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SCMP Reporter

Fujian Longxi Bearing Factory is exceptional by any standard of a state enterprise. It has been profitable since being established in 1958 and is still able to maintain competitiveness.

The plant ranks among Zhangzhou's four best state-owned enterprises (SOEs) and is one of the 15 largest state industrial entities in Fujian province.

Chen Jinhui , director of Longxi Bearing's general office, said the factory had been shortlisted as one of the pilot enterprises to launch system reforms with listing on China's stock exchanges as a target.

The listing idea was still at an early stage and would not go ahead before Longxi Bearings expanded into an industrial group, Mr Chen said.

Zhangzhou municipal government has shortlisted a few leading companies as listing pilot enterprises including Zhangzhou Pianzihuang Group - the most profitable state enterprise and largest tax contributor in the city.

Zhangzhou Pianzihuang Group, a Chinese pharmaceutical plant, refused to be interviewed.

The group is highly protected by the central government and is the only manufacturer of the Chinese multi-purpose drug Pianzihuang in the country.

Longxi Bearing's success is a different story. The plant started eyeing the international market in the early 1970s and developed and produced bearings that snatched market share from importers.

In the 1980s, the management found the factory could not survive by producing a single series product - ball bearings.

Now it manufactures more than 700 categories of bearings.

The introduction of the new products boosted development of Longxi because it was able to replace expensive imports.

'The imports were 10 times more expensive than ours,' Mr Chen said.

Longxi Bearings has snatched 70 per cent of China's spherical bearings market due to price advantages and quality.

With a good market reputation, Longxi Bearings is able to maintain its competitiveness despite competition from about 30 state-owned bearings manufacturers and importers.

 Mr Chen said the profit margin of Longxi Bearing's LS products ranged from 18 to 20 per cent compared with 5 to 10 per cent in most Chinese factories.

 Longxi Bearings received the ISO 9002 certificate in August last year and was selected as a 'high technological enterprise' in Fujian by the provincial government.

This entitled the factory to a preferential profit tax of 15 per cent compared to a 33 per cent tax rate for state-owned enterprises.

'The provincial government's grading means more to us,' Mr Chen said.

'It is because bearing making is only a kind of basic machinery industry with no advanced technology.' Last year, Longxi Bearings scored good results although most of its counterparts suffered losses.

Its industrial output posted a 26 per cent increase to 101 million yuan (about HK$94.44 million) compared to the previous year.

Export value grew 68 per cent to US$5.3 million, with a net profit of 12.05 million yuan.

Mr Chen attributed the success to diversified products, flexible management and improved quality.

However, Longxi was still affected by problems caused by the three-year-long credit tightening, mounting triangular debts and a slowdown of domestic orders.

'We have adopted various methods to offset the impact of the economic slowdown,' Mr Chen said.

'For instance, Jinan Automobile Manufacturing Plant is one of our large buyers of large bearings and it placed an order for 10,000 sets in 1993.

'But the manufacturer owed us more than three million yuan. Finally, we decided to use barter trade by allowing it to pay the debt with its cars and even gave them a 12 per cent discount on the debt.

'We found it is very effective as we can sell the cars in Fujian and use the cash to repay loans. The interest that we save through early loan repayment could cover the discount that we gave to the manufacturer.' He said the factory's triangular debt amounted to about 10 million yuan.

'This year, cash flow in the machinery industry is improving,' he said.

But, as an SOE, Longxi also faced difficulties such as fierce competition from township enterprises in the domestic market, he said.

Longxi was therefore planning to set up a bearing group by merging with two other factories in Fujian.



Bearings firm to aim for listing