China eases into market economy Balance: Beijing is trying to pace an introduction of capitalist-style reform so as not to set off serious political unrest among the workers who will inevitably be displaced.

Sun Journal

September 19, 1997|By Frank Langfitt | Frank Langfitt,SUN FOREIGN STAFF

LANZHOU, China -- Wu Yonggao faces a hard choice in China's drive toward a market economy.

As manager of a huge tractor factory in northwest China, Wu must choose between people and profits.

He could raise his state-owned company's meager earnings by cutting a quarter of his bloated work force, but he says he fears what his employees might do.

"If we lay off 2,000 workers, the factory can run normally," says Wu, an affable 51-year-old engineer who wears a Mao suit. But, he says, "maybe stability is more important."

As the world's last major Communist country forges its path toward a market economy, this is one of the most pressing dilemmas its leaders face: how to transform more than 300,000 state-run companies -- many of them ossified money-losers -- into profitable, modern corporations without laying off so many people so fast that China becomes politically unstable.

During the Communist Party's 15th congress -- a critical policy and personnel meeting that occurs every five years -- General Secretary Jiang Zemin offered some answers.

He called for speeding up capitalist-style reforms already under way, including selling stocks in state companies, leasing some to managers, merging failing businesses with successful ones and selling others off completely.

As the congress concluded yesterday, delegates unanimously endorsed the measures.

"We must establish a system of the survival of the fittest," Wang Zhongyu, minister of the State Economic and Trade Commission, said earlier this week.

"It is impossible to make each and every state-owned enterprise successful."

For a nation that once promised its citizens an "iron rice bowl" -- a secure job in which salary was unrelated to performance -- this Darwinian language is jarring.

State-owned enterprises employ more than 100 million people, and China has nothing approaching a social safety net.

Anger, pain and protests

DTC Laid-off workers often receive reduced wages and can continue to live in company-provided housing, but labor cutbacks are causing pain and anger.

In the first half of this year, 10 million workers were laid off and less than half have found new jobs. The people have responded with protests -- worrisome in a country of 1.2 billion people with a history of political instability.

In Lanzhou and surrounding Gansu province, where China's creaking state-run sector provides at least 70 percent of the jobs, laid-off workers have staged several dozen small protests in the past year alone, according to provincial Gov. Sun Ying.

"This situation cannot get any worse," says Sun, implying that he won't allow it.

Gansu, a poor, desert and mountain province a little larger than California, sits along China's rust belt. Once part of the legendary Silk Road, the famous trade route that joined East and West, it now relies largely on industries ranging from petrochemical plants to textile factories.

The capital, Lanzhou, is a polluted, industrial city of more than 2 million where the upturned eaves of Chinese roofs share the skyline with the onion domes of mosques.

Striving to become leaner and more competitive, some companies here are shedding the social services -- hospitals, schools and apartment buildings -- that state businesses have traditionally provided to their workers.

Lanzhou's Petroleum Processing and Chemical Complex lies along the banks of the Yellow River and is a city in itself.

The refinery, which employs about 16,000 people, sprawls across two square miles and seems a maze of pipes, holding tanks and smokestacks. It also has a hospital, an outdoor vegetable market and various shops.

Yet, it's smaller than it used to be.

Beginning in 1993, the company began selling off thousands of apartments to the employees who were living in them.

The savings -- at least $2.4 million a year -- are significant for a company that posts pretax profits of $13.5 million.

Strolling along the company grounds, though, a visitor can easily spot other places to cut socialist fat from this aspiring modern corporation.

For instance, the refinery maintains a 270-room hotel guest house. Inside is a two-story atrium with hanging vines, a waterfall and a footbridge.

One weekday this month, only 30 percent of its rooms were filled.

Many companies still cling to the trappings of China's old cradle-to-grave social service system.

State enterprises continue to run one-third of all hospitals and schools in China -- one of the reasons many keep losing money in an increasingly competitive economy.

While the city's refinery has slashed overhead, its tractor factory has taken another increasingly popular route toward reform: merger.

Beginning four years ago, it absorbed three other failing factories, taking advantage of larger facilities and revamping management.

In particular, the company has instituted a performance-based pay system in which employees can earn from $24 to $120 a month depending on the quality of their work.

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