Steel industries in parallel

In China, as in U.S., a major employer is polluter, pension poor

March 19, 2002|By Frank Langfitt | Frank Langfitt,SUN FOREIGN STAFF

BEIJING - When Beijing won its bid in July to hold the 2008 Summer Olympic Games, tens of thousands of people crowded Tiananmen Square to celebrate. But the mood was very different across town at the industrial fortress called Capital Iron and Steel.

Capital Steel is Beijing's largest corporate employer, one of the city's largest sources of taxes but also its biggest polluter.

So last fall, under government orders, the company announced that as part of the city's Olympic cleanup it would move its dirtiest steel production out of Beijing to a neighboring province.

The order was the latest tumble in the company's spectacular fall from grace. One of the country's most famous and politically well-connected corporations, its forced move from the capital highlights the growing power of the environmental movement and the enormous challenge of reforming state-owned industries.

Capital Steel, universally known in Chinese as "Shougang" (show-GONG) came of age under a communist system in which the state controlled every aspect of the economy and state-owned firms provided cradle-to-grave care for their workers.

The company, as was the norm, mortgaged its future with salaries, pensions and health care for hundreds of thousands of workers and retirees. In the United States, those same kinds of obligations added to the burdens of the American steel industry and contributed to the bankruptcy of Bethlehem Steel last fall.

Like Bethlehem's Sparrows Point plant in Baltimore, Capital Steel focused too long on core products - such as low-quality plate steel for ships, bridges and boilers - and failed to innovate. That American capitalism and Chinese communism could produce corporate behemoths with similar problems underscores how far governments will go to protect basic industries - and political constituencies.

The latest example of that protection was President Bush's announcement this month of new tariffs of up to 30 percent on steel imports, to aid the domestic industry. Among the countries targeted is the world's largest steel producer, China.

"There are parallels," said Edward S. Steinfeld, a professor of political science at Massachusetts Institute of Technology, referring to the approach both governments take toward their steel industries.

"Every country, communist, capitalist or in-between, identifies pillar industries. The demand to bail out steel producers - or auto producers - is big in any country."

China has tens of thousands of heavy industrial firms, but few were as sprawling and politically prominent as Capital Steel. At its height in the early 1990s, the company employed 260,000 people here and abroad. Its ventures included iron ore mining, construction, shipping, electronics, the manufacture of farm machinery and hardware, plus steel production.

The headquarters is an industrial compound of pipes, furnaces and smokestacks covering nearly 2 1/2 square miles. Employees navigate the complex by bicycle or on one of the firm's fleet of buses.

As in old company towns in the United States, Capital Steel provided all services and owned everything its employees touched. In 1990, it ran 51 kindergartens in Beijing that cared for 10,000 children. It still oversees apartments housing 130,000 workers, retirees and their families. It owns a 16-story hospital with more than 400 beds.

By virtue of its being in Beijing and because of its size, Capital Steel has an unusually close relationship with the Communist Party, and it is particularly sensitive about scrutiny. Officials decline most requests for interviews and refuse to discuss the company's plans for its move out of the city. When a reporter began interviewing a retiree, another warned, half-joking: "They will beat you."

The rise and fall of Capital Steel is an epic of Stalinist-style planning, ego-driven corporate leadership, bold attempts at reform and China's relentless drive for international respect.

The company evolved from a hidebound, state-owned enterprise in the 1970s to a controversial model for economic reform in the 1980s and became a national scandal because of its financial collapse in the 1990s.

Its leading figures include a dynamic Communist Party boss undone by arrogance and tens of thousands of workers in Beijing who devoted decades of labor to a socialist system that is rapidly disappearing.

Capital Steel's turbulent history is mirrored in lives of employees such as Zheng, a 51-year-old retired factory repairman. When Zheng started at the company in 1973, China was embroiled in the Cultural Revolution, Mao's disastrous social experiment that cost at least 1 million lives. The nation was desperately poor at the time and a position at Capital Steel provided security and stability.

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