IT was almost lunchtime on Huangchenggen Street, a stone's throw beyond the north wall of Peking's old Forbidden City. A scent as tantalizing as a snake charmer's tune wafted out the kitchen window of the Fragrant Spring Baozi Shop and into the nearby marketplace. Hot, steamed dumplings were ready for the lunch crowd.
In no time, a line of jostling, blue-jacketed workers and impatient shop clerks formed outside the tiny family restaurant, where a broad, flush-faced woman stood smiling in the doorway. She is Li Guangying, the manager.
Inside, customers sat elbow to elbow around six wooden tables, wolfing down the mouthwatering dumplings with a burned-tasting vinegar sauce. Baozi are ``bundles'' of steamed wheat dough stuffed with chopped garlic, pork, and vegetables. They're only 50 cents a pound, and -- for only 6 cents extra -- Li and her staff of eight will serve them with egg soup, red bean porridge, and fresh, sliced tomatoes.
Li is one of China's more than 10 million new self-employed, whose thriving restaurants, repair shops, and beauty parlors are the heart of the small-scale capitalism now encouraged by the Communist Party. Since 1978, when senior leader Deng Xiaoping ended Mao Tse-tung's 20-year shackling of private enterprise, hundreds of thousands of new shops, stalls, and bicycle-drawn carts invaded city streets each year, brightening once-drab thoroughfares.
Peking, a city now boasting 134,000 self-employed, this year launched an unparalleled expansion of individually owned businesses. Under regulations unveiled last May, all premises along several major Peking streets must be converted or vacated for commercial use.
Such policies would have been anathema during the 1966-76 Cultural Revolution and other radical campaigns. The number of private shops in Peking was slashed from 57,000 in the mid-1950s to less than 300 during the Cultural Revolution.
In that chaotic era, small merchants, peddlers, and proprietors like Li were castigated as ``tails of capitalism.'' Gangs of young Red Guards terrorized and beat them, smashing their wares and ``stamping out'' their businesses.
China's private entrepreneurs are prospering as never before, offering an astonishing variety of goods and services at reasonable prices -- as Li's customers will readily testify when their mouths aren't full.
``It's relatively quick to eat here. You can have your fill in less than 10 minutes,'' said Li, whose well-managed shop is open from 8:00 a.m. to 8:30 p.m. -- quite late for Peking, where an estimated 2 million people eat out every day.
``Before, everything was state operated -- now there's a little competition,'' said Li, who makes a hefty profit of 3,000 yuan ($950) a month, or roughly a year's wage for a Chinese urban worker.
The Fragrant Spring is among the most prosperous establishments on its street, one of nine new marketplaces set up in Peking last August to alleviate the capital's drastic shortage of retail and service outlets. Flush alongside century-old houses, market officials erected a row of 30 brand-new shops, 100 clothing stalls, and 100 farmers' produce stands -- transforming the quiet neighborhood into a bustling bazaar.
Each day the market lures some 5,000 customers -- twice that on holidays. They snatch up north-China food specialties and Hong Kong-made blue jeans, Shanghai-brand toothpaste, and American cigarettes.
China's revival of private enterprise is not only dramatically improving the supply of basic goods and services to its 1 billion consumers, but is also creating unprecedented challenges and opportunity for millions of Chinese who either shun or are unable to land jobs in the state sector.
Qi Weiping, a 23-year-old unemployed high school graduate, recently mustered $1,580 in family loans, rented and redecorated a slightly decrepit, pre-1949 barbershop, and opened his own beauty salon in Peking's lively Chaoyang District.
``Before I started cutting hair, I waited for work for three years,'' said Mr. Qi, using the Communist Party's euphemism for unemployment. Today, 30 percent of Peking's private merchants were formerly unemployed youths.
Qi and his staff of three friends hustle from 9 a.m. to 9 p.m. at the ``Precise and Beautiful'' salon, crafting chic hairdos for Peking's style-conscious teenagers.
Until the reemergence in China of free enterprise, Qi and millions of other urban ``waiting-for-work'' youths had little else to do.
Some enlisted in the People's Liberation Army. A handful talented enough to pass the entrance exams enrolled in technical schools or universities. Others were eventually assigned to factory jobs.
Thanks in part to a rapidly-growing private sector, Chinese officials expect the number of unemployed urban young people to drop from the 1980 total of nearly 4 million to about 2 million by the end of this year.
``I like being self-employed, because everything depends on me,'' said Qi, sporting jeans and a navy-blue blazer.
``In the factories, no one wants to work or take responsibility for things -- but I know I can't rely on anyone but myself.''
China's widening ranks of elderly and retired people, who until recently spent their days caring for grandchildren, are also turning increasingly to self-employment as a source of personal satisfaction and extra income.
The entrepreneurial spirit unleashed by China's free-market policies is even inspiring some maverick Chinese to quit their state-sector jobs -- sacrificing what security the state offered them in exchange for greater personal freedom, responsibility, and profit.
``I want to be a big capitalist,'' laughed Wang, an ambitious, Peking man who left his job at a state-run electronics firm in 1983 to launch a one-room private restaurant.
An excellent cook and unassuming business shark, Wang is worried about two new private restaurants that just opened on his block.
``I've got to expand into other parts of town, I'm looking for a place now,'' he said, asking to be identified only by his surname.
In trying to outpace his competitors, Wang runs headlong into a central issue confronted by millions of Chinese merchants: How far is China's pragmatic leadership willing to go in its private-enterprise experiment?
On one hand, seeking to control the politically explosive problem of a growing income gap, Peking has imposed a myriad regulations designed to keep private operations small. In theory, businessmen like Wang may only be licensed to run one concern, and the number of workers he may employ is limited to eight.
Wang's menu is routinely scrutinized by plainclothes ``price inspection officers,'' who see that his prices do not exceed the 32 percent-above-cost limit. He must pay a slew of monthly taxes, including a general revenue tax, land tax, and urban construction fee, as well as a fluctuating tax on profits that can climb as high as 55 percent.
But Chinese officials readily acknowledge and even condone the transgression of these government-defined boundaries by many private merchants, who are hiring dozens of workers and expanding under falsely obtained licenses -- or without any license at all.
On the other hand, though Deng Xiaoping has pledged to keep China's private sector subordinate to the centrally planned economy, he is overseeing the biggest expansion in the number of privately owned businesses in 36 years of communist rule.
Over the past five years, the number of individually owned retail and service stores in China has multiplied more than 15-fold -- from 686,000 in 1980 to 9.3 million in 1984 to 10.6 million today. The number of self-employed increased 14 times over the same period, according to official statistics.
Already the percentage of total retail sales handled by private businesses has mushroomed from 2.1 percent in 1978 to 14.5 percent at mid-year this year, while the state's portion plunged from 90 percent to 44.4 percent.
Moreover, China's recently announced draft economic plan for 1986-90 calls for virtually all state retail outlets to be turned over to collective or individual ownership -- one of the most fundamental economic policy shifts since the 1949 communist revolution.