BEIJING: The merger of two steel companies has been scrapped after a manager was beaten to death last Friday, said state media yesterday.

The incident is one of China's most violent labour disputes in recent years and threw the spotlight back on the country's rust-belt region, which had been a cauldron of agitation a decade back.

The riot took place in Jilin province, one of three north-eastern provinces known collectively as 'Dongbei' in China, a region which has suffered the most from the country's privatisation of state-owned enterprises since the 1990s.

Last Friday, privately-owned firm Jianlong Heavy Machinery was planning to take over the state-owned Tonghua Iron and Steel Group.

But according to the official China Daily, Jianlong manager Chen Guojun provoked the workers when he told them that the total number of employees would be slashed from 30,000 to 5,000 once the merger went through.

He was beaten to death by workers who also clashed with police and blocked medical workers from rescuing him. No one has been arrested yet.

According to the Hong Kong-based Information Centre for Human Rights and Democracy, 30,000 workers took part in the protest and several hundred were injured. But China Daily put the figure at 3,000 workers and the state Xinhua news agency cited just 1,000.

While there have been only few instances of clashes resulting in deaths, the story of Tonghua is one which has been played out across north-eastern China for years, with workers taking to the streets when their jobs at state-owned enterprises were threatened.

Dongbei was once the pride of the new communist nation in the 1950s, with state planners building on the heavy industry development left behind by Russian and Japanese occupation at the early half of the 20th century.

The chilly region, which borders Siberia and North Korea, and has minus 30 deg C winters, was the most industrialised and urbanised, producing the bulk of the country's iron and steel.

But with the move towards capitalism in the 1980s, Dongbei became a sorry showcase of inefficient state-owned enterprises, saddled with workers who had been promised lifetime employment and benefits.

By the late 1990s, unemployment in the region had reached dangerous levels, with as much as 30 per cent to 60 per cent of state workers laid off and scores of protests reported.

These workers, once regarded as the backbone of the socialist revolution, were reduced to begging for work on informal labour markets.

'It is right to privatise,' said analyst Hu Xingdou, who studies labour unrest. 'But the implementation must be legal, transparent and should not result in the loss of state assets. Privatisation usually leads to collusion and corruption between officials and businesses. That is usually when the workers revolt.'

Party officials usually strip bare the factories' assets, embezzle funds, and leave the workers without a job, pension or a 'golden handshake'.

But Beijing has been eager to rebuild the region, launching a much-hyped 'Rejuvenate the north-east' programme in 2003. It is one of the key development planks after Chinese President Hu Jintao came to power in 2002.

Foreign investors, including Singapore firms, have been actively courted to fill the void left by the state-owned enterprises, with foreign companies even allowed to take full control of the firms in Liaoning province in 2005.

Prof Hu said that the peak of Dongbei's layoffs has passed, and the Tonghua incident does not indicate a return to the near crisis of the late 1990s. But he warned that the global financial crisis may cripple private enterprises instead.

'The space for private firms to thrive is shrinking,' he said. 'They are taxed heavily and faced difficulties obtaining loans. The new wave of unemployment may well be from the private sector.'