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A LITTLE OVER 12 YEARS AGO, Dongguan was nothing to write home about. The municipality was best known as the area you had to travel through between Guangzhou, Guangdong’s capital, and Shenzhen, its booming special economic zone. But it had the potential that investors with a grasp of pre-developing market economics would appreciate. And so Harley Seyedin decided to build China’s first western-owned power plant in Houjie, one of Dongguan’s unremarkable townships closest to Guangzhou.
The rest, as they say, is history. Today Dongguan has the highest per-capita GDP for a municipality of its size in China, its population has grown from around 1 million to nearly 9 million, Houjie has a Sheraton, and the Dongguan Houjie Power Plant Company has made a handsome return on Seyedin’s investment.
What was it that made Dongguan take off? A simple decision that its leadership took at the time: allow foreigners majority control of their joint-venture investments, help them set up, and then wait patiently for the taxes to roll in.
That might not sound so revolutionary to foreign investors today. But to appreciate how important – and how brave – that policy decision was back in 1993-94, you have to look at what was happening in China.
“Former premier Zhu Rongji was clamping down on the banks,” Seyedin recalls, referring to a period when the economy was clearly out of control and extreme austerity measures were imposed by the central government on what was then a nascent financial system. “It seemed obvious to me that all of the development that was being driven by state-directed lending was in for a hard time.
“We looked at Shunde (opposite Houjie, a short drive away over the Humen Bridge, which was then ranked No. 2 in China for per-capita GDP), which had a booming economy but everything was locked up in state-funded joint ventures, and then we looked at Dongguan, which had ambition. It was a gutsy thing for them to do, allowing foreigners majority control of their projects, and so we decided to go with the little guy.”
Market forces took care of the rest, of course, and today Dongguan is the poster boy of economic development across the country as China’s banking system becomes more in tune with a capital-driven economy and state-owned companies are the exception rather than the model.
It wasn’t just the initial boldness that helped Dongguan – and Seyedin – succeed, however. There are plenty of stories in China of failed investments where foreigners had majority control. And the power sector has some of the most high-profile of these, such as Enron’s US$200 million project in Hainan.
Where Seyedin made it work in Dongguan was with the most valuable commodity of all: trust. Rather than listening to the promise of riches from local officials who were dreaming of a day when they would all soon be living like Californians, Seyedin did his homework, and looked at where demand was most likely to come from.
“Too many foreign investors are caught up in the illusion of government guarantees written into Purchase Power Agreements (in which the state buys electricity from the supplier),” Seyedin says. “And then, when this or that industrial park doesn’t materialize, they are surprised when their contracts are reneged upon, and they become absorbed trying to sue for compensation.”
Instead, Seyedin looked at smaller areas where real development was taking place of its own accord, rather than within the confines of someone’s five-year plan for a grand industrial park. Dongguan fit the bill, literally. “Our bills have always been paid on time,” he says with a satisfied grin, adding that another of Dongguan’s most remarkable points of pride is how few corporate failures it has seen.
Today, Dongguan is a completely different place than when Seyedin first looked at it. It has run out of land for industrial development, and so is pushing the growth of hi-technology investments. Five-star hotels are everywhere, including the Sheraton in Houjie, the Sofitel in Huying Park, and the Hyatt Regency in Songshan Lake. Three of the province’s finest golf courses are within an hour’s drive of each other: Harbour Plaza in Houjie, Long Island in Chang’an, and Hillview in Huying.
Seyedin’s 70-megawatt power plant is still, however, the only one of its kind in Houjie. It runs at virtually maximum output, around 5,000 hours per year. And yet, walking through the plant, it seems eerily lacking in people. “This is probably the most efficient power plant in the country,” he explains, pointing out that he does with 33 staff what the average domestic power plant does with more than 100. He is also proud of the plant’s emission controls, a sensitive subject in the Pearl River Delta, with heat-recovery boilers on the plant’s exhausts allowing him to get six per cent more efficiency in generation. Strict maintenance controls kick in another 15 per cent of efficiency savings compared to a typical plant of its size.
Seyedin also has a lot more on his plate now than just this plant. He recently bought an 87-megawatt power plant in Zengcheng, a district of Guangzhou that has been growing by more than 30 per cent for the past few years, and he is looking at building two more generation plants on his land in Houjie. Unlike the first oil-fired plant, however, he is hopeful of getting these to run on Liquified Natural Gas, which is more expensive but better for the environment. Negotiations are continuing with the government for allocation of supply from its massive LNG project in Shenzhen.
He also jokes sometimes that all these investments are distracting him from his real job as president of the American Chamber of Commerce in South China. Membership is now up to more than 1,000 companies, and he has his hands full with a busy schedule of engagements, often involving high-level discussions between major foreign investors and government officials.
Perhaps not surprisingly, Seyedin is bullish on the economy’s future, not just in Houjie, but Dongguan and the rest of southern China, too. He sees real potential in the consumer-driven sectors as rising wealth levels kick in to retail sales, pointing to the performances of two Amcham members as evidence: Amway, which turned a US$100 million investment in 1994 into US$2 billion in sales a decade later, and Proctor and Gamble, which now has 40 per cent of the national market for personal care products. At the top end, too, demand is booming: Rolls Royce sales in the Pearl River Delta surpassed Japan last year.
“This is where the smart money is,” Seyedin says. He should know.
ANTHONY LAWRANCE
