DATE=4/1/99 TYPE=BACKGROUND REPORT NUMBER=5-43001 TITLE=CHINA REFORMS BYLINE=MIKE O'SULLIVAN DATELINE=LOS ANGELES CONTENT= VOICED AT: INTRO: CHINA IS ADDRESSING THE CHALLENGE OF ECONOMIC REFORM WHILE TRYING TO MEET THE NEEDS OF DISPLACED WORKERS. SPECIALISTS AT A RECENT CONFERENCE ON ASIAN BUSINESS PROSPECTS SAY CHINA'S LONG-TERM OUTLOOK IS GOOD. BUT LOS ANGELES CORRESPONDENT MIKE O'SULLIVAN REPORTS THE EXPERTS FORESEE SHORT-TERM DIFFICULTIES. TEXT: MOST OF CHINA'S 58-THOUSAND STATE-OWNED ENTERPRISES ARE NOTORIOUSLY INEFFICIENT -- COLLECTIVELY THEY LOSE 12-BILLION DOLLARS A YEAR. THOSE FIGURES FROM A U-S COMMERCE DEPARTMENT OFFICIAL WERE PART OF THE NEGATIVE SIDE OF THE PICTURE PAINTED FOR INTERNATIONAL BUSINESS PEOPLE AT THE LOS ANGELES CONFERENCE. OFFICIAL STATISTICS FOR CHINA SHOW THREE-POINT-ONE PERCENT UNEMPLOYMENT. UNIVERSITY OF SOUTHERN CALIFORNIA POLITICAL SCIENTIST STANLEY ROSEN SAYS THE FIGURES ARE MISLEADING. /// ROSEN ACT /// IN OFFICIAL STATISTICS, WHICH IS PERHAPS AROUND THREE-PERCENT UNEMPLOYMENT, IT HAS TO DO WITH CERTAIN AGE GROUPS. FOR WOMEN IT IS 16 TO 45, AND FOR MEN UP TO 50. BUT ALSO A LOT OF PEOPLE HAVE BEEN LAID OFF BY THEIR FACTORIES, BUT THEY ARE NOT OFFICIALLY UNEMPLOYED. SOMETIMES THEY (THE FACTORIES) GIVE THEM A SMALL STIPEND FOR LIVING EXPENSES. BUT THEY ARE NOT CONSIDERED UNEMPLOYED. /// END ACT /// IN ADDITION, UNEMPLOYMENT FIGURES TRACK URBAN, NOT RURAL, WORKERS. ONE ANALYST AT THE CONFERENCE SAYS CHINA'S ACTUAL UNEMPLOYMENT MAY APPROACH 30-PERCENT. IN 1998, CHINESE PREMIER ZHU RONGJI ANNOUNCED A THREE-YEAR PLAN TO REFORM STATE-OWNED ENTERPRISES. POLITICAL SCIENTIST ROSEN SAYS CORRUPTION BY LOCAL OFFICIALS IMPEDED THE PROCESS. THAT CORRUPTION AND THE THREAT OF RISING UNEMPLOYMENT HAVE SLOWED THE PACE OF REFORM. MOREOVER, PROFESSOR ROSEN NOTES THE PENSION AND WELFARE SYSTEMS ARE LINKED TO THESE ENTERPRISES, OFTEN DRAINING THEIR MEAGER PROFITS. /// SECOND ROSEN ACT /// UNTIL YOU HAVE A SOCIAL SECURITY SYSTEM, YOU ARE GOING TO HAVE TO TAKE ON THE PAYMENTS OF RETIRED PEOPLE, THEIR PENSIONS. YOU HAVE GOT TO TAKE ON EDUCATION OF EMPLOYEES, A WHOLE LOT OF EXPENSES, AND EVEN A VERY PROFITABLE STATE-OWNED ENTERPRISE WILL SOMETIME STILL NOT BE ABLE TO MAKE ANY MONEY BECAUSE OF ALL THESE SOCIAL EXPENSES. /// END ACT /// SPEAKERS AT THE CONFERENCE, HOSTED BY U-S-C'S MARSHALL BUSINESS SCHOOL, NOTED CHINESE BANKS ARE TECHNICALLY INSOLVENT, AND ARE KEPT AFLOAT ONLY BY PRIVATE SAVINGS ACCOUNTS. BUT CHINESE OFFICIALS MUST BALANCE THE NEED FOR REFORM WITH THE NEEDS OF UNEMPLOYED WORKERS. SCATTERED CASES OF UNREST BY WORKERS AND RURAL PEASANTS ARE WORRYING TO OFFICIALS, BUT PROFESSOR ROSEN BELIEVES IT WILL NOT LEAD TO WIDER INSTABILITY IN THE COUNTRY. HE SAYS THE REFORM PROCESS IS DIFFICULT, BUT NECESSARY. /// THIRD ROSEN ACT /// I THINK IN THE SHORT-TERM, THERE ARE A LOT OF DISLOCATIONS, PARTICULARLY AS CHINA TRIES TO MOVE TO A MARKET ECONOMY, AND TRIES TO SHUT DOWN INSOLVENT BANKS OR STATE ENTERPRISES THAT HAVE VERY LOW PRODUCTIVITY. IT IS GOING TO BE VERY DISLOCATING FOR WORKERS IN CHINA, AS WELL AS FOR FOREIGN INVESTORS, FOR THAT MATTER. AND THERE IS GOING TO BE A LOT OF PAIN. BUT THAT IS ABSOLUTELY ESSENTIAL. /// END ACT /// CHINA SPECIALIST STANLEY ROSEN OBSERVES CHINESE STABILITY IS IMPORTANT FOR EAST ASIA. WITH CHINA'S GROWING ROLE AS PART OF THE GLOBAL ECONOMY, ITS PROSPERITY IS ALSO IMPORTANT TO OTHER REGIONS. /// OPT /// FOR POTENTIAL FOREIGN INVESTORS, THERE ARE -- ON THE POSITIVE SIDE -- OPPORTUNITIES IN A NUMBER OF BUSINESS SECTORS. U-S COMMERCE DEPARTMENT OFFICIAL WILLIAM ZARIT SAYS GROWTH INDUSTRIES INCLUDE TRANSPORTATION, ENVIRONMENTAL TECHNOLOGY, TELECOMMUNICATIONS, AND PHARMACEUTICALS. HE NOTES CHINA'S GROWING MIDDLE CLASS IS ALSO FUELING GROWTH OF THE RETAIL SECTOR, PARTICULARLY IN FOOD SERVICES. (SIGNED) NEB/MO'S/RAE 01-Apr-99 3:12 PM EST (2012 UTC) NNNN Source: Voice of America .