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. Last Updated: 07/27/2016

Collectives Drive Town's Success

ZHANGJIAGANG, China -- Entrepreneurs of this city wear double-breasted suits and drive black luxury sedans, but almost none runs his own business.

The collective road has been chosen as the path to riches here.

Zhangjiagang, a city of 820,000 people on the southern banks of the Yangtze River 140 kilometers northwest of Shanghai, predicts gross domestic output this year will rise a whopping 38 percent, to 21 billion yuan ($2.5 billion), from 15.25 billion in 1995, a growth rate four times the national average.

Unlike other boom cities in China's coastal provinces, it has virtually no private business. Its economy is dominated by collective enterprises owned by townships and villages, with the Communist Party taking a leading role in managing them.

The collectives produce textiles, farm machinery, leather products, wool garments and other light industrial goods.

"We encourage collective enterprises, and private business is controlled," said city propaganda chief Qian Xueran. "We feel the collective system brings many benefits to the people. It avoids the extremes of rich and poor."

Tao Huixing, vice chairman of a collective enterprise run by the local Tangshi township, is a strong advocate of the collective system.

"The enterprises are owned by the township governments and use their profits to build facilities for the benefit of ordinary citizens," he said. That can mean new roads, schools and other infrastructure for townships that own profitable enterprises.

Under the system, a township signs a contract with the managers of collective enterprises. Under its provisions, salaries of managers who meet production targets can be raised by a maximum of 30 percent per year.

Workers' salary increases are not linked to profit growth as salaries for managers were said to be.

Zhangjiagang has an additional proscription that the managers of an enterprise must earn no more than three times the average salary of their workers to avoid the social inequalities found in capitalist societies, officials said.

"The managers of an enterprise that is losing money will normally be punished," Tao said. "For example, a manager with an annual salary of 30,000 yuan whose enterprise loses money can be demoted to an ordinary worker with a salary of just 8,000 yuan.

"Or his property can be confiscated to compensate for the losses of the enterprise. This happens."

This has not happened recently in Zhangjiagang, though, according to officials. Propaganda chief Qian Xueran said all Zhangjiagang's 2,000-plus collective enterprises were making money.

Little wonder that China's national leadership has seized upon Zhangjiagang's method as a model for economic development -- a middle way between debt-ridden, inefficient state companies and a private sector with glaring income disparities and worker exploitation.

It has become the subject of a national publicity campaign, with 640,000 officials from all over China visiting last year and hundreds of newspaper and television reports produced.

"Experts agree that Zhangjiagang has set an example for the establishment of the socialist market economy," said the official Xinhua news agency in a glowing report in January.

"The collective economy is an important part of the economy," said Premier Li Peng in his keynote address to parliament in early March. "It is important to promote the development and reform of collective enterprises actively."

Diplomats said leaders in Beijing felt more comfortable with collective enterprises than private ones because they remain under the control of the local party hierarchy and any resulting income disparities are easier to manage.

But even within Zhangjiagang, some believe that private ownership and stock-holding companies are the way of the future.

Tao said his own enterprise was planning to start selling shares soon. "We are now in the process of changing from collective and state ownership to the private share system, but it will take a long time," he said.

"When people become shareholders, it changes their perspective completely," he added.

"When you have shares in a company, you consider the company as part of your property. It's like furniture. People look after their furniture at home, but office furniture, they don't care if it breaks or not."