Goliath of industry buckles

PUBLISHED : Tuesday, 03 May, 1994, 12:00am
UPDATED : Tuesday, 03 May, 1994, 12:00am

THERE is a ''war'' going on in China.

On one side is the state-owned sector. This is the ''Goliath'' of Chinese industry, employing millions of workers. They are the core of the socialist economy, according to the constitution.

On the other side are the so-called township enterprises, the ''David'' of the piece. Instead of enjoying hefty subsidies from the state, they compete against each other for market share, bank credits and raw materials. They are the babies of China's market reform experiment.

Although Goliath has ruled China for the past four decades, the giant is buckling.

At least for the past three years, township enterprises in provinces such as Jiangsu, Zhejiang, Shandong and Guangdong all reported spectacular growth rates that would shame even the most bullish economists. On the other hand, many state-owned enterprises in these provinces are on life-support machines.

Although Fujian is not a traditional industrial base, the war between David and Goliath there is no less furious. And again, David always slays Goliath.

By the end of last year, Fujian had 672,000 township enterprises employing more than four million workers.

Many are peasants who spend only a few months in their fields and work the rest of the year sewing clothes in makeshift workshops or digging in slate quarries.

Despite their primitive production methods, last year they produced over 105.61 billion yuan (HK$93.78 billion) worth of goods and accounted for 49.4 per cent of Fujian's total industrial production.

On the other hand, government statistics showed that a total of 226 state-owned firms were either merged, closed down or absorbed by better-run companies last year. Hundreds of workers were fired or forced to change jobs.

According to Zhuang Yousong, director of Fujian Economic Structural Reform Committee, more inefficient state-owned firms are expected to fold this year.

''There is a Chinese saying which goes: a small boat can turn around fast when the sea is rough. Township enterprise is the small boat,'' Mr Zhuang said.

But Mr Zhuang, whose office was responsible for finding a way to save the state sector, said the Government was not too worried.

In fact, a fast turnaround is exactly what Mr Zhuang would like to see happen to state-owned firms in Fujian this year.

The director said 50 state-owned firms ranging from manufacturing to services have been chosen this year to adopt a ''modern enterprise system''.

''David'' is also choosing his stones forthe big battle to come.

Beijing has almost cut off all loans and credits to township enterprises, starting last autumn when the Government imposed an austerity programme to cool off inflation.

''Value-added tax is a problem for many township enterprises,'' said Ou Jingang, director of Fujian Township Enterprises Administrative Bureau.

''Many township enterprises are just small-scale production units and some don't even have an accounting system. It is likely that they will have to bear the full brunt of VAT - 17 per cent.''