The Great Leap Forward To Corporate Downsizing
ERIC ELLIS

05/08/1996
There is a new battleground in China. Market dismantlers of greying State firms are hard up against party hard-liners fearful of a Solidarity-style movement emerging among angry workers made jobless by reform. Eric Ellis reports from Wuhan.

Mao Zedong stands sentinel over the massive Wuhan Iron and Steel Company, his giant granite hand guiding China to his idea of a workers' paradise.

But it hasn't worked out that way. Inside the steel plant, known as "Wugang", the talk is more akin to something McKinsey and Co could understand -re-structuring and downsizing.
Impressive talk, but such change is slow at State behemoths like the Soviet-influenced Wugang and the Great Leap Forward enterprises that today bedevil China's full embrace of market-Leninism.

The Australian Financial Review first visited Wugang two years ago when the board had embarked on a re-structuring to break it up into nine stand-alone companies and shed up to half of its 120,000 workforce in the process.

Then, bird droppings were piling up on Mao's statue, a Wugang stockmarket listing was imminent and plant party elders were experimenting with such tracts as Adam Smith's Wealth of Nations.

Two years later, China's "Great Wall Street" markets have lost their gloss, the Communist Party's become a little more paranoid as Deng Xiaoping withers in Beijing and his heirs wrangle over succession, and Wuhan's own party apparatus has had a major corruption scandal. Mao's bird dung has been cleaned up.

One area where Wugang claims to have made progress is in debt control.

In 1994, despite being unwieldy and inefficient - its output is just five million tonnes of steel, a tenth of what it should be by comparison with Western plants - it claimed to be profitable.

The problem was that Wugang was owed more than $US1 billion ($1.26 billion) but was unable to pay its suppliers because its State-appointed customers were foundering in the new market system.

Vice-president Deng Qilin claims that since 1994, 60 per cent of that debt has been repaid and Wugang is now in good financial health.

Wugang is still trying to shed workers, but the political resistance is considerable.

With 80 million itinerant workers throughout China seeking jobs wherever they can get them, the last thing the party wants is Solidarity-style militant unionism from workers angry at being laid off from firms like Wugang.

The scale of the Wugang complex almost beggars belief and explains something of it, and China's, problems.

The main steel-processing plant is a kilometre long, the blast furnaces creaking relics. The company still operates on largely Stalinist lines and has its own schools and universities, television station, newspaper, transport firm, railway, mines, restaurants, hospital, apartments for all workers and families, crammed into a gloomy suburb called Wugang City with a population of more than 300,000.

"We often say that Wugang is not a company, it is a government and a society," says group vice-president Mr Deng Qilin.

Wugang has traditionally been a place where Beijing's factions fought their battles.

It was one of the first places Chinese President Jiang Zemin visited upon taking the party's leadership in July 1989. Deng went there in 1980, just after launching the reform process, closely followed by party hard-liners who went there and preached a different story.

Wugang also has a coffee-table book, supposedly in Jiang Zemin's handwriting, to commemorate Mao's 100th birthday.