Prisoner of the State: The Secret Journal of Premier Zhao Ziyang (19 page)

What actually happened matched the level of rural economic development and productivity that existed at the time. The results showed that it did not act as an obstacle to the development of rural productivity, but on the contrary, greatly stimulated the rural economy.

Certainly, the scheme of dividing the land up equally and contracting to households could not change the root problem of low rural labor efficiency. As rural commerce grows, so will the development of specialized operations and rural industries. The issues of specialization of expertise, labor migration, and large-scale farming will eventually have to be dealt with again. Of course, it will no longer take the form of the collectivization that existed in the 1950s. It is very possible that a more suitable form is the family farm operation. In order to adapt to this kind of demand, the ability to freely trade, rent, and inherit land should be permitted and the most important rural productive resource, the land, should be made freely available on the market and given legal protection. This is an issue that must be confronted.

I
n the winter of 1987, I went on inspection tours of the coastal regions, after which, in January 1988, I proposed strategies for developing the coast.

During those tours, I came to believe that the international market provides the right conditions for our coastal regions to accelerate their development, because labor-intensive production will always shift to places where labor is abundant and cheap. Some developed countries have moved their own output toward more knowledge-, technology-, or capital-intensive products, which offers developing countries an opportunity. It’s kind of a law of nature. Japan went down this road, as did the four Asian Tigers of Taiwan, Singapore, Hong Kong, and South Korea. That’s how the four Tigers took off.

Our coastal regions possessed great advantages. They had a rich supply of high-quality labor, better than that in other developing countries. Transportation was convenient, information was available, and people were becoming more aware of the international market and competition and could respond more quickly than the inner provinces. Also, the infrastructure was better and the area had a greater capacity for producing light and textile industries. Our coastal regions had all the conditions necessary to go through what the Asian Tigers had gone through.

This approach would greatly speed the development of the coastal regions. The proposed strategy called for developing an export-oriented economy, which would mean 100 million to 200 million people joining the global market and participating in international exchange and competition. It would foster “two ends extending abroad,” meaning finished products would feed into the international market, while raw materials and other resources would be imported from the international market. If the production of all export commodities relied instead on just internal resources, it could lead to domestic shortages. A competition for raw materials between the eastern and the central and western regions could destabilize the nation’s economy.

When the strategy was proposed, Comrade Xiaoping was supportive and praised it highly. He said we should seize the opportunity by taking bold and decisive actions so as not to lose any opportunities. Some of the coastal regions were also supportive and enthusiastic. They saw how bright their futures could be.

But there were also opposing points of view. [State Planning director] Yao Yilin and Li Peng had concerns. There was still the issue of resolving the nation’s overheated economy and reaching a “soft landing.” If the coastal regions were to speed up their development, wouldn’t the economy become overheated again? In fact, this concern was needless. The so-called “overheating” was not a simple issue of the pace of development being too slow or too fast, but about whether the pace was more than what could be absorbed. The issue was mainly about overinvestment, belated returns on investment, or investments that yielded low returns. In addition, consumption funds were huge, causing an overabundance of currency in circulation.

These problems would not exist if the coastal regions proceeded with the strategy. First of all, there was no need for large amounts of investment; second, their products could be sold quickly; and third, raw materials could be imported from abroad.

The economies of the four Asian Tigers had proven this. It was at a time of relatively high inflation that they had developed their export-oriented economies, exporting labor-intensive products while importing raw materials. The result was the sped-up development of their economies with consecutive years of sustained growth. At the same time, their inflation rates dropped and their economies grew more stable.

China is a big country with diverse regional conditions. We often tried to apply a single approach suitable for the entire nation, but that tended to ignore regional strengths and characteristics. For example, the coastal regions could have developed faster without the problem of economic overheating, but since we were trying to reduce the nationwide problem, we limited the development of the coastal regions as well, which cost us opportunities. We proceeded in that way for many years. If we were to do anything, we would do it all across the nation; when we made adjustments to slow things down, we slowed down every region. The coastal areas had missed development opportunities many times.

A few Party elders had another concern. For example, Chen Yun worried that, while “two ends extending abroad” was a good concept, it would not prove easy. I understood his fears: If we agreed to import raw materials but then our products could not be exported abroad, how would we balance our foreign currency? But while his concern was understandable, the real question was, If we have such favorable conditions and if the four Asian Tigers had managed it, why couldn’t we? Why wouldn’t we be able to compete?

There were two obstacles: the system of foreign trade, and state-owned enterprises. In order to carry out the coastal development strategy, foreign trade had to be reformed and those involved in trade needed to be granted responsibility for their profits and losses. At the time, I was proposing allowing “huge volumes of imports and exports without delays.” The system of foreign trade had to remove barriers to allow for greater volumes of imports and exports.

The other issue was how to reform the state-owned enterprises. It wouldn’t be easy to change the habit of “eating from one rice bowl” or “taking the profit but sharing the losses.” I emphasized first the development of township-owned enterprises in the coastal regions. These enterprises were flexible and easier to deal with. I had looked into many township enterprises and saw that they delivered on time, paid attention to quality, and had very good reputations.

There was a third concern, held mainly by academics and scholars involved with planning and foreign trade. They pointed out that the Asian Tigers were very small while we were so much bigger and with a much larger population. They wondered whether all of our products could be sold abroad.

This issue should have been considered in this way: as long as the products were of good quality and low in cost, they would find their place in the market. The market was not frozen or static in a fixed size where, once you’d had your share, there would be no more. Certainly, there was no vacuum in the international market and no commodity that the international market was lacking. The issue was market share: how much you took up and how much I took up. The total volume would grow with world economic development and growth. However, market share is variable and depends on competition. That is why developed countries had stopped producing labor-intensive products and adjusted their industries. Once the emerging economies took off, their own labor costs rose, and they gradually lost their advantage. For example, Japan moved its labor-intensive production to the four Asian Tigers, but now the Asian Tigers have lost their advantage on this front.

A country like China has the advantage of enormous labor resources. There is no need to worry about the future. Once the first step is taken, we can take a second and then a third. As long as we started exporting labor-intensive products, we would accumulate capital and more advanced technologies, and we could then compete internationally on capital-or technology-intensive products.

But that was a question for future development, and there was no need to be afraid. This was just the beginning. We were not instantaneously pushing 200 million people to face direct international market competition. This was a process of development.

There were also some people who were reluctant to give up the pretense of being a world power. They questioned how a socialist People’s Republic of China could emphasize labor-intensive production and rely on exports from rural township enterprises. They believed the right way was to organize giant enterprise groups to produce and export products with highly advanced technologies.

This was totally unrealistic for our country. What were we exporting at the time? They were mainly agricultural products, not industrial products, and much of it was raw materials. We were a developing country, and no matter how much we might have wanted to pursue high-tech products, doing so in large volumes was impossible and therefore couldn’t improve the unemployment issue in the coastal regions. We needed to start with labor-intensive products with huge export volumes. After the economy stabilized and became more robust, we could return to the goal of exporting advanced high-tech products and those with a higher added-value.

There was another kind of objection. Some cadres in the central and western regions, or who were involved in planning and macroeconomics, questioned why we would want to further develop the coastal regions when they were already ahead of the inland provinces. Wouldn’t the discrepancy become even greater? Comrades from the inland provinces believed that developing the coastal regions would make the rich richer. They wanted to know: Why not make the poor richer?

In fact, the acceleration of development along the coast would not only benefit the coast but also drive the economy of the whole nation, including the inner provinces. Without the development of the coastal regions, where would all the migrant workers find employment? If the coastal regions developed, the laws of labor-intensive production would also apply within the country and shift to places where labor was even cheaper. As the cost of labor started to grow in the coastal regions, they would be forced to make adjustments in their production. Therefore, we could not develop at a uniform speed and we needed to proceed with one area driving and promoting another. Uniform moves would mean neither could move faster. The coastal regions were part of China; if their strengths were utilized, it would be beneficial to the whole nation, including the central and western regions. From the point of view of overall development, it was necessary to make development of the coastal regions a priority.

Despite the many concerns, the development strategy of the coastal regions was passed by the Politburo and implemented. After June Fourth, the strategy was no longer mentioned by name, but in reality it has continued. It was because of the sustained development of the coastal economy that the nation reached large export volumes in just a few years and foreign reserves grew to a huge amount. It was all because of having taken this path, was it not? Of course, after June Fourth, no one could talk about this strategy as a policy, which undermined even more active implementation of this strategy.

I once spoke to a wealthy businessman from Taiwan, Chang Yung-fa, chairman of the Evergreen Group. He was as famous in Taiwan as Wang Yung-ching [the onetime chairman of Formosa Plastics]. During the conversation, I said to him, “It is not a trivial thing that you in Taiwan have been able to accumulate several tens of billions [of dollars] of foreign reserves; for such a small region, how did you accomplish this?”

He said, “This is not difficult. Just continue your current policy of reform and openness and develop foreign trade. It won’t be long before you will have large amounts of foreign reserves. If Taiwan could do it, the mainland can also do it.” He said this very optimistically and confidently.

At the time, I had doubts. Could it really be that easy? It now appears that it indeed was not all that difficult. The key was to embrace openness. I mentioned this many times before to illustrate this point: so long as we implemented the Reform and Open-Door Policy, our economy would be able to develop rapidly.

From autumn of 1987 to January 1988, I traveled to Fujian, Guangdong, Zhejiang, and Jiangsu for long inspection tours and held talks with local cadres at county, municipal, district, and provincial levels. I also exchanged views with relevant central government agencies, after which I proposed the strategy for coastal region development. The most important point of the strategy was to develop an export-oriented economy in the coastal regions to fully take advantage of opportunities offered by a global economy in transition. The plan covered a region along the coast that included between 100 million and 200 million people. The following items were included:

 


The development of the coastal region will essentially be the formation of an export-oriented economy. Taking advantage of the opportunity offered by the structural adjustments of the global economy, concentration will be placed on developing labor-intensive production, or production that is both labor-and technology-intensive.


 


Huge volumes of imports and exports must be achieved with “two ends extending abroad.” Capital, equipment, and product sales will be made on the international market to attract international investment and to import equipment and raw materials. Processing will occur domestically and then the products will be exported. Huge volumes of imports and exports should be allowed without delay.


 


When developing the export-oriented economy, the full potential of township enterprises must be realized and they should become a major or even dominant force. That means utilizing the full potential of township enterprises and using them as a vehicle to pave the way to an export-oriented economy. Ultimately, a large portion of rural labor in the coastal regions will be integrated into this export-oriented economy and the international market.


 


In order to adapt to this kind of transformation, centralized imports and exports in foreign trade must be reformed. All entities or enterprises with the capacity to produce for export, and those enterprises that are conducting imports and exports in foreign trade, must be responsible for their own profits and losses while being allowed to conduct their businesses freely.