Lower Profile for "Mother-in-Law"

By Spencer Davidson

New economic reforms bring reality to cities and factories

"Hello, Banana? Change money?" That sales pitch, unusually direct for China, was routinely delivered last week by jeans-clad youths outside Peking's Jianguo Hotel. The bananas, mostly imported from Ecuador, were the vendors' customary, and legal, merchandise. The offer to trade currency was neither normal nor legal--especially since the trade was 150 Chinese renminbi for 100 of the foreign-exchange certificates issued to non-Chinese that are officially valued at 1 to 1.

Yet Chinese authorities seemed willing to let the money-changers operate. It was a further signal of their determination to shift from a planned, predictable economy to an open one. That approach has had spectacular success in the countryside over the past two years. Last month delegates to the Third Plenum of the Twelfth Central Committee approved a 16,000-word resolution put forward by Leader Deng Xiaoping extending many of the reforms to the cities. As a result, the government-set prices that have allowed 200 million people to enjoy low rents ($3 to $5 monthly per family), inexpensive food, even cheap haircuts and public baths, at an annual cost of $55 billion, or about half the national budget, are being allowed to rise to more realistic levels. In addition, the government has inaugurated a new industrial-pricing system that should make Chinese factories more responsive to supply and demand. Although the proposals had the unmistakable air of capitalism about them, party ideologues took great pains to stress the differences between state ownership, which continues, and state management, which is supposed to improve under the new order.

Predictably, the announcement touched off a national wave of panic buying and hoarding. As soon as it became apparent that prices on 90% of the nation's output would be allowed to float, such products as fish, milk and woolens either became more costly or vanished in some parts of China. Eggs, which had been in plentiful supply, disappeared from state-run stores; they remained available, but expensive, on the free market.

Goods whose prices had not changed, like blankets, were suspiciously unavailable in state-operated stores; shoppers complained that they had been removed from shelves in anticipation of price increases. To hedge against shortages or inflation, many citizens withdrew their savings to purchase such nonperishables as bicycles and textiles. One Peking family bought a piano as an investment, though neither parents nor children could play it. A black market developed in railroad tickets, as speculators in Peking, Shanghai, Canton and other cities snapped up tickets and resold them at higher prices.

Although the government tolerates Peking's youthful money-changers, it cracked down on more flagrant speculators. The party newspaper People's Daily pointedly reported the fate of entrepreneurs in Xian who had managed a quick $7,600 profit by gouging buyers of woolen blankets; the merchants were punished with heavy fines. Storeowners in Peking who had hiked prices on 14-in. color TV sets to make an extra $100 profit were fined and reprimanded publicly. "This ill wind of arbitrary price rises must be resolutely checked," the paper insisted.

Reforms on the factory floor are likely to be further reaching. Plant managers and local party secretaries have never had to worry about profits or costs. At least one facility in five has been operating in the red, with the government covering the costs of inefficiency and featherbedding.

Now accountability will begin at the local level. As a result, predicts Economic Daily, the government's voice on economic policy, 40% of factory bosses and 70% of party leaders in 3,000 enterprises might have to be replaced. It may not come to that, but as a demonstration of Deng's intent, some unexpected shifts have already been announced. Two weeks ago the Shanghai municipal government approved the start-up of 3M China, Ltd., a wholly owned subsidiary of U.S.-based Minnesota Mining & Manufacturing Co., which will produce electric tape and connectors without Chinese partnership for the first time since 1949.*

A more remarkable change occurred in the industrial city of Wuhan this month when West German Engineer Werner Gerich was appointed director of a diesel-engine factory. He was the first foreigner ever named to such a management job since the Communist victory in 1949. As a consultant to the Wuhan plant, the West German had so impressed officials with a detailed critique of the factory's shortcomings that they voted to make him the manager. Gerich has already begun to carry out his own suggestions, including a rule that forbids newspaper reading on the job. He is also seeking to reduce his work force from 2,000 to 1,500, even while doubling production. "I firmly believe that the days when those who contribute much and work hard have the same pay as those who contribute little or even do not work at all should be finished," Gerich told his staff.

That same ideal, despite its departure from ideology, has been stated more and more openly by officials in Peking since the reforms. They are also down-playing another Communist tenet, central control of factories. "In the past, we used to be a mother-in-law, and we relied on 'patriarchal dignity' to direct enterprises," says Deputy Premier Tian Jiyun. "Now we must get off our high horse and become just a simple 'attendant."

To stir city people into accepting the new system and to forestall conservative party bosses from crippling it, Peking is pushing the Sichuan city of Chongqing, one of the largest metropolises in China, as a kind of municipal role model. Buying from whatever domestic or international markets they choose, Chongqing's leaders in the past year have doubled business activity. If such reforms can succeed in Chongqing, the government seems to be saying, they can work anywhere in China.

-- By Spencer Davidson. Reported by David Aikman and Jaime A. FlorCruz/Peking

* Peking has also consented to let a Dallas-based firm called Leisure & Recreation Concepts, Inc., build a $1 million amusement park near the coastal town of Shantou to be named Dragon Lake, complete with Ferris wheels, swan boats and an electronic arcade.

With reporting by DAVID AIKMAN, Jaime A. FlorCruz