ZUNYI, China -- For about 10 years in the late 1960s and early 1970s, this seemed the luckiest of cities in Communist China.
A pilgrimage site for the party faithful, it also was part of the world's largest -- and most bizarre -- military industrialization programs, the little-known "Third Front" project. For a few happy years, its streets overflowed with tourists and well-paid workers.
But about 15 years ago, Zunyi's luck changed. The tourists began to favor scenic spots in other parts of the country over a tour of the house where a young Mao Tse-tung took control of the Chinese Communist Party. And the Third Front factories, built in a rush to survive nuclear war with the United States, began to seem more like white elephants than strategically important assets.
Now the city is suffering its bitterest blow. Industrial reform, which threatens to put up to half the city's labor force out of work, is slowly taking hold here. For decades the symbol of Chinese Communism's strident opposition to the capitalist West, Zunyi is being crushed by market forces.
The reforms are especially painful here in China's mountainous western provinces.
Unlike in China's booming coastal regions, few inland workers are employed by private enterprise, meaning that virtually all are working for companies ill-equipped to survive in the free market.
History has left these areas with huge industrial behemoths; in Zunyi, for example, virtually all the city's work force is employed by state enterprises -- only 1 percent work for private companies.
"The Third Front era left us with an industrial base that we'd never have had otherwise, but our industrial structure is also too much weighted toward heavy industry. This is a big challenge for us now," said Zhao Futian, deputy head of the Zunyi Prefecture.
Zunyi wasn't supposed to end up as a poster child for bankrupt economic policies.
Last stand for war
Back when Beijing's rulers decided to bestow their largesse on this city and the rest of inland China, the idea was to survive an invasion of China's vulnerable coast by the United States and its allies on Taiwan. Officials realized that they probably couldn't defend the coast, or even the fertile flatlands a few hundred miles inland.
Instead, Chinese soldiers supported by a new military-industrial complex would make a last stand against capitalism by fighting on a "Third Front" in China's rugged interior -- back where the communists honed their guerrilla skills in the 1930s and '40s, when they were fighting China's Nationalist government and, later, Japanese invaders in World War II.
Places like Zunyi fit this new strategy perfectly. Not only was the city located in one of China's most mountainous provinces, Guizhou, but it also was the site of the historic Zunyi Conference in 1935, where Mao wrested control of the Communist Party away from opponents who favored traditional military tactics over guerrilla warfare.
Like in the good old days, Mao's vision in the early 1960s called for his forces -- in this case steel mills, truck factories and missile plants -- to be tucked away in mountains or holed up in caves. No one had the guts to tell him that it made no economic sense.
Staggering costs
The costs of the Third Front were staggering, especially to a poor country like China. Between 1965 and 1975, more than $70 billion was invested in 13 provinces, especially southwestern China's Guizhou, Yunnan and Sichuan provinces.
To put it another way, China was pumping almost half its fixed capital investment into just this one project.
The results were not totally useless, notes Barry Naughton, a researcher at the University of California at San Diego, who wrote the first reliable history of the Third Front. A rail system was built that linked remote cities, such as Zunyi and Guiyang, with the rest of China. And these parts of China, which previously had almost no industry, were suddenly brimming with skilled workers imported from other parts of China.
Even today, most economic planners in this region think of the Third Front as a good thing. For a few years, at least, they were the center of economic attention and flooded with state planning money. It may have cost the rest of the country a lot -- Mr. Naughton, for example, has estimated that China's industrial fTC output would be roughly 10 to 15 percent higher if the Third Front money had been invested in more sane economic projects -- but at least these inland provinces got their share of the pie for a while.
Massive layoffs possible
Now, however, even that small comfort seems to be evaporating.
As the central government tries to jettison these loss-making state enterprises, the Third Front era has left these poor inland areas with a disproportionately high number of state firms.
In Zunyi, for example, Mr. Zhao of the local prefecture government, estimates that 350,000 of the region's 500,000 workers are employed by state enterprises. Just 5,000 work for private businesses. The rest work for collectively owned enterprises.
Some of the companies are in such bad condition that thousands of workers are being paid only a survival wage of about $10 a month, Mr. Zhao said.
The most staggering effect of the Third Front: About 250,000, or half of Zunyi Prefecture's total work force, are employed by companies that are losing money and could be closed under China's new bankruptcy law, Mr. Zhao said.
Such mass layoffs are unlikely for now. The government is still paying subsidies in an effort to give managers a chance to turn around their businesses.
No easy alternatives
One strategy is to switch production from military to civilian products. At Zunyi's Jiangnan Aerospace Group, for example, Deputy General Manager Li Yongguo estimates that 90 percent of the company's output is now civilian products. Its biggest seller is the Hangtian light truck, which is exported throughout China.
Even such a promising product, however, is burdened by the Third Front's legacy. At the Hangtian truck factory on the outskirts of Zunyi, hundreds of trucks stand in rows, some rusting, others with weeds growing around their tires.
A factory spokesman says the problem is that the factory is located in mountainous Guizhou province; the company can't get enough space on the few rail lines that snake through the province's narrow passes, so the trucks sit in lots.
"Transportation is not that good in Guizhou, so we have to wait for the railway to assign us space. But we can sell them if we can get them out," spokesman Shui Guhua said.
To get around this problem, Jiangnan has begun opening "showrooms" in coastal cities, such as Shanghai.
These showrooms, however, are more than convenient displays of the conglomerate's products. They represent an attempt to leave the Third Front's stifling geography and relocate elsewhere.
Jiangnan, for example, has invested $20 million in businesses and property development in these coastal areas, as well as in other big cities, such as Beijing, said Mr. Li, the deputy manager.
Shedding social services
Other strategies also are being tested.
South of Zunyi in the city of Guiyang, the massive Guizhou Aluminum Plant is making plans to shed the numerous social services that it provides its 20,000 workers, according to Yin Yufu, deputy director of the plant.
The aluminum factory, an "electric tiger" that consumes one quarter of the province's total power supply, also supports a city of 60,000 people. In addition to the factory workers, the residents include family members and 3,000 nonindustrial employees, such as doctors, teachers and shopkeepers.
Now the factory is trying to shed these services and improve profitability, although it would not reveal its current financial condition.
But a few statistics do show the amount of work that still needs to be done. Only 16,000 of the factory's 20,000 employees are involved in production, according to Mr. Yin; another 4,000 are bureaucrats and party cadres who make sure that Beijing's flood of orders and guidelines are being followed.
Although Beijing is ordering that state enterprises become profitable, Mr. Yin says he'd prefer to go slowly. The aluminum factory has been chosen as one of 100 companies across the nation to experiment in jettisoning social services and molding itself into a more profit-oriented company.
"Reforming a business is a complex undertaking. We can't just do it in a few weeks. Welfare services can inspire the workers. They are popular," Mr. Yin said, explaining his hesitancy.
Even as the region puts the Third Front behind it and warily tries profit-oriented strategies, the past exerts a strong emotional pull.
For example, in the city of Liupanshui, where a $300 million coal mining project was built between 1966 and 1968 by a force of 20,000 workers imported from other provinces, the government has been urging workers to revive the Third Front Spirit.
"Now that many difficulties have to be faced, it's time to revive this spirit and build a market economy with the same glorious enthusiasm that existed 30 years ago," read an editorial in the local newspaper.