02/12/96 IN BEIJING, THE LONG MARCH IS JUST STARTING

IN BEIJING, THE LONG MARCH IS JUST STARTING

On the surface, things seem chao-tic at China International Capital Corp. (CICC), Morgan Stanley & Co.'s pioneering, six-month-old joint venture with People's Construction Bank and several other partners. In December, 1995, Edwin Lim, a former World Bank director who engineered the $100 million deal, was pushed out as chief executive of CICC by Morgan Stanley and replaced by his subordinate, Harrison Young.
Young, whose Chinese is rusty, says Chinese and Western executives at CICC's office in Beijing often have to communicate through bilingual secretaries. And tenfold pay discrepancies between bankers with international experience--both Americans and Chinese--and bankers who have only worked in China are causing motivational problems. ``The biggest challenges we face are cultural,'' says non-English-speaking Tang Shisheng. He and Fang Fenglei are CICC'S deputy chief executives.
LEAPFROG. Despite these difficulties, CICC holds a long-term promise of enormous opportunity for Morgan Stanley, a relative latecomer to China. CICC, the firm's largest single investment in an emerging market, is the only Chinese investment bank with a foreign partner licensed to do business in China. Beijing views CICC as a way to build a Chinese Morgan Stanley. Morgan Stanley, for its part, sees CICC as a way to become a major player in China's domestic capital market, which is off limits to its rivals. And Morgan is betting that CICC will help it leapfrog earlier arrivals--such as Merrill Lynch and CS First Boston--in getting China's international business.
Even these contenders acknowledge that CICC is a daring gamble, like any other joint venture in China. ``We all thought CICC was very brave,'' says a major rival. Says another: ``If they hang in there, I expect they'll be rewarded down the road. The Chinese are the kind of people who appreciate something like this being done at a time when everyone else was leaving.''
IN A SLUMP. It may be years, though, before the 40-person CICC gets a return on Morgan Stanley's $35 million investment. Meanwhile, business deals seem to be going to Morgan Stanley's competitors. Merrill Lynch & Co. has just floated the first $400 million China Yankee bond deal.
Still, the unique combination of Morgan Stanley's skill and Chinese connections is producing some business, even though China's capital markets are in a slump. CICC is helping Jilin Oil search for an investor in the company's oil field. And CICC is holding discussions with several foreign corporations about finding local partners. Says John S. Wadsworth Jr., chairman of Morgan Stanley Asia Ltd.: ``Things are about where we expected them to be.'' Pioneering in China isn't for the faint-hearted, and CICC could be the supreme test of Morgan's global strategy.
BY DAVE LINDORFF IN HONG KONG