Re: Shanghai harmonica plant banishes the blues

[Bruce Steinberg <bruces@xxxxxxx>]

         SHANGHAI, Oct 21 (Reuter) - The Shanghai Gas Company has
swallowed a mouth organ factory, and to workers and managers the
result has been sweet music.
         The takeover of the money-losing Shanghai General Harmonica
Plant by the gas utility apparently has been a great success,
proving that anything is possible as Beijing promotes mergers as
a way to save its ailing state industries.
         Shanghai Harmonica has stemmed its losses and the gas works
is in the music business, supplying 50 percent of the world's
mouth organ market, including blues bands from the United States
to Argentina.
         ``It was completely democratic,'' said Yao Xun, vice-director
of Shanghai Harmonica, explaining how the decision to join
forces with the gas company was taken.
         ``We got everybody together -- all the workers and the
pensioners -- for a meeting and took a vote. Everybody voted in
favour.''
         Not surprising. Although its leading brand names are Star
and Victory, Shanghai Harmonica was losing the battle to stay in
business.
         Making mouth organs is a tricky business.
         Musical honeycombs with tiny copper reeds screwed to a
wooden frame and sheathed in chrome, harmonicas must be tuned at
least twice by experts running them over a jet of air before
they leave the factory.
         Making money out of this is even trickier. The key is stable
raw material prices and cheap workers, preferably with a musical
ear and sharp eyes.
         But in the late 1980s, just as prices of copper, chrome and
wood were rising, the factory took out a 10 million yuan ($1.2
million) bank loan to build a new factory next to the old one,
almost trebling its floor space.
         It didn't need the extra room: privately-run competitors
employing cheaper peasant labour were stealing market share.
And, it certainly didn't need the extra overheads.
         While its annual production of mouth organs was falling from
a high of 10 million in 1983 the size of the workforce remained
unchanged. Then there were 300-odd retirees to look after.
         Still, under China's rigid financial planning system, the
loan was offered and management grabbed it.
         ``Back in those days, under the planned economy, everything
had to be big,'' said Qian Jianong, Shanghai Harmonica's office
director. ``Now we work on market principles.''
         The merger deal was simple. Shanghai Gas Co wanted to vacate
an old meter-manufacturing plant in a prime commercial area so
it could redevelop the land for a windfall profit. Shanghai
Harmonica had an empty building.
         So the meter factory moved its production lines across town
and hired some of the mouth organ makers. Shanghai Gas paid off
the loan for the building and, for good measure, injected
working capital into its new partner.
         ``It wasn't a case of us being gobbled up,'' said Yao, the
Shanghai Harmonica vice-director. ``They just came in and lent us
a hand.''
         Roughly one third of China's state-run factories are losing
money, and Beijing is hoping many of them can make similar
arrangements.
         By shuffling its industrial assets to take account of
changes in the market place and to make better use of labour and
land resources, Beijing is hoping to find a less painful
alternative to mass bankruptcies.
         Like the Shanghai Harmonica factory, built in 1939, much of
the industrial infrastructure of China's largest city was put in
place before the 1949 Communist takeover and has been frozen
ever since.
         Vertical structures that link China's crumbling factories to
the appropriate ministries in Beijing have been held together by
a rigid bureaucracy.
         And through the years each factory has taken over
responsibility for the cradle-to-grave welfare of their workers,
turning the problem of industrial restructuring into a
potentially explosive social and political issue as well.
         Yao believes his merger points to a solution for thousands
of factories in a similar predicament.
         He said harmonica production this year was expected to climb
to eight million from a low of seven million last year, and the
plant should break even after recent annual losses of one
million yuan ($120,000).
         What's more, Yao said happily, ``we didn't have to send a
single worker home''.