Traditionally, Beijing residents have shunned commerce. Being the seat of government and the cultural and academic capital of China, the city does not hold entrepreneurs in high regard. Although this attitude is starting to change l as private business becomes a more important part of China's economy, Beijing still lags behind the coastal boom cities as a place to do business.
Private enterprise was given the official stamp of approval at the recent party congress. In his work report, President Jiang Zemin called the private sector an "important component" of the economy rather than characterising it as a mere supplement to the state-run sector, as was the case at the last congress. Moreover, the on-going disposal of state assets is creating opportunities for worker-management buyouts among smaller state companies right across China. However, the environment in Beijing is still not conducive for commerce.
The story of the China Europe International Business School (CEIBS), which moved from Beijing to Shanghai in 1994, is a case in point. When CEIBS established its operation in Beijing a decade earlier, it was the first foreign business school to offer
Western MBA programmes in China. Beijing, however, proved a far from ideal location for such an experimental venture.
Knowing the right people
CEIBS had a good relationship with its joint venture partner in Beijing, the China Enterprise Management Association, but the Chinese institution was reluctant to give CEIBS free reign to run an independent and competing business school on the cam-pus. Shanghai Jiaotong University, by contrast, was eager to be affiliated with such a prestigious institution, letting CEIBS run the school as it wished from buildings on the Jiaotong campus.
"CEIBS is an advanced experiment, and it is not politically possible to do that kind of thing in Beijing," says one foreign observer. "Central government prefers to experiment outside the capital. Stock markets were set up in Shanghai and Shenzhen, agricultural reform started in Sichuan. You won't see any reform initiatives starting in Beijing. That was the case at the beginning of the decade and it still holds true."
Once the school relocated, CEIBS executives found that Shanghai was a far better place for business education than Beijing. "In Guangdong, to do business you need to be able to sing karaoke," says Mr Jan Borgonjon, president of CEIBS at the time of the relocation. "In Shanghai, you need the right skills. But if you want to make a deal in Beijing, you need to know the right people. It is a simplification of course, but it typifies the attitude to doing business. People in Shanghai are much more interested in developing their business skills than those in Beijing. Shanghai is a better developed market for executive education."
One of the problems is the mountain of paperwork business-men have to plough through, which is time-consuming and encourages the pursuit of favours. Payments of the kind that brought down former Beijing mayor, Chen Xitong, in a spectacular corruption case is the tip of the iceberg according to one foreign businessman. "It's not just the big fish you have to pay thousands of dollars to secure a deal," he comments. "It's all the smaller officials who come in asking for a few hundred on his coat-tails and haven't got the power to secure anything."
Last year over 64 per cent of employment in Beijing was in the state sector ?53.5 per cent in what China classifies as state-owned companies and 10.8 per cent in 'collectives'. The former are large state companies and government departments, the latter smaller state-run operations. Private business is growing, but slowly ?its share of employment rising from 9.3 per cent in 1995 to 10.9 per cent in 1996.
According to a recent survey by the Municipal Statistics Bureau, 68 per cent of Beijing households fall into the middle-income bracket ?earning between YnI6,000 and Yn35,000 a year. Most of them work in government departments or large state-run companies. Households are further cosseted by a cradle-to-grave welfare system which holds strong in Beijing. While this degree of security is being eroded by the reform of China's state-run industries, the process is likely to have a much smaller impact in Beijing than in Shanghai because of its smaller industrial base.
"Reforms and lay-offs in state industry are forcing people to do business, but in Beijing it is not as dynamic as in other parts of the country," says a Western diplomat. "This is the seat of government and an enormous proportion of people work in big government departments that will never be privatised. In Beijing it is more a case of people being forced to work for them-selves than setting up their own businesses by choice."
In 1995; the latest year for which reliable comparative figures are available, 100,000 more people were working in private enterprise in Shanghai than in Beijing. The private sector in Beijing is far less developed, mostly comprising what the government classes as self-employed people ?typically one person selling things from the back of a cart or small market stall. There were 404,000 self-employed in Beijing in 1995, compared with 211,000 in Shanghai. However, only 126,000 people were employed in privately-run companies in Beijing, compared with 428,000 in Shanghai.
A magnet for growth
Rising unemployment is forcing a change of attitude ?an academic from the Chinese Academy of Social Sciences recently put unemployment in the capital at 7.8 per cent when taking into account redundant workers paid a minimal stipend by their former state employers.
Where the region does act as a magnet for private sector growth is as a centre of consumer demand. Viewed as a single market, the capital and neighbouring Tianjin represent by far
the biggest concentration of wealth ?and consequently demand ?in northern China. Together, they produce a higher volume of retail sales of consumer goods than Shanghai, China's single biggest urban consumer market. In 1995, Beijing and Tianjin recorded retail sales of Yn144bn, ahead of Shanghai's Yn116bn. Beijing alone, which has a thriving retail sector, posted retail sales of Yn97bn last year, up Ynl4bn on 1995.
The industrial sector is less vibrant. Beijing and Tianjin together do not even come close to Shanghai, which has re-emerged as China's most dynamic industrial region. In 1995 Shanghai achieved a gross value of industrial output of Yn431bn compared with Beijing's Yn162.7bn. This gap is likely to have ' widened since last year because of the bloated and inefficient nature of the capital's industry.
In the long term, Beijing's best hope for private enterprise is to utilise the fountain of talent emerging from the capital's universities. Zhongguancun, the high-tech zone located in north-west Beijing along an eight kilometre strip of the capital's university district, is known as China's silicon valley. In addition to attracting foreign investment ?P&G and IBM have set up joint-ventures with university departments ?Zhongguancun has also fostered home-grown talent.
Between them Stone and Legend, two mainland computer companies based in Zhongguancun, dominate China's computer market. Graduates from Qinghua, the capital's most prestigious technological university, have been instrumental in the success of both companies. These are exceptions, however, in this highly bureaucratic city.
try has changed in recent years include adopting these practices:
design fees are set by competition
the design process is subject to commercial pressures
tendering is used to secure work
materials and plant are bought in the market
profit is needed to survive
workers compete for jobs
quality is seen as a key issue.
The practice of tendering is still quite new to China. In 1994 about 40 per cent of all construction projects were handled in this way — compared with less than five per cent in 1984. But the concept has made more progress in the field ofbuilding than in planning, design or materials supply.
Likewise, safety is taken very seriously these days, with time being allocated for regular training sessions. But it still has a long way to go to match the standards considered normal in the West.
On the question of quality control, the report says, "China is able to pro-duce good quality but the concept is not deep-rooted in the construction industry nor in the workforce". The problem is especially serious in rural areas, resulting in China developing its own GB/T19000 quality standard based on the international ISO9000 norm.
Looking ahead, the authors identify a need for major investment in training to achieve acceptable levels of quality assurance and control. Repair and maintenance currently account for less than 1.5 per cent of total output in the industry, compared with nearly 45 per cent in the West. "In the long term there will be an enormous market for repair and maintenance skills as China catches up on the backlog of repairs."
On the key question of building and structure design, the report predicts significant growth: "China could well be-come a major base for design work undertaken for the West. There is a real possibility of drawings being produced in centres in China and transmitted electronically around the world. The benefits are lower wage costs and the availability of competent Chinese soft-ware engineers who are quickly trained on the job. A major US organisation is already conducting field trials."
* International Construction: A Perspective of China is published by the UK's Chartered Institute of Building, fax (44) 1344 630777.