China Free to Quit

By John Greenwald.

Li Xuling enjoys a right that is basic in the capitalist world but is still a rarity in China. The 21-year-old spindle operator is free to quit her job at the No. 10 cotton mill in the northeastern coastal city of Qingdao. Reason: she has a five-year labor contract with the government that allows her to seek work elsewhere when the agreement expires in 1988.

Li is among the first beneficiaries of the newest and potentially most sweeping economic reform launched so far by China's leader, Deng Xiaoping. Beginning this week, all state-owned enterprises will be allowed to hire some workers under contracts similar to Li's. The change represents a dramatic turning away from the system of lifetime employment that the Chinese have clung to since the Communists took power under Mao Tse-tung in 1949. Says Max Boisot, a Peking-based British economist: "This is probably the biggest step of all Deng's reforms. If it succeeds, a lot of others will fall into place."

The new contracts are just one in a dizzying array of Deng's market-oriented economic reforms. In China's first bankruptcy auction last week, the government sold a factory in northeastern Liaoning province to a worker-owned unit of the Shenyang Gas Supply Co. The plant went out of business in August after Peking decided to stop propping up money-losing ventures. In another move, limited stock trading began in Shanghai in a test that could lead to the creation of China's first stock exchange since 1949.

The introduction of labor contracts may have the most far-reaching consequences. Under the lifetime-employment system, which the Chinese call the "iron rice bowl," workers can shirk their duties without fear of dismissal or reductions in pay. Their jobs are assigned, often regardless of ability or skill; indeed, most aspects of their careers are controlled by their bosses. "Because of these practices," says Qingdao Mayor Guo Songnian, "workers are slouchy and enterprises are sluggish. The job-contract system aims gradually but substantially to solve this problem."

For conscientious workers, the new system will offer financial incentives and a chance to seek better jobs. The contracts will last for periods ranging from two to twenty years. Managers will be permitted to fire workers for poor performance and will award bonuses for excellence. Employees can leave the company once the contracts run out.

The reform is already stirring apprehension. The lifetime-employment system, for example, allowed children to inherit their parents' jobs, a practice that will eventually end. Some planners are worried that the new system will lure workers in search of more lucrative jobs to already crowded cities. They also fear that some less desirable positions may go unfilled. Says a Chinese official: "We must be very careful about labor mobility. Permanent employment is one of the last bastions of our ideology."

To help ease the inevitable stresses of transition, Peking is phasing in the contracts slowly. The system will apply only to newly hired workers, thus enabling the nearly 70 million employees of state firms to keep their guaranteed positions. Soldiers returning to civilian life can also count on permanent jobs. Dismissed workers, meanwhile, will be able to collect unemployment insurance of up to 75% of their salaries for as long as two years; they can also appeal firings.

Managers in Qingdao, which began offering labor contracts on an experimental basis in 1983, say the new system has boosted employee morale as well as factory performance. Li Xuling agrees. While her friends in permanent jobs earn an average of $27 a month, she took home nearly $60 in July. Asked if others were envious, Li replied, "No. But if they do get jealous, I'll tell them, 'Hey, this is socialism. If you want to earn more, work more.' "

With reporting by Jaime A. FlorCruz/Qingdao