My apologies for sending on this information from a bourgeois source. But for those offended, rest assured this kind of story you can find in Chinese magazines, newspapers,...Steve
Subject: "All the work units have collapsed. . . . It's a dangerous
situation."
Washington Post WTO Membership Imperils China's Industrial Dinosaurs
By Clay Chandler Washington Post Foreign Service Thursday , March 30, 2000 ; A01
SHENYANG, China –– With a broad smile and a flourish of his pen, the mayor of this snow-swept industrial city ceded authority to sell off hundreds of floundering city-run factories 12 days ago to 35-year-old Timothy Rucquoi-Berger. As flashbulbs popped at the signing ceremony in a stately guest house, Mayor Mu Suixin toasted Rucquoi-Berger, a fast-talking, Michigan-born investment banker, for helping Shenyang reverse the decay that has infected its old-line industries.
The endorsement was a personal triumph for Rucquoi-Berger, a fluent Mandarin speaker who has spent years cultivating allies in China's gritty northeastern provinces. But it was also a sign of how desperately officials in crowded, soot-covered factory towns like this one 400 miles northeast of Beijing are soliciting foreign investors prior to China's entry into the World Trade Organization (WTO).
To gain admission to the Geneva-based global trade body, Beijing has promised to dismantle high tariffs that have shielded China's industrial dinosaurs for decades. In China's sprawling inland factory towns--places like Wuhan, Xian, Chongqing, Chengdu, Harbin and Shenyang--increased competition resulting from the WTO deal is sure to darken an already bleak picture of joblessness and despair that has led some officials to fear urban unrest.
Entry into the WTO, with its emphasis on lowered duties overseas, fewer restrictions at home and new access to foreign technology, will mean more opportunity for China as a whole, particularly the nimble, low-cost manufacturers that have flourished in southern ports like Shanghai, Shenzhen and Fuzhou. But already, Beijing's attempts to rein in bloated state-owned enterprises have ravaged the economies of out-of-date manufacturing hubs like this one.
At least a third of Shenyang's labor force is unemployed. Thousands gather in public parks in hope of getting temporary work. Workers forced into early retirement regularly take to the streets to protest meager pensions. The local media reports a jump in murders of prostitutes, who can earn 20 times the average factory worker's pay. Taxi drivers laud the recent execution of a band of robbers who have murdered 21 cabbies over the past two years.
And there have been hundreds of demonstrations by laid-off workers. When Beijing promised last year to hand out a small sum for city dwellers to celebrate the 50th anniversary of the Communist revolution, it fell to Shenyang's city hall to say the money was not there, sparking a demonstration that filled several downtown avenues.
So far, such outbursts have been more of an embarrassment than a genuine threat. With Mu's prodding, the state-owned enterprises' share of the city's annual output has dropped precipitously, to 30 percent last year from 80 percent in 1996. That torrid pace drew criticism in Beijing last year, where some leaders criticized Mu for moving too fast.
But in a speech to party colleagues in Beijing two months ago, Mu issued an extraordinary warning that conditions in his city could be spinning out of control. "Our ability to govern is being seriously affected" by rising joblessness, he acknowledged. "All the work units have collapsed. . . . It's a dangerous situation."
That apprehension grips leaders in dozens of other troubled industrial centers. Experts say that out of an urban labor pool of about 350 million, at least 80 million Chinese are unemployed, with the majority concentrated in about 20 cities whose economies are dominated by dying, state-owned concerns.
Moreover, Beijing has ordered state-owned enterprises to shed another 10 million employees this year, in addition to the 30 million already axed since 1998.
"These numbers inspire fear and awe," economist William H. Overholt concluded in a recent essay surveying unemployment in China. "What is going on here is so far removed from . . . the previous experience of the human race that it is difficult to put into perspective."
Mu has been among the most aggressive of China's local leaders in scrambling for outside cash. He has been to Europe twice to tout investment opportunities in his city, proffering generous tax breaks for foreign investors. He has auctioned off a slew of Shenyang companies to investors for just one yuan--about 12 cents--inviting criticism that the city is dumping public assets.
This month's signing ceremony with Rucquoi-Berger bolstered the restructuring powers of Shenyang Corporate Advisory (SCA), a joint venture between the city government and the Chinese subsidiary of the Wyvern Group, a small British investment bank of which Rucquoi-Berger is a managing director. The agreement awarded SCA exclusive rights for the next nine months to negotiate terms of sale for nearly 300 of the city's largest companies.
SCA, established last July, is part of the city's effort to make auctions more transparent and thereby attract more reputable buyers. With support from accountants at Arthur Andersen, the partnership helps potential buyers get a clearer picture of the strengths and weaknesses of Shenyang companies and think through problems such as restructuring debt or paring excess workers.
The city has accepted a minority stake in SCA, even though city hall is footing the entire bill for operating expenses.
Mu's critics howl that this amounts to paying a cat burglar for advice on how to give away the family jewels. At the signing ceremony, the mayor delivered a stern rebuke to "managers at some of our companies who don't think they should have to pay anything for outside help."
The key holdouts, though, are overseas. Direct foreign investment in the Shenyang area slumped severely last year. And many of the companies who rushed in looking for opportunities in the 1990s are pulling out.
That mirrors a nationwide trend. Direct foreign investment in China slipped 11 percent last year to $40 billion. While some analysts dismiss the decline as a hiccup from the Asian financial crisis, many investors who have worked in China contend it reflects the dismal record of many ventures set up in the 1990s.
A recent study by the A.T. Kearney consulting firm found that only 40 percent of Chinese enterprises with foreign investments are profitable. One in three of the multinationals surveyed said they had pulled out of at least one Chinese joint venture.
Rucquoi-Berger concedes the challenges. After months of rummaging through Shenyang's portfolio, he and his team have identified only three immediately salable prospects: a bottling plant, a battery manufacturer and a company that is one of China's biggest manufacturers of monosodium glutamate. So far, they have no buyers.
Nevertheless, Rucquoi-Berger sees a world of possibilities. Take that MSG plant, for example. Its main business line may not appeal to investors, but the company's brand name, Hongmei, is nationally recognized. And the venture controls a distribution network that could carry the products of other companies to consumers throughout China.
"It's like trying to sell an old house," said Rucquoi-Berger, a mobile phone sprouting from one ear and fat snowflakes collecting on the lapels of his pinstriped suit. "If I just take you to look at it, you might say, 'What a dump--this place is falling apart.' But if I show you a blueprint of what the house could look like and I could set you up with a reliable contractor, and I could promise you approval of all the government permits, then maybe you'd be interested."
Maybe. But a visit to the bottling company suggests these properties are serious fixer-uppers. The plant's ramshackle buildings are surrounded by heaps of broken glass. One of the two production lines is closed for repairs; on the other, gloved women pluck green bottles from a metal conveyor belt and stuff them into burlap sacks for shipment. During lunch at the plant canteen, senior managers knock back glass after glass of beer and 50-proof Chinese wine.
Still, the bottling plant is making money--and quite a bit of it, according to SCA. The company is one of Mu's best-known "one-yuan" deals. To close the sale, the city also swallowed the venture's $45 million debt. In exchange, the buyer, the privately held Yuteng Group from nearby Harbin, invested heavily to retool the defective production line.
The plant is humming now, providing jobs for 800. Product quality has improved, and three of China's biggest breweries have signed as customers.
Correspondent John Pomfret in Beijing contributed to this report.