June 14, 1994

HAINAN: THE YUAN-ACCEPTABLE PLACE OF CAPITALISM

ERIC ELLIS, Haikou, Hainan Island

AN ISLAND province that is supposed to be a laboratory of "socialism with Chinese characteristics" experimenting with capitalist reforms, Hainan has no shortage of "scientists."

First, there are those who pull monthly earnings of $130,000 trading - this is no joke - pork belly and orange juice futures by phone direct to the Chicago futures exchange.

Then there's the man who sold an unremarkable plot of land for $140,000 a square metre, having bought it at $1,400 just two years ago. Then there's the corporate doctor who turned Hainan's biggest State-owned company from a 10 million yuan loss-maker in 1985 to a 1.2 billion yuan earner this year, and - Lee Iacocca style - is about to publish a book on his success.

And there's the remarkable Mr Robert Johnston, the 37-year-old son of a US Air Force officer in Japan, who left the bright lights of Wall Street for the dimmer lights, but bigger and faster bucks, of Hainan.

Possibly China, but certainly Hainan, is an economy out of control. China's other special economic zones (Shenzhen and Zhuhai near Hong Kong, and Xiamen and Shantou further up the coast) are veritable bastions of law and order compared with freewheeling Hainan.

Here in this combination of South Sea tropical paradise and grimy Manchester hothouse, police and lawmakers are as rare as clean air, and hucksters as ubiquitous as coconuts - which, incidentally, is about the only tangible industry Hainan has.

"We are quite proud of this Wild West reputation," says Mr Feng Ming, the vice-director of Hainan's curiously named Economic Planning Department.

The Wild West was good. Look at California today, he told The Australian Financial Review this week: "It may be unimaginable to outsiders that a place can be ruled without law or legislation, but to Chinese this is not so strange," says Mr Feng. "Hainan is a very strong place for opportunity and business, but also for chaos."

Hainan is enjoying growth rates that would make the OECD wince. Last year, the economy grew an official 22.8 per cent - some reports said 45 per cent -and planners confidently predict it will grow at least 15 per cent for the next 15 years.

By then, it is expected that the average Hainaner will have an annual per capita income of $20,000 - 20 times today's figure.

The former Australian Prime Minister Mr Bob Hawke has taken himself several times to this frontier land at the bottom of mainland China to try to cut a few deals.

Mention Australia to a Hainan official and he will likely say he has met Mr"Hou-ker". Here among the grimy half-finished (but much-sold) buildings and dusty palm trees, Mr Hawke is said to have suggested building everything from English schools to fast food joints to the ubiquitous race courses.

Hainan was the creation of Mr Zhao Zhiyang, the reformist former premier toppled by pro-massacre party hardliners during the 1989 Tiananmen crisis.

The island is the most liberal of China's five special economic zones, split off from neighbouring Guangdong to become China's El Dorado. Here, Beijing's cadres can come to park a nest egg, away from the official prying of the capital.

Mr Robert Johnston, of Top Rank International futures brokers, says his main clients are government departments, officials and State-owned firms doing"a bit of financial engineering".

Mr Johnston's domain is Haikou's foreign business centre, a huge trading floor with real-time screens to markets in Hong Kong, New York and Chicago.

In private rooms off to the side he educates his staff and clients about how capital markets work.

A popular training aid is Oliver Stone's insider dealing epic Wall Street -in particular, a translation of the oily Gordon Gekko's credo that "greed is good".

"My students really like that movie," he says. "I don't always show the part where the hero gets sent to jail. It might give them the wrong idea.

"We have done more business than any other futures house in the region -and I mean countries in Asia, not provinces in China."

Although Hainan lacks an official stockmarket, provincial officials quote statistics that the island was China's third-most voracious stock trader in volume terms for last year.

Those figures take on sharper definition when considering the island has just seven million people - 80 per cent of whom are farmers at or near the poverty line.

By comparison, the Great Wall Streets of Shanghai and Shenzhen service potential markets measured in the hundreds of millions.

Over at the Haikou Canned Food Factory, beneath loyally displayed portraits of President Jaing Zemin, Premier Li Peng and the National People's Congress chairman, Mr Qaoi Shai, the plant director Mr Zeng Lide waxes lyrical about his boss, Mr Wang Guangxing.

Mr Wang, whose names means bright prosperity, is Hainan's business miracle worker. He is hard at it writing a book which documents his achievements turning around the State-run company that juices Hainan's coconuts and pineapples.

"Mr Wang is a truly great patriot," says Mr Zeng, who described Mr Wang's secret formula as simply reorganising the factory's distribution, a common theme with China's lumbering State-run companies.

Mr Zeng himself is typical of officials in Hainan who have "jumped into the sea" - the Chinese vernacular for turning State careers into private enterprise.

Mr Zeng's previous job in the government entailed supervising the island's food and beverage industry, theoretically a more powerful position than his current directorship at the juice company. But Mr Zeng knows where the power flows in today's China: "My case is not unusual."