Executive murdered in China state-owned steel plant riot, takeover cancelled

By Reuters Staff
July 27, 2009

CHINA-STEEL/

Rioting steel workers killed an executive named to manage the private takeover of state-owned Tonghua Steel, causing the cancellation of the deal and highlighting risks of privatisation in China as millions are thrown out of work.

Chen Guojun, the newly named general manager of Tonghua, was reported to be beaten to death last week by workers who had previously shut down Tonghua Steel, in the northeastern province of Jilin, to prevent its takeover by Beijing-based Jianlong Steel Holding Company.

The government has announced the privatisation deal is now off. No arrests have been announced by state media. Police would not comment.

In the riot, up to 30,000 workers kept police at bay for nearly a day with bricks. About 100 people were injured, the Hong Kong-based Information Centre for Human Rights and Democracy said.

Chen had been negotiating with the crowd after workers shut down most of the plant to try to stop the takeover by Beijing-based Jianlong Steel Holdings.

The workers feared the labour force would be cut to 5,000 under the new controlling shareholder, state media said.

“Workers may feel the state has sold them down the river, especially if there are layoffs or if the private investor moves in their own people,” said Wang Erping, who studies social unrest at the Chinese Academy of Sciences Institute of Psychology.

“But I’ve never heard of it getting to the point that someone was killed.”

“Such protests pose a headache for the government — and any potential investors in privatised steel factories — since China lacks independent unions and limits legal options for workers to get their complaints heard.

Managing China’s rapid transformation from a socialist-style backwater to the world’s third-largest economy has been one of the biggest challenges for the ruling Communist Party.

Nowhere has this been more apparent than in the giant steel sector, where China, the world’s top producer and consumer of steel, has been trying to consolidate its firms.

That has meant opting for modern plants and laying off workers at state-owned firms while promoting well-paid executives trained in capitalist finance, a process that can get ugly, especially in economically depressed areas like northeast China.

Many local governments have resisted top-down mergers, to preserve their own tax revenues or to avoid having unemployed, unskilled and disgruntled workers on their hands.

MERGER POLICY
China’s official policy is to promote mergers and acquisitions in the steel sector as well as in other industries burdened with inefficient capacity and too many workers.

The resulting national champions get government support to
shut rusty old plants and build new ones. Ultimately they are supposed to become big and strong enough to challenge multinationals in the global arena.

“An incident like this shows that governments have less power than most people think when consolidating. Or rather, that power comes at a tremendous cost in social strife,” said Michael Komesaroff, of Urandaline Investments in Australia, an expert on Chinese industrial policy.

Many petitioners who flock to Beijing in hopes of getting back their old jobs or pensions have grievances dating from the 1990s, when the central government shut down many state-owned textile firms and uncompetitive heavy industrial companies.

Those closures pushed the unemployment rate to an estimated 40 percent in some rustbelt cities in the northeast and left the economy at a near standstill in some places.

After the Asian financial crisis in the late 1990s, China’s economy roared back, led by newly privatised sectors. But the blue-collar proletariat of socialist years has largely failed to benefit from China’s rise, accepting instead an early retirement on tiny pensions.

In cases where state-owned assets were sold off to private individuals who were once government officials or managers of those firms, workers can feel even more betrayed, Wang said.

BAD BLOOD
For Tonghua and Jianlong, there appears to have been bad blood from the start.

Jianlong’s local unit secured a minority stake in Tonghua in 2005 in return for a cash infusion, during a restructuring of local state-owned metallurgical firms.

That takeover generated a lot of ill feeling, as did news that Chen earned about 3 million yuan ($440,000) last year, while Tonghua’s retired workers got about 200 yuan a month, said the Hong Kong-based human rights information center, which monitors Chinese protests.

Jianlong pulled out of Tonghua after the global financial crisis buffeted steel markets late last year.

But after markets started to recover and Tonghua posted a profit, management announced last week that Jianlong would buy in again, this time taking a 65 percent stake. Resentment flared.

Further details have been hard to clarify since both firms’ websites were blocked on Monday. A Tonghua executive declined to comment and Jianlong could not be immediately reached.

The Beijing News said the brick-throwing crowd only ceded control over the mill once Jilin provincial authorities pledged that the deal would be shelved permanently.

See also: Q+A-Chinese steel executive killed by protestors

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