Peasants of Ludian find a rich future carved in stone: In a remote region of China, Teresa Poole discovers farmers cashing in on free-enterprise projects with government approval

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YU ZIHUA, head of the Lijiang Granite Factory, has come a long way. Leading a tour around the field where his new plant was being built, he confided that his previous job was as a peasant farmer.

So how did he know how to run a factory? 'After the 1978 reform and opening up, there was a policy to let some people get rich. At first I just did some business, but I found this was not the best way for me and others to get rich. We must also establish some factories and enterprises,' he said.

This was his first factory? 'No, no, it's the sixth enterprise I am involved with,' he grinned. Mr Yu is one of China's growing band of peasant-entrepreneurs who have found that, with the right connections, the way to get rich is to sideline their farming in favour of local enterprises. Many operate in an ill-defined zone between the private and state sectors, encouraged by a government that is desperate for any assistance in creating jobs and wealth in the poorest rural areas where unemployment is the greatest scourge.

The Lijiang Granite Factory is still more of a field than a factory, a walled-off plot on the outskirts of Lijiang town, in the remote mountainous north of Yunnan province. Along one edge, a dozen workers were constructing a single-storey building for offices and storage. On the other side, huge blocks of granite were piled up ready to be fed into an imported cutting machine that cut through the stone like a bread-slicer.

The Lijiang region, like many rural areas of China, is far from the booming coastal and urban areas of the country, both geographically and economically. Here the local government depends on annual provincial subsidies to keep afloat, there are few alternatives available for under-employed peasants, and foreign investment is rare. Bank loans have dried up under the central government's austerity programme, so the farmers of Ludian, about 100 miles from Lijiang town, have taken matters into their own hands.

Last November 300 of them pooled savings and started the granite enterprise. Mr Yu was the biggest contributor, at pounds 17,000, but 10 times that was collected from the farmers-turned-shareholders.

'The factory is collectively owned. The funds are all from the peasants - we did not rely on the government,' said Mr Yu.

In the polishing shed, some of the plant's staff crouch over the stone as it is ground into lustrous reds and pinks, destined for the walls and floors of China's new hotels and department stores. These jobs were much sought after. All of Mr Yu's 30 manual workers are peasants from Ludian, not the sort who have money to invest as shareholders, but those who scratch a subsistence living from the land and many of whom are idle for most of the year.

'Nowadays there are more and more people but less and less land,' said Mr Yu. These are the lucky ones; the average total pay and benefits at this factory is nearly pounds 500 a year, many times a peasant's normal income.

Drawing a line between private and state enterprises is impossible these days, despite strict central government orders that its departments should not involve themselves in business. In this case, the Ludian local government did not invest money, but it did offer land and preferential tax conditions. 'And the leader of Ludian township also does many useful things for us,' said Mr Yu, who is also vice-director of the Ludian Economic Commission. 'There is no conflict (of interest) for me because this is all under my leadership,' he added.

For the local government, notions of conflicts of interest are secondary to the need to provide jobs and prospects. For Mr Yu, the priorities are clear. 'The most important thing is to let other people get rich. I seldom consider myself,' he said. And is he rich? 'I am very rich in my spirit.'

(Photograph omitted)