Two Roads to Rural Development

In Wenzhou, private firms scramble to win markets across China; in Zhangjiagang, companies are tightly run by local governments

ON the south bank of the Yangtze River just 70 miles from the seaport of Shanghai, Zhangjiagang lies in the "land of fish and rice," as southern Jiangsu has been called since ancient times. With a thriving trade in silk, grains, and other agricultural goods, southern Jiangsu has enjoyed a high level of development since the Song Dynasty (AD 960-1279).

The region's wealth provided a powerful economic base for the agricultural collectives imposed by Mao Zedong after the 1949 revolution and bloody seizure of private property that followed.

Since the 1980s, Jiangsu's collective economy - that portion directly owned by village or township governments - has thrived along with the growth of rural enterprises. Local governments provided much of the investment and loans to set up the rural firms, and today maintain a tight grip over their operations and revenue.

In Zhangjiagang, the government assigns each factory director ambitious yearly targets for profits, taxes, and output, and sets the total wage bill. If the factory fails to meet the quotas, the wage bill is cut.

Local officials collect taxes from the firms and a substantial levy, called a "management fee," to pay for roads, education, health care, and other programs. Also common are demands for funding to bail out unprofitable firms.

"If other factories have problems, or if there is a special project, we have to help out," says Gu Xingrong, a former village cadre who runs a polyester filament plant in Deji near Zhangjiagang.

Such extensive bureaucratic controls harm the efficiency and flexibility of Jiangsu's collectively owned firms, China experts say. But the firms gain political protection as well as preferential treatment in obtaining credit and some raw materials.

In contrast, Jiangsu since 1985 has harshly suppressed private firms that threaten the markets of its collective sector.

"Trying to run a private enterprise here is like `throwing an egg against a stone,' " says Zou Jianming, deputy head of Deji's Communist Party committee, quoting an adage.

Private firms have been routinely denied loans. If a worker joins a private enterprise, all his family members are blacklisted from taking jobs at collective firms.

This environment discourages private industry: In 1990, only 13 percent of the province's rural industrial output came from firms owned by individuals or households.