Protests erupted in the southeastern Chinese village of Dongzhou last December
to oppose the construction of a power plant on land that demonstrators claimed
was illegally seized. Media accounts
said as many as 20 protesters were killed when police moved in to disperse
the crowd. While this incident of civil unrest was one of China’s most violent
in recent months, it is by no means isolated. Prosperity in one of the world’s
fastest-growing economies has not reached large swaths of its population,
sometimes pitting a small, privileged elite against the rural and urban
poor.
Various issues sparked the growing number of popular uprisings in
China, including the government’s failure to make good on agricultural IOUs,
factory bankruptcies and layoffs, failed financial schemes and, most recently,
government land seizures and the growing burden of pollution. Many of these
concerns remain unaddressed, and new ones are bound to crop up, according to
Murray Scot Tanner, an expert on China at the Rand Corp.’s Center for Asia
Pacific Policy. For example, locals may be moved to protest if construction for
the 2010 World Expo encroaches on their land.
Cowboy Capitalists
As an urban mecca and center of China’s financial
markets, Shanghai is uniquely vulnerable to violence sparked by what can best be
described as “cowboy capitalists.” Tanner cites a 2001 article in the journal of
the Shanghai Public Security Academy estimating that 55 percent of all protests
were “attributable to illegal actions by enterprise managers.”
Investing
wisely in Shanghai—a hub for trade, construction, manufacturing, financial
services and high technology—means steering clear of collusion with such
predatory business partners and local officials who seize land so that
businesses have places to build. Critics protest that many of these seizures
harm individuals and local ecosystems. “The recent protests could be a wake-up
call for industries and companies that damage the environment,” says Stephen Sun
Chiao, a managing partner with Sycamore Ventures in Princeton, N.J. A Shanghai
native who holds an engineering doctorate from Stanford, Chiao visits China
quarterly and has guided Sycamore in financing roughly 10 Shanghai-based
companies. He says villagers feel they are not being fairly compensated for
their land when it is appropriated by local bureaucrats as the site for new
factories. “But,” he admits, “at the end of the day, I don’t think [foreign]
investment strategies will change very much.”
Foreign investors in China have
a high tolerance for risk. Thomson Venture Economics, a financial data
clearinghouse based in Stamford, Conn., estimates that U.S. venture capitalists
invested $533 million in 65 Chinese companies during 2004 compared to $257
million in 20 Indian companies, and less than $100 million in a handful of
Russian start-ups. “When investing in China, you have to be aware that there
could be political or civil unrest,” maintains Mark Heesen, president of the
National Venture Capital Association. “But this is not a top concern for most
venture capitalists, at least no more than the violence in countries like Russia
and India.”
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