This crowds out the private sector, China's growth engine, and threatens the entire financial system, because most of those loans will never be repaid. Virtually all of China's heavy industry and much of its technology is in state hands. In 2002, the state controlled half of industrial output, and SOEs still account for 35% of urban employment, despite having halved their workforce in the past 12 years. It is no exaggeration to say that China's economic future depends on such reform.

But it exists throughout the country, and shows how much further SOE reform has to go. The contrast between old and new in the state sector is at its starkest in China's north-eastern “rustbelt”, where state-owned enterprises ( SOEs) generate 70% of GDP. He survived the feat, but his famous slogan, “I will get the oil, even if it takes 20 years off my life”, proved prophetic: he died in 1970, aged only 47. To divert attention from Daqing's troubles, local officials drag visitors to a museum commemorating “Iron Man” Wang, an oil worker who in the 1960s helped to cap a blazing wellhead by jumping into a vat of badly mixed concrete. Yet through its ties to CNPC, PetroChina in effect still pays for the main hotel and some restaurants in Daqing, as well as for the housing, heating and even wages of thousands of laid-off workers. Warren Buffett, America's smartest investor, owns a stake. The production facilities are owned by PetroChina, an arm of China National Petroleum Corporation so thoroughly restructured that it is listed on the New York Stock Exchange. More than 50,000 “nodding donkeys” dot the city centre and the surrounding desolate plain. Daqing, in Heilongjiang province, is at the centre of China's largest oil field. Several hundred miles further north, the contradictions are even sharper.

Along with routine overmanning, it helps to explain why productivity at Dalian New Shipbuilding, despite cheap labour, the latest equipment and subsidised loans, is just one-seventh to one-tenth that of its Japanese and South Korean rivals. “In reality, it is not that easy.” Yet the school is only one of the group's non-shipbuilding activities.

“Theoretically, it would be better to get rid of the school,” says Sun Zhenlie, the company's vice-president.

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