets for goods, services, labor, capital and real estate, while maintaining a strong state sector. It's lifting price controls on a number of goods and services, slashing subsidies on basics like eggs and milk and freeing prices for raw materials for industry. Rents on state-owned housing are being raised and publicly owned buildings are being sold off. Two stock exchanges have been set up since 1990 to help channel some of China's private savings into business investment. State-owned industries will continue to be the backbone of the economy (although they too are being nudged gently toward profitability), and other kinds of ownership -- joint ventures with foreign companies, collectively owned enterprises, shareholding companies and private businesses -- have been given the green light.

"What we're trying to do," says Chen Li, an economist with the State Commission for Restructuring the Economic Systems, "is to form a modern economy with a capital market mechanism at its core. We want a system that is flexible, well-regulated and efficient'"

That sounds reasonable, but it won't be easy. China's banking and legal systems are still woefully primitive, communications are iffy and reliable transportation is a matter of cajolery, good luck and prayer. The state-owned behemoths are happy living in the past and have enough clout to trample on reformers who threaten their existence. Moreover, authority over economic and fiscal policies is often disputed between local and central governments, giving a patchwork look to what are supposed to be uniform national reforms. It's also difficult to break the "iron rice bowl" -- the Chinese system of guaranteed employment -- since there's no unemployment system or other social safety net, and only a very rudimentary way for workers to find out about job openings.

But even with these drawbacks, Beijing prefers its approach over a more radical and risky leap toward a free market. "In a country like China, economic reform can only be brought about in a socially stable environment," says economist Chen, noting (as many government economists are fond of doing) that the former Soviet Union has degenerated into an economic basket case by trying to do too much, too fast.

China is looking to its rapidly industrializing East Asian neighbors, which are growing at double-digit rates, and it is these countries that Beijing takes as its model. In Singapore, Taiwan, South Korea, Malaysia and Thailand, economic booms were begun and sustained long before democracy became a reality.

Some of these market-friendly governments are still not fully democratic. So even as it changes direction, the government wants to keep a tight grip on the reins.  As a sign in the tiny village of Yao Tou in southern China puts it, "The Party cadre will help the people to become rich!"

Getting the economy going, however, will mean performing liposuction on the sprawling, state-owned companies that account for half of industrial output and about 60 percent of industrial employment. About two-thirds of them lose money, and profits from the successful ones are plowed into the losers. "The key to change in the Chinese economy is reforming the state-owned enterprises," says Yuan Enzhen, the director of the Institute of Economics at Shanghai's Academy of Social Sciences. "They need to be turned into fully independent production units, with full power and full autonomy."

That's unlikely to happen soon. Despite huge stockpiles of unwanted goods, state-owned factories continue to churn them out, because to stop production would mean angering workers, upsetting suppliers who have to keep their state-owned factories running and putting pressure on politicians. There are 10 million warehoused televisions in China, for example, yet state factories continue to produce twice as many as they can sell, according to the State Statistical Bureau.

So it's the country's 14.7 million private companies that, despite accounting for only about 10 percent of China's GNP, are setting the pace and style for change. Most of them are small shops and restaurants, with a few consulting, advertising and construction firms, and they tend to be family-owned and operated. "Joint ventures and privately owned companies are doing much better than the state-owned companies," says Yuan. "Their output has been growing by anywhere from 30 to 50 percent a year, since they're not bound by the traditional customs in economic management. They've broken with the past."

The private companies tend to be nimble and quicker to take advantage of opportunities than their publicly owned competitors (officials in some rural areas are even reported to have closed down private companies when they became too competitive with local state-owned enterprises). "It isn't tough for small companies to compete with the big, state-owned enterprises, because the small companies are filled with vitality," says Yuan. "The big companies are like dead fish, and the small ones like living fish. So the small fish are nibbling away at the big ones."

Nowhere is the future of China more dramatically illustrated than in the "special economic zones" in Shanghai and the southern province of Guangdong, set up since 1979 to allow them to move "one step ahead" in market reforms.

As an experiment, the zones have succeeded beyond anyone's dreams, freeing up small entrepreneurs and encouraging foreign investment. From one of the country's poorest provinces, Guangdong has developed into the most open, thriving economy in China, with an annual growth rate of about 12 percent. In less than a decade, it has transformed itself from a primarily agricultural economy into China's hottest area for industrial manufacturing, where workers can earn more than $100 a month, three times the average wage in China, often working for small private companies or joint ventures.

With good natural resources, proximity to Hong Kong, a well-educated population of about 70 million (almost as many people as in South Korea, Taiwan, Singapore and Hong Kong combined) and a combined gross domestic product of close to $400 billion, Guangdong is making a serious bid to be China's new economic center.

"In Guangdong they have a saying: 'Let the sheep roam freely.' But in most parts of China, the sheep are encircled," says Shanghai economist Yuan.

Hong Kong: the model?The signs are evident on the streets of the capital, Guangzhou, where Mao jackets and party slogans are comical rarities: Western clothes and Sony Walkmans are the norm. As many motorcycles as bicycles careen through the streets, and many buildings sprout satellite dishes pointing southeast toward Hong Kong. In fact, there's a sort of love affair going on between Hong Kong and Guangzhou, with money flowing in to build factories and develop infrastructure. Hong Kong developer Gordon Wu, for example, is building a network of roads, bridges and tunnels throughout the province, as well as a superhighway that will cut driving time between the two cities from seven hours to one.

If Guangzhou is the boom city of the South, Shanghai is its counterpart in the North. The city where China's Communist Party was founded in 1921 is now the country's most prosperous and has become its preeminent industrial and trade center; about half of China's exports pass through the city's port. All that has fueled a rise in Shanghai's output of 13 percent annually over the past decade, and the boom is continuing; in 1992 the economy shot up 23 percent.

Shanghai's wealth is apparent immediately, from the fashionable clothes sported by almost everyone to the miles of expensive camera shops, restaurants, department stores and art galleries along Nanjing Road in the heart of the city The old European banks and trading houses along the Bund still look out over the Huang-pu River, but the park there (one of the city's landmarks) has been demolished to make room for a 10-lane superhighway. New glass-and-steel office buildings are rising up over the old hutongs, or shopping streets, which have become massive, immovable traffic jams -- it can take hours to get from one side of the city to the other, even late at night.

Officials in Beijing talk about Shanghai as the head of the new Chinese economic dragon, funneling exports out from the inner provinces and drawing in foreign investment. With its strong industrial base, well-trained work force and superb location, Shanghai is attracting foreign investors in droves.

"There's a real boom going on now," says Xia Zhongguang, a director of the Shanghai Foreign Investment Commission. "From January through October, we had 1,576 projects worth about $2.5 billion. That's brought our total up to 2,853 projects worth $5.8 billion -- a big leap. And the reason is that we changed a number of our regulations this year to extend the field to foreigners. In the past, we didn't allow foreigners to invest in services, like banking, real estate projects, consulting companies, insurance, areas like that. But in 1992 we said, okay. And the second reason is that we changed export policies. If foreigners invest in high-tech areas, they can sell most of their products in the domestic market, rather than exporting them."

The only problem is, Shanghai is already bursting at the seams and could strangle itself on its own prosperity. To keep that from happening, a massive new building project is under way to expand the city over to the east side of the Huang-pu River, into a 350-square-kilometer region known as the Pudong Economic Development Area.

If the government gets its way, Pudong will be China's most spectacular showcase for foreign investment by the end of the decade. "This is a gigantic project! It's going to stretch well into the next century," says Zhang Puxian, a director of the Pudong Development Office. There are plans for a new port that will raise Shanghai's capacity by 50 percent, a free trade zone, a financial district, a special "silicon valley" to promote the computer industry, and new residential areas for foreign businessmen, complete with schools, golf courses, karaoke bars and even an opera house. Some 2,500 new companies are planned for the area, as well as a Japanese-funded shopping mall designed to be the largest in Asia. Unlike in most parts of the country, foreigners will be allowed to set up retail and service companies in the free trade zone, and Pudong has already attracted companies such as Bank of America and Citibank.

But so far, Pudong looks like nothing more than the world's biggest -- and loneliest -- construction site. Giant billboards showing planned office buildings line the streets, but most of the lots they front are empty. "We'd like to see all this become like Manhattan," says Zhang, waving his hand across a dusty panorama of crumbling, single-story shops and dilapidated shacks whose tin roofs are weighted down with stones to keep them from blowing away. Down the empty street, a small group of men stands around a truck with a flat tire while a woman squats on her haunches on the pavement washing clothes in a red plastic pan. "This," says Zhang, beaming confidently, "is going to be the next Fifth Avenue."

Drop into the lobby of any of China's new five-star hotels and you're likely to see more briefcases than tourists' fanny packs -- the invasion of the foreign investors is on. That's fine with the bureaucrats in Beijing, who want to bring China fully into the world economy, and they've been pushing for the country to follow international trade norms and rejoin the General Agreement on Tariffs and Trade, the world trade body.

The opening is already bearing fruit: China's foreign trade grew by 20 percent in the first 10 months of 1992, to $124.8 billion, and investment is picking up after a lull following the 1989 massacre; it reached $5 billion last year. Enthusiasm is high: In its most recent survey of business, the American Chamber of Commerce in Hong Kong found that 93 percent of the respondents were either "very favorable" or "favorable" on the five-year investment outlook for China. Most of the money is still coming from Hong Kong and Taiwan (Taiwanese aren't legally allowed to invest, but they do so by setting up front corporations in Hong Kong), and primarily it's been going into low-tech, re-export industries such as textiles, which thrive on China's low wages and cheap raw materials.

But in an attempt to draw in higher levels of technology, Beijing has been offering tax breaks and access to the domestic market for investors who want to set up sophisticated manufacturing plants. Companies are eligible for tax breaks if they invest in high-technology industries.

The government, say investors, is ready to bend over backward to form joint ventures with foreign companies that will help upgrade its technological infrastructure, providing both funding and flexibility. Moreover, says Thomas C. Balch, managing director of Texas Instruments in Hong Kong, "there's an absolutely excellent pool of qualified technical people, which you don't have in some other Asian countries. The Chinese value education very highly, and you can get cost-effective, highly talented people to work for you. We could hire the equivalent of someone who is a professor in electrical engineering at one of the universities, have him work for us as an engineer or technical marketing person or applications engineer, and that person would cost us about $2,500 a year, And that's probably overpaying them!"

It's still not easy, though. Foreign companies are forbidden to own land and can only lease real estate for 30- to 50-year stretches. Foreign languages are not widely spoken, putting American, Japanese and European investors at a disadvantage. "I can recite the whole litany of complaints that we hear regularly," says the Chamber of Commerce's Martin. "Inadequate electricity and transportation, raw material bottlenecks and inadequate legal, accounting and regulatory structures. But things are improving, and the paper chase is getting easier."

Cultural differences create problems as well. "They don't understand the concept of paying on time," complains an American businessman running a joint-venture manufacturing company outside of Beijing. "It's been a real problem for us."

Even Chinese businessmen from Hong Kong and Taiwan don't always have a smooth time. "It's not easy to do business here, even for us," says the head of a large Taiwanese textile company, picking his way through a crab dinner at the Peace Hotel in Shanghai. "The political climate is unpredictable, and the bureaucracy is impenetrable. Chinese businessmen are very bright, and there are good opportunities here, but there's too much obstruction from the government."

Problems can often be smoothed over by forming a joint venture with a Chinese corporation, or hiring talented middlemen. Qu Jiadong, a 35-year-old native of Beijing and general manager of Electronic Data Systems Ltd. in Beijing, has spent the past seven years working for foreign companies and has seen big changes take place since then. A key hurdle for foreign companies, he says, is that they don't know how to manage Chinese workers. So his job is to walk the fine line between differing work cultures. "I have to make myself accepted by both sides," he says. "If you can't meet the government regulations, or if you can't understand Chinese culture, then you'll fail."

But for those who make it, the rewards are high. "We're just a small operation in China," says Qu. "But the computer business is one of the most profitable and competitive in China. We've been growing at a rate of 50 percent a year, and we can probably maintain 30 percent annual growth over the next few years."

And as might be expected, the new foreign presence is having its own effects on Chinese business culture. "At first, many Chinese were concerned about foreigners investing here -- including me!" explains Xia of the Shanghai Foreign Investment Commission. "But then they see the benefits. When Coca-Cola came here, for example, people complained that we didn't need another company making drinks. There were Chinese companies that sold drinks like that, but the bottles would often explode -- you'd hear stories about it all the time. But since Coca-Cola came in, the companies were forced to improve their products -- and you never hear about exploding bottles anymore."

Will China remain free of soda bombs waiting to explode? Most people in China feel that the genie of reform is out of the bottle, and that there's no putting it back. There are still geriatric hard-liners in the government, but they're being replaced with a new generation of leaders who are experienced in dealing with the capitalist world and its key economic institutions. Deng's son Deng Zhifang, for example, who studied at the University of Rochester, now is an assistant general manager at China International Trust and Investment Corp., the country's main investment company.

But reformist waves have come before, only to be swept away in a reactionary backlash, and there's the possibility that rapid economic growth could destabilize the country. With hundreds of millions of people thought to be unemployed or underemployed, and growing inequities of income, the possibility of social unrest remains real. There are other pitfalls, as well: China has threatened to invade Taiwan if it shows too much independence, and relations between Hong Kong and Beijing are at their rockiest in years.

But for most Chinese, the future is clear. "We're moving ahead carefully," says Chen of the economic systems commission. "There are a lot of challenges. But we're not going back."

SIDEBAR:  At McDonald's, Capitalism with the Works

If you've weathered the two-hour lines at Mao's tomb and caught a cold trying to catch a cab in Tiananmen Square in the rain and breathed so much Beijing smog that you'll be tasting it in the back of your mouth for a week, don't despair -- you deserve a break today, and you can get it.

Just two blocks from the Forbidden City, a brand-new two-story McDonald's has risen up to bring hope, french fries and Chicken McNuggets to the Chinese masses. With a menu identical to that of its parent in the U.S. -- and prices about the same, too -- the Beijing McDonald's serves roughly 10,000 devotees a day, making it a fixture on any economic map of the new China.

"China is a huge market!" says Tim Lai, the ebullient managing director of the 750-seat restaurant, who literally wriggles with excitement as he talks, Carl Saganl-ike, about the future. "There are millions and millions and millions of people here! So McDonald's must be here too!"

Most joint ventures between East and West have been reasonably successful, but McDonald's could be the mother joint venture of them all. While it took the company several years of slogging through red tape before it could sling its first burger, Lai says that the government partner of McDonald's, the Beijing Agriculture Industry Commerce Department, has smoothed the path. "They totally support us," he says. "Really! They support us because they know we're a good company, we're honest, and if we have any problem we tell them."

The company actually has six joint ventures up and running in China, to provide the flagship store with a reliable source for everything from strawberries for the milkshakes to potatoes for the french fries (the seeds were flown in from Boise, Idaho, to get just the right flavor).

Lai says plans are in the works to open two golden arches this year in Shanghai and in Guangzhou, several more in Beijing after that, and ... well, it's a big, hungry country.

"Many other companies have come here to learn from us -- even people from the government," says Lai, who was born in China but raised in Hong Kong, and worked his way up from cook to manager at a McDonald's in Taiwan before being tapped to bring Big Macs -- and a gung-ho work ethic -- to a country still swamped in communist-era torpor.

"They ask us about management, how to motivate people, efficiency, why is morale so high, how do you control your quality," he says. "They want to know why people here work so hard! And the answer is that we treat our people well. We take good care of them."

For that reason, jobs that most Americans over the age of 19 shun like poison are highly prized in China: a recent ad in Shanghai brought 30,000 responses. Counter workers make only about 36 cents an hour, but that's better than the average hourly wage in the service sector, and there hasn't been any employee turnover since the restaurant opened in April.

Lai insists that he is allowed to run things the way he wants to, without undue official interference.

"There are restrictions, but not big restrictions, and the government is flexible," he says. "For example, when we started, it was illegal to hire part-time workers in China. We kept asking for special permission, and finally they let us try it with a limited number of people. And when they saw how successful it was, they opened up the policy to allow people to work part-time -- for all of China!

"In China," he says, "nothing is possible, and nothing is impossible."

But not everyone is convinced that the arrival of Big Macs in a country renowned for its extraordinary cuisine is a good thing. "You eat it, and you feel stuffed," says Zheng Hong, a sophisticated young Beijinger. "And that's about it."


SIDEBAR:  Taking Stock of the Gains and the Risks

The floor of the Shanghai Securities Exchange, to anyone who's ever seen Wall Street in action, is a picture of calm bordering on profound slumber. Set up in December 1990 in the ballroom of the old Astor Hotel, the exchange is a stately but patched-together sort of place: Below the marble columns and balconies that ring the room, brokers dressed in red tunics chat quietly in cramped plywood cubicles, armed with telephones that rarely ring, staring dully into the huge red and yellow display screen that lists the 32 stocks Shanghai has on offer and waiting for lunchtime.

But the quiet belies a market that, over the past year, has been among the world's most volatile. And so pent-up is the demand for investment opportunities that the country's two fledging exchanges have seen riots break out over access to new stock issues. Violence erupted last August in the southern city of Shenzhen, home of the other exchange, when hundreds of thousands of would-be investors lined up for a chance to buy into a rare initial stock offering. When rumors spread that officials were hoarding the limited number of application forms for themselves, the crowd went wild; two days of pandemonium swept the city before order was restored. The head of the exchange hurriedly promised to devise a more sensible way to inject new stock into the market, and plans were drawn up for a regulatory China Securities Commission to make sure the process stayed honest.

But the riots underscored just how desperate the Chinese are for ways to invest their money. Both the Shenzhen and Shanghai exchanges were set up for the same reason: to attract some of the estimated $200 billion stashed away in bank accounts and under mattresses and funnel it to the business community.

Despite the country's average hourly wage of 24 cents, the cost of living is low and many people have accumulated hefty savings. And while they can earn 6.9 percent interest with the equivalent of a three-year CD, an inflation rate as high as 12 percent has made any other available investment look tempting. That's brought about 750,000 small and inexperienced investors into the market, and they own about 80 percent of the available stock.

"People have come to realize that they can make a lot of money by investing in the stock market, rather than in their bank deposits," says Wang Huizhong, an economist with the Shanghai Securities Exchange. "But they're also becoming aware of the risk involved."

But that awareness didn't really hit until last spring. Until then, authorities had kept a lid on how far up or down share prices were allowed to move, rather than letting market forces determine the price. When the restrictions were lifted in May, prices rocketed upward. As eager investors poured in, the market leapt from 600 points to about 1400 before the fever broke, and the index began a nose-dive to its current level, around 400.

That has made investors wary and dampened foreign interest as well. Of the Shanghai exchange's 32 stocks, 23 (known as A shares) are reserved for domestic investors, and the other nine (known as B shares) are available to foreigners. Despite China's allure as a hot economic growth spot, however, brokers say there's no urgent rush to buy. Even though most of the shares are trading well below their initial offering prices, most are selling at a price-equity ratio of between 37 and 40 -- two or three times as high as most U.S. stocks. And the market is unpredictable. The first B share, for example, Shanghai Vacuum Electric Device Co., was issued last January at $71.19 a share. After shooting up to $100 a share in May, it started to plummet and was recently selling for about $48.

How fast China will move from Mao to the Dow is an unpredictable as the market, but exchange officials, at least, are bullish. "We're planning on building a new securities hall in Pudong, which will be competed in three or four years," says Wang. With a seating capacity of more than 2,000 and about 5,000 square yards of floor space, the new exchange will be the largest financial center in the Asian Pacific region. "By that time," he promises, "the market will be in full swing."


SIDEBAR:  Exporters Get the Hang of Fair Trade

"The Latest! Truly Different" booms the sign next to the He-Ne Acupuncture Treatment, a device that looks like a cross between a waffle iron and two Captain Marvel plastic ray guns. "Let Mr. Tang Tell You the Secret!"

Mr. Tang was unavailable for comment, having disappeared somewhere into the million square feet of floor space devoted to the Chinese Export Commodities Fair in Guangzhou. Twice a year since 1956, China has been marketing its export products to the world through these fairs, which bring buyers and sellers together to haggle over a bewildering array of goods.

There are electric hydro-treaters (for preventing and killing algae) and Spanish language typewriters, black-and-white televisions with rabbit ears, sniper rifles and elaborate jade carvings, hip flasks, fishing rods, toy pandas that do back flips, tiny violins in tiny cases, shoulder-high rock fountains spewing steaming water, disposable acupuncture needles, antique silk paintings, tractors -- a cornucopia of treasure, junk and everything in between.

And next to every display a salesman hovers, ready to take orders.

"We get 40,000 to 50,000 people at every fair, from 130 different countries," says Lu Ruguang, the fair's deputy secretary-general. "And we do about $12 billion worth of business every year. That's about a fifth of China's total exports."

Almost every sector of Chinese light industry is represented here, and the company representatives are on the front lines of China's attempt to bring itself into the global economy. "It's not easy to sell to foreign companies -- they're very demanding," says Liu Zhi Gang, general manager of the Shandong Machinery and Equipment Important and Export Co. "It's a painstaking job. We've got to understand the new clients, to develop friendships; then we can do business."

But Liu, like other managers of state-owned export companies, has been facing even tougher challenges since October, when Beijing decided for the first time to allow private companies to export without government interference.

That's expected to boost export earnings, but also force previously coddled exporters to become more competitive.

"In the past, we were a state-owned corporation," says Chen Jian An, manager of the Zhejiang Native Produce and Animal By-products Import and Export Co., which does about $100 million a year in export sales. "We got a subsidy and we had special privileges to export certain goods. But we don't get a subsidy anymore, and it's getting more and more free -- the government has gotten rid of the regulations, so almost everybody has the equal right to export. And the competition is getting quite tough; the price goes down, and we have to be very efficient. It's hard, but it's good for China. People have to work harder."

Leaning against a wall draped with Christmas decorations, candles, down jackets and wool sweaters destined for Europe and Japan, Chen says that China's opening to the West has already produced major changes.

"Producers are getting better at understanding what the market needs," he says. "In the past, they just sold whatever they produced. Now, they sell what the customers order. And people used to worry about foreign customers' demands, on things like quick shipment of orders and settling claims. But now they're used to them."

As far as Chen is concerned, the reforms are worth the trouble, especially considering the situation in other developing economies. "I just got back from Russia, Poland and Czechoslovakia," he says. "It's very difficult to sell there. It's terrible! People have no money!"


SIDEBAR: Fueling Consumer Fever

One of the most weirdly fascinating places in China is the Qingping food market in Guangzhou, a warren of dark, narrow alleys crammed with bags of dried sea horses, flattened centipedes, white tree fungus, preserved black beetles and other delicacies.

There are trays of deep=fried caterpillars spilling over onto cages packed with live pigs, kittens, hedgehogs, pheasants and rats, all plump and ready for the pot.

There are vendors selling fish heads and bear paws, pressed lizards and huge blue crabs, live eels and complacent turtles. And the snake sellers will skin your selection for you, pluck out its gall bladder and put the still-squirming thing in a clear plastic bag to carry home.

But to see the modern China, stroll a few blocks east along the Pearl River to the Nanfang Department Store on Yanjiang Road. Five floors of consumer fever run wild, Nanfang is the Macy's of southern China. From the casks of Remy Martin by the front door to the Chinese-made Tian Ying karaoke machines ($1,100, and there's a demonstration model on every floor), the store is a virtual temple to China's new religion of capitalism.

To the piped-in sounds of Elton, John and Paul Simon, shoppers pick over microwave ovens, Mr. Coffee machines, Panasonic answering machines, Nintendo games, Sony laser disc players, black rayon Raiders jackets, neon art (as tacky there as it is in America), 7-foot-tall Chinese grandfather clocks -- just about anything is available, including pictures of the Hong Kong skyline at night; they light up when you plug them in.

To Western eyes, there's a likable chaos to the place. Green-shirted saleswoman add up purchases on abacuses, even in the section where calculators are sold. Hearing aids are sold in the musical instruments department and wheelchairs are displayed in the sports section. And the selling is aggressive: "We sell many!" shouts a petite saleswoman bearing an electric hand-held vibrator, as she mounts a sneak attack on a Western journalist's shoulder. "Many many many many!"

The crowds in Nanfang reflect just how ferocious demand is for quality consumer goods in China. Retail sales are surging, driven by growth in the coastal cities; at about $173 billion in 1991, they were five times as high as in 1978, and are growing at about 14.5 percent a year, according to government statistics. "People have money, and they want to spend it," says Yuan Enzhen, head economist at the Shanghai Academy of Social Sciences. "They don't want to wait. They're tired of waiting."

SIDEBAR:  Freedoms Right on Target for Shooters

In China these days, everybody wants t be in on the ground floor of capitalism -- even the Communist Party.  Various branches of officialdom have been dreaming up clever ways to bring in a little extra cash, by charging for services, setting up corporate subsidiaries and even getting directly into the retail business. 

The Ministry of Public Security, for example, has opened a shop in Beijing that sells handcuffs, electric cattle prods and other useful hardware, and the army's General Staff Department owns part of the luxurious Palace Hotel, one of the most elegant -- and expensive -- in the country.

It's the military, in fact, that has taken the most advantage of the new freedoms. Since 1987 it has opened up shooting ranges in six parts of the country, letting would-be Rambos and jaded tourists fire off serious weaponry for as long as their ears and wallets can tolerate it. At the China North International Shooting Gallery outside of Beijing, for example, visitors can pick from more than 30 kinds of army-owned weapons, ranging from Steyr submachine guns, assault rifles, M-1 carbines and 7.62mm light machine guns (at about $1 a bullet) to mortars (about $32) and shoulder-held rocket launchers (a little over $100 a pop).

There's even an antiaircraft gun aimed at what appears to be a section of the Great Wall -- $2 a bullet, 10-bullet minimum.

"We get about 40,000 customers a year," says Zhang Lian Xiao, the manager of the range.  "Most are from China, but about a third are foreigners. The Chinese seem to like the machine guns best; we had a guy in here last week who spent almost $3,600 in an hour."

Escorting a visitor past the shooting range's pink-upholstered bar (a sign in English reads, "Please have a rest at the drinking room aftr firing") and into the weapons gallery, Zhang says, "The Japanese try everything, since they're not allowed to shoot in their own country.  They seem to like the rocket launcher."

Picking up a hefty, Russian-made AK-47, he laughs and adds, "This is the gun Americans like to shoot most."

*** 

(Insight Magazine, January 25, 1993)