TONGHUA, JILIN STEELWORKERS' PROTEST LEADS TO

C O N F I D E N T I A L SECTION 01 OF 02 SHENYANG 000130 SIPDIS DEPARTMENT FOR EAP/CM, INR E.O. 12958: DECL: 07/27/2019 TAGS: CH ECON ELAB PGOV SUBJECT: TONGHUA, JILIN STEELWORKERS' PROTEST LEADS TO MANAGER'S DEATH Classified By: Consul General Stephen B. Wickman. Reasons 1.4(b/d). 1.(U) Summary: On Friday evening, July 24, some 3,000 steelworkers at Tonghua Iron and Steel Group, a provincially state-owned enterprise (SOE) in Tonghua City, Jilin Province, rioted, resulting in the death of a senior manager from a private steel company seeking to take the company over, according to international press reports and China's state media. Reports said the rioters denied police and emergency service workers access to the area for over two hours. One unconfirmed blog reported that the mayor may have been turned away by the rioters. After the announcement of the manager's death, the Jilin State-Owned Assets Supervision and Administration Commission (SASAC) announced that merger plans were suspended. We have been unable to confirm that any charges have been pressed against any workers. End Summary. A Problem long in Coming: ¶2. (C) Yang Zijang of the Tonghua City Forieign Affairs Office (FAO) confirmed the details of the press reports and said the beating death of steel factory manager, Chen Guojun, reflected difficulties in the merger between Tonghua Steel and "privately owned" Jianlong Steel Share Holding Company. Workers were reacting to Mr. Chen's announcement that the staff would be reduced by 83 percent (from 30,000 to 5,000). The announcement was the last straw of many irritants in the Tonghua-Jianling merger relationship. ¶3. (C) According to Yang, Jianlong's purchase of Tonghua Steel had been put together in 2005 by current Jilin Party Secretary (then-governor) Wang Min. The new entity, Xingtong Steel, had been fraught with difficulties. When Tonghua was at its peak profitability in the beginning of 2008, Jianlong bought up Tonghua's most profitable parts. In late 2008 and early 2009, during the latest steel price downturn, Jianlong decided to cancel the purchase, leaving many Tonghua workers to survive on RMB 300 (USD 44) or less per month. In June, however, Tonghua announced that it had turned a profit for the first time in the year, renewing Jianlong's interest in purchasing Tonghua. ¶4. (U) According to press and trade reports, Jianlong plant manager Chen paid himself a hefty bonus of over USD 450,000 when Jianlong decided to withdraw from the merger. When Chen was dispatched to Tonghua again last week, he faced angry workers who immediately walked off the job. Chen ordered the workers to return to work immediately but went on to announce that some 83 percent of them would be losing their jobs anyway. According to police reports cited by the press, Chen's attempt to force the workers back to work, coupled with their anger over the announced redundancies incited the riot. Workers grew angry and attacked the cadre of people protecting Mr. Chen and prevented police and emergency workers from entering the factory area in a timely manner. An unconfirmed blog report said the mayor was also at the scene but turned away. 5.(U) Late Friday evening, after the medical services made the announcement that Chen had died, Jilin SASAC announced on Tonghua Television: "with approval of the Provincial Government, Jianlong's purchase plan of Tonghua Steel has been terminated." Tonghua TV also announced that Jianlong will "permanently not participate in Tonghua Steel's restructuring." Background and Comment: ¶6. (SBU) Background: Jianlong's Owner, Jianlong Steel Shareholding Company, was founded by Zhang Zhixiang, reportedly one of the richest people in the country. Zhang, a graduate of the Zhangjiang University of Industry in 1985, worked several years in at the Zhangyu Local Products company and in 1994 created the Zhongxiang Industrial Company. He purchased Zunhua Steel Plant in 1999, renaming it Jianlong Industrial Company. One reason that Jianlong's interest in Tonghua may have been reignited is that Tonghua is the largest shareholder in Australia IMX, a mining and mineral processing company which developed a new process for producing concentrated magnesite. ¶7. (C) Comment: We have been unable to confirm that Zhang is the grandson of Former Deputy Chairman of the Central Military Commission Zhang Wannian, as he is widely rumored to be. The reports about Chen's extravagent pay and overbearing style, however, suggests that most of the anger was directed at him and not at the merger in general. The Jilin government's willingness to "back down" -- at SHENYANG 00000130 002 OF 002 least temporarily -- suggests that the government is sensitive to the workers' dissatisfaction. One measure of the government's intentions will be whether they prosecute any of the workers for crimes against the state, as occurred earlier in the century during the first round of industrial restructuring in Northeast China, specifically in Liaoyang in Liaoning Province. WICKMAN