Prisoner of the State: The Secret Journal of Premier Zhao Ziyang (16 page)

I
t is precisely because I disagreed with the old ways of pursuing production figures and speed, and emphasized instead economic efficiency, that [Hu] Yaobang and I clashed on economic issues after I came to Beijing.

The difference of opinion emerged as early as 1982. When Yaobang was in charge of the drafting of the Political Report for the 12th Party Congress, the question arose as to what to say about the economy. Initially, most of the people on the drafting committee had prepared the report according to the basic tone of my 1981 government work report. However, Yaobang disapproved. He proposed a different approach. The drafting process for the sections on the economy was stymied.

When the problem was reported to Deng Xiaoping, he decided that the economic section should in fact be drafted along the lines of the government work report. Yaobang reluctantly accepted.

Since I had not participated in the drafting process, I did not know how many conflicts of opinions had arisen. The issues weren’t raised at Politburo Standing Committee meetings or Secretariat meetings, so I wasn’t sure what views Yaobang had or why he disagreed with my government work report.

From his comments and actions, however, it seemed that he mainly disagreed with my idea of emphasizing economic efficiency instead of production figures and speed. Whenever he talked about economic issues, he emphasized growth in terms of volume and speed of output, rarely mentioning efficiency. He often talked of “quadrupling” or “quadrupling ahead of schedule.”

My proposal to “guarantee 4 percent and pursue 5 percent growth” in the sixth Five-Year Plan was a moderate goal. Even though Comrade Xiaoping also regarded output values as extremely important, often asking about the annual growth rate, he expressed an understanding of my view of focusing on efficiency. Nevertheless, Yaobang disagreed. Even though the report to the 12th Party Congress was drafted according to Deng’s directive and followed the basic tone of the government work report, his [Hu’s] mind was not changed.

After the 12th Party Congress, when he went out to the provinces, he was even more determined to emphasize lifting production targets. Wherever he went, he called for “quadrupling ahead of schedule.” He praised any situation where production targets were high, and harshly criticized any that was not, without giving attention to economic efficiency or analyzing the specific reasons for the differences in growth.

As a result, local officials acted according to Yaobang’s directive, demanding funds, permission for projects and more energy, as well as raw materials and supplies from the Planning Commission and the State Council. For a period of time, the competition was fierce among the different regions for rapid growth and in the demand for raw materials and funds. I found many things difficult to manage.

In 1983, the difference between Yaobang and me on this issue grew more apparent. He even deployed mass campaigns for economic development. For example, wherever he went, he actively promoted a campaign to “increase average annual rural incomes by one hundred yuan,” which was initiated in Boding District in Hebei Province. He believed that incomes would grow at a pace of one hundred yuan per year, for as many years as the campaigning was done. In the past, we had suffered because of these kinds of methods, which could so easily turn into empty formalism.

During my visit to Africa in January 1983, Yaobang put out a report in which he proposed borrowing the rural land contract scheme for use in urban reform. In principle, that was fine. However, urban conditions were much more complicated. What form the contracts would take for different industries and enterprises, and how to “contract out”—all of this needed to go through experimentation and proceed gradually. We could not contract out everything, nor move on all fronts at once.

After Yaobang’s speech, some of the state-owned department stores in Beijing started to contract out. Immediately there were instances of arbitrary price rises and “bulk sales.” What were these bulk sales? They referred to state-owned department stores selling wholesale to individual retailers who would profit from reselling to consumers at a higher price. The state-owned department stores appeared to be selling large volumes of products quickly, completing their task of contracting out. That is not the way commerce should be conducted.

As soon as I returned from Africa, I put a stop to this. I suggested that urban reform must be done through experimentation, and must be gradual. That same year, during the Spring Festival of 1983, I spoke about this at the celebration assembly. At the time, Yaobang was spending his Spring Festival in Hainan. He said to cadres there, “‘Doing it all at once’?” he asked, “In fact the situation is more like ‘nobody moves even when you push!’”

During this time, when he went to the provinces for inspection tours, he often criticized or made comments that implied criticism of the economic work being conducted by the State Council. These remarks were taken down in notes and spread around, which meant people became aware of the differences between Yaobang and me on economics.

Deng Xiaoping learned of this situation. On March 15, 1983, Deng asked Yaobang and me to his home for a talk. I spoke about my views and reported on the economy while Yaobang listened calmly. He expressed his agreement with some of my points and provided his explanations of others. The talk went relatively well. In the end, Deng Xiaoping said that he supported my views on economic issues. He criticized Yaobang for speaking too carelessly and not being sufficiently prudent and said that it was a serious shortcoming for a General Secretary to pull stunts.

Deng also said, “Mass campaigns should not be used in implementing reform. Reform must go on throughout the process of the Four Modernizations.
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It is not an issue that can be resolved in a few short years.” He also said, “The situation is very good, but we must keep our heads cool.”

In order to avoid the occurrence of different voices coming out of the central leadership, a rule was set in this conversation: the State Council and the Central Economic and Financial Leading Group were in charge of economic affairs. Important decisions and orders, as well as judgments about what was right or wrong, were to be discussed by the leading group and issued through its channels. There would be no multiple spokesmen or policies being issued from different places. Certainly the Secretariat would manage some economic affairs, but mainly concerning principles and major policies. It was not to intervene in specific economic tasks.

After this talk, Yaobang’s direct interventions in the State Council’s economic affairs declined, and his criticisms of the State Council lessened. But deep in his heart, he had not given up his views. He continued to voice his opinions.

After the talk we had with Comrade Xiaoping, I felt that things were easier to manage. From then on, my approach was to accept whatever I could. That is, I would follow his [Hu’s] ideas whenever I thought they were correct. If what he said was impractical, he still had the right to express his opinion. But since his views did not represent the collective decision, we were not forced to follow everything he said. Yaobang knew this, because of our talk with Deng. He still had ideas that I didn’t agree with, but if we did not act in accordance with them, he didn’t insist.

Important economic proposals or opinions from State Council studies were given to the Politburo Standing Committee [PSC] or the Secretariat for discussion. Sometimes, even though Yaobang did not agree, it was not easy for him to voice opposition. He would say, “Fine, so be it.” But afterward, he told [PSC member Hu] Qili, “This was a coerced signature. We don’t even know what the State Council discussed on this matter, so we have no other choice but to agree.” In the 1960s, when Chairman Mao was not satisfied with the State Planning Commission, he had similarly used phrases such as “coerced signature.” With Yaobang expressing similar sentiments, I had to pay attention.

In order to improve communication with Yaobang, I suggested that when the State Council and the Central Economic and Financial Leading Group were holding discussions, we invite Hu Qili and [Deputy Director of State Planning] Hao Jianxiu and other comrades from the Secretariat to participate, so they could report on the discussions to Yaobang. I also suggested to Yaobang that he send staff to sit in on meetings of the State Council and the Central Economic and Financial Leading Group. However, for reasons that I don’t know, Yaobang did not do this.

I also proposed that for major economic issues that were about to be put into formal discussion by the Standing Committee and the Secretariat, reports could be made to Yaobang personally beforehand, for the sake of better communications and to give him enough time for careful consideration. Yaobang agreed with the idea of our reporting to him before going to the Politburo Standing Committee. In the beginning, he seemed engaged, but after several occasions he lost interest and asked for it to be stopped. This issue was never resolved.

It seems that the fundamental issue concerned the differing directions in thinking about economic issues, including the difference in working styles. Yaobang could not force his opinions on the State Council and the Central Economic and Financial Leading Group, because Xiaoping had set down the rules. So perhaps the problem could not be resolved through better communications or by having him participate in the State Council’s discussions on economic affairs.

Even though this problem persisted, after the talk at Deng Xiaoping’s place, we both were careful about how we dealt with one another, and our relationship did not become too tense. At least from the outside, there were no longer two noticeable voices on economic issues.

C
omrade Deng Xiaoping had long emphasized the power of the market. “Socialism does not exclude a market economy,” he said. He repeated the message many times. He said that, in combining planned and market economies, we could be flexible as to which was actually playing the leading role. The Decision on Economic Reform passed at the Third Plenum of the 12th Central Committee [in 1984] stressed the importance of the natural laws of supply and demand and the power of the market. It defined the economy of socialism as that of the “commodity economy.”
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Deng thought highly of this decision, and even regarded it as a “new theory of political economy.” In a private conversation I had with Deng in 1988, in referring to the ideas of [Party elders] Chen Yun and Li Xiannian, Deng said that our economy was modeled after that of the Soviet Union. But since the Soviets themselves had abandoned the model, why should we still hold on so tightly? Of course, by 1992, Deng had expressed this opinion more clearly in his talks. Even though he said different things at different times, he was always inclined toward a commodity economy, the laws of supply and demand, and the free market.

Comrade Hu Yaobang was similarly unenthusiastic about the planned economy. According to my observations, he believed it was the highly concentrated top-down planning model that had limited people’s motivation and creativity and restricted self-initiative at the enterprise and local levels. He believed that building a socialist society entailed allowing people, enterprises, and local governments to act independently, while the state continued to direct and mobilize them with social campaigns.

Chen Yun and Li Xiannian, however, emphasized the importance of a planned economy, especially Chen Yun, whose views had not changed since the 1950s. He included the phrase “planned economy as primary, market adjustments as auxiliary” in every speech he gave. The tone of his speeches didn’t change even after reforms were well under way. His view was that dealing with the economy was like raising birds: you cannot hold the birds too tightly, or else they will suffocate, but nor can you let them free, since they will fly away, so the best way is to raise them in a cage. This is the basic idea behind his well-known “Birdcage Economic Model.”

He not only believed that China’s first Five-Year Plan was a success, but also, until the end of the 1980s, he believed that a planned economy had transformed the Soviet Union in a few decades from an underdeveloped nation into a powerful one, second only to the United States. He saw this as proof that economic planning could be successful. He believed that the reason China had not done well under a planned economy was mainly the disruption caused by Mao’s policies, compounded by the destructive Cultural Revolution. If things had proceeded as they had in the first Five-Year Plan, the results would have been very positive.

In terms of foreign affairs, Chen Yun retained a deep-rooted admiration for the Soviet Union and a distrust of the United States. His outlook was very different from that of Deng Xiaoping, and there was friction between the two.

In the 1980s, [economic adviser] Ivan Arkhipov came to China. The Soviet Union sent him to help China with economic planning, and he had a good relationship with Chen Yun. Deng gave Chen Yun talking points for his meeting with him and ordered him to follow them. Xiaoping was worried about what Chen Yun might say to Arkhipov and feared it might cause confusion on foreign policy. Chen Yun was reluctant but followed the orders. [General chief of staff of the People’s Liberation Army] Xu Xiangqian held similar views. He also believed that, after all, the Soviet Union was a socialist country, while the United States was an imperialist nation.

As we were starting to carry out the rural household land contract plan, Chen Yun gave a speech at the Rural Work Session meeting in December 1981. He said that the rural economy must also be mainly planned, with market adjustments as auxiliary. Grains, cotton, tobacco, and other crops should have quotas set for planting areas. Pig farming should also be assigned target figures.

During the Chinese New Year holiday in January 1981, Chen Yun again gathered leaders in the State Planning Commission to talk about strengthening economic planning, and then released the news to the newspapers. He said that because economic planning was unpopular, it had become difficult to carry out the work of the Planning Commission, but that the planned economy should not be forsaken.

For the Third Plenum of the 12th Central Committee in October 1984, Comrade Chen Yun submitted a written statement. Even though he still insisted we were right to disregard laws of supply and demand in our food production policies in the 1950s, he did agree with the draft of the Decision on Economic Reform that was proposed to the Plenum.

Before the draft was submitted to the Plenum, I wrote a letter to the Politburo Standing Committee about economic reform. Deng Xiaoping, Chen Yun, and Li Xiannian all expressed their approval. Chen Yun even wrote in his statement that because of the expansion of the scale of our economy, many practices of the 1950s were no longer feasible. I think his statement was a good one: he was supporting the idea of reform. Nevertheless, at a national conference in September 1985, he again stated, “The economy must be based on ‘planned economy as primary, market adjustments as auxiliary,’ a phrase that has not gone out of style.”

This statement could have constituted a problem. The expression had been used in the years before the Third Plenum of the 12th Central Committee, but since then the decision to reform had been made, and we had agreed that the socialist economy was a commodity economy and that we must fully realize market potential. We had also discarded the idea that “planning comes first, pricing comes later,” which Mao had upheld. How could we still say “planned economy as primary, market adjustments as auxiliary”? It was clear that if the statement were to be circulated, it would conflict with the decision made at the Third Plenum of the 12th Central Committee.

Chen Yun sent me the draft of his speech for review, and I felt uneasy reading it. His speech was an obvious retraction of his statement at the Party Congress a year earlier. If he proceeded with this speech, it was sure to cause confusion at the conference. Yet I also knew that because he had already written it, even though it hadn’t been delivered it would be impossible to persuade him to change his view.

I visited him at his home and suggested that he add a paragraph: “The so-called ‘market adjustments as auxiliary’ applies to the scope of production in which the level is set in accordance to market demand without planning. It is an adjustment free of planning.” He himself had used similar expressions in the 1950s, so he gladly accepted my suggestion and asked his secretary to add it to his speech immediately.

Why did I make such a suggestion? Because by adding this phrase, we could limit the scope of “market adjustments as auxiliary” to small commodities that were free of state planning. We would not include the large bulk of commodities, referred to by the Third Plenum of the 12th Party Congress as “indirectly planned,” that followed market demand.

By adding the phrase, commodities were divided into three groups: the first was “planned commodities”; the second “indirectly planned,” which included the majority of commodities; the third was the so-called “secondary market-adjusted” small commodities. The latter two groups, which together consisted of at least half of all commodities, were produced according to market demand. By adding the phrase, we could explain all of this, and there would be no apparent contradiction with the Decision on Economic Reform.

Of course, Comrade Chen Yun would not have explained things in this way; he meant something altogether different. But at least we could explain them that way. Without the phrase, he would have simply said “planned economy as primary, market adjustments as auxiliary” and limited the scope of adjustments according to market demand.

It all seems like a game of semantics, but there was nothing else that could have been done. Chen Yun was enormously influential within the Communist Party and in economic policy. If we had distributed his statement without modification, it would have caused major confusion within the Party.

In 1987, I said in the Political Report of the 13th Party Congress that going forward, the economic mechanism should be “the state intervenes in the market, and the market drives the enterprises.” Since the overall political climate was very positive toward reform, the drafts of my reports were always sent to Chen Yun for his opinion. Even though he never openly expressed opposition, he never approved, either.

He never again formally expressed his support as he had in the Third Plenum of the 12th Central Committee. When I was starting to deliver my Political Report at the opening of 13th Party Congress, he got up and left the conference room. This was his way of expressing disapproval of my report. Why do I think so? At the time he was not in bad health, so he should have had no problem staying to listen. By contrast, when I delivered the Ten Strategies for Economic Development after I became the Premier in 1981, at a time when he was not in good health, people tried to persuade him to leave the hall to rest, yet he refused to leave and had said, “I need to listen to the end of Ziyang’s report.” His action then was a sign of support. In general, Party elders often left a conference during the proceedings, but by contrasting these two incidents, his attitude was clear.

(As an aside: after the June Fourth incident in 1989, Yao Yilin, who regarded Chen Yun as his economic mentor, proposed “breaking out of Zhao Ziyang’s policy influence” by publicly condemning the expression “the state intervenes in the market, and the market drives the enterprises.”)

I also progressed through stages in my understanding of the planned economy. In the beginning, I was concerned that in a country as big as China, with its divergent conditions and underdeveloped communications and transportation networks, if all commodities from production to distribution were centrally directed and planned, then bureaucratic red tape, breakdowns, and mistakes seemed inevitable.

Later, after I’d come to work at the Central Committee, I realized that economic inefficiencies and the breakdowns between production and consumption had an inherent cause, and that was the planned economy itself. The only way out was to realize market potential by allowing the laws of supply and demand to take effect. I had no idea, though, whether or not we, as a socialist country, could adopt the free-market fundamentals of Western nations.

Because of my uncertainty, in my government work report of 1981 on “Ten Strategies for Economic Development,” I divided the planned economic system into four sectors according to the natures of enterprises and commodities. The first sector was defined as production wholly under the control of the state, including key enterprises that formed the backbone of the economy and major commodities essential to people’s livelihoods. The second sector was made up of the numerous small commodities produced according to the planning of producers and distributors themselves in response to market forces. I also identified two other sectors: one in which planning played the dominant role while market demands took on a minor, adjusting role; and the other where market forces played the primary role while state planning took on a minor role. At the time these classifications were approved by Chen Yun as well.

When the document drafts for the Third Plenum of the 12th Central Committee were being prepared, I presented the drafting group with several concepts, which later were included in a letter I wrote to the Politburo Standing Committee. These concepts were as follows.

 


The Chinese economy is a planned economy, not the free market economy of the West.


 


The nature of the Chinese economy is a “commodity economy,” not a “product economy.”
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Planning consists of direct planning and indirect planning; direct planning must be reduced as indirect planning is expanded.


 


Indirect planning means mainly responding to market demand with intervention by economic means, while direct planning must also respect the laws of supply and demand.

These concepts were ultimately included in the Decision on Economic Reform passed at the Third Plenum of the 12th Central Committee. After that, the “commodity economy” was clearly defined. Aside from unplanned small commodities, the “indirect planning” sector that was to rely on market adjustments would continue to expand. In this way, the proportion of the Chinese economy that relied on market adjustments would grow.

By the time of my report to the 13th Party Congress, it was clear that the mechanism for the Chinese economy was to be “the state intervenes in the market, and the market drives the enterprises.” In other words, we had already realized an economy dependent on free-market principles. It was only because of ideological barriers that the term “free market” wasn’t being used.