Foreign stakes in China grow apace, but Peking notes key gaps

The pace of foreign investment in China should remain strong this year, Chinese officials say, even though the government is trying to slow down runaway capital expenditures by local government and domestic enterprises. There is official disappointment, however, with the level of foreign involvement in China's priority areas for development: transportation, energy, and advanced-technology industries.

``The proportion of investment is still too small in these key project areas,'' says Chu Bao Tai, deputy director of the foreign investment bureau of the Ministry of Foreign Economic Relations and Trade. According to the ministry, China agreed to absorb some $5.8 billion in direct foreign investment last year, a 121 percent increase over 1984. It also signed foreign loan agreements worth $3.5 billion, an increase of 84 percent. So far less than half of these amounts have been spent.

The aggregate contract value of direct foreign investment since 1978 is now more than $16 billion, and the total of signed loan agreements comes to some $20 billion. ``I expect that in 1986 progress won't be any less than in 1985,'' Mr. Chu says.

According to ministry spokesmen, some 2,800 joint-venture projects were approved in 1985, bringing the total to 5,800 since China began to open its door to foreign investors in 1978. But only 1,975 of these business ventures are now in operation, because of the number of newly signed contracts and the long lead times on certain large-scale projects, officials say.

For instance, the Guangdong Nuclear Power Station, with participation by French and British companies, has a seven-year construction schedule, and the Pingshuo Coal Mine development by Occidental Petroleum has a five-year preparation time, Chu says.

Most of the foreign investment has been in light industry and textiles. Overall, 70 percent of the investment has been in production facilities; about 30 percent is in the service sector, mainly in hotels in Peking, Shanghai, and Canton. There are also some 120 wholly foreign-owned ventures in the country and 35 projects for offshore oil exploration and production.

Among major projects launched last year -- besides the Pingshuo agreement, which was the largest Chinese-American joint venture -- were the Shanghai Volkswagen Automobile Company with West Germany; the Peking Jeep factory with American Motors; and the Peking International Trade Center.

Some 80 percent of China's foreign investment was from Hong Kong, says Chu, with the United States, Japan, and Western Europe accounting for most of the rest. Diplomats say Hong Kong accounts for hundreds of small joint ventures.

``The Hong Kong and Macao businessmen are betting on their future,'' a Western businessman says.

On the US side, there has been more diversity in Chinese investments. Of the $1.8 billion total equity by US partners in joint ventures at the end of 1985, only about 30 percent is in oil- and gas-related projects. A year ago, oil and gas exploration accounted for almost 80 percent of US investment in China. There are now about 140 joint ventures with the US, although observers say some of these have been inactive for more than a year despite agreements having been signed.

The low levels of Japanese investment have been a sore point, because of China's large trade deficit with Japan, China's second-largest trading partner after Hong Kong. Chinese government agencies, however, do not agree on the size of the deficit. The Chinese Customs Administration reported in January that the deficit was about $8 billion, but the Ministry of Foreign Trade said it was only half that amount. Japan's Ministry of International Trade and Industry claims the amount is almost $6 billion.

China has also begun to earn substantial foreign exchange from labor exports to the third world. In 1985, it signed agreements for engineering and construction worth more than $1 billion. There are now 59,000 Chinese workers abroad, mainly in the Middle East and North Africa, building houses, highways, dams, and other projects. China also has its own overseas joint-venture program, with an investment of some $163 million in ventures in more than 40 countries.