Chinese Island Seeks Fast Growth

Upstart Hainan province resists conservative backlash, aims to attract foreign investment

BANISHMENT amid the gloomy jungles, creeping mists, and "goblins" of Hainan Island so terrified 12th-century Chinese mandarins that they feared for the loss of their souls, according to historians.In the early 1900s, American missionaries like Reverend Frank Gilman dreaded rides by litter through Hainan's tropical forests, where leeches "literally reach forth from every stick and stone and clod to clutch the victim whom they may devour." Today, as China's newest province and largest free-enterprise zone, Hainan is obsessed with casting off its backward image and catching up with prosperous, coastal regions like adjacent Guangdong province. But pulling itself from penury is proving difficult, especially as the island remains forbidding for many modern investors. Last year, Hainan's combined industrial and agricultural output was only $1 billion, and its exports $430 million. In Guangdong's much smaller Shunde County, output reached $1.3 billion, a third of which was sold abroad. Hainan needs an estimated $38 billion to develop over the next 15 years, provincial officials say. Yet the island government's 1990 revenue was only $125 million. And Beijing has offered less than $40 million in low-interest loans over the past five years. The province was counting on foreign capital to bridge the huge financial gap. But the June 4, 1989 Tiananmen Square crackdown on demonstrators in Beijing caused a major flight of foreign investment. Total contracted investment dropped 26 percent in 1989, 54 percent last year, and continues to fall (See related story, left). "We were hard-hit by June 4 - what you'd call a major disaster area," says a high-ranking Hainan official on condition of anonymity. Keen to lure back foreign investment and foster a full-fledged market economy, Hainan today seems increasingly willing to attempt bold development schemes that break with Beijing's policies - and sometimes state law. One of the brashest current proposals to develop Hainan is dubbed the "Las Vegas Way," by local officials. It calls for building a large gambling industry to lure tourists from Hong Kong, Taiwan, and other countries. Glittering casinos on Hainan's offshore islets would amuse tourists by day. At night, they would retire by boat to luxury hotels onshore. "Tourism can play a strategic role in stimulating Hainan's development," says provincial tourism chief Wu Qianxiang. Mr. Wu and several other Hainan officials support the gambling idea, Chinese sources say. In the three years since the province was established in 1988, Hainan has attracted some 3 million Chinese and foreign tourists, with the numbers growing by 50 percent a year. Tourism earns 70 percent of the hard currency generated by nontrading activities. In another controversial proposal, many Hainan officials advocate making the island a distribution center - including illegal profiteering in cars and other imported goods - as the best way for the province to develop. "Things were never so good as during the 'car incident, recalls an official in Hainan's impoverished central mountains, pausing over a steamy basin of homemade snake stew. "We all had money to burn." For two years beginning in 1983, Hainan took advantage of special import powers to buy $500 million worth of cars and other consumer goods, reselling them for huge profits on China's mainland. Overnight, the island was awash with cash. Beijing slammed on the brakes in mid-1985, confiscating profits, seizing thousands of cars, and arresting the island's top official, Lei Yu. But Hainanese today praise Mr. Lei as a gutsy, populist hero. And despite tighter import controls, illicit profiteering in cars, television sets, and video equipment continues on a smaller scale, say Chinese sources here. "A lot of Hainanese officials want to find a courageous governor who will stage a repeat of the 'car incident, says Liao Xun, deputy director of Hainan's Development Research Center. Mr. Liao and other Beijing-appointed officials criticize the "Las Vegas Way" and profiteering as short-sighted. "If all we do is gamble, we'll just become another Macao, not a Hong Kong," Liao says. Macao is a Portuguese enclave on the Chinese coast. The province has so far stressed a more orthodox, industry-centered growth plan including infrastructure projects, construction, and processing that would tap tropical crops like rubber, coconut, oil palm, and sugar. The plan also calls for achieving self-sufficiency in grain. Some 80 percent of Hainan's 6.4 million people still make a living from agriculture. But even mainstream officials are willing to depart from central government policies to speed the island's development. For example, the provincial government has called for increasing GDP at an annual rate of 15.5 percent for the next five years, double the national rate set by Beijing. Industry on the island is to expand at more than 20 percent a year. Hainan also plans more daring economic reforms than the rest of the country, encouraging widespread private enterprise and freeing prices. Already, the free market determines the prices of some 90 percent of goods sold on the island, with coal, fertilizer, and rice some of the few exceptions. Hainan planned to free grain prices this year, but postponed the controversial move to avoid attracting a large outflow of grain from other needy provinces, officials say. Politically, Hainan leaders have resisted the conservative backlash by Marxist ideologues and continue to promote a policy of "small government, large society." "The best government is the smallest one," says Liao, a former Beijing scholar and an admirer of Thomas Jefferson. Liao drafted the island's political reform plan. Upon becoming a province in 1988, Hainan scaled down its government organs to 27, half the national average. Nevertheless, Hainan was dealt a serious blow when hard-liners ousted Gov. Liang Xiang on corruption charges in 1989. He is said to be still living in Haikou as investigations into alleged graft continue.