President Jiang Zemin is leaning on Shanghai to produce a winning formula for pepping up the sickly state sector by next year. The increased pressure, which he hopes will make Shanghai set an example for other cities, is forcing city leaders to experiment with controversial measures aimed at turning pudgy state enterprises into lean, efficient, businesses while ensuring job losses are kept within politically safe limits. Shanghai Economic System Reform Commission deputy-director Geng Hongfu said: 'Before President Jiang asked us for a satisfactory report, we didn't dare to try out many of the measures we are now implementing.' The commission reckons the measures will cause 600,000 job losses by next year and, according to local economists, the loss of one million jobs by 2000. Today the state sector accounts for 70 per cent of gross domestic product (GDP) and about five million jobs, or 80 per cent of Shanghai's workforce. City officials are hoping surplus labour will be soaked up by a controversial safety net and the growing number of private and foreign-funded enterprises. The measures involve: Closing down all 17 government bureaus in charge of state enterprises to stop them interfering in the daily operations of state firms, with the government's role being reduced to that of drawing up broad industrial policies; Reducing the debts of the 16,000 state enterprises by closing, merging or selling untenable ones, listing some promising ones, and injecting state assets into outstanding ones to help them set up tertiary businesses; Launching a re-employment scheme, which will be extended city-wide next year, to find work for people made redundant, while reducing the burden in providing welfare and pension benefits; Channelling more state assets into tertiary industries, such as commerce, financial services and information technology, which should create at least 100,000 new jobs each year; Creating group companies to compete at home and abroad while giving leeway to small enterprises to learn to swim on their own. Analysts said Mr Jiang was keeping a close eye on Shanghai because the state sector weighed particularly heavily on the city's economy. Mr Jiang believes if Shanghai succeeds in invigorating its state enterprises, it will spur other cities to push on with reforms with greater confidence. A Shanghai-based foreign economist said: 'Shanghai's goal of becoming a national financial and economic hub hinges on a revitalised state sector. The plan will be kaput if it fails to liven up the sector.' Vice-mayor Hua Jianmin summed it up: 'If the problems [of the state sector] are not solved quickly, the local economy and social stability will be affected.' The reform has become more urgent as Shanghai prises open its economy, making more state firms with backward technology and inefficient operations unable to compete with Sino-foreign joint ventures. City officials hope that by 2000 the measures will lead to: A leaner state sector operating along free market lines and accounting for 60 per cent of GDP; The emergence of three to five corporate giants - each with annual sales of 100 billion yuan, to be ranked among the world's top 500 conglomerates. Baoshan Steel Group, Shanghai Petrochemical Co and Shanghai Automobile Industry Corp are among those being groomed for the role; A tertiary sector accounting for about 50 per cent of GDP from the current 41 per cent, supported by six pillar manufacturing industries - vehicles, telecommunications, petrochemicals, electrical appliances, power station equipment and steel. Analysts said residents' growing concerns about redundancies did not dampen official resolve to push ahead with the measures. Mayor Xu Kuangdi reported recently that more than 200,000 workers were laid off in the first six months of the year. 'Redundancies are not expected to fall before next year,' he predicted. A scheme to persuade industries to make surplus workers redundant started with the labour-intensive textile and measuring instruments industries. The textile industry will cut its workforce to 250,000 next year, from last year's 370,000, while the measuring instruments industry will cut its workforce to 120,000 from 200,000. To help laid-off workers find jobs, the government and the industries have set up re-employment centres to equip them with new skills suitable for re-employment in the service sector. Mr Geng said the scheme would be extended to all industries by next year, which would see more people being made jobless. 'More re-employment centres will be set up to deal with the rising number of jobless,' he said. Analysts said that if Shanghai succeeded in tackling the most sensitive aspect of reforms - redundancies - the other measures would fall into place quite easily. So far, 280 state enterprises have been merged, with another 26 forced into bankruptcy.
