Peking fears a backlash from `resting' millions

At 3pm each afternoon, Zhang Yuzhi parks her tricycle cart on a busy street in east Peking, perches on her stool, and waits hopefully for customers to rummage through the mound of cheap vests and longjohns she has brought for sale.

"It is really difficult," she sighed. "But I am one of the lucky ones. There are still a lot of people who do not have any work at all."

A year ago, Ms Zhang, 35, was one of about 500 employees - about a third of the workforce - at Peking's Number 2 Knitwear Factory "sent home" because of the dire financial situation at the overmanned enterprise. Since their expulsion the "resting" employees have received a monthly subsistence "wage" of just 170 yuan (pounds 13.60) from the factory, a sum that is by no means enough to live on.

Workers "sent home" do not swell the statistics of China's official 2.9 per cent urban unemployed, because they are still technically on the books of the factory. But they are left to fend for themselves in a half-reformed economy caught between the industrial relics of a centrally planned establishment and the impossibility of funding a much-needed welfare system.

As China this month silently marks the seventh anniversary of the June 1989 Tiananmen Square massacre, it is workers like Ms Zhang who cause the government most concern. For many of China's enterprises to have any chance of returning to profit, they must jettison large numbers of staff. But Peking is fearful of the threat to social stability if millions of workers are laid off. The alarm signals are already there; disgruntled workers are increasingly staging wild-cat strikes.

A survey by China's State Statistical Bureau recently found that more than a quarter of China's 370,000 state-run companies were loss-making during the first three months of this year. The number of closures in the same period nearly doubled, compared with last year.

The scale of the problem is daunting. There are 147 million urban employees, and the government admits that about 40 million of them will have to be "helped" to find other jobs.

One survey, reported last week in the official newspaper, the China Daily, found that 41,000 failed state enterprises had suspended production by the end of last year, leaving 5.5 million workers and pensioners without salaries or pensions. Over the next five years, the official estimate is that there will be a shortfall of 16 million jobs.

None of this even considers the situation in the countryside; the vice- minister of agriculture, Wan Baorui, recently admitted that there were 124 million unemployed rural workers who had not been able to find alternative work.

Even in a booming city like Peking, there is a problem. According to one Chinese newspaper report, there are now 470,000 employees in the Peking municipal area receiving at most 230 yuanper month. Many of these are "sent-home" workers. The Peking Labour Bureau recently introduced a scheme whereby any firm which employed a "resting" female employee over 35 years old, or a man over 40, would receive 3,000 yuan from the government.

Usually it is younger employees who manage best to survive in the modern market-driven Chinese economy. Ms Zhang said some of her former colleagues had found casual work; one cleaned in a hospital, , one woman was selling bottled water to taxi-drivers.

China's fast-growing economy, and the Chinese entrepreneurial spirit, mean that, compared with other countries, there are more opportunities here for creating work. But older workers, who for decades were accustomed to the "iron rice bowl" cradle-to-grave employment and welfare system, find the changes hard and rely on their families for survival.

The textile industry is one of the worst hit sectors, with many large enterprises making losses, and mostly female workforces being made redundant by new machinery. The underwear sold by Ms Zhang comes from her old factory, which is typical in being burdened by huge stockpiles of goods that do not sell well. She said: "I bought them very cheap. The quality of these products is not bad, but the style is out of date. I have no money to rent a permanent place, so I sell beside the road.

"The sales manager encourages us to sell and the tax bureau also closes one eye to us knowing we are in difficulties. They don't demand a licence."

In a good month she can earn 300 yuan in her reincarnation as a self- employed small trader.

Ms Zhang represents the death throes of the "iron rice bowl" system. If Ms Zhang were to find another job, she would join the growing ranks of contract workers who have less long-term job security and who are expected to contribute to the new accommodation, health and pension funds that the government is encouraging. The government is insisting that by the end of the year all urban workers are on contract.

Outside Peking, for instance, is the Peking Number 1 Auto-Interior Factory. All its 383 staff are on contracts of at least five years and monthly salaries should reach 1,000 yuan this year. But this is New China; employees must pay 12 per cent of their wages towards company-run pension, housing and health schemes.

The government, meanwhile, finds that attitudes are harder to reform than pay-packets. If Ms Zhang were offered a new job, she might well refuse it. Like many others, she might not want to be dropped from the books of her work unit. Ms Zhang has a naive conviction that, in 25 years, the Peking Number 2 Knitwear Factory will be able to honour her "iron rice bowl" pension rights.