May 18, 1993

CHINA ENTERING THE DOWN UNDER DYNASTY (Finalist 1993 Walkley Award)

Shenzhen

ERIC ELLIS reports from the Pearl River Delta on the millions being made in a place where capitalism is practised at its most hostile, most venal and its most out of control.

PUT yourself in Rob Rogers' shoes. The Grosby plant he runs for Pacific Dunlop just got burnt down but thousands of moneyhungry Chinese are lined up at the gate anxious to join the worker army he's already keeping fed and watered in company quarters.

Outside it's a muggy 35 and rising. The dust swirling through the office gives you a permanent sniffle but there's no air-conditioning because the power's gone and you've got an order to fill. "This is a pretty normal day here," says a sweating Rogers, production manager at Grosby's shoe factory in the heart of China's "economic miracle", the Pearl River Delta that borders Hong Kong.

"Sometimes I wonder what I'm doing here. It can be hard and it's bloody fascinating." Pacific Dunlop has the biggest investment of any Australian firm in this extraordinary place, where up to 300 Australian businesses -Mayne Nickless , Burns Philp and BHP among them - have staked claims in the 1990s equivalent of the Ballarat gold rushes.

The Pearl River is not a pleasant place to do business. Boulders obstruct dirt "highways", there is no kerbing, infrastructure is rudimentary, just open sewers and drains, amid the mullock-heap detritus of thousands of skyscrapers in various stages of construction.

Beyond these skyscrapers is a moonscape of hundreds of excavated mountains, where stand tens of thousands of small factories, also in different stages of development.

Add to this 50 million people, seemingly as many trucks and vans belching exhaust, take away much of the law and order, spread it all over an area the size of Tasmania and you get some idea of what it's like to be Rob Rogers. This is a place where capitalism is practised at its most hostile, its most venal, its most out of control. It's creating 10,000 millionaires a year and and it's happening in a country whose Government still calls itself communist

Austrade Hong Kong lists about 30 firms it knows has operations in the area, but admits it is out by "probably a factor of ten". "There are only so many ways we can keep a handle on this; the Chinese don't even know," says Austrade East Asian general manager Peter Forsythe.

"Drive Carefully And You Will Get Rich," screams a Government hoarding on the road from Shekou to Shenzhen, this "special economic zone" bordering Hong Kong.

Alongside are advertisements for Peugeot cars, Hilton cigarettes and the yet-to-be-built Lakeview Villas. "They reckon the economy round here is going to grow by about 40 per cent this year. I'd believe it," says Rob Rogers at the six-year-old shoe assembly plant at Henggang.

The Guangdong provincial Government in Guangzhou recently unveiled a 20-year economic "blueprint" for this region, aimed at joining Guangdong to developed-world ranks by 2010 - an economy the size of Australia's with an income Australians would recognise as lower middle class.

Sinologists schooled in hopeful great leaps forward and the rubbery numbers of State economic data, snorted that the plans were ambitious. The reality of the Pearl River Delta suggests that, if anything, the plans could be conservative.

"Most Chinese people are capitalists at heart," says Mr Wang Chun Sheng, export manager at China Southern Glass Company Ltd, one of the Delta's most successful companies, about to list on the Shenzhen Stock Exchange.

"Sometimes I look around me and even I, as a Chinese, am amazed at what has happened here. Ten years ago it was just paddy fields."

China Southern Glass is typical of medium-sized mainland firms operating along the southern China coast. Save its board of directors, and soon its shareholders, it answers to no-one in its business dealings. It has its own contacts, sources of supply; handles its own foreign exchange positions, and its executives go on business trips whenever and wherever they see the need.

"It is most common in Guangdong to have this sort of independence," says Mr Wang. "We have had it since 1984."

Southern Glass is also a big foreign exchange earner, much of it from Australia, where the firm claims a 15 per cent share of the national safety glass market.

"I think you had better buy our shares so you can buy back some of your Australian dollars." Mr Wang is not joking.

If China Southern Glass is representative of the bigger Chinese firms in the region, then Australia's Pacific Dunlop tends to typify foreign involvement.

Pacific Dunlop has about $A100 million invested in China in nine plants, four in the Delta area, making telephone cables, shoes, T-shirts and underwear. It employs around 3,000 people and will soon become only the third foreign company to be allowed to set up a holding company in China, in Shanghai.

Conditions at the Pacific Dunlop plants are grim by Australian standards, but the company says they are "excellent" by Chinese standards.

As at the Grosby plant, now being re-built after the fire last September, the company is obliged to provide workers with food, clothing and accommodation, as well as pay of about $A200 a month, which Pacific Dunlop complains is "rising fast". At the Tai Ping Bondswear plant, the 300-odd workers are packed six to eight into a living space no bigger than a small hotel room. There are toilets and washrooms at each end of the dormitory, beyond that the factory.

As with the Grosby plant, the lingua franca is Mandarin, not the regional Cantonese because most of the workers are from the poorer north, seeking their Eldorado.

Given that the Chinese Government has created an economic monster it is barely able to control, companies like Pacific Dunlop help do the job of the State in providing extra facilities.

"Frankly, it's something we'd rather do without because of the extra hassle involved, but these are the terms of the joint venture and we must stick to it," says Grosby's Rogers.

The Grosby plant is just outside the notional border that is supposed to separate Communist China from the capitalist "special economic zone" of Shenzhen.

The border offers little barrier, the Public Security Bureau (police)simply unable to cope with the volume of traffic and goods now coming through it. Chinese need a special State permit to enter Shenzhen. Good fake permits are sold openly on the streets of Chinese cities.

Pacific Dunlop says a problem with workers is their tendency to walk off the job. The company is obliged to finance one trip home a year, usually for Chinese New Year. If a worker has been making money in Shenzhen for several years and goes home for a "visit", there is every likelihood he won't come back.

"Unskilled workers are not a problem, but skilled labour is hard (to find)and you've got to pay for it. The standard of labour is surprisingly good,"says Rogers.

MAYNE Nickless has operated a modest cold storage and transportation hub in Shenzhen since 1984. When it opened it was literally stuck in the middle of nowhere, the Shenzhen economic experiment yet to flower.

Today, the warehouse has been dwarfed by a Shenzhen developing in a dustier image of nearby Hong Kong. Mayne Nickless is now in the middle of town. The nearby new McDonald's is a customer, and business is good.

But such obvious prosperity has its drawbacks. Drivers dropping off supplies must first run the gauntlet of standover men, newly off the train, demanding protection money from the facility and its users. Typical of the mentality of this coming area, they are also introducing new customers to the business.

Mayne Nickless staff say this "mafia" is a growing problem and theirs is not the only company to suffer. The police seem both powerless and unwilling to act. The fact that the Mayne Nickless joint venture chairman is a local Communist Party member matters little.

Tubemakers' associate, Foshan Hua Nan Bundy Tubing, at Lan Shi Town, just outside the provincial capital Guangzhou, seems to have its political connections in order. The joint venture chairman is also the head of the Lan Shi branch of the Communist Party and he rules the town with a tight, albeit benevolent fist.

He's also the head of the town council "trade wing" and recently visited Bundy Australia's operations in Adelaide to check out his new partner.

It was a good deal all round for the chairman, the council's 50 per cent stake being financed by the Australian taxpayer through Canberra's aid and development finance programme.

Unlike Pacific Dunlop's factories, the Bundy tubing plant would not be out of place in an Australian industrial estate. The modern factory was built with Australian product supplied by John Lysaght (office in Guangzhou) and the equipment inside was shipped from Australia.

The factory has two shifts, no power failures and the workers go home to their own houses at night. Administration manager Tony Wong says the joint venture is "functioning perfectly" and "making good money".

Wong is able to repatriate any profits by visiting the many swap centres that have sprung up in Chinese centres. Operated by official banks, they are mini money markets and an effective official admission that the renminbi(people's money) is suffering from a major lack of confidence.

(An estimated 30 per cent of Hong Kong dollars in existence circulate in Shenzhen and Guangdong Province. Hong Kong firms provide upwards of three million jobs in this area).

The official rate last week was 74 renminbi to $HK100 ($A18.50). The official swap centre rate is about 25 per cent better than that and one can buy renminbi on the black market in Hong Kong for 120/100 and above.

On the other side of the Pearl River at Huangge, Vietnam-born Le Hai Trieu, general manager of Meishan Mauri Yeast Co Ltd, is much in demand by his Chinese partners.

Le has been in Huangge since 1989, when Burns Philp brought him in to improve souring relations with the Chinese partners, Meishan Sugar Mill Company.

The relationship, and the profits, are now strong enough that he has been asked by the Chinese side to manage the Meishan sugar mill and the power station that powers it and the Mauri joint venture. He has declined.

"The Chinese are now beginning to understand it is not profitable to be in everything," Mr Le says.

At Shekou, an hour's journey by an Australian-made catamaran from Hong Kong, Ampolex has an office overlooking the port, one of a dozen foreign oil companies there.

China had visions of Shekou developing into an oil boom town, fuelling the regional economy. It hasn't happened and an element of disillusionment has seeped in.

"It certainly hasn't panned out as we had hoped, but we are here for the long haul," says Ampolex Orient general manager Ken Fitzpatrick.

But the economy has boomed nevertheless, from manufacturing.

"I've seen more Mercedes and Lexus round here than I have in Sydney," says Fitzpatrick. "And all my staff are into the Shenzhen sharemarket."

THE Shenzhen stock exchange is situated, appropriately enough, in the Shenzhen Grand Theatre. In Australia, you apply for shares by subscription. In Shenzhen, they applied for new issues by rioting.

But it's quieter today. An escalator takes you to the first floor, where a security guard proudly shows you pictures of party strongmen Deng Xiaoping and Li Peng visiting the exchange, before ushering you to a visitors' gallery not unlike that of a squash court.

Below are about 150 traders seated at booths on four sides of a mainframe computer, tapping in deals received by phone. The prices in liquid crystal display are on the walls beneath the gallery. The exchange has been open just 18 months but already its boards are nearly full and the traders can't keep up.

If anywhere in this remarkable area is symbolic of what is happening in China, perhaps it is on the Houmen-Panyu car ferry, near the Bondswear plant and where the county authorities plan a deep-water port and a "mini-Shenzhen". A pristine, white 1993 Mercedes 300 SEL jumps ahead of the 3km bank-up to board the ferry, and a well-dressed man gets out and lights up a Gitanes.

He's contemplating a busy day "reviewing investments" as the ferry crosses the Pearl, and his confident air and casually elegant garb suggests the investments are doing well. So does the paunch and fleshy cheeks.

"I'm a property developer," he says, offering his card. But the card says he is a colonel in the army. The Mercedes' military registration confirms it. "The PLA has changed. We are mostly businessmen now," he says.

He asks me if I like Guangdong. I reply that it's very interesting and many people seem to be making money.

"Yes, that's true," he says. "Perhaps you would like to do business with me?