China Says Inefficiency Threatens Its State-Run Firms

Inefficiency, waste and poor returns are threatening China’s policy of making large state-run industries the vanguard of the nation’s economic development, an official report said Tuesday.

The government report, quoted in the official media, sounded one of the first notes of pessimism about a three-year retrenchment program aimed at reviving central controls, giving priority to state-run industries and slowing down market-oriented reforms.

Per-capita productivity rose only 1.6% in 1989, compared to 9.3% in 1988, while wages increased 14% and bonuses surged 23%, according to the report.

Production costs of state-run industrial firms covered by the central government budget jumped 22.4%, a result of rising wage and material bills, and 19% of state-backed enterprises were operating in the red, compared to 13% in 1988.

The State Statistics Bureau said taxes and profit turnover from state-owned industry rose only 0.2% in 1989.

The English-language newspaper China Daily, in a commentary, noted that if efficiency in large state-owned firms continues to erode, “no matter how the government adjusts, the economic retrenchment program would fail to achieve its purpose.”

The government, led by conservative Premier Li Peng, has insisted that China won’t veer from its socialist system, relying on state-run enterprises and giving only a supplemental role to collective and private businesses.

But the figures showed that state firms, long troubled by inefficiency, surplus labor forces and poor management, are costing the state a huge amount of money.

Finance Vice Minister Chi Haibin told the weekly Beijing Review that the government must budget $19 billion a year to cover business losses and subsidies, about one-third of annual financial expenditures.

The China Daily quoted a Chinese Academy of Social Sciences economist as saying industrial efficiency has been declining since 1985, and that in 1988 the contribution of enterprises to state revenue was only 20.63% of state funding for industry, compared to 24.2% in 1984.

The daily said inefficiency and low productivity resulted from slowness in adapting to new market situations, low levels of technology and blind expansion during years of rapid economic growth.

It quoted former State Economic Commission Minister Lu Dong as saying more than 30% of the nation’s processing industry is idle, a result of overcapacity and the 18-month-old austerity program that has meant weakened demand and a cutoff of government credit.

In another sign of economic difficulty, Vice Minister of Labor Li Peiyao said the government will require rural laborers seeking work in the cities to obtain licenses. The move is an effort to stem rural migration and counter rising urban unemployment.

Li said people from rural areas must have a license from a labor department and a temporary residence permit from police before being allowed to take city jobs, the China Daily said Tuesday. He said the measures are aimed at preventing a mass exodus of rural laborers from further burdening overcrowded urban labor markets.

China officially put urban unemployment at about 3% at the end of 1989, up from 2% a year earlier as a government austerity plan halted construction projects and slowed down the economy.

A year ago, millions of rural unemployed flocked to cities looking for scarce jobs in construction and factories, contributing to rising health, crime and housing problems.

China has always required people seeking work in the cities to have residence permits, but the regulation was often ignored in the past when the fast-growing economy created a need for millions of peasants to fill manual labor jobs in urban industries.

The nation’s “floating population” of rural people moving in and out of cities has been estimated at 100 million.