Originally created 02/21/99

Capitalists getting help with reforms



BEIJING -- They were periodically bankrupted and persecuted after the Communists took power in 1949, but China's capitalists are rising in status thanks to economic reforms.

Drawing on their growing economic and political clout, private entrepreneurs have been lobbying for better legal protections, and they appear to be succeeding.

The National People's Congress is expected to approve an amendment to the constitution enshrining the rights of private business when it convenes its annual two-week session March 5.

By turns praised for showing initiative and excoriated for becoming wealthy, entrepreneurs until recently have operated on the fringes of the economy, surviving on loans from family and friends and scrounging for niches not taken by state industries.

Perhaps no one better exemplifies the precarious place of capitalists in Communist China than Mou Qizhong, the 57-year-old chairman of the trading company Land Economic Group.

Mr. Mou has careened between celebrity and calamity throughout his career. He learned early in life the hazards of doing business: His father, a former banker, was persecuted after the Communists' 1949 victory and starved to death during the famine caused by China's Great Leap Forward in the early 1960s.

During the tumultuous 1966-76 Cultural Revolution, when "capitalist roader" was one of the worst epithets possible, Mr. Mou was jailed for criticizing ultraleftists who had destroyed what little was left of private business.

He was sentenced to death, but regained his freedom when political winds shifted in the late 1970s. He returned to his hometown, Wanxian, in the reform-minded southwestern province of Sichuan, and opened a small shop that eventually grew into Land Economic Group.

China began allowing small private businesses in 1980, but those who dared to test the waters of entrepreneurship did so at their own peril. Police and local officials often seized property and business licenses or charged them exorbitant and arbitrary fees.

Mr. Mou was jailed again in 1983, charged with "speculating," but was released a year later.

Moving on to bigger projects, he won praise from the state-controlled news media for his creative moneymaking, such as a 1989 swap of 500 freight car loads of factory surplus socks, shoes and other items for four Tu-154 Russian aircraft that netted Land Economic Group $25 million.

Like Mr. Mou, millions of entrepreneurs have found ways to make money on the margins of the state-dominated economy during two decades of economic restructuring. Most have tiny, family-run shops and street stalls.

But others have built up substantial corporate empires, such as the Hope Group, a Sichuan-based animal feed conglomerate that is now China's biggest private company.

China's private sector now accounts for one-quarter of the country's total output of goods and services, according to government estimates.

There are about 1 million registered private businesses employing 40 million workers. In addition, 28 million people are registered as self-employed.

Private businesses now are lauded for providing jobs for many of the millions of workers being laid off by defunct state factories and for nurturing high-tech industries and services.

The Communist Party acknowledged the increasing importance of private business during a September 1997 congress, when President Jiang Zemin gave a speech approving private takeovers of some state enterprises.

Still, state-owned banks have starved start-ups of financing, and bureaucrats banned them from direct foreign trade until this year.

"We need equal competition. State firms had more than 40 years. Now, attitudes need a period of transition," said Wu Yijian, president of Ginwa, a diversified private company in the central city of Xi'an.

Heading the campaign for better legal protection is Jing Shuping, chairman of the All-China Federation of Industry and Commerce, the main representative of private business in China.

In a speech last spring, the 80-year-old prerevolutionary capitalist proposed amending the constitution to ensure "equal and nondiscriminatory treatment for all enterprises."

A petition signed by 30 members of the National People's Congress echoed his call for equal competition.

In March, the legislature is expected to approve a constitutional amendment acknowledging private business is "an important component of the socialist market economy."

The state-run Xinhua News Agency said another amendment before the congress reads: "The country should protect the legitimate rights and interests of the self-employed and private enterprises and the country should also exercise guidance, supervision and management over them according to law."

Reflecting the increasingly business-friendly environment, Beijing's city government recently announced it would give preferential treatment to private businesses and encourage them to take stakes in state-owned firms through acquisitions, mergers, leases and equity holdings.

Since the beginning of the year, 61 private companies, among them Hope Group, have been given the right to conduct their own exports and imports -- the first time private Chinese firms have been allowed to engage in foreign trade on their own.

While once closed doors have been creaking open for other entrepreneurs, Mr. Mou's fortunes have taken another downturn.

According to state-run media reports, Mr. Mou is in police custody again. Police and other officials declined to comment on his whereabouts or about his legal situation, but company executives say Land owes about $48 million in unpaid debts.