Future looks bleak for Liaoning's heavy industries as deadline looms
As the cradle of the mainland's heavy-manufacturing sector, Liaoning province has become known in recent years as the rust belt of the nation.
In 1997, with the province's industries already locked in decline, Zhu Rongji paid a visit and gave local bosses three years to sort out their problems. Today, however, almost half of all state-owned enterprises (SOEs) remain in the red. Future prospects do not seem bright.
With the three-year deadline now looming, local officials have been scrambling to come up with a plan to implement reforms. What they decide on could have far-reaching implications for SOE reform throughout the country.
As Liaoning governor Zhang Guoguang said in a recent interview: 'China looks to the northeast and the northeast looks to Liaoning.' To understand the direction of the reform process for the province's medium and large SOEs, one only needs glance at Mr Zhang's government report. To begin with, a group of state firms involved in the non-ferrous metal, coal, military and textile industries were to be either closed or merged with other businesses.
The remaining state enterprises were split into three categories. The first were corporations that were obliged to turn a profit by the end of this year.
The second group, which contained an unspecified number of SOEs, was to be subject to the supervision of specially appointed government teams. These would specify strategies and targets for each enterprise.
Finally, a group of 60 profitable SOEs would further increase profitability by implementing productivity measures.
The governor declined to elaborate on the progress of these projects, saying only that the goals would be met according to schedule.
However, an indication of what may be happening can be found in oblique official references that redefine Mr Zhu's three-year target.
Governor Zhang, for example, citing a definition of the State Economic and Trade Commission, said that the goal could be considered accomplished if the number of unprofitable industries was reduced to 20 per cent.
Without giving specifics, the governor expressed confidence in bringing the figure down to 30 per cent this year and hitting the 20 per cent target by 2000.
In addition, Wen Shizhen, Liaoning's Communist Party chief, said he saw the three-year period as the preliminary phase of a long-term reform process that would be continued when the 10th national Five-Year Plan was passed in 2000.
'The 15th Party Congress in September 1997 did not say that all SOEs had to be profitable in three years. It only said a majority of them would be basically relieved from their losses, meaning that some, especially those state-owned firms in remote areas, will still be losing money,' said the former governor-turned-party boss.
Other officials acknowledged the difficulties that heavy SOE debts, shrinking exports, ideological resistance and rampant unemployment have had on the reform process.
Meanwhile, individual enterprises are now grappling with the problems of implementing cost-cutting measures such as laying off staff and streamlining production and management.
However, their efforts are often frustrated by a lingering attachment to old practices.
The government, for example, continues to prop up ailing businesses with preferential treatment, such as providing tax breaks, directing banks to offer low-interest loans, or injecting assets from bankrupt enterprises in order to strengthen balance sheets.
At the same time, factory managers complain of official pressure to retain excess workers, find jobs for discharged army personnel, or provide cut-rate commodities to neighbouring countries.
Beitai Iron and Steel Group, for example, was obliged to employ 180 demobilised PLA officers and soldiers despite implementing a recent 5 per cent staff cut.
In addition, last year the Shenyang Jinbei Corporation sold 200 passenger vehicles to North Korea at a 'specially discounted' price.
The final nail in the coffin for Liaoning may well be the mainland's accession to the World Trade Organisation (WTO).
It is likely that these debt-ridden and uncompetitive sunset industries will be among the hardest hit by exposure to the international market, despite the cautious welcome professed by some local officials and managers.
Angang Steel Corp's deputy general manager Wang Mingren said mainland steel producers were likely to survive because they supplied mainly medium- to low-quality steel to the international market, which was most competitive for high-quality grades of the metal.
Others were less sanguine. 'WTO probably hits us hardest and poses a direct threat to the market share of our products,' said Jinbei Vehicle Corp general manager Zhang Hong, citing a prospective drop in vehicle import tax from 80 per cent to 25 per cent by 2005.
Governor Zhang summed up the mood of death-or-glory optimism: 'It is futile for some SOEs to feel negatively about WTO, an issue which is not decided by us. Survival only belongs to those who can compete internationally.' Focus Swapping one crisis for another in state-owned enterprise reform Future message comes in a bottle Pages 3-4
