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state-owned enterprises have ravaged the economies of out-of-date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.
