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How to succeed in China - with a bit of (capitalist) style

WHAT Qu Zhichao has learned about making socialism work might astonish other factory directors in China. He discovered that the best way to to expand his state-owned factory was to apply some personal initiative - and a bit of outside capitalism.

Several weeks ago, Mr. Qu found himself in Oklahoma City, striking a $2 million business deal with an American partner. The Chinese government has been taking a punitive share of his profits, and he was forced to look outside the country for capital to expand his state-owned factory.

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Qu and his factory, the Nanking No. 2 Machine Tool Works, have already benefited substantially from the reform program of Chinese Premier Zhao Ziyang.

But he and other factory directors interviewed in Jiangsu Province say that more changes - such as reducing the share of profits taken by the state - are needed if China's socialist economy is to achieve the targets set by Chinese leaders.

Qu's tool works is among the one-third of all state enterprises in Jiangsu that have adopted key reforms in management. Qu no longer shares decisionmaking powers in production and personnel matters with the factory's Communist Party secretary, who is concerned with political and ideological work among its employees.

Under Qu's more autonomous leadership, the factory has profited from selling most of its output of high-quality machine tools on open commodity markets rather than to the state.

The government in Jiangsu Province has been a strong supporter of these changes, which have brought a record of economic growth second to none. In 1985, Jiangsu became No. 1 among all provinces and cities in China in value of total industrial output, surpassing even Shanghai. It maintained this edge last year as well.

Even if they are reluctant to talk about it openly, factory directors here know that the political winds blowing from Peking in recent months have not been encouraging.

There has been a slowdown in adopting management reforms, and new austerity measures have been announced, especially restraints on investments by enterprises. A law to formalize management and other reforms has been set aside by China's National People's Congress, the parliament.

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Progress in unraveling China's seemingly irrational system of state-administered prices has come to a halt for fear of social instability. Party committees in factories have been given a fresh mandate to educate the workers in the fight against ``bourgeois liberalization'' or the influence of political ideas deemed unsuitable to China.

Without criticizing recent policy trends, factory directors indicate that their problems, many of which lie outside their newly acquired decisionmaking powers, are not being considered. These include high taxes, continued lack of flexibility in dealing with personnel and distribution of pay, and the burden of the government bureaucracy to which they are responsible as state enterprises.

Qu's machine tool factory, for instance, paid 74 percent of its profits in taxes last year. Qu has taken the offensive against this particular handicap, not being satisfied to preside over another inefficient socialist industry. He is reaching out for foreign help.

``The state doesn't invest money in this factory, but it takes our taxes for its key projects,'' he said. ``Old factories like ours must depend on themselves,'' he said.

The factory was first a coin mint for the Qing emperors in the 19th century and later manufactured weighing scales during the Japanese occupation of Nanking (1938-1945). Now its machine tools and parts are sold in many provinces and some are exported to the US and West Germany.

Qu's after-tax profits are spread thin. Each year he must build 80 to 100 new apartments for workers, provide a broad range of social welfare, maintain a three-year technical training school for new employees, plus keep up a technical rennovation program in a capital intensive industry.

He and his workers are proud of their neat and clean factory compound. But finding ways to modernize and grow has not been easy. He expects to improve export earnings and expand workshop space by a joint venture with an American company.

Four hours away by train, in the gritty industrial city of Wuxi, Wang Rui Liang has decided to open a branch factory in China's special economic zone of Shenzhen, near capitalist Hong Kong. He, too, is trying to breathe vitality into his enterprise, despite burdens of state regulation and economic reforms only partially begun.

``If a product has a good market, we'll produce it,'' said Mr. Wang. ``We'll produce everything that's profitable. But if you can only produce television sets or only radios, then it's not a good system.''

For 34 years general manager of the Wuxi No. 5 Radio Factory, Wang hopes his new branch will exploit the advantages of being close to Hong Kong by tapping the latest technology there and improving access to foreign markets.

He aims by next year to export cheap radios and black-and-white television sets to the United States. He would also like to export electronic components to assembly plants in Hong Kong, Singapore, and even Taiwan.

Wang was especially attracted to Shenzhen, because enterprises there are permitted to retain up to 100 percent of their foreign-exchange earnings, instead of the usual 12.5 percent.

And he was impressed at how quickly Shenzhen government authorities approved his industrial license.

``This is quite a backward management system here in Wuxi,'' he said. ``The factory in Shenzhen can be more flexible. People in Shenzhen are better informed and more helpful in developing new products.''

When asked about the central government's new emphasis on controlling investment outside the state plan and especially so-called nonproductive investments, he jumped to his feet.

``I will never invest in nonprofitable projects,'' said Wang. ``I will always invest, if the profits are high.''

Like Qu, Wang said his taxes are too high. He wouldn't say exactly how much, but commented that the 74 percent rate cited by Qu was ``not bad.''

Wang's tax bite has limited his ability to develop more-sophisticated electronic consumer goods and has also forced him to find new ways of expanding and modernizing his factory.

``Let the sparks fly all over the grassland,'' said Wang, quoting Mao Tse-tung. Although Wang was referring to his pioneering effort in Shenzhen, the comment described his general attitude toward experiments with greater managerial and economic freedom.

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