Workers fear loss of 'rice bowl' for life: Teresa Poole in Wuhan on how China is coping with unemployment, the flip side of the capitalist coin

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IT WAS a tale of ordinary folk facing up to the challenges of the new China. Workers started leaving a state-owned ball-bearing factory pleading mental illness after the company went into a joint venture agreement with a Hong Kong firm.

According to newspaper reports in the north-east city of Harbin, the workers feared that under the new management they would have to work harder and would be monitored for efficiency. So they turned up with certificates showing they were mentally ill and asked for early retirement. An investigation revealed that, in the free-wheeling climate of economic reform, they had simply bought the certificates from the profit-minded local mental hospital.

All over China, millions of workers born into the 'iron rice bowl' system of cradle-to-grave employment and state social services are discovering that life no longer offers the certainties it once did. Socialism 'with Chinese characteristics' means that managers of state-owned enterprises have now been told by central government that their factories must stop losing money. They have looked at their over-manned production lines, and for the first time have been allowed to conclude that fewer people, working properly, could get the job done.

New foreign management partners have brought in notions of productivity and profitability. They insist on the right to sack people who do not work hard. China's underemployed workforces, who had grown lazy on the knowledge that - under Communism - a job was for life, are now facing a new scourge: unemployment. And the authorities are facing up to the social unrest this may cause.

Lin Shouqing, the head of the Textile Bureau in Wuhan, one of China's largest inland industrial cities, is beset by problems typical of anyone trying to sort out China's state industries. He has 110 state-owned factories in his stable, two-thirds of which make losses. The plants are hugely over-manned, employing 120,000 people in total. On top of this there are 60,000 pensioners to support. 'They all need to eat,' said Mr Lin.

Last year Mr Lin, having decided that new measures were necessary, embarked on an experiment. A Hong Kong company was allowed to buy a 51 per cent stake in the loss-making No 2 Printing and Dyeing Works, a debt-ridden factory running on old machinery, in need of new markets. The Hong Kong company drove a hard bargain: it would not shoulder the debts or the pensioners, nor solve the problem of redundant workers, and must be allowed to impose its own management style. 'At that time, this was very risky,' Mr Lin said. More so because the foreign company wanted a majority stake.

About 1,200 workers were made redundant, leaving only 770 with jobs. For those left, monthly wages jumped from around 178 yuan (pounds 20) to 467 yuan (pounds 52). But they now work a 10- or 11-hour day, instead of eight hours. There are complaints that the Hong Kong management system can be gruelling for the workers. About 78 have resigned, and 14 were sacked because, said Zhang Huai Yi, the Chinese manager, 'their behaviour conflicted with our management system - they were absent, or they slept'.

The redundant workers from the No 2 Printing and Dyeing Factory had it easier than others because some of the purchase price money paid by the Hong Kong company was channelled into setting up new service industry companies. In China, factory units are more like small villages and towns, complete with schools and medical clinics, and food halls. These, and retail shops, are usually the basis for new jobs for sacked workers. Even so, more than 500 of the factory's workers still have no jobs.

On a larger scale, the Wuhan Iron & Steel Corporation, one of China's biggest factories, is in the middle of massive restructuring similar to what will be necessary in most of the country's big industrial complexes. At present, of the 120,000 workforce, just 50,000 are involved in making iron and steel, and that is due to fall to 40,000. No one is talking of unemployment; the management says it is a matter of redeployment and separating the core industry. About 50,000 workers have been moved to four new mining-equipment and service companies that use the factory's machinery and technology. Real estate, fast-food machinery and hotel management companies have started up.

The labour market realities of a free-market, quasi-capitalist system have only recently been making a full impact. It was last July that the State Council gave state enterprises the authority to make decisions about labour and wages. Since then there have been a steady stream of reports of angry laid-off workers attacking factory managers or equipment.

Fear of social unrest was probably behind a new regulation, due to come in this month, which required state enterprises to find work for those they lay off. For the workers, unemployment or contract work is scary; under the Communist system, houses, health care, schooling and social services came with the job - and were for life. As yet there is no social security system to provide a safety net.

Mr Lin said he thought shifting employment patterns represented the biggest change in China under the economic reforms. 'In my factories there are at least 20,000 workers who need to be moved out. Where do we put them? It is very complicated.'