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Editorial: Risky business in China

The old Chinese saying "when a scholar meets a soldier, reason makes no sense" (秀才遇到兵,有理說不清) vividly describes the love-hate relationship between Wang Yung-ching (王永慶) and China's government.

Wang, the chairman of Formosa Plastics Group (台塑集團), has conceded his mistake in investing in a power plant in Zhangzhou, China. How is it possible that Wang, exalted as the "God of Management" (經營之神) for his business invincibility, has admitted defeat? Is it because he is getting old and senile?

In all likelihood, Wang is still a cunning fox. He was defeated solely because he had no idea who he was up against -- a government that not only defies common sense and reason, but also refuses to play by the rules, even those it devises.

After Wang's setback became known, Minister of Economic Affairs Lin Hsin-yi (林信義) and Council for Economic Planning and Development Chairman Chen Po-chih (陳博志) immediately reminded Taiwanese businessmen to carefully evaluate the risks before rushing off to China to invest. But the problem is that "risk evaluation" only works when the person with whom and the environment in which one does business follow predictable rules. This simply cannot be said of Beijing.

Being the cunning business tycoon that he is, Wang must have engaged in extensive risk evaluation before investing in China. While these evaluations may have helped Wang achieve enormous success in his previous foreign investments, they have done nothing for his dealings with China.

For example, Wang had signed a 20-year contract with Fujian Province under which the latter would buy electricity from his power plant at a (relatively high) price of 0.5 yuan per kilowatt hour. However, as soon as it was too late for Wang to change his mind about his investment, namely, after the construction of the first power generator was finished, things changed. Fujian's provincial government asked Wang's power plant to supply electricity at a 60 percent discount. In other words, the contract they had signed became nothing but a piece of scrap paper.

Now, had this happened in a democratic society which respected the rule of law, Wang would have been able to take legal action to demand adherence to the contract. In the civilized world, even governments must obey the laws. Not so with China.

Making the investment environment in China even more chaotic is a very complicated and unpredictable web of political connections at the top levels of business. As everyone already knows, business and politics are Siamese twins in China. No business can move even an inch without the "right" political connections. However, it also takes connections for one to reach the "right" connection at the top. Each link of connections must be appropriately rewarded.

Now, forking out "rewards" may be no problem for some, but the intricate political connections one has to painstakingly build up may change overnight in China's political environment. For example, Wang had allegedly relied heavily on the help of a certain Miss Mao (毛), who had all the right political connections. Unfortunately for Wang, Mao's political influence apparently became significantly weakened as a result of the political undercurrents within China's government. Therefore, she was unable to further help Wang.

And things may only get worse for Taiwanese businesses investing in China. Zhang Mingqing (張銘清), spokesman for China's Taiwan Affairs Office, has already indicated that preferential treatment for some Taiwanese businesses will probably be phased out once China and Taiwan enter the WTO. If things are already this bad for Taiwanese businesses investing in China now, imagine what will happen then.
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