| China Puts Reform Plan on Hold /
Officials balk at social costs of restructuring state sector
Patrick E. Tyler
Chongqing, China
One year ago, China's Communist Party leadership unveiled a broad
program to restructure, sell off, or declare the bankruptcy of
thousands of state-owned industries whose heavy losses and
inefficiency threatened the country's economic expansion.
Endorsed by paramount leader Deng Xiaoping, the plan was heralded as a
path to fulfillment of China's ambition to create a ``socialist market
economy'' in which free-market forces would guide decision-making.
Execution of the plan by the year 2000 became a national priority.
Today, however, the reform of state-owned industries has been frozen
all across China, deferred by fears of worker unrest, the absence of a
social safety net for the unemployed and a debate within the
leadership over how much control the Communist Party should cede over
the means of production.
``There is a tremendous amount of contention within the government over
what to do with the state sector,'' one Western economist said,
including ``infighting over how to confront the bankruptcy question
and privatization.''
Chinese and Western economists say that anxiety over Deng's health this
winter and soaring inflation, which reached a year-to- year rate of
38.2 percent in Chongqing in October, the highest in the nation, have
also paralyzed China's reform process.
More than 70 percent of all investment in China goes into state- owned
factories run by managers appointed by the Communist Party -- up from
61 percent five years ago. Thus, China's state sector is growing, not
shrinking.
China had 1,000 more state- owned factories this year than in 1993.
Their contribution to the nation's economic output has dropped from 48
percent in 1993 to a projected 43 percent this year, yet they soak up
a far greater proportion of government revenues.
Beijing's party chiefs say they are gearing up to resume state
enterprise reform in 1995. But a number of Chinese and Western
officials are wondering whether the new and more cautious generation
of leaders that is expected to follow Deng is losing its nerve in the
face of the huge and unpleasant task before it.
``State enterprise reform in China has become the ever-receding
horizon,'' said Nicholas Lardy, an economist at the University of
Washington who specializes in Chinese affairs. ``They have talked
about various measures, but they don't seem to implement them in any
systematic fashion, and each time they reach a consensus about moving
ahead, they quickly back off when the reforms create problems.''
With millions of jobless already drifting around the country as a
migrant tide, China's leaders seem loath to risk putting millions more
on the streets.
State-owned enterprises are a far more dominant factor in the economies
of inland provinces like Sichuan and Hubei than they are in coastal
provinces such as Guangdong and Fujian, where private enterprise has
proliferated in recent years.
The unemployment rate in Sichuan, China's most populous province, is 25
percent higher than the national average, and wages are 15 percent
lower. (China's official jobless rate is 2.6 percent, but that figure
is considered a drastic underestimate.)
Compared with booming Guangdong province, Sichuan is enjoying far less
of China's economic feast, with $850 million in pledged foreign
investment last year compared to Guangdong's $9.65 billion.
Deng once said there is no map for reform; it is like ``crossing the
river by feeling the stones.'' And China's communist leaders have long
considered their cautious approach to market-style economic changes to
be a virtue and a contrast to the ``shock therapy'' practiced by some
of Russia's economic reformers.
But the consequences of deferral are serious, many economists say.
A new World Bank study says Beijing's continued central-bank lending to
money-losing state industries is creating a hidden budget deficit that
is three to four times larger than the stated deficit and ``is the
main cause of recurring inflationary pressure in the Chinese
economy.''
Of several hundred thousand state-owned and other enterprises, no more
than 1,500 have applied for bankruptcy since China passed its first
bankruptcy law in 1988.
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