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

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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