In April 1998 several hundred laid-off factory workers and their families linked arms to block traffic for several hours in Shenyang, a sooty, industrial city in China's northeast. It wasn't the first labor protest the People's Republic had seen, nor the largest. But it erupted in the area of China that is most vulnerable to mass labor unrest, a cause of great concern, no doubt, to the country's leaders. Developed as an industrial center during the Japanese occupation, Shenyang became a powerhouse in the 1950s, a clone of a Soviet military-industrial city. In recent years, however, it has gone from vanguard to laggard. Out of step in an era that rewards entrepreneurial agility, Shenyang's factories are dragging the economy down. Half have partly or completely stopped production, surviving on state largesse. More than 400,000 of the city's 1.2 million state workers have been let go, including people like Liu Mei, 45, who worked in an electronics factory for 20 years before being told to go on leave. She now scrapes by selling socks from a sidewalk stall. A time bomb is ticking that China's planners are scrambling to keep from going off. To maintain growth, economic czar Zhu Rongji needs to shake up the lumbering industrial dinosaurs, which are saddled with millions of unneeded laborers. The big layoffs have already begun; the trick now is to absorb enough workers into new jobs before a social explosion scuttles the process. This precarious balance helps explain why China's reforms move in such fits and starts. Certainly labor has reason to be angry. According to the World Bank, state factories had sacked 11.7 million workers nationwide as of June 1998. Protests are harder to track. Small-scale demonstrations, once unheard of, now take place once or twice a month in Shenyang alone. All over China, there were 94,000 labor disputes last year, according to official estimates. The 1998 protest wasn't the first time Shenyang workers have made themselves heard. In 1994, the Mao statue that towers over the city's main square was set on fire. There were no arrests, and the state-run media dismissed it as an accident. But no one in town doubted who was responsible: disgruntled laid-off workers.