State planning used to be a slam-dunk. No more. In the past year grassroots protesters in China have forced the delay or suspension of at least a half-dozen big centrally-backed projects. Their fears of toxic fallout are magnified by mistrust of a system lacking public oversight.

The recent chain of "not-in-my-backyard"-style protests began with a backlash against a chemical factory in the seaport of Xiamen. Residents opposed to the project directed much of their wrath at a fugitive Taiwanese tycoon named Chen You-hao, founder of petrochemical maker Xianglu, now Xiamen's top taxpayer. He served as "adviser" to the company on its $1.4 billion addition set to produce paraxylene (PX), a basic ingredient in producing plastics, polyester and cleaning agents. It was the first privately owned plant of its kind in China.

But just as the PX site was being cleared, leading Xiamen scientists brought charges of safety hazards before a national congress in Beijing. Bloggers and property owners took up the "anti-PX" cause, and last June thousands of Xiameners marched against the would-be plant. The project's been grounded since that time.

Chen's conglomerate in Taiwan imploded in the 1990s, and the government stuck him on the most-wanted list after he failed to stand trial on breach of trust charges. Now 68 and semi-retired in San Francisco, Chen laid low throughout the PX saga. But things came to a head during a rare public review period in December. Again Xiameners vented overwhelming hostility toward the project, and local Communist Party bosses made internal recommendations to relocate it further down the coast. Meanwhile company chiefs were lobbying Beijing authorities to keep it in Xiamen, and accept their defamation suit against the scientists who first challenged the project. Chen made the company's case to NEWSWEEK at his hotel room in Beijing, his first and only interview on the ordeal. Excerpts:

NEWSWEEK: Chinese media have hailed your company's setback as a popular victory in terms of official accountability and the goal of balanced, "scientific development." Even you must see some greater good?
Chen You-hao: The "scientific development" concept is very democratic. But science is science. What's true is true, and what's false is false. You can't have people twist it. But here people have twisted it.

How?
The full truth has to be publicized. In the United States, in Japan, in Europe and in other places, a lot of people are living next door to aromatics plants like ours. So what to do? None of them have moved. Do [state-owned PX plants] in Shanghai and Nanjing all now have to move? China has another 20-some aromatics plants with a lot of residents living next door. Do they all have to move as well? A theory has to be consistent.

Xiamen has sprawled since your petrochemical zone was established. How did planning go so awry?
We did nothing wrong. But frankly, for the local government to create a second city center here was wrong. By law, the 2004 second city center plan never got the approval of the central government. The [1995] plan for the industrial zone did. So who do you think is right?

Though you received all the required approvals, the government bowed to popular pressures. What's the lesson for the private investor?
This matter will serve as a big warning to foreign investors, because everything should go according to the law. China is in a learning stage. In that learning stage, sometimes things will happen that are rather irregular.

From the start, media reports came out fairly one-sided against you. Why'd you fail to get your account out?
Do you think it's easy for us to go to the media? China's media are controlled. Recently, we did a lot of publicity that was not reported. Before that, we were told that the city government was working on it and we shouldn't make a move. The Xiamen propaganda department controlled the city's media.

The Xiamen government spoke up for you at first. Do you feel now that because you couldn't offend the government, you couldn't do proper P.R. to defend yourself?
Right. Of course. Which is why we very much need you today.

So what changed?
Today the city government and us are not so friendly anymore.

They turned against you?
From the end of May [2007] when the decision [to suspend the project] was made, they've been entrusting people to ask us to [voluntarily] move.

Just like that, they didn't want your project?
With the demonstrations and so forth they didn't want the headache.

How'd you respond?
I said if you want us to move, the [central] government has to order us to move, because the central government gave us the license to build in Xiamen.

China's environmental regulators want to start requiring a public review process, as in the United States.
We very much like the American system, but currently the Chinese legal system does not work that way. We can only go by the law.

Would tighter zoning standards and a public review process be good for your business or bad?
If [the process] was more open from the beginning like in the U.S., I'd really prefer it that way. If they'd told us back then that we couldn't be here, then we'd pull out. We wouldn't lose a thing. We'd just choose a different site, right? We wouldn't have all the damage that we have today.

There is speculation that your discord with [former Taiwanese president] Chen Shui-bian made you a better friend of Beijing and that the Nationalists' rapprochement with the Communists bolstered your guanxi [network of contacts] across the Strait. Any truth to that?
I really don't know. I'm not a politician. I have friends who support Taiwan independence as well as friends who support unification. All I say is that I am Chinese. Chinese have a saying, "Blood is thicker than water."