HONG KONG — A Chinese provincial government halted the privatization of a state-owned steel mill on Sunday, apparently capitulating to thousands of workers who protested last week and took an official as hostage.
The protests, in Henan Province in central China, were the latest sign of increasing labor activism in China’s steel industry, the world’s largest and a cornerstone of China’s construction-dependent economy. Three weeks earlier, rioting workers beat to death an executive who had been overseeing the sale of another state-owned steel company, Tonghua Iron and Steel, in northeast China’s Jilin Province, to a private business.
The privatization of Tonghua was immediately postponed after that death.
The newspaper China Daily reported on Saturday that the police had tried to break through the ranks of workers on Friday in the latest incident, at the Linzhou Iron and Steel Company in the city of Anyang.
China Daily did not say whether the police had been successful. Government agencies at all levels have been reluctant to use overwhelming force against protesting workers.
The official Xinhua news agency said that the workers had decided on Saturday to halt their protests, which had attracted up to 3,000 participants at a time, after a government mediation team agreed to reconsider the takeover; Xinhua did not mention what became of the official who had been held hostage.
Xinhua said that the Fengbao Iron and Steel Company had already paid $26.5 million of the $38.1 million it bid at an auction to acquire Linzhou Steel, which has 2,995 workers. The $26.5 million will be refunded, Xinhua said, citing an unidentified local official.
The success of Linzhou’s steel workers in blocking privatization could embolden workers in other industries, experts on Chinese labor issues said on Sunday.
“It is no longer possible to push through privatization regardless, without considering the workers’ interests,” said Geoffrey Crothall, a spokesman for the China Labour Bulletin, a labor rights advocacy group based in Hong Kong.
In a sign of high-level interest in the recent unrest, the government-sponsored All-China Federation of Trade Unions has posted a prominent series of commentaries at the top of its Chinese-language Web site under the heading, “Corporate restructuring: participation of the trade union is essential.”
In halting the privatization of the Linzhou mill, Xinhua said, the province’s government and its Communist Party committee issued a decision that, “Issues regarding the future of Linzhou Iron and Steel Co. Ltd. and benefits of its workers should be decided by its workers’ congress.”
Chinese law has long required that privatizations be approved by the affected company’s workers’ congress. But local government officials and company managers have frequently been able to rig the approval until now by running the congresses themselves, Mr. Crothall said.
The global economic downturn has severely hurt the steel industry, which may be feeding labor unrest in the sector. Chinese steel exports were down 15.4 percent in the first half of this year. The Chinese government is also locked in a series of disputes with Australia over iron ore imports for steel production, the most notable of which led to the arrest of four Rio Tinto executives on accusations of bribery and trade secret infringement during price negotiations with Chinese steel makers. Rio Tinto has strongly denied any wrongdoing.
On Thursday, faced with a glut of steel-making capacity and many small steel companies vying to buy iron ore, Beijing officials ordered a three-year moratorium on the construction of any new steel mills or the expansion of existing mills.
But Beijing has had less success in its efforts to force a consolidation of existing steel mills, a step that might strengthen their bargaining power with the handful of multinationals that dominate the global iron ore business. Local and provincial government agencies have been wary of losing control of businesses that are often vital to their economies, and many workers are opposed.
Yet many older, less efficient steel mills are deeply troubled. The Linzhou mill is 40 years old and has not been operating since March because its sales fell, it ran short of cash and it failed to meet environmental standards.
Mary E. Gallagher, the director of the Center for Chinese Studies at the University of Michigan in Ann Arbor, predicted that China would be able to continue privatizing state-owned enterprises in the years ahead, but that it would be costlier than during the big shift toward private ownership from 1997 to 2001. At least 30 million workers at state-owned enterprises were laid off then, but local protests did not spread.“I’m betting they can do it again, but that it will cost them with higher compensation packages to laid-off workers,” Professor Gallagher said.