CHICAGO - After three years of heavy investment in China, companies are realizing the myriad difficulties of doing business there, and are curtailing spending, industry officials said. Company executives discussed China at the Society of the Plastics Industry Inc.'s Polyurethane Division meeting, held Sept. 26-29 in Chicago.
Contracted foreign investment dropped 38 percent last year to about $4.2 billion, according to Daniel S. Martin, manager of investment program business advisory services to the United States-China Business Council.
Martin said investment in China is down from year-earlier levels primarily because:
Firms are paying a hefty tax on land appreciation.
The nation's inflation rate is hovering at 20 percent.
There is corruption in Chinese government and business.
Competition has made supplying local laborers with housing the norm-an expense that often outweighs labor costs.
Legislation is restricting what business sectors will be allowed to have foreign firms hold majority control in ventures.
The country is initiating ``industrial policies'' that attempt to strengthen China's strong sectors and further weaken the feeble through taxes, tariffs and loan access. Complicating matters, the policies are not compatible with China's effort to join the World Trade Organization, so the nation is delaying an announcement on which business sectors will receive preference.
Another problem foreign firms face is that China's trade and business laws change so often and they are extremely difficult to interpret, said Jia Zhao, a lawyer who also serves as a joint venture consultant.
``There are very few precedents and there's so little time to digest the laws,'' she said.
Some foreign investors also deal with suppliers, producers or potential partners in China that abuse the system, she said.
``There's always the issue of Chinese officials saying `this is the law,' when it's really a self-made law,'' Zhao said. ``One firm I represented had a supplier tell them that legislation required that 50 percent of the payment be made in Chinese currency. Not so. It's contractual.''
Despite the problems, officials agreed that prudent investment in China is a gamble that probably will pay off in the long run.
``Difficulty certainly will accompany the opportunities, but I think it's safe to say that wherever you go,'' said Desmond Tang, marketing manager, international urethanes, for Olin Chemicals Group of Stamford, Conn.
China's pluses are its vast population and the purchasing power of these people, he said.
There are 1.2 billion people in China. Every 10 seconds, five babies are born in China, adding 16 million per year to the population. The country will reach the 1.3 billion mark before the turn of the century, he said.
Perhaps more importantly, Tang said, the country's real gross domestic product per capita has jumped 60 percent the past six years, and is forecast to grow 8 percent a year through 2000. The nation's growth in real GDP leads the world.
Also, China's purchasing power is two to three times that in the United States, he said. When GDP is measured by purchasing power parity, China is third-behind the United States and Japan.
All this translates into a virtually untapped market for manu-facturers, suppliers and export-ers of polyurethane, as well as other goods, Tang said.
Traditional PU markets such as construction, transportation and furnishings are extremely promising in China, and the nation's automotive market is expected to more than double to about 3 million vehicles by 2000.
Martin and Zhao agreed China is a pearl in the rough.
Zhao said the new laws may take a little time and effort to translate, but having rules in writing is much better than going with the whims of government officials.
``The market continues to improve, especially with China nearing WTO membership,'' Martin said. ``There's greater market access, an emerging middle class and a welcoming attitude toward foreign investment.''