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American Businesses See Future In Selling to China

April 13, 1992

CANTON, China (AP) _ When Fred Burke invested in a frog breeding venture in China last year, he planned to export the critters for discerning palates in France and the United States.

But frogs, known here as ″heaven’s chicken,″ fetch a better price in China. So Burke and his partners began hawking their wares domestically. Now they sell to 48 hotels in Shanghai and jokingly call themselves ″Frogs ’R Us.″

″It’s a sign of changes in China,″ says Burke, a 33-year-old lawyer from San Francisco and managing director of Red Lotus Development Co. of Hong Kong. ″The China market is finally taking off.″

Selling frogs to footwear, beer to baby food, American businesses are discovering that the myth of the Chinese market - of 1.1 billion consumers with ready cash - is turning, somewhat, into reality.

The pitfalls can be tremendous - corrupt officials, distribution barriers that prevent goods from being sold nationwide, the public relations nightmare of being associated with a repressive political system.

But these days optimism abounds. The government recently ended three years of economic austerity that froze economic reforms, and the Beijing government predicts imports will rise as tariffs fall.

Kentucky Fried Chicken says its six restaurants in Beijing and Shanghai give it the highest profit margin of any in the world. One outlet, just off Beijing’s Tiananmen Square, served 300,000 chickens to 2 million people last year, says J. Samuel Su, KFC’s general manager for China.

H.J. Heinz Co.’s baby food, made in Canton, sells in every province but Tibet. The company recently signed another joint venture to open a $12 million plant in the northern metropolis of Tianjin.

Nike sneakers are elbowing into sporting grounds. Pabst Blue Ribbon beer, which first came to China in 1870 on American clipper ships, has won about 3 percent of China’s beer market since it took over a brewery in Zhaoxing near Canton two years ago. Ralph Mitchell, general manager, says the company plans to quadruple capacity by 1993.

″They’re dancing in the streets in Zhaoxing,″ Mitchell says. ″The market here is unlimited.″

As many as 20,000 Avon ladies sell cosmetics in Guangdong province, pushing goods ranging from $2.50 soap to $17 containers of an anti-aging agent called Night Support.

Samantha Kong, an executive with Avon Products Inc., says the firm revised up its sales forecast four times last year. It opened a factory in Canton in November 1990.

Many American firms are reluctant to discuss their success in China, fearing political trouble from jealous Chinese competitors or public relations problems back home.

M&M.Mars Co. of Hackettstown, N.J., has extremely strong candy sales in China but the company declined an interview. In the fall of 1990, Hong Kong activists threatened to poison bags of M&Ms because the company sponsored the Asian Games in Beijing.

Criticism also comes from nationalistic Chinese, like Ng Hongman, a member of China’s legislature. Pointing to Coca-Cola Co.’s success in China, he recently lashed out at the ″strategic harvesting″ of China’s markets by foreign firms.

The main reason for the Americans’ success has been free-market reforms masterminded by China’s 87-year-old patriarch, Deng Xiaoping. The changes have resulted in a huge increase in disposable income. Savings have more than more than tripled since 1987 to $183 billion and are growing by 20 percent a year.

The changes are especially advanced in the southern province of Guangdong, which was urged by Deng to be more creative than the rest of China. Now Guangdong boasts the highest standard of living in China; refrigerators and air conditioners are commonplace, as are shopping sprees to Hong Kong.

To break into the China market, American businessmen rely on a simple marketing technique - selling the West.

Procter & Gamble Co., whose Head and Shoulders shampoo is a hot seller, urges buyers to ″beautify your life.″ There’s a double entendre. The Chinese characters for ″beautify″ also mean ″Americanize.″

Advantage Foods Marketing, of Long Island, N.Y., sells Chock Full O’Nuts coffee packaged to look like a European blend. A television ad shows a gathering of six Chinese in an upscale apartment. On a table is a map of Paris and the Eiffel Tower.

″We’re selling an out-of-China experience,″ says Jerome Rounds, the company’s president.

Other firms benefit from characteristics peculiar to China. Its one-child- per-family policy helps Heinz sell its relatively expensive baby food and the idea of lavishing everything on junior.

American businesses say they initially worried about getting their profits out of China because the yuan is not convertible, but they gave China high marks for coming up with a solution. Over the last few years, China has set up 10 ″swap shops″ where firms can buy dollars on the ″grey″ market.

Many businesses, however, choose to keep their money in China. Kentucky Fried Chicken used profits from Beijing to refurbish restaurants in Shanghai. Red Lotus hopes to use frog farm gains to open Shanghai’s first pet store.

End Adv for Monday, April 13

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