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Changing the Rules: Debating Price and Contract Regulations in Northeast China
| Article
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14259 |
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Section : |
MODERN THOUGHT
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| Issue
Date : |
7 / 1988 |
8,185 Words |
| Author
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Roy F. Grow
Roy F. Grow is chair of the Political Science Department at
Carleton College in Northfield Minnesota and president of the
board of directors of the Midwest China Center. His book
Competing in China: Japanese and American Firms in a New
Market will be published in late 1988. |
Managers at the China #1 Stamping Plant near Shenyang were disheartened. After eighteen months of negotiations with three foreign firms and a dozen Chinese agencies, the plant had signed an agreement with a Japanese company that promised to bring new production equipment into the factory. But the complex contractual and financial arrangements hammered out by the plant's management began to collapse just as the Japanese equipment was about to arrive.
China #1's problems were related to a larger debate about regional economic relationships in the Northeast. On the face of it, however, the plant's issues seemed very local and specific. The plant was going to use the Japanese equipment to provide new products for several other Chinese enterprises. One of these new products was a jar lid that would be purchased by a canning plant near Dalian. The canning plant, in turn, would use the jar lids for new goods produced in its own recently upgraded facility.
The management of China #1 had worked to iron out all of the difficulties involved in selling the new jar lids to the Dalian enterprise. Negotiations between the participating enterprises had been carried on directly, without the intervening influence of the ministries and agencies that had been so important in the past. After some long bargaining sessions in 1984 and 1985, representatives from the two enterprises had forged an agreement that covered quality controls, delivery schedules, pricing policies, and payment plans.
But in 1986, a Beijing ministry has notified China #1 that it planned to "review" the enterprise's agreement with the Dalian caning plant. The agreed-upon price, the ministry suggested, was out of line with some thinking in Beijing about commodity prices in general. And the way that the contract had been negotiated--directly, between the two enterprises--was not in line with the agency's thinking about such relationships. The entire project, the ministry advised, should probably be placed on "hold" while a "definitive resolution" of the price, negotiation, and management questions was arrived at.
What should be done? Production schedules had been fixed in both the stamping facility and the canning plant, new materials had been ordered, additional workers had been assigned, and foreign technologies had been purchased. Did one agency in Beijing--after all of China's economic reforms--still have the power to change the rules governing all these complicated
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