BAIDAOKOU, CHINA -- Qi Hongbin rarely smiles these days. His factory, which makes wire and cable, is owed about $600,000 in outstanding accounts, and it will turn a smaller profit this year than in previous years.
But while Qi (pronounced Chee) is troubled by his factory's difficulties, the tall, robust peasant-turned-factory-boss is in an enviable position by Chinese standards. His factory is making money. His workers, whose wages are almost as high as those of urban industrial laborers, will get hefty bonuses and traditional gifts of meat and liquor during the Chinese New Year.
The factory, a hodgepodge of buildings with naked light bulbs and equipment resembling oversized Bunsen burners, is one of the millions of township and village enterprises that have sprung up in the countryside during the past dozen years of economic reform. Ranging from privately run, household-sized shops to collectively organized factories owned by villages and townships, they are the most dynamic force driving the Chinese economy, outperforming moribund state-run industries, one-third of which have sunk into the red this year despite massive government subsidies.
As the government's hard-line and moderate factions struggle over how best to revive China's faltering economy and chart a course for the future at a Communist Party meeting next week, one barometer of the leadership's commitment to economic reform will be the degree to which rural enterprises are allowed to flourish.
So far, even conservatives have realized that rural enterprises are tooimportant to the economy and should not be choked off to ensure the survival of the centrally planned state sector, analysts say.
One recent newspaper article quoting senior leader Deng Xiaoping said the emergence of township enterprises is "the unexpected yet most significant achievement" of China's reform program, which is aimed at making the country's Soviet-style economy more responsive to market pressures.
Reforms in the countryside dismantled huge, inefficient collective farms, established incentives for peasants to produce for the market as well as the state, and channeled millions of peasants who were no longer needed to work the land into rural industry.
There are now more than 18 million rural enterprises that, unlike their state counterparts, are responsible for their own profit and loss, buying and selling according to the market.
Their accomplishments have been considerable: They employ about 90 million people, or 60 percent of China's estimated 150 million surplus rural laborers. Township and village enterprises have boosted peasants' standard of living enormously, narrowing the disparity between the countryside and the cities. The rural enterprises account for more than one-fourth of the country's total industrial output, and this year they will produce an estimated one-fourth of the country's total exports.
At the same time, these enterprises have been criticized for squandering energy and raw materials, producing low-quality goods and lacking adequate pollution controls. The peasants-turned-workers lack education and training.
Because they exist outside the state-run economic system planned and propped up by Beijing, the rural operations are politically vulnerable. They came under heavy fire in the months after the army's June 1989 move to crush China's democracy movement from hard-liners who wanted to reassert Beijing's control over politics and the economy.
The government, worried that the rural enterprises were depriving the state sector of scarce raw materials, energy and credit, curbed their growth and slashed bank loans. An estimated 3 million rural enterprises were forced to close.
But as China's economy slowed during the past year, provincial officials worried that thousands of rural peasants would flood the cities in search of better-paying jobs. For Beijing's leaders, whose overriding goal is social stability, the message was clear: Township and village businesses were needed to keep a lid on rural unemployment.
In recent months, the state-run press has been full of favorable articles about such ventures. "The success or failure of China's industrialization is dependent to a large extent on the continued growth and development of these rural enterprises," said the official China Daily earlier this month.
In Henan, one of China's poorer provinces despite its status as one of the country's principal breadbaskets, rural enterprises have taken on great importance, local officials say, as a source of jobs for the unemployed and higher wages for the underpaid. Henan's new governor, Li Changchun, who has a reputation as a reformer, has made development of rural enterprises one of the province's top 10 priorities.
With nearly 86 million people, Henan is the country's second most populous province after Sichuan. Of the province's 18.4 million surplus rural laborers, an estimated 8.4 million are employed in township and rural enterprises this year, local officials said.
"At one time, there was talk of cutting down the number of rural enterprises, but that is changing now," said Wang Zhifang, deputy director of the province's Rural Enterprises Management Bureau.
The Hua Zhong Wire and Cable Factory, which Qi heads, is one of the largest in Baidaokou, a village of 6,000. In its nine years of operation, the village-owned factory has helped raise village per capita income to about $380, nearly four times higher than the average for Hua county, where Baidaokou is located.
The 170 factory workers are paid according to their productivity, with take-home pay ranging from $32 to $77 a month and yearly bonuses as high as $190 -- both higher than those at state-run enterprises.
"I think township and village enterprises have a definite role to play in boosting the economy," said Qi.