After Wuhan opened its door, the influx of commodities from other places hit local industries hard and compelled them to seek new ways of survival as we reported three years ago in "Wuhan Rebounds With Economic Innovation" (BR Nos. 28 & 29, 1985). We now return to examine how Wuhan has been faring. - Ed.

To resume its position as the largest trading and communications centre in central China, Wuhan worked hard to open its doors to the outside in May 1984. Today trade in the city flourishes. Many downtown streets are lined with newly decorated shops and private magazine, clothes, fruit and food stalls. The people relish the improved shopping opportunities but complain about price rises.

Mayor Zhao Baojiang said, however, that in 1986 urban people's average per-capita income available for spending, 74.86 yuan a month, was 28.1 percent more than in 1983 in real terms. The per-capita annual income of the farmers on the outskirts averaged 549 yuan in 1986, up 24.5 percent over 1983. Between 1984 and 1986 the city's total output value rose at an average 11.2 percent a year. At the same time it saw a 12.7 percent average annual increase in its GNP, a 20 percent average annual increase in its retail sales and 11.2 percent average annual increase in its own revenues.

Mayor on Reform

Immediately after the city opened its door, large quantities of commodities poured into the city from other places, exciting the local market, but also hitting local industry. The city's shoe-making and confectionary industries were the first to feel the blow. The new township industries which were engendered by rural reform also challenged the urban state-run industries. The township-run Donghu Brewery stole the market of the state-run Wuhan Brewery with its cheaper, better drinks. The state enterprises turned to the mayor for help. The city government had foreseen the problem and had to tell these enterprises that the government encouraged competition and would not bail out those who fell behind. This attitude compelled these businesses to reform and strive to enhance their competitiveness.

Today, many of the city's products are known nationwide. Its electric fans, radio-cassette recorders and photo-copy machines sell well throughout the country, and some of its machinery products are exported. Reform has also brought the shattered shoe-making and confectionary industries back to life. Between January and November 1987, the state-owned commercial businesses in Wuhan purchased some 4.73 billion yuan's worth of goods, of which, about 1.6 billion, or 33.9 percent, came from elsewhere. At the same time, its total sales value reached 5.5 billion yuan, some 1.15 billion yuan were sold to other places, accounting for 22 percent. Opening up benefited the city and other places as well.

Mayor Zhao said that with the opening up of the market, shortages of vegetables and other non-staple food were eased. Today, about one-third of the city's supplies of vegetables, fruit and aquatic food comes from its surrounding rural areas. However, there is still a lack of coordination in the reform. Inefficient market management has given some state and private businesses a chance to collaborate in reselling goods that are in short supply for profits, thus driving prices up. It seems communications are also a problem. Although the city set up a communications commission to oversee all transport and also opened specialized ports, railway lines and long-distance through transport to ease the strains and bottlenecks, it is still impossible for the city to completely modernize its transport in the short term due to lack of funds.

New Leadership

Qin Shuyuan, secretary-general of the city's economic structural reform office, said the city began its reforms with commerce and communications, hoping to create a good environment for independent management and free competition. The central task of urban reform is to reform enterprises, larger ones in particular, so that they can make more of their own decisions, raise the quality of their products and improve their efficiency.

So the city first concentrated its efforts on separating Party leadership from administrative management of enterprises. By the end of 1987, over 1,500 enterprises in the city (80.6 percent of the total) had replaced Party committee leadership with the director (manager) responsibility system. A survey shows that most of these enterprises have made marked progress ever since.

The Wuhan Freezer Plant in Hanyang District is China's key freezer producer. In November 1980 its 1,900 workers and staff, in a secret ballot, elected 34-year-old Li Tao as their director. The deputy directors appointed by Li are also young and have all had college educations.

As soon as Li assumed office he began upgrading the factory's technology and equipment and developing new products. Market research persuaded him to replace the piston-type compressor, which the factory had been producing for 30 years, with the helical-lobe compressor - a new product on the world market. Compact, easy to operate and energy efficient, the new product easily found buyers, and its output has gone up several fold in the last two years. The factory has also imported advanced technology and equipment which helped raise its productivity and bring its quality control up to the most advanced levels. Today, the factory's new freezer is sold throughout China and Southeast Asia. In 1986 alone, the factory's output value rose 36.7 percent, and its profits, 48.2 percent over 1985. Last year saw a 23.09 percent increase in its output value, and 39.21 percent in its profits.

All the managerial personnel at the factory are hired on contract. They are regularly subjected to the workers' appraisal, and those who are not qualified are replaced. Last year 10 people were deemed inefficient. The appraisal leading group, which is composed mainly of workers, gave them a warning and told them to improve their work in three months. Three months later there was still one who failed to improve his work, he was removed by the factory director on the recommendation of the workers' congress. The factory has also introduced a floating wage system to reward the good and punish the bad.

Buying Management

Since late 1986, 12 state factories and six state shops in Wuhan have been practising the property management system on a trial basis, pushing the city's enterprise reform to new heights.

Under this system, the management of an enterprise goes up for public bidding on the basis of annual profit quotas set according to an evaluation of its assets. During the manager's term of office, if he or she fulfils the profit target set in the contract, the manager can get a bonus equivalent to a full year's salary. Otherwise, he or she has 5 percent deducted from his or her basic salary for every 1 percent short of the profit target. The wages of the manager's partners will also be reduced in proportion to their responsibilities. This system has separated enterprise ownership from management power, and ensures the independent management of enterprises.

The Zhongnan Department Store in Wuchang District is one of the commercial businesses practising this new system. With a business floor space of 16,000 square metres and 1,600 employees, the store saw a turnover of 130 million yuan in 1986.

In November 1986, the store was put up for management bids. Former deputy manager, 38-year-old Yan Guifang won the bidding in a field of 49. He appointed nine others to form the leading group. According to the contract, the ten put down 23,000 yuan of their private money as a pledge. Yan gave 4,000 yuan; his deputy, 3,000 yuan; and the others, 2,000 yuan each. The contract also stipulates that Yan and his assistants must deposit 50 percent of their bonuses in a bank, and deductions will be made from that money if the store fails to meet its set profit quota. Yan proceeded to invite bids for the management of 16 subsidiary retail stores and signed contracts with the winners. These managers, in turn, signed contracts with each of their employees in which corresponding rewards and penalties were outlined.

Yan said this new system has eliminated many drawbacks of the old system. Under the current level-by-level contract system, it is in no one's interests to employ unqualified workers and the chronic overstaffing suffered before is eased. As the performance of the business has a direct link with the personal interests of each employee, the workers have worked much harder and improved the service since the introduction of the new system. In the January-November period of 1987 the department store's sales reached 129.04 million yuan, 47.6 percent more than the same period of 1986, its profits amounted to 6.41 million yuan, 57.1 percent higher, and the turnover time of funds dropped by one-third. Yan said another new development is that the subsidiary shops now take the initiative in increasing their sales and the results are always greater than the department store's management plans. Estimated sales last June were 8 million yuan, in fact they equalled 9.01 million yuan. In June 1986, however, the figure was only 5.3 million yuan.

Management Leasing

A more flexible policy Wuhan has adopted is to lease small state-run enterprises (industrial businesses with fixed assets worth under 4 million yuan and annual profits under 400,000 yuan, and commercial businesses with annual profits under 150,000 yuan)to individuals or collectives. Since 1985, 87 of Wuhan's 129 small state industrial enterprises and 67.44 percent of its small state stores have been leased.

Public bidding is invited after the basic profit and rent for a business have been set. The lessees will mortgage their private property as guarantees and sign a lease. To encourage leasing, the city government has ruled that the lessee can manage independently and his or her income can be two to five times the employees' average. The lessee is asked to promise some improvement in the business' assets and to guarantee the good condition of the equipment. Predatory management is forbidden. The economic returns of most of these leased businesses have increased. According to incomplete statistics, in 1987 the average profit increase was 11.05 percent over 1986, and the maximum, an amazing 39-fold increase.

The Wuhan Fountain Pen Factory is a 30-year-old state business. Before it was leased, the business was about to go into the red. In July 1986 its former director Yu Zhiqiang won the lease and took over management of the factory and its 430 employees. Yu appointed three guarantors and the four of them put down 10,000 yuan as a pledge. After handing over a specified basic profit to the state, the factory keeps 70 percent of the remaining profits, and Yu, 30 percent. From his income, Yu must pay the rent and a risks dividend to his guarantors. He also pays assistants who have made outstanding contributions.

Yu said most of the people in his factory favour the management method, but some people are afraid of being dismissed. However, the past year's experience has proved that neither the workers' status nor the enterprise's nature has changed. The workers still exercise their legitimate rights through the workers' congress, while the lessee has taken on more of the power and responsibility for the enterprise's management. For a leased factory, the basic profits to be handed over to the state remain unchanged. The more profit the factory makes the more benefits will the factory and its employees gain. This has motivated the workers. Since the fountain pen factory was leased, the employees have made over 400 suggestions for improving its production and management.

The first ten months of 1987 saw a 58.57 percent increase in the factory's output value over the same period of 1986, and marked improvement was also made in its products' quality. At the same time, the factory's profits were up 5.35-fold.

Foreign Experts

Werner Gerich is a news maker in Wuhan's urban reform. A year ago he finished his term of office as the director of the Wuhan Diesel Engine Plant and returned home to Duisburg, Federal Germany. Then, last autumn he came on a lecture tour of the Economic Management College under Wuhan University. This was his sixth visit to China. He felt China's reform and open policies were unchanged, but the pace had moderated.

Today, things in the Wuhan Diesel Engine Plant are quite different from what they were originally, and quality is a matter of common sense. The factory began to export its products in large quantities last year. Gerich said he was pleased to see his suggestions being accepted. Before he left the factory, he had drawn up a plan for the factory's development which was found to be of value in the reform of other enterprises. The city government has decided to put the plan into practice on a trial basis in the diesel engine plant and three other factories.

By the end of 1987 the city had invited 200 retired foreign experts to help it with its work, and they have all made contributions to Wuhan's economic construction and reform.

Joint Ventures

Although it is far from the coast, Wuhan has already set up several dozen Sino-foreign joint ventures. Zhao Congzhao, 47, is the general manager of the first joint venture in Wuhan.

In 1980, Zhao, engineer then, visited Matsushita, Sony, Toyota and other big companies in Japan and was impressed by their management skills and pioneering spirit. His decision to establish an industrial company in Wuhan was supported by the city government. In September 1982, he set up an electronics service centre in cooperation with a Hong Kong business. With a joint investment of 350,000 yuan, the centre had less than 20 staff members and 60 square metres of business floor space at the beginning. Its business was to repair imported electronic products with equipment and technology supplied by the Hong Kong partner. The business developed very quickly and the next year it made a profit of 510,000 yuan.

Zhao said the joint venture had difficulties at first. Although overseas business people often complain about the low efficiency of the administrative departments in charge, he and his colleagues were used to it. What upset them most was the reaction they received. People said the joint venture was practising capitalism and allowing individuals to make a pile. In fact, the Chinese side still feels the business is socialist. They pay their taxes and plough the retained profits back into the company. Zhao's personal income is more or less the same as the managers of other businesses. Fortunately, Zhao said, the business has always had the mayor's support.

In the last few years, the service centre has expanded considerably. Today it is called the Huaxing Electronics Co. - an economic entity which combines production, trade, and research. By November 1987 the company had produced an output value of 138.33 million yuan, made a profit of 18.69 million yuan, and handed over to the state 9.26 million yuan in profits and taxes.

Currently, Wuhan has 44 Sino-foreign joint ventures (those funded by Hubei Province in the city are not included). An increasing number of overseas investors have seen the advantages of Wuhan's location and resources. Alfred Tong, general manager of the Changjiang Hotel, a joint venture between the city's tourist service bureau and Hong Kong's Frankwell Holding, said, "I believe more people are coming to Wuhan for business or pleasure. Hotels will be in great demand. I am glad that I have taken the first step."

Business Groups

The opening of the market and competition have prompted enterprises to break the old management system and form mutually beneficial economic associations.

The more than 1,300 machine-building enterprises in Wuhan are separatedly attached to over 40 management departments under five levels of administrative leadership (the central government, the province, the city, the district and the neighbourhood committee).

Four years ago, the Wuhan Washing Machine Plant severed its relations with the factories which the higher levels had designated and began to choose its own partners for the supply of components. With their help the plant has lowered its production cost, improved product quality and expanded the market for its Lotus Flower washing machines. The factory and its partners have formed the Wuhan Lotus Flower Washing Machine Corp. The principle of equality and mutual benefit is adhered to among the corporation's member factories. While the production plan is formulated in a unified way by the corporation, each member factory has its independent accounting.

Currently there are 238 registered business groups in Wuhan which have co-operative relations with businesses in 28 provinces and cities throughout the country.

(NO. 3, 1988)