Maybe Guanxi Isn't Everything After All

Connections haven't helped a big Beijing project

It took the Chinese emperors centuries to complete the Great Wall. With luck, it'll take China a lot less time to finish another giant real estate project--the $1.5 billion Oriental Plaza in Beijing. But the way things are going, some people are starting to have doubts.

The Plaza's sorry saga disproves the notion that companies with great guanxi, or connections, can easily get their way in China. The latest event to slow development: a discovery of Stone Age relics on the site. Now, some residents want a museum erected as part of Oriental Plaza, which is supposed to be a 760,000-square-meter complex of shops, offices, and apartments. This find is not the only headache for the developers, which include two Hong Kong companies with impeccable connections: Cheung Kong Holdings Ltd., run by Hong Kong billionaire Li Ka-shing; and Orient Overseas International Ltd. (OOIL), led until recently by Hong Kong Chief Executive-designate C.H. Tung.

A BRAWL. The battle first began in 1994, when local authorities demanded fast-food giant McDonald's Corp. vacate one of the most desirable spots in Beijing to make room for the huge complex. McDonald's fought back, holding on to a corner of the site while work went on around it. A compromise was reached in December. Now, McDonald's will get a spot in the plaza, and the company is happy.

But the McDonald's spat has just been part of the general brawl. Local writers and academics attacked the original design, claiming that its massive scale would dwarf the nearby Tiananmen Square and Forbidden City, which constitute the heart of Beijing. They also said the design violated city regulations limiting the size of developments inside the city center. The authorities, already alarmed at real estate speculation in the capital, suspended construction in November, 1994.

The project lurched forward after new approvals were issued in March, 1995. But that spring a corruption scandal erupted, leading to the mysterious suicide of a deputy mayor and the forced resignation of the city's Communist Party chief, Chen Xitong. In the leadership vacuum that ensued, the project stalled again. No clear explanation has emerged. But local executives think the central government, angry at not being initially consulted by city bureaucrats, took another look at the design and demanded changes. A scaled-back project finally got approval last May, and work started again. But in January, workers found the prehistoric goodies.

This new find has aroused the interest of archaeologists, who say it suggests Paleolithic humans lived where Beijing is now rather than just in the nearby mountains. Several newspapers and television stations are calling for the creation of a museum within the plaza complex. The museum appeals to Beijing residents disgruntled by the razing of beautiful old neighborhoods to make way for chrome and glass skyscrapers. "Many people here think too much of traditional Beijing has already been spoiled," says one unhappy Beijing magazine editor.

To further complicate matters, new Chinese partners want to join the action. OOIL Chief Financial Officer Harry R. Wilkinson confirms that a Chinese company will soon take a 20% position. Rumors abound that the interested party is state-run People's Insurance Company of China. A PICC official refused to confirm any negotiations, but did say: "We would like to invest if given the chance." Cheung Kong refused to comment, calling all matters relating to Oriental Plaza "confidential."

Despite all the obstacles, city officials say construction will soon resume, and that no plans are being made now for the inclusion of a museum. Says David Fan, general manager for the Beijing office of C.Y. Leung & Co., one company doing overseas sales for Oriental Plaza: "After the Chinese New Year, they'll start work on the foundation, and it should be all smooth sailing." Maybe so. But with this most ambitious of projects still little more than a vacant lot, plenty of other delays could crop up. The lesson: Guanxi helps, but persistence is essential.

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