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Giving communism a run for its money

By Julian BaumStaff writer of The Christian Science Monitor / November 16, 1984



Shanghai

THE Shang Le Electric Equipment Company is a new, thriving breed of free enterprise in China. In the cramped spaces of a warehouse off Nanking Road, Shanghai's busiest shopping street, a group of 49 young workers assemble and test black-and-white television sets. The sets are sold from a nearby store.

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The venture was set up by the mammoth state-run enterprise that produces radios, tape recorders, television sets, and other electronic products in the Shanghai area.

''Many children of workers in the Shanghai Instrument and Electronic Industry Bureau didn't pass the university exams and were waiting for jobs,'' said factory manager Zhou Zhe Han during a recent interview.

''Their parents were worried about them.''

''So three years ago, we started a television workshop from scratch - originally with only 100 square meters of floor space, few funds, and little technical know-how. We began producing only 100 12-inch sets per month.''

''Today we make 80 sets per day, including some 14-inch, some 17-inch,'' he said with pride. ''Next year we'll start making color sets.''

Total sales for the factory in 1984 should reach 6 million yuan (about $2.5 million) with after-tax profits of 200,000 yuan ($85,000), Mr. Zhou said.

Companies like Shang Le are strengthening the mainstay of China's socialist economy, the state-run enterprises. And they have probably come as something of a surprise to government planners whose policies have encouraged independent businesses.

The new business ventures are licensed by the state as collectively-owned free enterprises. But they are essentially in-house operations of large state-run industries which are independently managed on a profit-and-loss basis.

Some are designed to keep down production costs and some to provide cheap consumer products to workers in the sponsoring state industry. They also help solve the unemployment problem for young people who are ''waiting for jobs.''

The key resources in setting up the Shang Le factory were supplied by its parent company, the Shanghai Instrument and Electronic Industry Bureau. With 160 ,000 employees, the bureau is Shanghai's biggest manufacturer of electronic consumer products and industrial instruments.

Six managers and technicians were loaned out under an agreement that their salaries would be reimbursed to the state enterprise once the new company made a profit. Parts and materials also are supplied on a cash basis. The TV sets are sold to workers of the parent company through one of its shops.

Otherwise the new company operates independently of its state sponsors, renting its own space, paying taxes, etc.

This is no isolated instance of entrepreneurship by this particular state-run industry. In principle, a spokesman said, the bureau has agreed to loan its employees to independent enterprises if they support children of its workers - and if the new businesses also are an asset to the bureau's own industrial operations.

Since 1981 the bureau has launched 52 satellite enterprises employing more than 2,800 young people, according to a spokesman. Seven of these are television assembly plants like Shang Le. Forty are enterprises engaged in processing work for the parent company, and the others produce and sell parts to factories owned by the parent state enterprise.

A spokesman for the State Economic Commission in Peking said the phenomenon of a state enterprise starting up quasi-independent businesses is widespread. In many instances, he said, it is a means of producing in-kind benefits for workers which supplement their cash bonuses.

All the employees at Shang Le were in their early 20s. Several who were interviewed said they were pleased with their jobs. Their wages have increased from 20 yuan ($8.60) a month in 1981 to 100 yuan ($43) a month today - considerably more than they could be making elsewhere.

They work eight hours a day, six days a week, with a one-hour lunch break. Most of the original 48 workers have stayed on although they do not enjoy the benefits, such as free medical care and housing, commonly provided by state enterprises. Most still live at $410, based on individual contributions of $8.60 each when they joined, to $112,000 now.

The Shang Le factory sells sets under its own brand name for about $190, which is 25 percent less than similar sets sold at prices set by the state, factory manager Zhou said. He said the factory's sets are high quality and that the reason state-made sets are expensive is that the state factories, including his parent firm, are so inefficient.

One key to the factory's success is that it escapes state pricing regulations , since it produces TV sets in relatively small quantities for distribution within one enterprise, and not for the general market, state-run or otherwise.

The future of the Shang Le factory looks promising, say its managers. Chinese demand for TV sets far exceeds supply, and the company has a large and captive market inside its parent firm. The factory is preparing to shift to production of color sets in 1985. It plans to move across the Huangpu River to a less crowded part of the city - and increase its floor space by five-fold - in November.

Zhou said he hoped that the young employees will be able to run the company themselves, perhaps in as little as three years time. Then he and his managerial staff could go back to their jobs with the big, inefficient state industry. However, they would have to give up their bonuses for taking on the responsibility for setting up the new company.

As the bridge between the socialist and capitalist systems in the complex Chinese economy, Zhou and his managers now enjoy the benefits of both systems, even while they are forging a Chinese-style blend of the two.