Published by: World Tibet Network News, Wednesday, June 26, 1996

The Times - London

June 26 1996

A game that makes China less and less attractive to investors

China's open door to trade and investment has a spring mechanism, engineered to trap the fingers of foreign politicians who presume to criticise Peking's record on human rights. Such is the lure of China's huge potential - a lure that dates back 100 years to the American rush to provide "oil for the lamps of China" - that Peking has been able to pursue this strategy with what it evidently considers to be success. It has used contracts as political carrots and sticks. Anxious businessmen, fearful that America's support for Taiwan or Britain's democratic reforms in Hong Kong will lose them contracts, have put pressure on politicians to avoid stepping on Chinese toes. The effect is to make China a less and less attractive country with which to do business.

Helmut Kohl has left America to worry about human rights and his reward has been to see German trade with China double in five years, to =A312 billion, making it China's main European trading partner. Viewed from Peking, the high point in this warm partnership was last November when Herr Kohl, visiting China with a bevy of businessmen, became the first Western leader since the Tiananmen massacre to agree to inspect a Chinese military guard of honour.

This was, however, a gesture too far for many of Herr Kohl's compatriots. The Chancellor's China policy has come under mounting criticism even within his own Christian Democrat party. Earlier this month, the German Government again bowed to Chinese pressure, withdrawing official funding for a conference on Tibet in Bonn attended by the Dalai Lama. That led to an all-party resolution last week in the Bundestag, condemning "China's continued policy of repression in Tibet" and calling on Peking to open dialogue with the Dalai Lama's "government in exile".

Overnight, Germany became the latest country to discover how suddenly China's welcome mat can be whipped away. Told that Klaus Kinkel, the German Foreign Minister, would no longer be welcome in Peking next month, Bonn felt compelled in return to freeze official contacts. But Herr Kohl has kept silence, while Herr Kinkel lamely laments that this is all a misunderstanding and that despite German support for "cultural autonomy" in Tibet, "we want Tibet to continue to belong to China".

China's speed in turning the screw reflects its belief that Bonn is easily intimidated. Significantly, Peking chose last April to ignore a much tougher statement by 200 French parliamentarians. On the eve of an official visit to Paris by Li Peng, China's Prime Minister, they called on China to pull out of Tibet, accusing it of causing 1.5 million deaths there. Yet the visit went ahead and netted France =A31.2 billion worth of business contracts.

Peking has done itself no favours in Germany even though, after a decent interval, it may well get its way with the Government. Worldwide, every incident like this encourages business to look at other, more predictable, emerging markets. There are already considerable costs and risks to doing business in China. Corruption is endemic and profit margins are meagre. Add to that political uncertainty over whether contracts will be honoured, and the balance begins to tilt in Western boardrooms in favour of India and other fast-growing economies where a deal once reached is less vulnerable to official whim. Peking acts as though the foreign investment it needs is China's to command. It may not always be so.