China's peasants feel the heat: Teresa Poole in Chengdu looks at the latest reforms aimed at helping the province's ailing enterprises and farms

AT the Hope Gardens luxury villa development on the airport road out of Chengdu, the muddy building site stands mostly idle, and hope is more in evidence than gardens. On the other side of town, at the unofficial al fresco stock market, trading still bubbles away, but nowadays only some 2,000 players turn up each day, well down from the 50,000 when the market was really hot. Investors complain that prices have fallen these past few months.

China's summer clampdown on its overheating economy was designed to take the froth off the property and share market. In Chengdu, the capital of the country's most populous province, Sichuan, it has done just that. But cutting bank lending has also meant a crunch on Sichuan's state enterprises. Provincial government officials admit one-third have now either stopped production or slowed output.

It is a scenario that threatens massive unemployment in a province already suffering rural discontent, the sort of terrifying prospect that lies behind the Chinese Communist Party's attempts last weekend in Peking to reach agreement on a broad package of economic reforms to tackle the worst legacies of the former planned economy. The original austerity package was aimed at reining in China's booming coastal provinces; enduring reform will depend on tackling the problems in the heartland.

In the centre of Chengdu, a sprawling city of 9 million, is a scene which sums up China's conflicting pressures these days. A colossal concrete statue of Mao Tse-tung, his right arm stretched out as if to direct the traffic, stands above a banner advertising the opening of a new restaurant. To his right a neon sign admonishes him to 'Persist In Reform And Open Policy'; and at his feet, a couple of peasant boys polish shoes of the new well-heeled urbanites.

Sichuan, with 110 million people, exhibits both the potential successes and the worst problems of China as a whole. Chengdu is humming, its streets lined with small private shops and restaurants, economic growth runs at about 13 per cent with a modest but sleady flow of investment. Local businessmen talk as if any austerity process is now over, and plan for renewed growth next year.

Outside the cities there is a different picture. Infrastructure problems restrict investment. The province is saddled with some of the worst of China's loss-making state industries, many of which would not survive without their massive subsidies. Sichuan's governor, Xiao Yang, said: 'Some of the enterprises are in a very bad state. The main strategy is to readjust the product. But it needs time - two or three years. And the process of adjustment itself needs capital.'

Sichuan is China's largest producer of grain, but some 9 million people in the province suffer symptoms of iodine deficiency and several areas were stricken this year by the worst drought for 40 years. Earlier this year violence broke out in Renshou county with peasants demonstrating against local taxes. Farmers in their millions, seeing the wealth gap with the cities, have simply left their land for work in the booming coastal regions.

'This year we made the money paid to the peasants the priority,' Mr Xiao said. Peasants, unlike last year, have received cash not IOUs for their crops, he insisted, explaining that the money destined for farmers is now allocated directly, and tracked to its destination.

The first months of the austerity package, launched in July by the Vice-Prime Minister, Zhu Rongji, hit its target. Between March 1992 and July 1993, 300 property companies were set up in Chengdu alone, up to half of which were effectively killed off by the clampdown.

But in other ways the impact has been mixed. Industrial output in the autumn slowed slightly but inflation remained stubbornly at 14 per cent. On the other hand, some 60 per cent of unauthorised loans were recalled, making more money available for infrastructure development, including an ambitious 20 billion yuan (pounds 1.7bn) transport development programme. Foreign investment interest dropped off in September, but bounced back immediately the next month.

But that left the state enterprises. Quietly, a few weeks ago, the government started easing restrictions on bank lending in order to take the pressure off. 'Reclaimed capital cannot all be returned immediately, because some has been spent on land and so on. But when it comes back in, it can then be applied to industry. So what looks like a relaxation in policy is actually more complex,' Mr Xiao said.

The official Chinese media started to admit that the original austerity package had been too indiscriminate. The test of this week's party Central Committee decision will be whether the millions of peasants and factory workers stop feeling they are being left behind in the reforms.