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U.S. firms back handover
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June 30, 1997: 5:21 a.m. ET
Companies doing business in China welcome Hong Kong transfer
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NEW YORK (CNNfn) - When the clock strikes midnight on Monday in Hong Kong, James Dao will smile.
Dao is confident that Hong Kong's historic transfer from British to Chinese rule as of Monday night will create new opportunities for his company, Communication Intelligence Computer Corp., which develops computer technology in the Jiangsu Province.
"I think the changeover is wonderful for our company in China," said Dao, whose firm is based in Redwood Shores, Calif.
American businesses have looked hungrily at mainland China for years.
Largely undeveloped, the country has a young and growing population of 1.25 billion people who basically need everything: new roads, communication networks, cars, computers, appliances and airplanes.
At the same time, Hong Kong has thrived as an Asian hub bursting with enterprising spirit and hard work.
Analysts and U.S. corporate chiefs see even more dollar signs in the People's Republic with the new Beijing-Hong Kong link.
"I think China is going to become more like Hong Kong - - more capitalistic and entrepreneurial," said David Elias, chief investment officer at Elias Asset Management in Williamsville, N.Y. "It's a wonderful opportunity for American companies who like to do business world-wide. It's going to make a significant impact on (American) company earnings in the next 20 years."
Dao, who was born in China, started doing business in the country in 1981. CICC, a joint venture with the Chinese government, is a subsidiary of his U.S. company, Communication Intelligence Corp.
The firm produces "pen computer technology" that relies on a stylus instead of a keyboard and mouse -- more convenient for Chinese dialects with 20,000 characters.
CICC recently launched a new software division that is working on other applications for pen technology.
"We're fortunate to (launch the new division) now, at a time when the whole mood of China is getting more stable and opening up," Dao said.
David Li, research associate at the Center for Chinese Studies at University of Michigan and an assistant economics professor, said the handover will force China to continue economic reforms that have been going on for the last 15 to 18 years.
Li sees a potent business relationship developing between American companies and China. (167K WAV) or (167K AIFF)
"(The changeover) will force China to follow through with its reform agenda," Li said. "U.S. companies are all optimistic."
The United States is the third largest overseas investor in China, trailing only Japan and the soon-to-be-former colony of Hong Kong.
Overall international investments totaled about $40 billion in China last year.
"It will certainly enhance commercial prospects in China for U.S. companies as Hong Kong and China's economic integration increases," said Richard Brecher, vice president of the U.S.-China Business Council in Washington, D.C.
U.S. firms are already moving to take advantage of the handover.
State Street Bank recently announced plans to team up with a Hong Kong brokerage and investment firm, Mansion House Group, to tap into China's mutual fund market.
"China is going to be a giant in the investment world," said Nicholas Lopardo, chief executive of State Street Global Advisors.
Dao said Beijing's link with Hong Kong could ease some of the cultural differences American companies face doing business in China.
"The exposure (to Hong Kong) will definitely carry back to China," Dao said.
Currently, U.S. firms doing business in China must learn to play by rules often unknown in Western economies.
For instance, China's weak legal system has forced mainland businesspeople to develop a system called "Guanxi," or "connections," according to Wei Li, economics professor at Duke University.
Under "Guanxi," a deal is often made with a handshake, then sealed with a gift of money or services, such as a trip to America.
The professor said the system isn't bribery, but "a substitute for rules of law, when you don't have a strong legal system that can enforce contracts."
Moving forward, Dao thinks China will work hard to build a good reputation in the world economy.
"Over time," he said, "I think ... differences will be bridged."
-- Martine Costello
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