Prisoner of the State: The Secret Journal of Premier Zhao Ziyang (18 page)

During the discussion, they expressed opinions on the inflation of 1988. First, they agreed that the mainland had achieved a great deal during the ten years of reform, and that even though there were problems, from an economic point of view they were not serious, including the 18.5 percent rise in the price index. If appropriate measures were taken, they were resolvable.

Second, on price reform, they believed that economic development needed to obey market rules, regardless of the political system. Since inflation had worsened last year, there was talk of price reform being slowed down and a return to administrative control over some prices. However, though it was understandable for this action to be taken as a temporary measure, it should not be in place for long. If the incorrect pricing system were not reformed, the economy could not continue to run. The way out was the balance between supply and demand, and to bring the currency under control. Under these conditions, most commodity prices could be relaxed, while a small portion of prices, such as for public services, could be determined by the government according to a certain profit ratio. They emphasized that pricing must be decided by the market. Otherwise, there would never be correct pricing.

Another issue they discussed was the policy for tackling inflation. They believed that the reason for the mainland’s inflation was mainly the fiscal and financial deficit and that the key to resolving this was raising the interest rate above the growth rate of the price index and letting it float freely according to the market’s supply and demand for currency. This would yield benefits in increased savings and controlling the size of loans.

After I read the recommendations of Tsiang Sho-Chieh and the others, I referred the summary to Comrade Xiaoping and ordered the State Economic Reform Commission to organize relevant agencies to discuss the issue.

I had intended to reevaluate our entire approach to the economy and price reform, but because of the student demonstrations, this matter was set aside.

F
or many years, our economic development efforts yielded poor results. They demanded a great deal of effort while providing few rewards. Besides the economic system, there were other problems, such as the closed-door policy, which made self-reliance an absolute virtue. It became an ideological pursuit and was politicized.

Consider agriculture, for example: if it is to achieve efficiency, the first principle should be to apply the strengths of local land conditions. One should plant whatever is most suitable to the land. However, for a long period of time, we were not allowed to do that.

One incident in particular had a profound impact on my thinking. In 1978 [actually 1979], when I was still working in Sichuan, I led a delegation to visit England and France, and stopped in Greece and Switzerland on my way back.

I arrived first in southern France on the coast of the Mediterranean Sea, a region world-renowned for economic development. The climate there was very dry and no rain falls in the summer. Under such conditions, according to our past way of thinking, in order to plant crops we would “change the conditions defined by heaven and earth” by creating huge irrigation projects. They did no such thing, but instead planted grapes and other crops that were suited to the dry climate. The result was the natural formation of the French wine industry. The farmers there are very wealthy.

I saw another example in England, where wheat was growing very well along the east coast, while the west coast was covered with meadows. It was my first trip abroad and, puzzled by the scene, I asked the reason. I was told that there was enough sunlight on the east coast to make it suitable for wheat, while the west coast had plentiful rainfall but less sunlight and was better for grass. Hence the development there of animal husbandry, cattle raising, and milk production.

On my way back through Greece, comrades in the embassy accompanied me for a tour of the hilly regions where the weather was dry and there was no rainfall in the summer. According to our approach, the conditions would have been considered very tough for agriculture. We would have replicated the Dazhai model,
*
using terraced fields and irrigation projects. But they did not do that. The hills were covered with olive trees and the olive oil industry flourished. The farmers’ living standards were high. Why were they able to do this? Because they were not living in an autarky, but instead relied on trade with the outside world and utilized their strengths to export their goods in exchange for what they needed.

In 1981, after I had come to work in Beijing, I went to Lankao County [in Henan Province] and spoke with farmers there. It was a sandy region, capable of high yields of peanuts. But since the policy was to make grain production a priority while focusing on self-reliant food production, they were not allowed to plant peanuts, but instead planted corn. Their corn yields were low, and the farmers were highly critical of the policy.

Another example was the northwest region of Shandong Province, where the soil had a high alkali salt content. Most of the region was suitable for cotton growing at considerably high yields. But for years, policy had prevented them from growing cotton, allowing only wheat. The result was that the more wheat they planted, the lower yields they got and the more likely the farmers were to be starving.

In 1983, I spoke with comrades in Shandong and asked if they could plant cotton. They said the problem was a lack of grains. Later, we decided that northwest Shandong should switch to planting cotton. They would sell cotton to the state (at the time, the state was importing large quantities of cotton) and in return the state would provide them with grain supplies.

The result was that it took only one to two years for them to overturn a difficult economic situation and attain high yields in their cotton production. For a time, cotton flooded the market, resulting in oversupply. The farmers’ incomes quickly increased and rural conditions greatly improved. Their cotton production also yielded a by-product: cotton seeds. What was left over after extracting for cottonseed oil became fertilizer. The land that was not high in alkali salt continued to plant wheat and also saw an increase in yields from the supply of fertilizers. Everyone benefited.

Local folklore held that “one catty of wheat will feed all, half a catty of cotton yields extra.”
*
Before, when they planted one and a half catties of wheat, they were hardly able to feed themselves; later, one catty of cotton was enough and they were even able to sell the extra back to the state.

Shandong and Lankao were able to plant what was suited to their environment because we were practicing the open-door policy and importing large amounts of wheat from abroad—as much as several tens of millions of tons annually during those years. So long as we allowed farmers to plant whatever was appropriate and had the highest yields, agriculture improved. Without the open-door policy, we would have been forced to produce everything ourselves, and if we remained fixated on self-reliance, nothing could have happened.

One reason that huge efforts yielded measly results in agriculture was public ownership. The other was the self-imposed autarky that prevented us from taking advantage of the land and resulted in “double efforts yielding half the results.” For years we forced the planting of wheat in areas that were not suited to wheat production, so we had to make great efforts to build agricultural infrastructure and irrigation projects. Some of the projects were indeed necessary, but if we could have utilized the natural advantages of the land, we wouldn’t have needed them all. Also, the irrigation system could have been more efficient, and focused on places where it was most needed.

The same was true in industry. Our industrial development strategy in the past was “Don’t start cooking without first having rice.” We attempted to start everything from the very beginning, down to the raw materials.

For example, in steel manufacturing, we started first with the search and selection of iron mines, then coal, railroad building, iron smelting, steelmaking and processing, and finally the building of machinery. But we have only low-quality iron mines with a low percentage of iron. Many tons had to be mined to yield one ton of iron. Our main iron and coal mines were in the west, so long-distance transportation was required. Imagine how long it took to build a steelmaking firm; the scope of the infrastructure; the length of time for investments to yield a return; how much of the investment could be recovered.

With reform, we are much smarter. We import ore from Canada and Australia, where it is cheap and high in quality; transportation by ship is cheaper than by train. Some coastal cities can handle downstream processes, starting with steel rolling. Where do they get the ingots? From imports. As soon as processing started, there were profits. The investment was quickly recovered from the revenue, which was then invested in upstream steel processes and in the importing of iron from abroad.

The production of synthetic fibers had the same problem. Previously, if we were to produce synthetic fibers, we had to first start with oil production and oil refineries before making synthetic fibers. Later, some of the synthetic fiber factories started with production first, then proceeded with upstream processes afterward. In 1981, during the adjustment period, we had imported a set of synthetic fiber production lines, from raw material processing to wiredrawing. It was put on hold. When it was resumed we were already smarter, so we started with the wiredrawing process for the end product. This was how Yizheng Synthetic Fiber Factory of Jiangsu Province started. It grew quickly and soon had revenue that it reinvested in upstream processes.

All of this illustrates that only under the conditions of an open-door policy could we take advantage of what we had, and trade for what we needed. Each place and each society has its strengths; even poor regions have their advantages, such as cheap labor. That is a great advantage in international competition.

The result of doing everything ourselves was that we were not doing what we did best. We suffered tremendous losses because of this. I now realize more and more that if a nation is closed, is not integrated into the international market, or does not take advantage of international trade, then it will fall behind and modernization will be impossible.

N
o one had foreseen how good the results would be or that the changes would be so dramatic. No one had planned on implementing the rural household land contract (RHLC) scheme nationwide or even spreading it to most of the rural areas. It was a step-by-step process by which we continuously deepened our understanding.

In the revised Working Rules of People’s Communes passed by the Third Plenum of the 11th Central Committee [in 1978], called the “Sixty-Item Regulation,” the item about management and operations clearly stated that no household land contracts were permitted, that is, land would not be divided up by households.

In September 1979, the Fourth Plenum’s “Decision on Accelerating Rural Development” similarly stated, “Division of land by household or household land contracts are not allowed except when special conditions are required for certain industrial crops, or when an individual household is located in a remote mountain region without convenient transportation.” At my suggestion, the original text “are not allowed” was changed to “are not encouraged.” In general, we still believed that household land contracts should not be pursued, though the tone was not as rigid.

Contracting land to groups of households and to individual households was first initiated by the farmers themselves, in poor rural regions. It started in Anhui and Sichuan provinces. At the time, allowing such contracts in poor regions did not cause much controversy.

In 1960, when the economy was suffering, [Anhui Party chief] Zeng Xisheng applied the “designated land responsibility system” in Anhui. I applied a “payment proportional to production responsibility system” in Guangdong [where Zhao was then a senior official]. Henan Province had applied a “land borrowing scheme”; Zhangjiakou in Hebei Province had applied a “group land contract scheme,” and other places had used various forms of the idea. All of these places were able to increase production and ease the acute food shortages of that time. Therefore, the schemes were recognized by many officials for having increased production and improved a difficult situation. Since the Cultural Revolution was over and our policy had shifted toward economic development and promoted the ideas of “emancipating the mind” and “practice is the sole criterion of truth,” people were less fearful and able to think more realistically.

At that time, I envisioned that the nation’s rural regions could be divided into three categories: first, the areas where public ownership was relatively stable, production levels and living standards were high, and the scale of public property was big or collective enterprises had been developed; second, the middle group; and third, the areas where productive forces were seriously damaged and people were on the verge of starvation.

I believed that people in the third category most urgently needed the household land contract scheme, which was the fastest and most effective way to change things. In 1980, after I started working in the central government, I suggested in a meeting that the household land contract scheme be started in the poorest rural communes, which altogether included about 100 million people. This was a major policy decision, meant to stabilize rural regions and allow farmers to recuperate. It even gained support from [Director of the State Planning Commission] Yao Yilin. As for the second category, I believed we could wait and see whether or not to proceed with the scheme. As for the first category, I didn’t think there would be any demand for it.

The intraparty dispute over the household land contract scheme became public when it was about to be expanded from the third to the second category of rural regions. Those who were opposed took issue with the basic principle.

[Politburo member] Hu Qiaomu asked me to be cautious. He said, “The household land contract scheme of Anhui has already spread from north of the Huai River to the south. Even Wuhu County, a bountiful land, has implemented the household land contract scheme.” He was clearly opposed. [Party elder] Li Xiannian came back from a trip to Jiangsu Province complaining about the RHLC scheme of Anhui under the pretext of reporting the opinions of the Jiangsu provincial party committee. [Vice Premier] Wang Renzhong also opposed the RHLC scheme. He was former chief of the State Agricultural Commission, and as early as 1979 had asked the
People’s Daily
to publish a letter, purportedly from Luoyang [a city in Henan], criticizing individual household and group household land contracts. Shanxi Province had opposed the relaxation of rural policies and criticized the reforms of Anhui and Sichuan provinces even earlier. In 1978 and 1979, they flooded the newspapers with critical articles.

At that time, [Mao’s short-lived successor] Hua Guofeng did not support RHLC schemes, either. He believed that the rural areas, especially in the south, required collective operations in order to carry out everything: from harvesting the crops in the fields to threshing, drying, and transportation.

Chen Yun had not directly expressed whether he supported or opposed it. Once, he sent some people to ask me: there were often rains during the harvest season in the south, so if the drying process was not fast enough, the grain would grow moldy—had this problem occurred since the start of the household land contract scheme? After looking into it, I replied to him that after the introduction of the contracts, the process was running even smoother than before. He did not make any further comments.

The first secretary of Heilongjiang Province also opposed the household land contracts. At a rural administration meeting held by the Central Committee at which many provincial leaders expressed their support for the scheme, he famously said, “You go ahead and walk on your broad highway; I will continue to walk on my single-plank bridge.” He meant that even if all the other provinces carried out the household land contract scheme, Heilongjiang Province would not follow suit.

The first secretary of Fujian Province also opposed the scheme, resulting in a major rift with the other standing secretaries in his province. Shaanxi’s first secretary prohibited the scheme from being used in the province’s Guanzhong area. Both the first secretary and the governor of Hebei Province opposed the scheme. The governor of Hebei was the former standing secretary of Shaanxi Province. When this comrade was working in Shaanxi and other regions were starting to relax rural policies, he, on the contrary, moved accounting management from the production team level up to the division level.

Implementing the household land contract scheme nationwide would not have been possible without Deng Xiaoping’s support. The fact that it did not meet much resistance from central leaders had a lot to do with Deng’s attitude. Though he did not comment much on this issue, he always showed support for views held by me, [Hu] Yaobang, and Wan Li. He said he was pleased with the changes that had taken place after the implementation of the household land contracts. In 1981, some of the farmers in the disaster area of Dongming County in Shandong Province jointly wrote a letter to Deng Xiaoping to express their gratitude, saying they now had food to eat, thanks to household land contracts. He forwarded this letter to all central leaders.

In early January 1981, I traveled to Lankao in Henan Province, Dongming in Shandong Province, and other poor rural areas. I saw with my own eyes the changes that had taken place as a result of the household land contracts in these regions and experienced the warm support of the local cadres and the people. It made an extremely deep impression on me. When the cadres expressed the people’s wishes to renew the household land contracts for another three years, I immediately replied, “Yes.” Even though I had not instantly changed my opinion that the household land contract scheme was to be only a temporary solution, I was moved to believe that this issue needed reevaluation.

Upon returning to Beijing, I briefed Deng Xiaoping, Hu Yaobang, and other central leaders on what I had seen. There was no doubt that the household land contract scheme had helped increase production and raised farmers’ living standards.

However, it was impossible not to wonder whether family-run small-scale operations could sustain the continued development of agriculture. The key issue was how to integrate the enthusiasm of individual contract holders with the need for developing commercial and large-scale production operations, to avoid having agriculture turn into a small-scale farming economy. I thought the household enterprise contract held promise as a solution to this. This scheme grew out of the practical experience of cadres and citizens and was later called “individual contracts combined with joint operations.”

Another issue was the emergence of rural household enterprises. When I visited Western Europe in 1988, I noticed that many of the agricultural operations there were not very big. Many were small farms. Whatever issues they couldn’t tackle by themselves, they did through cooperative associations. The results could be as good as any large-scale operation. Switzerland, especially, left me with a deep impression. My previous belief that high agricultural productivity required large-scale operations had started to change. I no longer saw the implementation of household land contracts in joint productions in the rural regions as implying a return to the past to a small-scale agricultural economy.

As far back as when I was in Sichuan, I had promoted contracting out planting, and the farming of fish, flowers, and herbs to people with special expertise and management skills. I later visited many chicken, pig, and dairy farms as well as agricultural produce processing facilities and rural sewing businesses. In 1981, when I visited Shanxi on an inspection tour, I commented that the emergence of private rural household enterprises marked the beginning of a rural merchandise economy.

The transformation of the nationwide system of a three-tiered ownership of people’s communes into the RHLC schemes was a major policy change and a profound revolution. It took less than three years to accomplish this smoothly. I believe it was the healthiest major policy shift in our nation’s history. It was conducted even while most of the leaders and cadres remained skeptical. However, not one person was punished, nor any senior leader openly criticized. Of course, two years later, some provinces still sent people out to prevent the implementation of household land contracts, and at that point we issued administrative orders to stop them.

As the implementation of the RHLC scheme expanded, starting from the grassroots and spreading upward, its superiority as a system became increasingly obvious. The vast majority of leaders and cadres gradually came around from their original opposition. This was a significant development, and an experience worth learning from.

During this major policy change, the central government did not apply uniform standards and issue unified directives. Local governments were free to choose whether to implement and how. Both the “broad highway” and the “single-plank bridge” were permitted. Local leaders were told not to intervene when people initiated household land contracts themselves. Meanwhile, the central government made an effort to study the overall situation and learn from its achievements before providing guidance.

The adaptation of this method yielded great benefits and did not slow the speed at which changes were taking place. Since the power to choose was given to local leaders and cadres, and they were given time to make their choice (time enough to shift from unwilling to willing), the shifts occurred voluntarily. This reduced the possibility of conflicts and negative effects. It gave local authorities enough time to make a choice, to realize the superiority of the schemes and to figure out how to adopt them to their own development conditions. As it moved from the poorest regions to average and wealthier ones, the policy was gradually perfected.

I mentioned above that I was enthusiastic about the system of rural household enterprise contracts. My views on this were fully expressed in the documentation of a meeting of provincial and municipal first secretaries on the household land contract scheme, held in September 1980. The summary was distributed nationwide on September 29, 1980, by the Central Committee.

The summary indicated, “The Specialized Household Contracts System is one in which, under the management of the production team, those with expertise in agricultural production will be assigned land contracts; those with expertise in planting, animal husbandry, fishing, and mercantile operations will be assigned specialized contracts for their group or household.” The guiding principle was to utilize the incentive of individual contracts while avoiding the paltry returns of the small-scale agricultural economy where one family does everything.

However, this idea [introducing incentives for large-scale and specialized agricultural operations] was not realized because it failed to recognize the fact that the rural merchant economy had not been fully developed. The diversification of operations, industries, and commerce had just begun. There was not much specialization of expertise while people were stuck in their old ways of thinking. So besides a few specialists and a few major wheat production contracts, most rural land was contracted out according to household head count.