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Jasper Becker

STRIKES IN BANKRUPT factories in the north and brewing unrest in the countryside reflect only part of the picture of a China adapting to entry into the World Trade Organisation.

Some Chinese are already enthusing about the changes under way even in obscure rural towns such as Xinji in Hebei province.

'It is not a crisis but a great opportunity for us. We are not afraid,' said Xie Shaoming, one of dozens of peasant entrepreneurs who have become rich in Xinji by setting up tanneries and garment factories.

Mr Xie, who left school at 14, now owns a fleet of Cadillacs, BMWs and Mercedes-Benzes and lives in an ornate villa, after building up a company that exports leather around the world.

Although there are dire predictions that up to 30 million peasants may lose their livelihoods as a result of entry into the world body promoting freer trade, Mr Xie and others in Xinji do not buy the pessimism and believe new opportunities are going to create a lot of jobs.

'We are planning to double and then triple the size of the industrial zone here,' says Feng Zhanjun, director of the Xinji Chamber of Commerce.

The city of 650,000, 560km south of Beijing, was founded in 1992 to concentrate the hundreds of small private tanneries started up in the 1980s in an area that had a tradition of making leather goods for the military.

The town was designed to help solve the problems caused by waste water produced by tanneries. In 1996, the Government ordered the closure of thousands of small tanneries in Hebei, forcing the rest to move to Xinji and amalgamate into larger units. The town now has 60,000 workers in 2,410 factories and dozens of factory owners pocketing profits of several million yuan a year.

Xinji, which processes more than 20 million sheepskins a year, is now one of the centres of an industry that employs more than two million people in China and last year exported goods worth US$12.5 billion (HK$97 billion).

China is also the world's leading importer of pig, sheep and cow skins. Xinji imports more than half its raw materials from places such as Australia and New Zealand. The mainland's imports have been growing at more than 20 per cent a year since 1997 and the industry foresees no sign of a slowdown.

For Mr Xie, WTO entry is already bearing fruit and boosting profits - but not because of easier access to foreign markets. Instead, it is the seven per cent cut in Customs duties on imports of sheepskins, which Xinji specialises in tanning, that has given his business a boost.

Local officials say the WTO is not only helping the leather industry, but peasants too. The surrounding countryside has been planted with pear orchards by another peasant-turned-millionaire, Zhang Zengchang. He started out running a cold storage business but found an export market for a particular type of pear.

Xinji is on the north China plain and traditionally specialises in growing grain for the state. Wheat production there and in much of north China is becoming unprofitable as the water table rapidly falls.

The region is suffering from a long-running drought and the water resources there are earmarked for big cities.

In Xinji, all drinking and irrigation water has to be pumped from at least 30 metres below the surface. In some places, drinkable water is only found 300 metres below the surface.

It is therefore nearly impossible for local farmers to compete directly with imports of high-quality grain from North America. But Xinji has a comparative advantage with some specialised crops.

Talking up the benefits of China's WTO entry has now become a contrarian view as most people seem to expect difficult structural adjustments. But in sectors such as leather goods or fruit farming, the WTO is providing a tremendous boost that could create millions of jobs.

'Peasants can do other things than grow grain. WTO won't affect growing vegetables or fruit,' said Mr Xie, who despite his wealth has kept his peasant household registration.

As American scholar Nicholas Lardy points out in his new book, Integrating China into the Global Economy,  the mainland's share of the world market for textiles and apparel is expected to continue growing rapidly for the next five to 10 years. Fields where China can benefit from its low labour costs will see a further expansion.

Average incomes in Xinji have doubled in the past decade and are still just 3,000 yuan (HK$2,830) a year. But tannery workers can earn that amount in a month.

Mr Xie, who employs more than a thousand workers in his four plants, says many tanneries and garment factories are now having to hire workers from outside the area as they expand.

Some parts of China's leather industry, especially those in the pig leather tannery sector, were badly hit by the sharp decline in demand after the Russian economy's collapse was followed by the Asian financial crisis. But in Xinji, officials said they barely noticed a dip in growth.

Another factor that distinguishes Xinji from its rivals is that the local economy is almost entirely in the hands of private businessmen. There is just one bankrupt state-owned leather plant in the city and very few collective factories.

In provinces like Henan or Hunan, many of the competing tanneries were run by local government officials and have gone bankrupt in the past four or five years after Premier Zhu Rongji reduced bank credit.

State-owned enterprises in the industrial cities of the northeast, like nearby Tianjin or Baoding, have fared even worse, thanks to the burden of pensioners and administrators they have to carry.

'Of course we get a lot of support from the Government,' Mr Xie says. 'But the party now recognises that entrepreneurs represent the most advanced forces of production.'

Few in China now speak of 'capitalists' or zibenjia,  regarding it as a negative term that belongs to the Mao era, but only of entrepreneurs, or qiyejia.

The businessmen of Xinji were quick off the mark even before China's entry into the WTO was formalised last year.

Xinji's first marketing team to the United States was already in New York and setting up an office in September to promote their own brands.

'We opened the office in Manhattan just opposite the World Trade Centre. The delegation left on the night of September 10,' Mr Feng said.

The delegation left behind a resident representative who was due to deliver a parcel to a customer at the World Trade Centre at 9am on September 11.

'Luckily, he couldn't get there. That saved his life,' Mr Feng said.

In the aftermath of the terrorist attacks, Xinji suffered heavily from a collapse in orders.

'A lot of factories shut down production for two months and we lost orders worth between US$10 and US$20 million,' Mr Feng said.

Orders are picking up again. Work is starting on doubling the size of the industry zone, laying foundations for the future.

Jasper Becker is the Post's Beijing bureau chief



Every trade cloud has a silver lining