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TAXES

China's Hot Companies

China's entrepreneurial ventures have grown despite the communist government.
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The economic reforms in China have begun to spawn the most unlikely of Communist progeny: fast-growing entrepreneurial ventures. A prime example is Kaifa Technology, with headquarters in Hong Kong and a factory in the South China port town of Shekou. Founded in 1985 by a former Ampex engineer named Tam Man Chi, it has become a key supplier for such U.S. companies as Conner Peripherals Inc., the disk-drive maker. This year, Kaifa expects to earn pretax profits of roughly 20% on about $35 million in revenues. That represents a 100% increase over '87 revenues.

Even more spectacular has been the success of Beijing Stone Group Corp., a computer company founded in 1984. In just three years, Stone's sales soared to $138 million, with aftertax net profit of 10%. This year, sales are expected to reach $216 million. Such growth is particularly noteworthy in light of Stone's nebulous legal status. Unlike Kaifa -- a Hong Kong-registered joint venture of Crown Colony entrepreneurs and local Chinese government entities -- Stone is the ultimate anomaly: an employee-owned, private capitalist enterprise in a Communist state with a largely undeveloped framework for private ownership of companies. The situation is even confusing to the company's management, which has nevertheless decided to issue stock to employees pending release of the government's long-awaited regulations on such matters.

Despite the confusion, other Chinese entrepreneurs are eagerly following Stone's path. Another company, Cutex, is just beginning to manufacture two new products in an innovative profit-sharing arrangement with provincial factories. Like almost everything else in the world of Chinese entrepreneurship, the approach is both unsanctioned and untested. But Cutex's cofounder, Wang Ying Ru, says that she and her colleagues are willing to try anything. "We think we can do it our way, without the government," she says. "Everybody in China wants to be like Stone."

-- Joel Kotkin

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Last updated: Aug 1, 1988




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