Prisoner of the State: The Secret Journal of Premier Zhao Ziyang (15 page)

Later, when Deng asked me for details, I said, “Yangpu is a stretch of barren land. If we don’t lease it out to foreign businesses, in ten or twenty years, it will still be a stretch of barren land. If we do lease it out, and they are not afraid of investing several billions of Hong Kong dollars, what do we have to fear? It is totally counter to common sense to say that this affects our sovereignty.”

Deng replied, “This is a good idea. I wasn’t clear about this before.”

Later, [the Hainan officials] Liang Xiang and Xu Shijie wrote directly to Deng Xiaoping to explain details of the Yangpu development plan. After Deng read their letter, he forwarded it to me with his comments: “The original accusation was not accurate. I’d said not to proceed for the time being, but if the situation is different, as explained here, then we should proceed with enthusiasm.” Even though [Party elder] Wang Zhen had never been enthusiastic about economic reform, after I told him about Deng Xiaoping’s comments, he also expressed approval.

In hindsight, it was not easy for China to carry out the Reform and Open-Door Policy. Whenever there were issues involving relationships with foreigners, people were fearful, and there were many accusations made against reformers: people were afraid of being exploited, having our sovereignty undermined, or suffering an insult to our nation.

I pointed out that when foreigners invest money in China, they fear that China’s policies might change. But what do we have to fear? For example, there were allegations made that the SEZs would turn into colonies. Macau, they pointed out, had originally been leased to the Portuguese for drying their fishing nets but had eventually turned into their colony. However, the Qing dynasty was corrupt and impotent, and that was not the case with the People’s Republic of China. There is only the fear among foreigners that China might change and one day renounce previous agreements and even confiscate their investments. On what grounds do the Chinese fear the foreigners? If they have invested their money in China, what does China have to fear?

Another example of this involved test drilling for offshore petroleum. Foreign capital was needed, but there were too many demands put into the contracts out of fear of being exploited. The approach was too conservative and nitpicked over trivial matters while losing sight of strategic interests.

In general, some people were fearful of being exploited. China had closed its doors for many years in the name of independence and self-reliance, but in fact it was a self-imposed isolation. The purpose of implementing an open-door policy was to conduct foreign trade, to trade for what we needed. Some people felt ashamed about the idea of importing. What was there to feel ashamed about? It wasn’t begging! It was a mutual exchange, which was also a form of self-reliance. This issue had caused us to make many costly mistakes. This was a close-minded mentality, a failure to understand how to make use of one’s own strengths.

[Premier] Li Peng also was not supportive of the Yangpu project. He issued an order to the Office of SEZs saying that the Yangpu development project should not start without notice from the State Council. As a result the project was shelved. Li Xiannian and Li Peng together damaged the development of Yangpu, and it was very difficult to recover afterward.

I shall talk about another issue related to the real estate market and to attracting foreign businesses for large-scale development: the problem of buying and selling for a quick profit [referred to by skeptics as “profiteering with special license”]. If we could resolve this problem, opening the real estate market would significantly benefit our reform by promoting rapid urban development and an improvement of the investment environment. Treating land as a commodity, making it available for market exchange, and forming a real estate industry—these were major policy issues. For many years, the constitution had restricted land from being transferred or leased, so the issue remained unresolved for a long period of time.

At the beginning of reform, only Shenzhen had land designated for lease, which was leased to Hu Yingxiang [a Hong Kong businessman better known as Gordon Wu] for development. It was the subject of major debate at the time. It was argued that the area designated to foreigners was too large.

During the early days of reform, the first problem in attracting foreigners to open factories and businesses was that our infrastructure was not good enough. In order to build up infrastructure, we needed large investments. Since we did not have this money, things were at an impasse. The development zones began in this way: first, the area was developed, making the land a commodity, then water, electricity, and roads were brought into the area, basic facilities were set up, then factories and office buildings were built. The calculation used at that time was that more than 100 million yuan per square kilometer was required; it’s probably more nowadays. Therefore, the pace of creating development zones was very slow.

We also had a similar problem with urban development. We had no funds to build roads for cities or to bring in water and electricity. A lot of land was lying idle.

It was perhaps 1985 or 1986 when I talked to Huo Yingdong [a Hong Kong tycoon better known as Henry Fok] and mentioned that we didn’t have funds for urban development. He asked me, “If you have land, how can you not have money?”

I thought this was a strange comment. Having land was one issue; a lack of funds was another. What did the two have to do with one another? He said, “If municipalities have land, they should get permission to lease some of it, bring in some income, and let other people develop the land.”

Indeed, I had noticed how in Hong Kong buildings and streets were constructed quickly. A place could be quickly transformed. But for us it was very difficult.

I thought that what he had said was reasonable, so I suggested that he go to Shanghai and talk to the mayor and Party committee secretaries. I don’t know whether he went or not. His view did inspire my thinking. We had land but no funds, while the Hong Kong government auctioned off a piece of land every year, not only bringing in income for the government, but also allowing the area to develop quickly.

I thought about this later when visiting Shanghai. The Pudong area was right across the river from Shanghai’s city center. In order to develop Shanghai, building up this area would require less investment and be more efficient. It was an extremely good location. However, in order to develop this area, we needed a huge amount of funds to build infrastructure and then attract foreign businesses.

It was around 1987 when Shanghai referred a Chinese American, Lin Tung-Yen [the founder of T. Y. Lin International], to speak with me in Beijing. He asked whether it was possible to rent Pudong. The term of the lease had to be long enough: thirty to fifty years. After leasing the land, he would need to have transfer rights. Investors could then get mortgage loans from the banks. I asked him if he thought foreigners would be willing to invest after such a land transfer and what else was needed. He said it was easy and that the conditions of the SEZs were not needed; the conditions for Shanghai’s Minhang economic zone were sufficient. I had thought that the conditions offered could be even more preferential than Minhang’s, approaching those of the SEZs, so I was indeed interested. Since this Chinese American had been referred by [Shanghai Party chief] Comrade Wang Daohan, I asked Comrade Wang Daohan to take charge of this matter.

Because it was Shanghai, the move was sure to attract everyone’s attention. So in order to persuade all sides, I thought that in addition to Wang Daohan, we would also need to include [director of the Shanghai Advisory Committee] Chen Guodong, because of his relationship with Chen Yun. Comrade Chen Yun would find it easier to accept something coming from him. I knew Chen Guodong was cautious and would possibly even have objections to the idea, but that did not matter. It could be studied further. Therefore, I told Comrades Wang and Chen to keep in touch with Lin Tung-Yen.

This was an important matter, because when we had earlier thought about opening up Shanghai, Chen Yun had expressed concerns. He said that in dealing with regions such as Shanghai and Zhejiang, one must proceed with caution, because people in these areas were especially skilled and familiar with capitalist behavior. [Chen Yun himself was a native of Shanghai.] The reform of Shanghai lagged for two reasons. One was that it was a critical region, and the other was Chen Yun’s attitude.

This issue was therefore postponed for a long time. I hear that last year [1992]
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when Deng Xiaoping took his tour of the southern regions, he remarked that Shanghai’s reform had been overly delayed. I agree. If it had been started earlier, the situation would have been quite different.

As early as 1986 or 1987, plans were made to develop Pudong using the method of granting land leases. I had reported the issue of Pudong to Chen Yun, but he did not comment. I also reported it to Deng. He was extremely supportive, saying, “Do it as soon as possible!” But at the time, I felt that since there was not a consensus among the elders, it should be studied further.

There was another case. Wang Jikuan [a consultant for a State Council think tank] reported that an American automobile manufacturer proposed building a car factory in Huiyang, Guangdong Province, that could produce three hundred thousand cars a year. Some of the parts could also be manufactured in China, enough for thirty to forty Chinese factories to be involved in upstream businesses. It was a sole ownership venture that did not require our investment.

I wrote a letter to [Director of the State Planning Commission] Yao Yilin saying that it was a good deal. At that time, many foreign businesses were afraid of China’s policy reversals and were afraid to invest, especially in sole ownership ventures. If this case proceeded and did well, it could set a good example.

Yao Yilin, however, was negative about it. He referred the case to the Ministry of Machine Building Industry, but since it had always wanted to build up an independent domestic auto industry, it was against foreign investments in the industry. Yao Yilin agreed and said it should not be permitted. Li Peng immediately took their side, saying that it should not be approved, and then forwarded their report to me.

A very good deal thus ended up scrapped.
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I
gave a government work report at the [Fourth Session of the Fifth] National People’s Congress in November 1981. It was titled “The Current Economic Situation and the Principles for Economic Development.” In the report, I proposed that economic development should proceed at a more realistic, more efficient pace and provide people with more concrete gains.

To support this direction, I proposed a ten-point guideline for economic development. This was my first extensive speech about the economy after becoming Premier of the State Council. Some people at the time called it my “administrative principles.”

After the Cultural Revolution, while I was working in Sichuan, I intently studied the economy. Two realizations gradually crystallized in my mind. One was that the old ways of conducting economic affairs appeared superficially to develop at an adequate pace, but the resulting efficiency was extremely low. People received no practical gains. The second was that even though the scale of the economy was extremely large, the old methods could not unleash its full potential. A new direction needed to be found that fundamentally reformed the old ways.

In the 1981 government work report, I stated, “The core issue is to improve efficiency in production, construction, distribution, and other aspects of the economy in every possible way.”

I then reviewed the problems of our economic development since the establishment of the People’s Republic of China. In 1980, as compared with 1952 [the year at which the economy was considered to have fully recovered from civil war], industrial output had grown 8.1 times, GDP had grown 4.2 times, and industrial fixed assets had grown 26 times. However, average consumption had only doubled. It appears that though industrial fixed assets had grown a great deal, industrial output had not grown as much, nor had GDP; average consumption even less. The GDP growth rate was much lower than the growth rate of agricultural and industrial output; the rise in living standards was also significantly lower than GDP growth, yet industrial fixed assets had grown much more.

This showed that our economic efficiency was very low. The improvement in living standards was not commensurate with what people had contributed with their labor. Therefore, I believed that the key problem with our economy was our efficiency and not the nominal speed of production growth.

Later, at the All China Industrial and Transportation Conference held in Tianjin in 1982, I gave a speech on issues of economic efficiency. I pointed out: “The prolonged neglect of efficiency in industrial production, and the blind pursuit of production output and the pace of growth have resulted in many absurd undertakings. Often we have fallen into the situation of ‘good news from industry, bad news from sales; warehouses are full and finances show a deficit.’ In the end, our banks have had to print money to patch up the holes, bringing harm to the state and the people.” I proposed a concept for approaching the economic efficiency issue: “Produce more products that society truly needs, using the least amount of labor and material resources.” That is, cut waste as much as possible while increasing social wealth, the key being that the products we make must actually be in demand. Otherwise, increased production just means more waste. There had been too much pursuing rapid production for its own sake. Factories produced large quantities of things that nobody wanted to buy. These were then stored in warehouses and finally ended up as trash.

How could economic efficiency be improved? How could products be made that were suitable to the needs of society? There were many aspects to this, but fundamentally it was related to the economic system. The solution was to adjust the economic structure and reform the system. There was no other way.

The reason I had such a deep interest in economic reform and devoted myself to finding ways to undertake this reform was that I was determined to eradicate the malady of China’s economic system at its roots. Without an understanding of the deficiencies of China’s economic system, I could not possibly have had such a strong urge for reform.

Of course, my earliest understanding of how to proceed with reform was shallow and vague. Many of the approaches that I proposed could only ease the symptoms; they could not tackle the fundamental problems.

The most profound realization I had about eradicating deficiencies in China’s economy was that the system had to be transformed into a market economy, and that the problem of property rights had to be resolved. That was arrived at through practical experience, only after a long series of back-and-forths.

But what was the fundamental problem? In the beginning, it wasn’t clear to me. My general sense was only that efficiency had to be improved. After I came to Beijing, my guiding principle on economic policy was not the single-minded pursuit of production figures, nor the pace of economic development, but rather finding a way for the Chinese people to receive concrete returns on their labor. That was my starting point. Growth rates of 2 to 3 percent would have been considered fantastic for advanced capitalist nations, but while our economy grew at a rate of 10 percent, our people’s living standards had not improved.

As for how to define this new path, I did not have any preconceived model or a systematic idea in mind. I started with only the desire to improve economic efficiency. This conviction was very important. The starting point was higher efficiency, and people seeing practical gains. Having this as a goal, a suitable way was eventually found, after much searching. Gradually, we created the right path.