Prisoner of the State: The Secret Journal of Premier Zhao Ziyang (20 page)

In summary, this meant allowing the 100 million to 200 million people in the coastal regions, and the enterprises in the regions, to integrate into the global market and participate in the exchange and competition of the international market.

Outside of China, adjustments in the international economic structure were already under way, and in some of the industrialized nations or emerging industrialized nations people’s living standards were higher, so the costs of their labor were also higher. This would cause labor-intensive production to gradually move to places where labor costs were lower.

In the Asia Pacific Region, it was the United States that first moved some of its labor-intensive production and manufacturing to Japan. Japan took the opportunity to develop itself. Later the United States and Japan moved some of their production and manufacturing to the four Asian Tigers. As the Asian Tigers developed, Japan and the Asian Tigers are moving some of their industries to the countries of ASEAN [a grouping of ten Southeast Asian nations].

Economic structural adjustments, whether from a global or Asian Pacific perspective, will not stop. This revolving process presents an opportunity for developing countries. In the past, because we had closed our doors to the world and implemented a rigid, highly centralized system without the free flow of information, we had missed many opportunities. We could not throw away another chance!

At the same time, our coastal regions had the right conditions: proximity to coastal ports with convenient transportation, better infrastructure than the inner provinces, and quality labor in both cultural and technical terms. The coastal regions were closer to international markets and had a tradition of doing commerce with the outside world. Having both the opportunity and the right conditions, if we only eliminated the obstacles in our thinking and adopted appropriate policies for guidance, the coastal regions could develop at a fast pace.

If we did not adopt this strategy, the regions would suffer more and more difficulties. If we continued with our old methods, the regions would be limited, primarily because of a lack of natural resources. The highly centralized planned economy looked upon the entire nation as a grand chessboard and relied on the state to invest in the development of natural resources in the western regions and transport them far away to the coastal regions for manufacturing. This path could no longer continue.

Since the inland provinces had become unwilling to sell their resources cheaply to coastal provinces, the conflict between inland and coastal regions had intensified. Therefore, transforming the coastal regions into an essentially export-oriented economy was a major and critical issue.

The proposal had important political significance as well. The highly centralized planned economy made the entire nation develop in a uniform manner so the strengths of the coastal regions could not be utilized. Neither the inland nor the coastal regions could develop at a fast pace. Before liberation, Shanghai was a highly developed metropolis in the Asia Pacific Region, more advanced than Hong Kong, let alone Singapore or Taiwan. But after a couple of decades, Shanghai had become run-down and had fallen far behind Hong Kong, Singapore, and Taiwan. This made people ask, “What exactly is the advantage of socialism?”

If one area of China, an area with hundreds of millions of people, could develop as quickly as they had, then the situation would be much better and people would not say socialism was a hindrance to the development of productivity. From a political perspective, it would reduce people’s doubts and fears of the handover of Hong Kong and Macau
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and the unification of Taiwan with the mainland. It would engender in people more enthusiasm for reuniting with the motherland.

I proposed the coastal development strategy after much observation, experimentation, and deliberation. It was also in response to the need for further implementation of reform.

I had worked for many years in Guangdong, which is adjacent to Hong Kong and Macau, so I had an earlier and deeper understanding of the international market and foreign trade. Very early on, I had come to believe that it would be beneficial to allow the coastal regions to utilize international trade to develop their full potential.

For example, if Guangdong were allowed to plant sugarcane, 1,000 catties of sugar could be produced per acre. If the area were made into rice paddies, 1,000 catties per acre of rice could be produced. The value of 1,000 catties of sugar was so much higher than 1,000 catties of rice! The export revenue from 1,000 catties of sugar could import several thousand catties of rice. But in the past, we did not take advantage of international trade. In order to resolve food shortages, we could not expand sugarcane plantations, so there had always been this problem of sugarcane and rice in competition for fields.

There was also a variety of high-quality rice in Guangdong that could be sold at high prices on the international market. One catty of this variety could bring in as much as several catties of ordinary rice. When I was in Guangdong, I used the method of exporting one catty of high-quality rice to buy back one catty of ordinary rice plus several catties of fertilizers, and then using the fertilizer to exchange for more rice domestically. By doing this, we had grain, fertilizer, and foreign currency. But in the past we had mechanically emphasized self-reliance and had not taken advantage of international markets, so we’d undermined our own strengths.

There is huge potential in foreign trade. I thought about this while I was working in Guangdong. If one enterprise or one region were free to import raw materials and export its own finished products, it would have been profitable. The reason that some places around the nation were not able to make products for export was because many of them lacked good material resources, so either the products could not be produced or the quality was not high enough. If we could import raw materials, use our industrial equipment to process them, and export the end product, then not only could we buy back whatever we needed, we could also bring in foreign currency.

In the 1960s, I had written to the Central Committee to propose increasing our foreign trade and using imports to generate export revenue. We had attempted to use this method in Guangdong. With the consent of Ye Jizhuang, the minister of Foreign Trade, we conducted a certain amount of our own imports and exports, and the resulting foreign currency revenue was shared at local government levels. Guangdong’s economy recovered relatively fast in the early 1960s, largely as a result of this.

I believed strongly back then that there was huge potential in foreign trade for the coastal regions. Our system and policies had suffocated it. It wasn’t for lack of opportunity, or because it had been impossible, but rather because it had not been permitted.

In 1981, when I was on inspection tours of enterprises in Tianjin, this issue also came up. Many of the textile factories in Tianjin lacked a supply of raw materials and were unable to upgrade their equipment, making it difficult to proceed with production. It happened to be during the period of readjustment, and many factories had been compelled to suspend production. I had discussions with them and asked if they had been allowed to import raw materials and whether they could then export their products. They said that of course they could. I wondered what would happen if the coastal regions were all oriented toward developing export-oriented industries. Later, as other issues emerged, this matter was dropped.

After reform was implemented, from 1981 to 1984, Guangdong started the development of “three inputs plus export subsidy.” They imported raw materials, samples, and designs, used existing equipment and labor to process it all, and then exported the finished product with subsidies applied. Even though it was a bit primitive back then, standards quickly improved. Guangdong, especially in the areas of Dongguan, Nanhai, and the Pearl River Delta, developed very quickly.

In the beginning, wherever Hong Kong businessmen went, the “three inputs plus export subsidy” policy was put in place, so they eventually moved their production equipment and production bases to the mainland. After Guangdong did this, Fujian, Shandong, Zhejiang, and Jiangsu followed suit. The results were good. All of this had again proven that the potential strengths of the coastal regions were just waiting to be realized.

Of course, this was already happening in the coastal regions during the years of reform. However, as an overall strategy, it was necessary to bring it to the level of strategic thinking and implementation. This was why the coastal development strategy was proposed. It was not without reason, nor was it from a temporary impulse; rather, it was a conclusion drawn from long-term observation, research, and understanding.

C
orruption was emerging as an important issue in 1988. The challenge was how to interpret and resolve this problem, and how to turn the concerns about corruption and creating a clean government into opportunities to deepen reform—while not giving opponents a chance to exploit this issue and restore the old system.

While spending the 1988 Spring Festival holidays in Guangdong, I read materials that revealed many examples of power-money exchanges. While it could not be assumed that they were the result of reform, we had to acknowledge that this was related to the changing economic environment. We could not ignore the issue. I proposed, “The economy must prosper, the government must remain clean.”

I realized more and more that “remaining clean” was a major issue. If neglected, it could provide an excuse to those who opposed reforms, while making the people disgruntled. The consequences could be dire. At the same time, we could use the anti-corruption issue as an opportunity to deepen reform. Because these problems emerged in the new environment, they could not be solved using old methods. First, the causes of these problems had to be understood. Only then could we find effective ways to resolve them.

For example, in Hong Kong, corruption was very serious in the 1960s. The law enforcement agencies had become seriously corrupted. Then, in the 1970s, the Independent Commission Against Corruption was established. There was even a film made, called
The Storm Against Corruption.
After this the situation evidently improved.

Corruption often occurs when the economic culture develops to a certain stage; but later, when the quality of civil servants and law enforcement personnel improves, and their wages and compensations rise, the situation changes. Today’s Hong Kong is very different from before. Similar situations have existed in other developing countries. The early stages of a market economy involve exchanges of power and money. As the economy develops, with the refinement of the legal system and establishment of a democratic system, the situation improves. Some ASEAN countries had similar experiences.

In January 1989,
Ta Kung Pao
[newspaper] in Hong Kong published an article with a title along the lines of “An Attempt to Analyze Corruption in the Mainland.” It was a systematic analysis of our corruption problem. I forwarded it to [Director of the Political Reform Research Institute] Bao Tong with a message: “This is an article studying corruption. We need to organize a group specifically dedicated to the research and analysis of the corruption problem, then propose our strategy and explain it in some persuasive articles.”

At that time, I believed the issue needed to be systematically studied. Only after investigating it clearly could we propose a solution. The reapplication of old tactics would not work. Returning to the highly centralized planned economy would be no good, even if it were for the sake of fighting corruption. That would be like never eating again for fear of choking. Using the methods of mass campaigns and class struggle, as we did in the early years of the People’s Republic, for example, by executing people, would not work.

This kind of corruption emerges during an economic and social transition process. The old system has weakened and is disintegrating, but the new system has not yet been established. That is why further economic and political reform is necessary in order to resolve this problem fundamentally.

Take power-money exchanges as an example. Now that the economy is freer, with commodities and markets, many enterprises and entities are subject to market competition. But power is still monopolized in the hands of government agencies. In other words, economic reform has not completed the shift to free markets. Many residual elements from the era of the planned economy still exist. If certain participants in the market competition get favors from agencies with power, they can gain huge profits under conditions that are not equal to those of their competitors.

For example, by converting supplies from inside the planned economy to outside of it—that is, buying commodities at a controlled low price from within the planned system from supply agencies and then selling it at market prices—huge profits can be obtained. Another example is the situation where whoever can obtain permits for exporting or importing certain goods can take advantage of the price discrepancy to make huge profits. Under these conditions, power and money are linked and exchanged so that some businesses profit from unequal competitive conditions. Part of the huge profits obtained in this way can then be used for bribes.

The only solution for resolving this issue is continued deepening of reform to separate government and enterprise, to hand down powers currently held by the government to administrators of the industries, and to resolve the issue of monopolies or the overconcentration of power. Doing this limits the environment for power-money exchanges. Such problems can only be solved through further reforms.

Another imperative is building institutions. A commodity economy requires appropriate institutions: a tax affairs office, police departments, bank branch offices, and various agencies to enforce and execute regulations. If procedures were all transparent, and if the results were made public, there would be fewer attempts to engage in corrupt activities.

I heard that there was a place in Heilongjiang where a bank’s agriculture loans were announced publicly every year: who got loans and what were the returns. This let the people participate and check on power. The less transparency, the easier it is to cheat. This is the issue of building institutions to fight corruption. Dongcheng District of Beijing Municipality has a good record in this aspect. This way of doing things easily gains public support.

To fight corruption, reform of the political system must be carried out. Emerging nations have periods of widespread corruption in the early stages of their development. The economy is growing at high speeds while political power is highly concentrated. The behavior of officials is not checked by public opinion. If a political party has no check on its power, its officials easily become corrupt. The situation will eventually improve with the building of democratic politics, a wider variety of political activities, a wider slice of the populace participating in the process, and checks on power by public opinion. Some of the ASEAN countries, as well as Taiwan, have gone through this. As the economic base changes, the political system also needs to be reformed.

Another important issue—in fact the most essential—is the independence of the judiciary and rule of law. If there is no independent enforcement of law, and the political party in power is able to intervene, then corruption can never be effectively resolved.

I pointed out all of these issues at the Central Committee Secretariat meeting. However, it appears that up to this day, the problems have not been resolved.

After June Fourth, when Li Peng and his associates were criticizing me, they accused me of saying that corruption was unavoidable in the reform process and therefore that I had a laissez-faire attitude toward corruption. They never seemed to run out of words to use against me in groundless accusations!

In fact, tackling corruption was very much on my mind. I talked about the issue of anti-corruption at both the Second Plenum of the 13th Central Committee in March 1988 and at the Politburo meeting in June. I also held several symposiums specifically for hearing about the experiences of people at lower administrative levels. I was actively studying anti-corruption in hopes of finding a solution that would truly resolve the problem. It was utterly unjust for Li Peng and his associates to take my quotes out of context in order to incriminate me.

It appears that this problem continues to this day.