More and more states are getting the message: Create a positive business climate — or else. Else what? Well, else be prepared to watch helplessly while neighboring states win the battle for new corporate facility investments and the jobs and economic growth that accompany them. That?s what. Site Selection?s 31st annual ?50 Legislative Climates? survey reveals that state governments across the country are getting the business climate message. They?re fixing the problems that have encouraged firms to invest elsewhere — and improving on existing strengths. Even states that sometimes have been dubbed unfriendly to business are getting in on the act.

Indeed, a tidal wave of positive developments emerged from statehouses this year. From Alaska to Alabama and New Hampshire to New Mexico, states are cutting taxes, creating new financial incentive programs, hiking education funding and infusing environmental programs with a new attitude of cooperation. Significantly, California lawmakers made several major business climate-boosting moves in their 1996 session, among them slashing business taxes by some US$279 million over three years.

In a finding that bodes well for their ability to provide education, infrastructure and other critical services, states were in better financial shape at the end of fiscal year 1996 than any time since 1980. In fact, no state ended the year with a budget deficit.

For the first time since 1978-79, states enacted back-to-back net tax reductions. Lawmakers hacked about $3.5 billion from state levies this year, exceeding even 1995?s $3.3 billion cut. And no state passed a major tax increase in 1996.

Some 76 percent of states responding to the survey approved ?new incentive programs (e.g., tax abatements, financial grants, loans, etc.) to attract or retain corporate facilities.? Less than one state in five eliminated or cut back any existing incentive programs.

Meanwhile, financial incentives accountability is on the rise: About 10 percent of the survey respondents made legislative or regulatory changes attaching ?clawback? and quid pro quo provisions (e.g., recouping incentives if agreed-upon capital investment and job projections aren?t met) to their corporate location incentive packages.

Almost half of survey respondents (48 percent) report that their state has ?passed legislation or developed policies to reduce the liability threat inherent in buying or selling environmentally contaminated former industrial sites? during the past three years. States are increasingly adopting a cooperative attitude regarding environmental-related liability for businesses, and no state approved stringent environmental legislation this year.

China, Hong Kong and Taiwan: Politics has perhaps never made for bedfellows so odd and uncomfortable.

But ?the three Chinas? are inextricably linked. The next year will sharply shape their business location prospects, with the outcome of inordinate interest to expansion-minded firms. In a few decades, China?s economy will likely be the world?s largest, spurring U.S. firms alone to invest more than US$20 billion since 1990 in opening operations stretching from Shenzhen to Shenyang.

Firmly atop the odd-fellows triumvirate, China is already entering the age of A.D. — After Deng — rapidly transforming itself while strongman 92-year-old Deng Xiaoping is still alive. Deng sightings stopped in 1994, and his ideas and writings have evaporated from China?s prolific propaganda fount.

Deng?s emphasis on provincial decision-making, with economics superseding politics, is also fast receding before tight, centralized control. In a mid-summer speech, President Jiang Zemin, head of China?s new conservative ruling clique, ordered officials to ?talk politics,? not economics. Considered prime locations by outside investors, Deng?s ?special economic zones? have drawn sharp Jiang criticism. Ardent ?anti-colonialism? has stalled Deng?s privatization push, including foreign participation in power generation.
The strong-armed central government has also ratcheted up protectionism, and sharply tightened joint venture restriction. Outside investors? returns are under much more close-fisted constraints.

Chrysler last year dropped a planned major minivan plant after China refused to protect its technology. Other wary outside investors have chosen regional locations like India and Indonesia.

Hong Kong?s ?C Day?

July 1, 1997, is Hong Kong?s ?C Day,? when the British colony reverts to Chinese control.
But Hong Kong?s transition has already taken off. Initially, the huge base of global firms with Hong Kong operations confidently anticipated a ?one country/two economies? policy.

Recent developments, however, have added a hard edge. Most significantly, China dissolved Hong Kong?s elected legislature. Its ?appointed? replacements pointedly excluded major democratic interests. In addition, several old-line firms have been muscled into selling off their interests.

With Hong Kong, the Chinese will control a vibrant economy that?s profoundly foreign. Yet China badly needs Hong Kong?s capitalistic expertise, and almost certainly intends to implement the ?one country/two economies? scheme.

But can it? If control even appears to be slipping, ?the only thing they know how to do is try to control it more,? says Hong Kong Baptist University?s Michael DeGolyer.

Taiwan: Under the Gun

China greeted Taiwan?s maiden voyage into democracy with a many-gunned salute: Large-scale military exercises off the Taiwanese coast employed nuclear-capable weapons that could?ve reached Hong Kong or Japan.

For many multinationals, it was a Prozac Moment. Many outside firms facilities? dot the island, while others are eyeing Taiwan as an alternative to Hong Kong.

?A free and democratic Taiwan threatens the legitimacy of China?s political dictatorship,? contends Richard Fisher, Heritage Foundation senior policy analyst. China?s ongoing intimidation is designed ?to compel reunification talks on Beijing?s terms,? Fisher says.

But even within Taiwan, significant political disharmony smolders over Chinese relations. Long term, Taiwanese President Lee Teng-hui favors peaceful unification. Short term, Lee is jockeying with the mainland to increase security but maintain sovereignty.

?The 21st century will belong to China,? says geopolitical guru John Stoessinger.
Most global firms, however circumspect, will likely find they belong in China, and Hong Kong and Taiwan as well. But don?t expect a cushy comfort zone.

In November, U.S. voters will once again choose the nation?s chief executive. Their decision will have a far-reaching impact on business operations in the United States and abroad for the next four years.
The following are excepts from the October Site Selection?s quadrennial Presidential Face-Off, comparing and contrasting the views of Democratic candidate (and incumbent President) Bill Clinton, Republican nominee Bob Dole and the Reform Party?s Ross Perot.

TRADE POLICY

Roaring back from a near-death experience, newly profitable Euro Disney is now expanding, creating Val d?Europe, a strikingly different new town. ?We?ve moved from restructuring to reconquest,? says Bourguignon. After years of being looked at like some sort of animal, it is very good to feel normal.? The Park Opens, Critics Swarm Euro Disney?s rocky beginnings are now woven into the fabric of world business history: First, American-based entertainment colossus Walt Disney Co. on Apr. 12, 1992, opened Euro Disneyland, the first non-U.S. theme park it?s totally controlled.

By 1994, Euro Disney had lost US$1 billion; its very existence depended on a complex financial restructuring.
?Absolutely, the financial structure was the most pressing problem — that plus the economic environment,? Bourguignon says. ?Management problems are normal; everything there is correctable. Correcting the financial structure is much more difficult; it involves renegotiating with outside parties? — which included 61 separate banks.

Debt Mountain Loses Altitude

After months of nervous negotiations, the restructuring emerged in the spring of 1994. Essentially, it provides Euro Disney with a reprieve from royalties, principal payments and partial interest.
But the holiday on interest payments, royalties and fees is only temporary. Bourguignon is acutely aware that Euro Disney?s lifeline must be fashioned by annual revenue growth of 4-5 percent. That, he thinks, is well within range. And much greater growth is possible, he says, through a combination of volume, pricing, per-capita spending and yield management.

The CEO has already moved aggressively to optimize revenues.

Through more efficient management and staff downsizing, he cut 1995 operating costs by 20 percent. He slashed food prices and cut park entry prices for adults by some 20 percent, alarming some of Disney?s old guard, but successfully silencing some of the most vocal French critics.
1995?s results have likely impressed even the most sneering of cynics. Attendance of 10.7 million marked a 20 percent jump, with 11.5 million expected in 1996. Only 55 percent in 1993, hotel occupancy climbed to 69 percent, well above the 60 percent average in Paris, a tourism magnet for centuries. Most importantly, Euro Disney in 1995 turned its first profit a year ahead of schedule, ending $23 million in the black.
?Now that we have reached the new attendance plateau, revenue growth will be more difficult,? Bourguignon says. ?What becomes more important — and what we started over a year ago — is optimizing revenue from the same customers.?

Much of that added revenue will come through savvy real estate moves. Redevelopment will double the size of the already popular Festival Disney. The array of Americana-themed shows, stores, restaurants and clubs will be rechristened Disney Village; already, it has two new occupants: a tony Planet Hollywood, advantageously sitting beside Gaumont?s brand-new 8-screen, 2,200-seat cineplex.

Construction of new convention center at the Newport Bay Club hotel is well under way, and Hotel New York?s existing convention facilities will soon expand to meet bullish demand. And by the end of the decade, an externally funded 1 million-sq.-ft. (90,000-sq.-m.) shopping mall will be finished.

The New Town Challenge

Euro Disney?s longer-term challenge is to create the eclectic Val d?Europe envisioned at the project?s outset. But ED?s new town will be markedly different, Bourguignon cautions.

?With many new towns in France, there is a very bad connotation. They build a town that is not a place.
?So we must make a town that is new, but is not a new town; there must be a soul, as in towns that develop naturally. Second, we must integrate two things that could be seen as not compatible, a resort destination and a town, which is very difficult.?