DONG Guang, a foreign office protocol director, has for some time been toying with the idea of leaving his job and joining China's burgeoning private sector. Valuing his extensive guanxi (connections), a private trading company is willing to offer 10 times his salary of about 800 yuan to be a department head. The job, however, does not offer many of the perks and benefits he now enjoys. Although a career in the trading firm offers attractive monetary rewards and exciting challenges in the long-term, practical considerations finally force him to stay put. ''The money and the prospects are good. But, unfortunately, the job does not come with housing or medical and welfare benefits. If I have to pay for all these expenses out of my pay packet, I will be worse off,'' Mr Dong said. ''My current job is not exciting; often it is boring. The good thing about it is it takes care of accommodation and medical benefits for me and my family.'' Mr Dong voices poignantly the dilemma facing millions of workers in China's state-owned enterprises (SoEs), many of whom are fed up with their jobs but stay on because their employers take care of virtually all cradle-to-grave needs. A switch to the private sector would mean an end to these benefits. So much is at stake for workers who change jobs that it serves to suppress voluntary labour mobility - a crucial and efficient mechanism for distributing labour resources in capitalist economies. Ironically, the unprofitable SoEs would love to shed surplus workers, but are holding back in fear of being held responsible for the potentially destabilising impact of massive layoffs. Put simply, 15 years of economic reforms notwithstanding, the fundamental character of China's labour and welfare systems has seen only modest change. The tangled web of state subsidies and the lack of sustainable alternatives for housing and social security provisions is severely stalling the restructuring of inefficient SoEs. To unravel the web to allow the SoEs to press ahead with their restructuring plans and employees to freely choose jobs is the objective of a bold initiative to break the link between state-sector employment and schemes for housing and social welfare. Backed by the World Bank, the US$950 million experiment to be carried out in four cities will allow SoE employees to buy or rent flats and work out viable alternatives to the welfare arrangements. ''The project will support the implementation of a strategy to develop a market-based housing system and a robust social safety net, freeing enterprises of parallel responsibilities, and thus helping promote labour mobility, enterprise restructuring, and management improvements,'' said the World Bank. To be tested in Beijing, Yantai, Chengdu and Ningbo, the new housing model - if successful - can be replicated in other Chinese cities. Under the system, SoEs would abandon direct responsibility for employee housing and provide only competitive wages. Supply and financing of housing would be carried out by independent housing suppliers and financial intermediaries in the market system. In order for commercial suppliers to sell or rent flats without subsidies, sales prices would have to recover costs and generate profits, and rents would have to be high enough to allow investors to recover costs over the economic life of the units. Flat buyers would then have to deal directly with suppliers to choose flats according to needs and affordability. And as the cost of flats will be hefty in relation to the buyer's or tenant's income, long-term credit must be set up. Two of the largest banks - the Industrial and Commercial Bank of China and the People's Construction Bank of China, with the Yantai Housing Savings Bank - will provide long-term mortgage financing under the project. Essentially, the housing scheme calls for: Autonomous profit-oriented companies to provide housing directly to buyers or tenants that would take over the housing stock now owned and operated by SoEs taking part in the project. Commercially viable housing rents and sales prices which would recover long-term marginal cost of housing. Cash wage supplements to compensate for rent increases. Market-oriented, long-term mortgage lending operations for owner-occupied and rental housing. Policy and regulatory frameworks that sustain the operation of the housing management and finance institutions. That is not all. In tandem with the housing reforms are changes to the social and health insurance regime, which are critical to the creation of a more efficient labour and SoE systems. ''Such a system would need to be separated from the fortunes of individual enterprises, financed in a sustainable and equitable manner, portable, and provide a minimum safety net,'' said the World Bank. The four cities taking part in the scheme have agreed to pool social security contributions across enterprises, move the management of pensions from the enterprise level to a central municipal agency, and provide for a three-tier benefit system comprising a social safety net, an enterprise-specific pension, and individual retirement savings. Although the scheme will be completed by 2000, the World Bank should be able to gauge its effectiveness in about two years. ''If it works well, the project could begin to spread like wildfire throughout China in four to five years,'' said Choi Songsu, the project's task manager. And its success will mean the likes of Mr Dong will have greater freedom to opt for jobs of their choice.