:00:00. > :00:00.state-owned firms, Wuhan Iron and Steel, he finds out how the power of
:00:00. > :00:00.these businesses could be devastating for the wider Chinese
:00:00. > :00:14.economy. China - the fastest growing major
:00:15. > :00:18.economy in the world... A triumph of capitalism. Well, maybe not quite.
:00:19. > :00:24.I've come to Wuhan in central China to learn that the story is actually
:00:25. > :00:32.a bit different. And, that the traditional communist way of running
:00:33. > :00:36.the economy isn't completely dead. I've been given unusual access to
:00:37. > :00:39.one of China's huge companies - Wuhan Iron and Steel. It's not just
:00:40. > :00:45.any old business - it's one of China's most famous state-owned
:00:46. > :00:48.enterprises. Huge companies like this one have been crucial to the
:00:49. > :00:54.Chinese miracle - providing raw materials to fuel the boom. Now I'm
:00:55. > :00:58.meeting some of the millions of workers who live and work in a
:00:59. > :01:09.system that would be familiar to Chairman Mao. Many grow up here and
:01:10. > :01:12.never leave. But China's state-owned companies are now in trouble and the
:01:13. > :01:19.consequences of this could be devastating for the whole country.
:01:20. > :01:22.So this isn't just the story of one remarkable company, it's also the
:01:23. > :01:24.story of whether China's miraculous success in boosting economic growth
:01:25. > :02:03.and living standards can be sustained.
:02:04. > :02:14.Strictly Come Dancing, Chinese style!? Nowhere near, in fact. These
:02:15. > :02:15.are employees of one of the world's biggest steelmakers, Wuhan Iron and
:02:16. > :02:33.Steel. They're here to give me a big
:02:34. > :02:37.traditional welcome. That was completely wonderful and not at all
:02:38. > :02:40.what I was expecting. When I visit a big company I don't normally get
:02:41. > :02:46.greeted with a traditional dance by the company's own employees in their
:02:47. > :02:48.own theatre! This is a Chinese, state-owned enterprise and my
:02:49. > :02:55.goodness, they're different from Western companies.
:02:56. > :03:03.How often do you do these performances?
:03:04. > :03:30.Why do you think Wuhan Iron and Steel has a dance company?
:03:31. > :03:41.This is the real business of Wuhan Iron and Steel. With production
:03:42. > :03:43.lines over half a mile long, it churns out steel at the rate of an
:03:44. > :03:51.Eiffel Tower every two hours! Wuhan Iron and Steel has over
:03:52. > :03:54.110,000 employees and it selected one of them for us to meet and
:03:55. > :04:10.follow as he works and plays. 27-year-old Huang Xiongwei works in
:04:11. > :04:13.the Number Four steelmaking plant. A recent university graduate, this is
:04:14. > :04:33.his first job. Traditional suggests he will never leave. We work in
:04:34. > :04:36.shifts. We produce steel all day. 24 hours. Like a growing number
:04:37. > :04:39.Chinese, Xiongwei moved briefly to the West to acquire commercially
:04:40. > :04:58.useful knowledge. He did a Master's degree in Germany.
:04:59. > :05:02.Wuhan Iron and Steel expects and receives huge loyalty from its
:05:03. > :05:13.thousands of staff. Maybe in the future I can be promoted. To be a
:05:14. > :05:20.leader in the whole company. I want to stay for my whole life here. I
:05:21. > :05:23.want to devote myself to my betterment. Wuhan Iron and Steel is
:05:24. > :05:26.in the elite group of 117 giant companies owned by the central
:05:27. > :05:28.government of Beijing. Together, with over 110,000 businesses owned
:05:29. > :05:32.by local governments, across China they are the famous, notorious
:05:33. > :05:34.state-owned enterprises. You may think the Chinese economy is all
:05:35. > :05:40.about super-efficient, private-sector businesses, often
:05:41. > :05:43.owned by billionaire tycoons. There is something to that. But those
:05:44. > :05:45.vast, lumbering, often inefficient state-owned enterprises are still
:05:46. > :05:56.central to the Chinese economy, employing one in every five workers.
:05:57. > :06:13.The state-owned companies dominant China's economic core. In steel,
:06:14. > :06:17.power, food, banking... And other industries, including Tsingtao
:06:18. > :06:19.lager, mobile phones and even silk. The state-owned enterprises have
:06:20. > :06:32.their origins in Mao's socialist demand economy of the 1950s. The
:06:33. > :06:35.story is proudly displayed in Wuhan Iron and Steel's purpose built
:06:36. > :06:38.museum. Workers were organised in collectives, or production went to
:06:39. > :06:47.the state and they were rewarded with food, housing and
:06:48. > :06:51.entertainment. The great Mao himself opened Wuhan Iron and Steel in 1958.
:06:52. > :06:54.Part of his infamous experiment known as the great leap forward, it
:06:55. > :06:57.ultimately led to a famine that killed over 30 million people. After
:06:58. > :07:04.all those years of human tragedy, Mao's successor Deng Xiaping tried
:07:05. > :07:06.another way. After 1980, private companies were encouraged to
:07:07. > :07:13.flourish and the fastest and longest development of any economy in
:07:14. > :07:15.history took off. Although the SOE's became a declining proportion of
:07:16. > :07:19.China's growing economy, they've lumbered on. They represent the big
:07:20. > :07:20.contradiction in China's transformation - the unleashing of
:07:21. > :07:36.capitalism, but only up to a point. Soon after arriving at Wuhan Iron
:07:37. > :07:46.and Steel, I begin to get a sense of its enormous scale. It's more like a
:07:47. > :07:52.city than a complex... It goes on and on. Behind the pipes are
:07:53. > :08:02.apartments, restaurants and retirement homes for its loyal group
:08:03. > :08:05.of workers. The scale of this place is mind-boggling. There are more
:08:06. > :08:08.than 100,000 workers and they're mostly housed by Wuhan Iron and
:08:09. > :08:11.Steel. This is more than a collection of steel mills and
:08:12. > :08:21.factories, it's almost a city broadly the same size as Nottingham.
:08:22. > :08:28.This is paternalism on an industrial scale.
:08:29. > :08:34.They start young! The next generation are born in the Wuhan
:08:35. > :09:05.Iron and Steel hospital, and cared for in their kindergartens.
:09:06. > :09:22.This is the Children's World Kindergarten.
:09:23. > :09:27.The explicit aim is to prepare the next generation for service to the
:09:28. > :09:31.company. Wuhan Iron and Steel is its own world. If you want to play
:09:32. > :09:32.badminton, it has its own court. Jobs are in effect handed down from
:09:33. > :09:57.parents to children. You want friends? The company
:09:58. > :10:03.prefers you to mix with fellow workers. It's actively involved in
:10:04. > :10:09.matchmaking. His shift over, new recruit Huang Xiongwei joins his
:10:10. > :10:42.girlfriend for dinner. She works in the metal resources department.
:10:43. > :10:47.Wuhan Iron and Steel lays on dating events, and when the happy couples
:10:48. > :11:22.marry, it's a collective, corporate event.
:11:23. > :11:26.Employees of state companies like Wuhan Iron and Steel usually feel
:11:27. > :11:29.like the most fortunate in China. They receive higher wages, jobs for
:11:30. > :11:52.life and benefits undreamt of in the private sector.
:11:53. > :11:57.But the costs of all this paternalism are huge. That's why the
:11:58. > :11:59.SOEs found it hard to compete against the more efficient private
:12:00. > :12:01.sector. Until, that is, the financial crash of 2008 which
:12:02. > :12:11.brought global economic growth - including China's - to a juddering
:12:12. > :12:15.halt. But it gave an unexpected boost to the SOEs. After the great
:12:16. > :12:20.crash, it was time to put on the hard hats. The economies were
:12:21. > :12:38.melting down. The Chinese government took evasive action. It pulled the
:12:39. > :12:41.levers at its disposal. It forced the banks it owned to lend, and
:12:42. > :12:43.forced the basic industries it controlled to invest. Beijing
:12:44. > :12:48.injected ?400 billion into the economy. And to speed up the
:12:49. > :12:57.stimulus, it turned to the SOEs. All of a sudden, they were back as
:12:58. > :13:00.China's driving force. This man is a wealthy investor with intimate links
:13:01. > :13:10.to the top echelons of the ruling Communist Party. To pump four
:13:11. > :13:23.trillion through the economy, and revitalise growth... The only way to
:13:24. > :13:27.do it was through the SOEs. You couldn't rely on the private sector.
:13:28. > :13:30.It solved problems. The rest of the world was applauding China. The
:13:31. > :13:34.glory days were back for the SOEs. They churned out all the basic
:13:35. > :13:36.materials China needed. They constructed airports, railways,
:13:37. > :13:52.bridges and skyscrapers on a scale of which the world had never seen.
:13:53. > :13:56.Orders surged for Wuhan Iron and Steel. Now the state was the main
:13:57. > :14:03.customer as well as owner. A moment of redemption, says Chen Yongzhi, a
:14:04. > :14:08.company spokesman. When you come to Wuhan Iron and Steel from Beijing...
:14:09. > :14:15.You can see high speed rail. Many were produced were Wuhan Iron and
:14:16. > :14:22.Steel. Many famous buildings, including the Bird's Nest, have used
:14:23. > :14:25.our high grade steel. As contracts rolled into the SOEs, the brightest
:14:26. > :14:28.graduates started to turn their backs on the private sector and
:14:29. > :14:42.queued again for the supposedly safe jobs offered by the booming,
:14:43. > :14:48.state-owned giants. This is my company. I live here. Our ambitious
:14:49. > :14:50.young steelmaker has the qualifications to work almost
:14:51. > :15:01.anywhere. But he's chosen Wuhan Iron and Steel. My room is 314. Tidy but
:15:02. > :15:05.not exactly flashy company accommodation. His girlfriend is
:15:06. > :15:17.compelled to live in the girls' dorm. But he says he won't forget
:15:18. > :15:21.her. This is a photo of my girlfriend. She took this when she
:15:22. > :15:35.graduated. I want to see her everyday when I go to sleep. I put
:15:36. > :15:40.it here. This is our national map. I want to keep it in my mind. The flag
:15:41. > :15:56.and sign as well. Both are equally important! All for the good of the
:15:57. > :16:02.great nation, he says. After 2008, the great economic stimulus appeared
:16:03. > :16:05.to work. It looked as though the renewed expansion of the SOEs had
:16:06. > :16:09.been China's salvation. But five years on, it's left a toxic legacy.
:16:10. > :16:17.The economy works like a complicated network of pipes. Here's the thing -
:16:18. > :16:20.when you shove something in one end, you're never sure what will come out
:16:21. > :16:23.the other. The Chinese government turned to its state owned
:16:24. > :16:40.enterprises to revive the flagging economy. Growth took off. But here's
:16:41. > :16:42.the worry. In boosting their clout, the task of putting the Chinese
:16:43. > :16:52.economy on a more sustainable footing may have been seriously
:16:53. > :16:57.damaged. One problem is massive over-capacity. Wuhan Iron and Steel
:16:58. > :17:00.is just one of many SOEs churning out far more than China actually
:17:01. > :17:09.needs. The amount of steel it can make is way more than the market can
:17:10. > :17:12.bear. So prices have fallen. Although Wuhan Iron and Steel is
:17:13. > :17:20.just about in the black, it's an exception in its industry. Some
:17:21. > :17:38.companies are making losses or are in crisis. Right now, is the company
:17:39. > :17:41.profitable? It is. In the cold winter of the industry, Wuhan Iron
:17:42. > :17:50.and Steel has been able to stand its ground. Central government has
:17:51. > :17:53.ordered the likes of Wuhan Iron and Steel to cut capacity. Others
:17:54. > :18:03.haven't complied, partly as they're under pressure from local government
:18:04. > :18:05.not to lay off workers. Even if we encounter difficulties, we won't lay
:18:06. > :18:17.off our workers. We have responsibilities. What would they do
:18:18. > :18:20.if we just pushed them out? Wuhan Iron and Steel is making a modest
:18:21. > :18:23.profit - much less than they would like. But there's been a painful
:18:24. > :18:31.legacy of white elephants all over the country. This time the
:18:32. > :18:43.consequences are unlikely to be quite so tragic. This is Wuhan Iron
:18:44. > :18:53.and Steel's brand new sports centre, opened in 2013. It's a symptom of
:18:54. > :18:56.another weakness of the SOEs, all that spending and spending has to be
:18:57. > :18:59.financed, and many of the state-owned companies have become
:19:00. > :19:02.heavily indebted. Wuhan Iron and Steel has also splashed out on new
:19:03. > :19:06.company HQ, a ?6 billion new plant and a number of mines around the
:19:07. > :19:07.world. Its net debts are now bigger than its equity - the intrinsic
:19:08. > :19:37.value of business. They're a serious burden. Other SOEs
:19:38. > :19:39.have gone on even larger spending sprees. Magnificent headquarters,
:19:40. > :19:56.banquets and fine wines... Offices that look like palaces. My goodness.
:19:57. > :20:01.These are the pictures of Harbin Pharmaceutical's Plant Number Six.
:20:02. > :20:08.Not one of the most debt-laden of China's SOEs. Surely the most
:20:09. > :20:16.extravagant. So what's the big bill for China? Chinese state-owned
:20:17. > :20:24.enterprises are among the most indebted companies in the world.
:20:25. > :20:39.Debts have increased by 200% since the crash of 2008. So why hasn't the
:20:40. > :20:41.government cut them down to size? They provideopportunities for
:20:42. > :20:44.enrichment for friends and family. You are a politician and you have a
:20:45. > :20:47.political career - that cascades through. It's a mission. Profits are
:20:48. > :21:01.not your top priority. Then they bring sons and daughters of
:21:02. > :21:03.connected people. With so many big contracts awarded since 2008, the
:21:04. > :21:06.opportunities for kickbacks have increased. But China's new
:21:07. > :21:11.leadership has made a big thing of trying to root out corruption. Can
:21:12. > :21:19.the government really perform a system that is enriching so many...
:21:20. > :21:23.They are already beginning. How many local officials have gone to jail or
:21:24. > :21:33.have been given sentences? It's been incredible. The process has just
:21:34. > :21:36.begun. The Chinese expression is 'to kill the chicken to scare the
:21:37. > :21:44.monkey'. So, five years after the crash, the SOEs are on notice to
:21:45. > :21:46.clean up financially and ethically. Their vast debts and enormous
:21:47. > :21:54.excessive capacity threatened to hobble the economy. Which is why
:21:55. > :21:58.President Xi Jinping recently vowed to tackle the SOEs severely - to
:21:59. > :22:17.make them more profitable, and force them to hand over a bigger share to
:22:18. > :22:21.state coffers. The SOEs increase their dividend payments to the state
:22:22. > :22:27.so the state has bigger resources to spend on welfare programmes and that
:22:28. > :22:31.sort of thing. Is that a good idea? As a SOE, we pay taxes to local
:22:32. > :22:33.government and the country. The country can use it to improve
:22:34. > :22:46.people's livelihoods, and for the development of the whole country.
:22:47. > :23:05.But President Xi also confirmed the SOEs remain the foundation of
:23:06. > :23:08.China's economy. Right now there's a lot of pushback. It will take some
:23:09. > :23:14.time but they have to reform. But radical reforms might mean millions
:23:15. > :23:18.losing their precious jobs for life. And the big worry is that in a China
:23:19. > :23:23.where younger people support their parents, the loss of a job causes
:23:24. > :23:26.ripples beyond the single household. Xiongwei is visiting his devoted
:23:27. > :23:44.parents, who farm fish about an hour west. Like millions of families,
:23:45. > :23:48.they worked and saved hard to give him a great start. Now he's looking
:23:49. > :24:25.after them. A good income goes a long way in
:24:26. > :24:29.China. The SOEs have brought stable employment to millions. The risk for
:24:30. > :24:32.the government is that shrinking them could break the grand bargain
:24:33. > :24:46.that keeps the Communist Party in power. Democratic freedom is
:24:47. > :24:49.sacrificed for jobs and prosperity. Steel plants employ thousands and
:24:50. > :24:59.thousands. There would be major social unrest if they were out of a
:25:00. > :25:05.job. There would be problems. The question is whether the government
:25:06. > :25:12.has resources to address them. This is taking place. I believe the
:25:13. > :25:13.entrepreneurial spirit will prevail. Xiongwei shares that optimism about
:25:14. > :25:33.the future. In 2008, it looked like the SOEs had
:25:34. > :25:43.rescued China's flagging economy. Now they're an obstacle. There is a
:25:44. > :25:48.frightening dilemma for the government. Failure to rein them in
:25:49. > :25:52.could mean the end of China's economic miracle. But cutting them
:25:53. > :25:55.down to size too quickly and brutally could seriously threaten
:25:56. > :25:58.the Communist party's grip on power, and bring to an end the one party
:25:59. > :26:08.state created by Chairman Mao.