Inside China's Steel City Our World

state-owned firms, Wuhan Iron and Steel, he finds out how the power of

these businesses could be devastating for the wider Chinese

economy. China - the fastest growing major

economy in the world... A triumph of capitalism. Well, maybe not quite.

I've come to Wuhan in central China to learn that the story is actually

a bit different. And, that the traditional communist way of running

the economy isn't completely dead. I've been given unusual access to

one of China's huge companies - Wuhan Iron and Steel. It's not just

any old business - it's one of China's most famous state-owned

enterprises. Huge companies like this one have been crucial to the

Chinese miracle - providing raw materials to fuel the boom. Now I'm

meeting some of the millions of workers who live and work in a

system that would be familiar to Chairman Mao. Many grow up here and

never leave. But China's state-owned companies are now in trouble and the

consequences of this could be devastating for the whole country.

So this isn't just the story of one remarkable company, it's also the

story of whether China's miraculous success in boosting economic growth

and living standards can be sustained.

Strictly Come Dancing, Chinese style!? Nowhere near, in fact. These

are employees of one of the world's biggest steelmakers, Wuhan Iron and

Steel. They're here to give me a big

traditional welcome. That was completely wonderful and not at all

what I was expecting. When I visit a big company I don't normally get

greeted with a traditional dance by the company's own employees in their

own theatre! This is a Chinese, state-owned enterprise and my

goodness, they're different from Western companies.

How often do you do these performances?

Why do you think Wuhan Iron and Steel has a dance company?

This is the real business of Wuhan Iron and Steel. With production

lines over half a mile long, it churns out steel at the rate of an

Eiffel Tower every two hours! Wuhan Iron and Steel has over

110,000 employees and it selected one of them for us to meet and

follow as he works and plays. 27-year-old Huang Xiongwei works in

the Number Four steelmaking plant. A recent university graduate, this is

his first job. Traditional suggests he will never leave. We work in

shifts. We produce steel all day. 24 hours. Like a growing number

Chinese, Xiongwei moved briefly to the West to acquire commercially

useful knowledge. He did a Master's degree in Germany.

Wuhan Iron and Steel expects and receives huge loyalty from its

thousands of staff. Maybe in the future I can be promoted. To be a

leader in the whole company. I want to stay for my whole life here. I

want to devote myself to my betterment. Wuhan Iron and Steel is

in the elite group of 117 giant companies owned by the central

government of Beijing. Together, with over 110,000 businesses owned

by local governments, across China they are the famous, notorious

state-owned enterprises. You may think the Chinese economy is all

about super-efficient, private-sector businesses, often

owned by billionaire tycoons. There is something to that. But those

vast, lumbering, often inefficient state-owned enterprises are still

central to the Chinese economy, employing one in every five workers.

The state-owned companies dominant China's economic core. In steel,

power, food, banking... And other industries, including Tsingtao

lager, mobile phones and even silk. The state-owned enterprises have

their origins in Mao's socialist demand economy of the 1950s. The

story is proudly displayed in Wuhan Iron and Steel's purpose built

museum. Workers were organised in collectives, or production went to

the state and they were rewarded with food, housing and

entertainment. The great Mao himself opened Wuhan Iron and Steel in 1958.

Part of his infamous experiment known as the great leap forward, it

ultimately led to a famine that killed over 30 million people. After

all those years of human tragedy, Mao's successor Deng Xiaping tried

another way. After 1980, private companies were encouraged to

flourish and the fastest and longest development of any economy in

history took off. Although the SOE's became a declining proportion of

China's growing economy, they've lumbered on. They represent the big

contradiction in China's transformation - the unleashing of

capitalism, but only up to a point. Soon after arriving at Wuhan Iron

and Steel, I begin to get a sense of its enormous scale. It's more like a

city than a complex... It goes on and on. Behind the pipes are

apartments, restaurants and retirement homes for its loyal group

of workers. The scale of this place is mind-boggling. There are more

than 100,000 workers and they're mostly housed by Wuhan Iron and

Steel. This is more than a collection of steel mills and

factories, it's almost a city broadly the same size as Nottingham.

This is paternalism on an industrial scale.

They start young! The next generation are born in the Wuhan

Iron and Steel hospital, and cared for in their kindergartens.

This is the Children's World Kindergarten.

The explicit aim is to prepare the next generation for service to the

company. Wuhan Iron and Steel is its own world. If you want to play

badminton, it has its own court. Jobs are in effect handed down from

parents to children. You want friends? The company

prefers you to mix with fellow workers. It's actively involved in

matchmaking. His shift over, new recruit Huang Xiongwei joins his

girlfriend for dinner. She works in the metal resources department.

Wuhan Iron and Steel lays on dating events, and when the happy couples

marry, it's a collective, corporate event.

Employees of state companies like Wuhan Iron and Steel usually feel

like the most fortunate in China. They receive higher wages, jobs for

life and benefits undreamt of in the private sector.

But the costs of all this paternalism are huge. That's why the

SOEs found it hard to compete against the more efficient private

sector. Until, that is, the financial crash of 2008 which

brought global economic growth - including China's - to a juddering

halt. But it gave an unexpected boost to the SOEs. After the great

crash, it was time to put on the hard hats. The economies were

melting down. The Chinese government took evasive action. It pulled the

levers at its disposal. It forced the banks it owned to lend, and

forced the basic industries it controlled to invest. Beijing

injected ?400 billion into the economy. And to speed up the

stimulus, it turned to the SOEs. All of a sudden, they were back as

China's driving force. This man is a wealthy investor with intimate links

to the top echelons of the ruling Communist Party. To pump four

trillion through the economy, and revitalise growth... The only way to

do it was through the SOEs. You couldn't rely on the private sector.

It solved problems. The rest of the world was applauding China. The

glory days were back for the SOEs. They churned out all the basic

materials China needed. They constructed airports, railways,

bridges and skyscrapers on a scale of which the world had never seen.

Orders surged for Wuhan Iron and Steel. Now the state was the main

customer as well as owner. A moment of redemption, says Chen Yongzhi, a

company spokesman. When you come to Wuhan Iron and Steel from Beijing...

You can see high speed rail. Many were produced were Wuhan Iron and

Steel. Many famous buildings, including the Bird's Nest, have used

our high grade steel. As contracts rolled into the SOEs, the brightest

graduates started to turn their backs on the private sector and

queued again for the supposedly safe jobs offered by the booming,

state-owned giants. This is my company. I live here. Our ambitious

young steelmaker has the qualifications to work almost

anywhere. But he's chosen Wuhan Iron and Steel. My room is 314. Tidy but

not exactly flashy company accommodation. His girlfriend is

compelled to live in the girls' dorm. But he says he won't forget

her. This is a photo of my girlfriend. She took this when she

graduated. I want to see her everyday when I go to sleep. I put

it here. This is our national map. I want to keep it in my mind. The flag

and sign as well. Both are equally important! All for the good of the

great nation, he says. After 2008, the great economic stimulus appeared

to work. It looked as though the renewed expansion of the SOEs had

been China's salvation. But five years on, it's left a toxic legacy.

The economy works like a complicated network of pipes. Here's the thing -

when you shove something in one end, you're never sure what will come out

the other. The Chinese government turned to its state owned

enterprises to revive the flagging economy. Growth took off. But here's

the worry. In boosting their clout, the task of putting the Chinese

economy on a more sustainable footing may have been seriously

damaged. One problem is massive over-capacity. Wuhan Iron and Steel

is just one of many SOEs churning out far more than China actually

needs. The amount of steel it can make is way more than the market can

bear. So prices have fallen. Although Wuhan Iron and Steel is

just about in the black, it's an exception in its industry. Some

companies are making losses or are in crisis. Right now, is the company

profitable? It is. In the cold winter of the industry, Wuhan Iron

and Steel has been able to stand its ground. Central government has

ordered the likes of Wuhan Iron and Steel to cut capacity. Others

haven't complied, partly as they're under pressure from local government

not to lay off workers. Even if we encounter difficulties, we won't lay

off our workers. We have responsibilities. What would they do

if we just pushed them out? Wuhan Iron and Steel is making a modest

profit - much less than they would like. But there's been a painful

legacy of white elephants all over the country. This time the

consequences are unlikely to be quite so tragic. This is Wuhan Iron

and Steel's brand new sports centre, opened in 2013. It's a symptom of

another weakness of the SOEs, all that spending and spending has to be

financed, and many of the state-owned companies have become

heavily indebted. Wuhan Iron and Steel has also splashed out on new

company HQ, a ?6 billion new plant and a number of mines around the

world. Its net debts are now bigger than its equity - the intrinsic

value of business. They're a serious burden. Other SOEs

have gone on even larger spending sprees. Magnificent headquarters,

banquets and fine wines... Offices that look like palaces. My goodness.

These are the pictures of Harbin Pharmaceutical's Plant Number Six.

Not one of the most debt-laden of China's SOEs. Surely the most

extravagant. So what's the big bill for China? Chinese state-owned

enterprises are among the most indebted companies in the world.

Debts have increased by 200% since the crash of 2008. So why hasn't the

government cut them down to size? They provideopportunities for

enrichment for friends and family. You are a politician and you have a

political career - that cascades through. It's a mission. Profits are

not your top priority. Then they bring sons and daughters of

connected people. With so many big contracts awarded since 2008, the

opportunities for kickbacks have increased. But China's new

leadership has made a big thing of trying to root out corruption. Can

the government really perform a system that is enriching so many...

They are already beginning. How many local officials have gone to jail or

have been given sentences? It's been incredible. The process has just

begun. The Chinese expression is 'to kill the chicken to scare the

monkey'. So, five years after the crash, the SOEs are on notice to

clean up financially and ethically. Their vast debts and enormous

excessive capacity threatened to hobble the economy. Which is why

President Xi Jinping recently vowed to tackle the SOEs severely - to

make them more profitable, and force them to hand over a bigger share to

state coffers. The SOEs increase their dividend payments to the state

so the state has bigger resources to spend on welfare programmes and that

sort of thing. Is that a good idea? As a SOE, we pay taxes to local

government and the country. The country can use it to improve

people's livelihoods, and for the development of the whole country.

But President Xi also confirmed the SOEs remain the foundation of

China's economy. Right now there's a lot of pushback. It will take some

time but they have to reform. But radical reforms might mean millions

losing their precious jobs for life. And the big worry is that in a China

where younger people support their parents, the loss of a job causes

ripples beyond the single household. Xiongwei is visiting his devoted

parents, who farm fish about an hour west. Like millions of families,

they worked and saved hard to give him a great start. Now he's looking

after them. A good income goes a long way in

China. The SOEs have brought stable employment to millions. The risk for

the government is that shrinking them could break the grand bargain

that keeps the Communist Party in power. Democratic freedom is

sacrificed for jobs and prosperity. Steel plants employ thousands and

thousands. There would be major social unrest if they were out of a

job. There would be problems. The question is whether the government

has resources to address them. This is taking place. I believe the

entrepreneurial spirit will prevail. Xiongwei shares that optimism about

the future. In 2008, it looked like the SOEs had

rescued China's flagging economy. Now they're an obstacle. There is a

frightening dilemma for the government. Failure to rein them in

could mean the end of China's economic miracle. But cutting them

down to size too quickly and brutally could seriously threaten

the Communist party's grip on power, and bring to an end the one party

state created by Chairman Mao.