China's hidden timebomb

Twelve men on bicycles pedal across the runway to our plane and start to remove our bags - the first evidence of the non-capital intensive, low-cost enterprise we have heard so much about.

This is Chengdu, capital of Sichuan, a south-western province more populous than Germany and which 2,200 years ago propelled China towards unification.

However, with 36,000 state-owned enterprises (SOEs) - more than in any other province - it is at the centre of the greatest problem besetting China's leaders - how to reform these enterprises without destroying the social fabric.

"It's all starting to unravel," says Euromoney's travelling companion, Richard Tsiang. He isn't heartened by a research report he's read on the plane: textile exports from China fell in the first 10 months of 1998 - which is unprecedented - and electricity production rose by only 2%, a strange thing in an economy supposedly growing at 8% a year. Moreover...