Dateline Peking, China: Prepare to shut up shop at any time

IF EVER a country embodied the entrepreneurial spirit, it is China at the end of the 20th century.

Access to fast-changing technology and a "flexible" approach to business arrangements and outdated regulatory frameworks contribute to a contagious optimism about money-making opportunities.

Anything seems possible - until the frontline soldiers in China's long march towards a dynasty of small private businessmen confront the might of the Chinese state.

Take the Chen brothers, in the Mawei district of Fuzhou city, in the south-eastern province of Fujian. Chen Zhui and Chen Yan have found themselves in a "David and Goliath" fight with China Telecom, the state telephone giant whose employee roll-call runs to more than a million.

It is outraged by a recent court ruling, which decreed that the Chen brothers had not broken the law in setting up an Internet international phone service in the back room of their suburban store, undercutting the sky-high call rates charged by the state monopoly.

The seeds of the trouble were planted in late 1997, when the Chen brothers launched their Internet service, offering five minutes of free international telephone time to entice customers into their electronics shop. Soon they were operating as a small phone service, attracting up to 20 callers a day.

China Telecom used its clout to send in the police, who detained the two men on charges of "endangering national security", confiscated their computer equipment, and hung on to 50,000 yuan (pounds 4,000) in cash after releasing the brothers.

Unusually for China, the Chens decided to fight back. Last May, they went to the local Mawei court, claiming that as there were no laws or regulations outlawing the private provision of telephone services over the Internet, they could not have committed a crime. They accused the police of wrongful behaviour, and demanded the return of their equipment and money. The court said they had no case.

They appealed to the Intermediate People's Court in Fuzhou. Against all expectations, the Chens won, and the original case against the police was sent back to the Mawei court with orders to be heard by the end of April.

As the case stands now, this represents something of a hollow, albeit extraordinary, victory. The police still have the computers and the money, and China Telecom swiftly introduced new regulations last September, saying that anyone running an Internet telephone service must first have its approval.

"Certain unlawful and illegitimate operators ... have taken a large part of revenues from us, amounting to several billion yuan," said Zhang Chunjiang, director of the Telecommunications Management Bureau at the Ministry of Information Industry in Peking. "This is tantamount to information smuggling,"

He said China Telecom had plans for Internet telecommunications, and did not intend to share the business with allcomers. The Chens will go down in the annals of China's commercial history as failed early champions of consumer choice. They are unlikely to be the only ones. In Peking, the small traders of Sanlitun district are involved in a similar struggle of unequals, pitting risk-taking individuals against central planners.

Over the past five years, this part of the city has evolved into the nearest thing Peking has to a Hampstead High Street.

Encouraged by a critical mass of expatriates, and a growing number of middle-class Pekingers, Chinese and foreign entrepreneurs have set up a string of small, mostly private shops and restaurants along the tree- lined Gongti North Street.

They includeJenny Lou's grocery store, Siegliende Schindler's German butcher, the Italian cheese shop, and Farid Fakhour's Middle Eastern restaurant and cake shop.

Now even the smallest foreign-invested retail business must have a Chinese joint venture partner, and the most modest private Chinese business is at the mercy of demands from local bureaucrats for extra fees, taxes and permits. Even the clearest rental lease can turn out to be worthless. Especially when the local government wants to send in the bulldozers.

All these businesses have just been told by local cadres that they have only weeks to evacuate their premises, which are to be demolished for underground heating pipes and road-widening.

"I signed a four-year lease for my restaurant building," said Mr Fakhour, a Syrian who has been doing business in China for two decades, and whose popular Thousand and One Nights restaurant opened only last April. "First I heard from other traders. Then after two or three days there was a letter, not signed, saying that they were going to demolish us."

None of the businesses will receive either compensation or the offer of alternative accommodation. In the face of a construction project blessed by central government, no one believes there is any point trying to fight.

Wang Jianying is the driving force behind the Jenny Lou grocery stores and one of the most successful small Chinese traders in Peking. Her Gongti North Street shop opened in April 1997 with a five-year lease. "How can they break it? Because it is the government's building. We spoke to them, but it's no use," she said.

If there is one essential quality for anyone doing business in China it is stamina.

"I know China very well," said Mr Fakhour. "I have my idea for business. When I lose something, I forget about it."

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