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  • China Special Report
  •   China Beefs-Up Its Private Sector

    By Steven Mufson
    Washington Post Foreign Service
    Sunday, April 12, 1998; Page A18

    GUIYANG, China—In 1989, the Shi brothers in Guiyang -- one a civil servant and one a TV repairman for a state-run television manufacturer -- quit their jobs, bought two giant woks and started making packaged beef jerky in one of their homes.

    They trekked hours to buy high-quality beef and lugged it in sacks on public buses, the only transportation they could afford. They built display cases and gave them to stores. To raise capital, they pooled their money -- a grand total of $590 -- and pledged as collateral the entire extended family's belongings to get a $1,200 loan from a credit union.

    Nine years later, their business, the Guiyang Hong Yue Food Products Co., boasts about $6 million a year in revenues, employs about 250 people and owns its own trucks, boilers, slaughterhouse, processing plants and research institute. Its beef jerky is known and marketed nationwide.

    The Shi brothers are typical of a broader trend that is shaking the foundations of China: The once-suppressed private sector is growing fast. From big foreign firms to entrepreneurs to street vendors, China's private businesses are outpacing China's lumbering state-owned enterprises with harder work, newer technology and better management. Private businesses have gained more than a 25 percent share of the Chinese economy, according to government figures, and they seem set for even greater strides that will change the way people think about themselves, their jobs and the Communist Party.

    Thirty years ago, China took a dim view of this sort of entrepreneurial spirit. Back then, people were paraded through the streets with dunce caps if they were suspected of being "capitalist roaders." Even recently, many Chinese officials frowned upon or stymied the growth of private business.

    Not anymore. The government has made a U-turn and the capitalist roaders are in the driver's seat.

    "The local government supports us," said Shi Jingyu, the older of the beef jerky duo. "We pay lots of taxes and they like it."

    With less inhibition than ever, Communist leaders are praising the private sector, instead of just tolerating it. A prominent think tank economist, Xiao Liang, called for a constitutional amendment that would "state clearly that private property is protected." And a senior government official said in an interview that more state bank loans would be channeled to private companies.

    The reason: With more than 25 million people a year looking for work in China's cities, the Chinese government needs a turbo-charged engine for growth. The state-owned enterprises, 40 percent of which are losing money, can't do it. And the township and village enterprises that fueled China's economic growth for most of the past 15 years are flagging as their low-tech, low-wage approaches reach their limits.

    The private sector is the only hope for absorbing those laid off, flocking from the countryside or fresh out of school. According to the state-run China Daily, surveys in Liaoning Province and the cities of Shanghai and Qingdao show that two-thirds of the workers laid off by state-owned enterprises who found new jobs did so in the private sector.

    Even the children of the Communist elite are turning to private enterprise. One woman -- whose father made the Long March and was considered one of the "eight immortals" of the Communist Party -- now manages a restaurant in a Taiwanese-owned hotel in Beijing. Another, the daughter of a one-time provincial party secretary, went to work for a British public relations firm and later a European multinational.

    The turn toward the private sector has huge political implications as well as economic ones. Since the 1950s, the Chinese Communist Party has controlled people's lives through the workplace. The work unit, called the danwei, once determined people's careers, housing, even travel plans. Now the private sector is liberating people from those controls and putting them in charge of their own lives.

    "The collapse of the danwei, which has dominated and controlled people's lives, has significantly reduced the [Communist] party as a factor in peoples' lives," said Tony Saich, a China scholar who heads the Ford Foundation in Beijing. "It is the undoing of the whole system that was constructed in the 1950s. This is stunning; there's no other word for it."

    Not everyone is happy about that. Two years ago, an essay by orthodox party ideologues warned that "the drop in the proportion of the public sector and the shrinking of public ownership will inevitably weaken the party's leading position."

    But those voices have been muted. In his speech to the Communist Party congress last year, President Jiang Zemin lifted the ideological constraints on the growth of the private sector.

    Now the government propaganda machine has asserted that if Lei Feng, the 1960s hero of socialist labor, were alive today he would be a private entrepreneur. Hailing a laid-off Heilongjiang worker who had opened his own shop, the state-run China Daily said he possessed the "lofty spirit" of Lei Feng, a hapless soldier who dreamed of being a "gleaming screw" in the wheel of socialism and who selflessly did good deeds.

    "As times change, the interpretation of the Lei Feng Spirit has also been continually enriched and has now far exceeded the narrow scope of altruism," said a commentary in the China Daily. "It can always have new definitions suited to the demands of the times."

    Lan Hai is one person suited to these times. In 1992, Lan, then a young computer engineer for a small state-owned company, decided to xia hai, literally "jump into the sea" of private business. A friend loaned him $2,000 and Lan and seven friends rented a house west of Beijing and did nothing but work on computer software.

    After three months they made their first sale. In 1993, they began selling software for the management of relay stations for hand-held pagers, which are extremely popular here. Lan and his partners provided software to the railways department, China's biggest pager network with 135 stations. They started a magazine, initially for customers. The magazine, Paging World, has turned into a major money-maker with 10,000 subscribers and big international advertisers.

    Lan's firm, Tiger Group, now has 75 full-time employees and 25 part-timers and consultants for multinational firms, including Motorola. Before he started the company, Lan made $36 a month. Now he and five partners own a business with about $2.4 million a year in revenues and substantial profits.

    "We don't think being a capitalist is bad. A capitalist is a manager," said Lan, the son of a retired officer in the People's Liberation Army. "Managing a company benefits society. If we don't have capitalists, I don't think society will work well. Everyone should be a capitalist, I think."

    More and more people are. By the end of 1997, China had 28.5 million registered self-employed workers. Registered private enterprises, numbering 960,000, employed a total of 39 million people, about a third as many as the state-owned enterprises.

    Many work for major multinationals, lured here by China's market potential. The economic output of the special economic development area of Tianjin, fueled by 2,940 foreign-funded enterprises with $9.5 billion in investment, is one quarter the output of the rest of the city. Corporate giants there include General Motors, IBM, AT&T, Coca-Cola, Exxon and Mobil. Motorola, the biggest, has poured about $2.5 billion into China and employs more than 10,000 people in Tianjin.

    "The government will treat all companies as equally as possible," said Tianjin Vice Mayor Ye Disheng. "The capital belongs to Motorola and so does the profit. Needless to say, Motorola has the right to make as much money as possible and as much market as possible."

    © Copyright 1998 The Washington Post Company

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