The cutting edge of capitalism: China's reforms have brought prosperity - for some. Teresa Poole in Guangdong reports on a conflict between southern comfort and central control and talks to locals about coping under the new regime

AN ESSENTIAL totem of success for China's booming southern cities is a state-of-the-art revolving restaurant on top of a gleaming new skyscraper. Over dinner, you can gaze out on an urban vista crowded with examples of the country's rush towards the 21st century: construction sites on every corner; satellite dishes feeding foreign television programmes into nearby living rooms; flashing neon advertisements for foreign products; and roads glutted with imported vehicles.

For those sitting at the tables, there are compulsory symbols of the personal prosperity that has come with the country's lurch towards 'socialism with Chinese characteristics': bright, fashionable clothes, pagers and portable phones, and - most importantly - enough disposable income to spend on dinner what is equivalent to a month's wages in the rest of China.

Life for many Chinese in Guangdong, the southern province bordering Hong Kong, has changed unimaginably in the decade since China embarked on its economic reforms and open door policy. Jobs that were unthinkable 10 years ago are now the norm, such as running a private company, working in a nightclub, or selling private property.

Guangdong has one of the world's fastest-growing economies and everyone, it seems, is cutting deals. People feel more free to talk. There is a new confidence. But not everything is for the better; serious crime is up 22 per cent this year, murder double that, corruption is endemic, and traffic is terrible. But people put up with this because there is freedom to make money, and the standard of living is improving.

In some cases, fulsome appreciation of the market economy is almost comic. For one interview with a pro-free-market government economist, I had to pay rental for the room where we met. Guangdong's population aims to be among the winners of the new China.

The province's capital, Canton, has become a city of shopkeepers. Streams of pedestrians funnel down pavements lined with modern shops on one side and lock-up stalls on the other. Twenty years ago, frivolity was banned in China; now there is a street specialising in DIY and home decoration that features whirlpool baths and reproduction Greek statues.

But although Canton may be one of the world's boom cities, the spectacular growth rates have been from a very low base. The fabric of the city, its homes and basic infrastructure, are mostly ramshackle and crumbling after decades of underinvestment. Down those same alleys, living conditions are basic; poorly-dressed children play by dirty gutters. When new money floods in to an old city like Canton, it is easier to put a colour television in every home than to ensure each family has running water.

Shenzhen, China's biggest Special Economic Zone, to the south of Canton, feels much more like a modern city because it effectively started from scratch. In 1979, it was a fishing town of 30,000. Now the registered population of the sprawling concrete conurbation is 2.6 million. The streets are wide, and the buildings are mostly new. It seems more like Hong Kong than China. The mini- skirt and hot-pants fashions are, if anything, more daring than in the colony. Many supermarkets will only accept Hong Kong dollars.

SO WHY is there a feeling that it is all going wrong? China's booming economy is overheating - inflation is 22 per cent in some cities - and Guangdong is considered one of the main culprits. Deng Xiaoping, who remains the most important man in China, is 89 today and ailing, with no heir apparent as China's leader. Li Peng, the detested Prime Minister, is, apparently, even sicker with a heart problem.

At the same time, a huge wealth gap is growing between those on the bandwagon of economic reform and those left behind. Nowhere is this worse than in the rural areas, where there is a huge over-supply of labour; local authorities do not even have the cash to pay for the farmers' crops. There have been more than 100 outbreaks of peasant unrest after worthless IOUs were issued in payment. In a few months, the government, weakened by an enormous budget deficit, must find a way to pay for a bumper harvest.

Tens of millions of rural workers have been moving to the coastal cities, looking for work. After the Chinese New Year holiday earlier this year, thousands of migrant workers from all over China were camped outside Canton railway station, sleeping on their bundles of belongings, hoping to be chosen by new employers.

In the cities, workers on low state salaries are losing the protection they had been brought up to expect. Full employment is an early victim of market forces. In Shenzhen, the new contract system works well because there are jobs and companies make money. In less buoyant areas, the threat of unemployment looms as central government stops bailing out loss-making state industries. Workers in unprofitable state factories are to stop getting pay rises and will feel the pinch of inflation. These urban workers and rural farmers may be the discontented of tomorrow's China.

Guangdong, China's fastest growing province, is now in Peking's sights, but may be difficult to tame. The province's economic growth forecasts for this year have been upgraded from around 13 per cent to 20 per cent. And the workers there were cushioned from inflation by a 28 per cent increase in salaries in the first five months of this year.

The province's businessmen and officials are not keen on any policy interference from the emergency teams that have been sent out from Peking to bring them into line. The historic view of China's far-flung provinces still holds: 'The mountains are high and the emperor is far away.' Things are going well here, they say, and we will carry on running things our way.

It won't be easy for Peking to reassert its authority in the south. Government and party cadres may pay lip-service to worries about overheating, but they also remember Deng Xiaoping's visit to the south at the beginning of 1992, when he urged the country to press ahead with reforms. Government departments and state banks are themselves often involved in speculative business activities, and unlikely to be willing to see them fail. In Guangdong, there are 40 authorised local economic and technological development zones - and nearly 300 unauthorised ones which have now supposedly been frozen.

And yet, though one can paint a picture of a country on a knife-edge, it also appears to a visitor as a frenzy of industrious, productive activity. A majority of the people are probably better off, even if there is resentment at the minority getting really rich. No one said it would be easy shifting a country of 1.2 billion people from a planned to a market-driven economy.

The big question is the obvious one. The old revolutionaries, like Deng Xiaoping, will not be around much longer. In this heady, fin de siecle atmosphere, many Chinese say they are simply out to make any money they can while the going is good. Because no one knows what will happen next.

(Photograph omitted)

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