* Reform implementation to prove stiff test for provincial
* Local party boss Hu faces conflicting pressures
* History, sentiment put reform spotlight on Guangdong
By James Pomfret
GUANGZHOU, China, Nov 26 Just days after China
announced sweeping reforms to revitalise its economy, several
hundred striking workers rallied outside a Nokia
factory in its wealthiest and most industrialised region
shouting: "Protect our rights!"
This flareup over labour benefits in the vast factory belt
of Guangdong province underlines the main difficulty in pushing
through the reforms - the need to maintain stability while
bringing changes in laws, businesses and society.
"We have hopes for a better China," said one worker surnamed
Huang who said he was forced to accept new contracts with worse
terms of employment after Nokia sold its mobile phones business
to U.S. software giant Microsoft.
"We're striking because the system isn't fair and doesn't
protect us enough. From a regular citizen's perspective, I hope
for a more harmonious and fair environment ... I hope the
reforms help us."
The aim of the reforms is increasing productivity and
transforming China's export-based economy into a consumption and
services-driven model. At the same time, powerful local
governments and state-owned monopolies must be made to give up
some of their powers.
More than most other regions, the test of the reforms will
come in Guangdong, where slowing international demand has badly
hit factories and manufacturing plants. "The factory of the
world" manufactures a bewildering array of products from
electronics, jeans and shoes to furniture, Barbie dolls and
But in a region that accounts for one-tenth of China's
output and around a quarter of its exports, many factories are
closed, shops shuttered and street stalls deserted.
"At night-time in the 1980s, the factories opened late into
the night," said Xiao Gongjun who runs a printing factory in the
gritty Guangdong town of Dalang. "Now it's all dark."
Still, the annual GDP of Guangdong last year was about $935
billion, which would make the province the 16th biggest economy
in the world, smaller than South Korea but larger than
It has also been the region where China has traditionally
launched its reforms, starting with Deng Xiaoping's
transformational decision to open up the economy in 1978.
Last week, President Xi Jinping unveiled a 60-point social
and economic reform agenda, the most ambitious since Deng. It
promises to further free up markets, launch land and residence
registration reforms to help migrant workers like Huang, ease
the one-child policy, embark on judicial reform and encourage
more private investment.
"We are faced with an imperative need to deepen reforms, to
innovate, to transform the functions of government in order to
embrace international standards and build a law-based and
internationalised business environment," said provincial
Governor Zhu Xiaodan last week.
"We can no longer follow the path of export-led development
as in the past. We need to further open up ... fully streamline
governments and decentralise government power to make the
governments function more efficiently."
Hopes that the provincial government will pull off the
changes smoothly rest primarily on the man who runs Guangdong -
local party chief Hu Chunhua.
Tipped as a future leader of China, Hu's reformist mettle
will be tested as he tries to reconcile top-down party edicts
with on-the-ground realities and resistance to change from
bureaucracies and interest groups.
"He (Hu) must watch Guangdong's interests but at the same
time you're a national leader, you're a Politburo member, you're
a rising star. So for him, this is an almost impossible task, he
has to face that challenge," said Cheng Li, a Chinese leadership
expert at the Brookings Institution.
But even before the current programme was unveiled, Hu
announced plans in August to spend 672 billion yuan ($110
billion) to develop Guangdong's less developed fringes in the
next five years through transport networks, new cities and
industrial zones, to broaden growth beyond the overcrowded Pearl
Hu has been quoted as saying by Xinhua news agency that
Guangdong must "unswervingly" deepen reforms and to "realise our
leadership responsibility", though he didn't mention specifics.
For President Xi, Guangdong also holds sentimental value.
His father, Xi Zhongxun, was a former Guangdong party chief
who implemented reforms in the province under Deng's guidance -
much the same as Hu must do now for the son.
"Xi Jinping must be successful (in the reforms). If he's not
successful, we are entering a very disturbing period in China's
elite politics," said Cheng Li. "It's also in Xi Jinping's
interests to ensure Guangdong does well."
POSSIBLE AREAS OF REFORM
It's not clear which areas of reform Guangdong would focus
on first but Peng Peng, a researcher with the Guangzhou Academy
of Social Sciences, said it could make four possible
These include tax and debt management reforms to improve
financing of large-scale projects; legal reforms in a new
free-trade zone, a market for farmers to trade village land, and
further relaxing the "hukou" household registration system for
Guangdong's 30 million or so migrant workers who are often
denied the same benefits of locals.
"Farmers settling into the city should be fully integrated
into the urban housing and social security systems," Peng wrote
in an editorial in the Yangcheng Evening News newspaper.
Guangdong is also pushing for a large free trade zone in the
region, on the lines of one already approved for Shanghai, which
could take a lead in financial reforms and link up with
neighbouring semi-autonomous cities of Hong Kong and Macau.
Crucially, any reforms must be carefully weighed for cost
implications on local governments.
Guangdong can draw on capital markets to raise funds for
infrastructure projects, but its 100 million population means
any surge in welfare support, or drying up of land sales
revenues from land reforms, could exacerbate its already high
levels of indebtedness.
In a region beset by high-profile factory strikes, protests
against state acquisition of land and deep rural-urban
inequalities, the government must cede some ground on land
reform and farmers' rights to ease social tensions while
preserving the ability of local authorities to raise funds
through land sales.
"After local governments give farmers more property rights,
local governments might face a debt crisis," Wu Jinglian, a top
China economist who for the past 35 years has helped steer
China's reforms, said in an interview with Caixin magazine.
"How will they repay these debts? Where will future revenues
come from? For these problems, one must find a way for them to
overcome their opposition and obstacles, while helping them
resolve practical problems."
But locals say something must be done for Guangdong, which
is at risk from slowing export demand as well as the competition
for resources and investment from other hubs like Shanghai and
the nearby Jiangsu province.
Rejuvenating and upgrading Guangdong's polluted and ageing
factory towns and urban landscapes will take time, and possibly
new skill-sets among the workers.
It will also have to come amid a widespread lack of trust in
employers and allegations of collusion with local authorities.
At the Nokia factory, four protesters said they were beaten
and detained by police for demanding their rights.
"If the factory has money and influence, the government will
not help the poor and powerless like us," said another worker
surnamed Yang. "China's rule of law is different if it involves
($1 = 6.0936 Chinese yuan)
(Editing by Raju Gopalakrishnan)