Prisoner of the State: The Secret Journal of Premier Zhao Ziyang (28 page)

The other critical issue during preparation for the 13th Party Congress was the appointment of new leaders. Even before Yaobang had resigned, Deng Xiaoping had appointed a group of seven people to be in charge of the proposal for leadership changes for the 13th Party Congress. The most critical arrangements were planning the future of some of the elders and naming the new Politburo Standing Committee [PSC].

Many people, including me, believed that Deng needed to continue as a member of the PSC because it would be difficult, while so many other elders were still alive, for it to establish its authority without him. I believed that, as long as Deng’s position in the Party as ultimate decision maker was continuing, it would be better for him to exercise his power legitimately from within the PSC rather than from outside of it.

Deng, however, insisted that if the positions of Chen Yun as first secretary of the Central Discipline Inspection Commission, Li Xiannian as President of the republic, and Peng Zhen as National People’s Congress chairman remained intact at the 13th Party Congress, it would be seen as a setback, or as the foreign media would say “a victory for the conservatives.” No matter what, we should not give people this impression. This was what Deng told me during a conversation in March 1987. However, if they were all asked to retire, it would be difficult for Deng to justify remaining in the PSC.

Deng proposed that one of them be retired completely and the other three moved into semiretirement status. That is, Peng Zhen would retire, while Deng, Chen, and Li would semiretire. What this meant for Deng was that he would be out of the PSC but continue as chairman of the Central Military Commission, Chen Yun’s position would be changed to chairman of the Central Advisory Commission, and Li Xiannian would become chairman of the Chinese People’s Political Consultative Conference. Only one was a position with real power while the other two were honorary positions.

At first, none of these people—Chen Yun, Li Xiannian, and Peng Zhen—were willing to accept the proposal. Deng then asked [another elder] Bo Yibo to mediate with these elders. It wasn’t easy at first. It was not until July 3 that Chen Yun expressed his consent to Bo Yibo, saying that he would follow the arrangements made by the Party. Once Chen Yun conceded, the others were easier to persuade. The proposal was accepted.

After that, Deng Xiaoping met with Bo Yibo and Yang Shangkun to discuss whether, after leaving the PSC, the three elders would still manage any affairs at all or participate in making decisions on crucial issues. I don’t know the details of their discussion, but I did hear of one suggestion: that there should be only one “mother-in-law” for the PSC; there could not be several “mothers-in-law.” That is, after the three retired, only Deng should act as a “mother-in-law,” which characterized the relationship pretty accurately. Deng’s position was not to change; he was the “mother-in-law” of the PSC, but the others should not assume that role.

Later, however, as new situations emerged, it turned out that Deng had to consult with Chen Yun and Li Xiannian on all major issues (especially with Chen Yun). As to how Bo Yibo actually negotiated with Chen Yun and Li Xiannian, I don’t know. It wasn’t until July 7, 1987, that the issue of whether the elders should remain in power was finally settled at the meeting of the Five-Person Group held at Deng’s home.

It was in this meeting that Bo Yibo suggested I give a speech at the First Plenum of the 13th Party Congress to announce that we would continue to seek Comrade Deng Xiaoping’s guidance on major issues, and have Deng make final decisions. When Bo Yibo spoke of this, Deng expressed his view that as long as the international community knew that he would remain the decision maker, they would feel reassured, because his continuance would be taken as an indication of China’s stability. That’s why I announced to the First Plenum of the 13th Party Congress that we would continue to seek Deng’s opinion and ask him to make the final decisions.

In the same meeting of the Five-Person Group held in Deng’s home, appointments for new PSC members, President of the People’s Republic, Premier of the State Council, and chairman of the National People’s Congress were also finalized. As for the PSC, the initial proposal had included seven people, and the number had remained seven up until this meeting.

There were objections to Wan Li. He was sometimes not very careful and had offended some people, so the elders had objections about him. I heard that when the [PSC] list was being drawn up, Yao Yilin mentioned that Wan Li was the kind of person who would jump on the bandwagon in a crisis. In other words, he was a factor of instability. During the Five-Person Group meeting, Bo Yibo spoke as a representative of the Seven-Person Group, saying that the group “does not approve of Wan Li being appointed to the PSC.” Yao Yilin then identified Tian Jiyun as a problem, saying there were reports that Tian had promoted a relative who was proving problematic. Bo Yibo also identified some unresolved issues with Tian Jiyun. Under the circumstances, there was no time to investigate further. After hearing these opinions, Deng said, “Wan Li and Tian Jiyun will not be in the Standing Committee, so the list of seven people will be changed to five.”

It was at this meeting that I started to realize that Yao Yilin, who ordinarily gave people the impression of being upright and honest and had always seemed objective and fair, was in fact a calculating schemer who played nasty tricks. He did not raise the issue of Tian Jiyun earlier or later, but right at the moment when a decision needed to be made. Since doubts had been raised, the issue could only be shelved.

It was also in this meeting that the decision was made to appoint Yang Shangkun President of the People’s Republic. Deng proposed Wan Li for the position of chairman of the National People’s Congress. Wan Li modestly replied that he was no expert on law. Deng said, “You certainly can learn! Also, you can ask others to assist you.” After the decision was made, Deng was afraid that some people would not accept Wan Li as NPC chairman, since many of the elders had objections to him. He even had a talk with Wan Li to suggest that he visit the elders, one by one, to do some self-criticism and win their support. Wan Li did as Deng suggested.

The candidacy for Premier took a long time to finalize. People were worried that Li Peng was not up to the responsibility, especially in the area of economic reform, since he had previously worked in engineering, technology, and electricity generation, and had very little experience in economics. In economic reform, he had no experience whatsoever. However, Chen Yun and Li Xiannian were both very supportive of him.

Another proposal being considered was to have Yao Yilin act as Premier for a two-year transition period, since he was more familiar with economic affairs, and people had good impressions of Yao Yilin. But Deng found this unacceptable, saying that Yao was suffering from bad health and had a very narrow field of experience, as he had worked mainly on finance and trade. At the time, it was difficult to find anyone new, and they most likely would not be accepted by Chen Yun and Li Xiannian anyway. So in the end, there was no other choice but to go with Li Peng.

Since Li Peng was not familiar with managing the economy and had no experience with economic reform, Deng made a decision: “For the time being, after taking the post of General Secretary, Zhao will continue to manage economic affairs and continue to head the Central Economic and Financial Leading Group.” Deng also mentioned that Li Peng had a bad reputation among some people who claimed that he favored the Soviet Union, where he had studied. Once on a visit to Europe, he had, without checking with anyone, taken a detour through the Soviet Union. Because Deng believed that his reputation was not perfect, that he favored the Soviets, he asked that Li Peng make a public statement upon becoming Premier to dispel the doubts that people had.

As far as I know, Wan Li, who was my Vice Premier, was never proposed for the position of Premier. There were two reasons: first, Wan Li had offended a lot of people. Second, Deng wanted to find someone younger to be Premier.

When the 12th Party Congress was being planned, [Party functionary] Yu Qiuli was in charge of the leadership appointment group, under Yaobang’s leadership. All issues were reported first to the Secretariat, directly managed by Yaobang, and then reported to the elders. But things were different with the 13th Party Congress’s leadership appointment group, which was headed by Bo Yibo with the participation of Yang Shangkun, Wang Zhen, Yao Yilin, Song Renqiong, Wu Xiuquan, and Gao Yang. It was directly controlled by Deng Xiaoping. Before his resignation, Yaobang did not intervene in these matters. Afterward, neither did the Five-Person Group. Perhaps the situation was different from the 12th Party Congress because the issue of retiring the elders was at stake. For that reason, Deng took over and implemented his ideas through the Seven-Person Group.

After Yaobang resigned, the Five-Person Group replaced the Politburo Standing Committee, thus making it parallel to the Seven-Person Group. The Five-Person Group managed daily affairs. The Seven-Person Group made preparations for leadership appointments for the 13th Party Congress. It also expanded its powers to take over the Central Committee’s role in making general personnel changes.

The Minister of Forestry was removed from office because of a forest fire in Daxing’anling [in Heilongjiang Province] in 1987, so a new Minister of Forestry was proposed. However, because of the intervention of the Seven-Person Group, it failed to go through. At the time, I was on a state visit abroad, leaving Wan Li in charge at home. Wan Li objected to what had happened and reported to Deng Xiaoping.

Deng announced that the Seven-Person Group should be led by the Five-Person Group. Day-to-day personnel changes would still be managed by the Secretariat and the State Council. Bo Yibo had no choice but to agree. However, he continued to overreach. He often asked the Director of Organization [Song Ping] to report to him; he would then relay his opinions to Song Ping and ask him to carry things out accordingly. Bo Yibo said that because the leadership appointments for the 13th Party Congress included the evaluation of all provincial, municipal, and ministerial leaders, the Department of Organization must consult the Seven-Person Group before deliberating the reshuffling of cadres.

Before the 13th Party Congress, he also conveyed a suggestion to me through Song Ping: that it would be preferable for the existing Seven-Person Group to continue in some form after the 13th Party Congress in order to assist the Central Committee in managing personnel work. The original purpose of the Seven-Person Group was to make arrangements for the leadership of the 13th Party Congress, but now he was proposing that it continue even beyond the Congress. It was obvious that they hoped to control the management of personnel indefinitely.

I could not agree with that. I told Song Ping to relay my message that we would stick to the original decision—that after the 13th Party Congress, the mission of the Seven-Person Group will have been accomplished. As for how to utilize the effectiveness of the elder comrades with regards to personnel management, this was something we could discuss at a later date. Bo, a person who had always been keen to grab power, must have been deeply displeased when I rejected his idea.

T
he 13th Party Congress met with good reactions both at home and abroad, and was highly praised. Above all, it made people across the country feel hopeful. It is fair to say that it renewed people’s enthusiasm.

The economic situation in 1987 was also better than it had been in past years. Not only was the nation’s economy continuing to grow at a fast pace, but the signs also seemed to point to a smooth and stable development. The balance among the various parts of the nation’s economy was also good, except in agriculture. We had an abundant harvest, but problems arose due to stagnation in the sector in the prior few years. But money supply had remained within the plan, foreign reserves had greatly increased, and foreign trade was healthy.

Efforts to control macroeconomics while freeing microeconomics had also improved. The macroeconomics had not gotten out of control, and the microeconomics had not been stifled. The problems of economic overheating and excessive money supply had all been eased.

In the few years prior, problems had occurred when we tried to bring the macroeconomic situation under control while making improvements to the mechanism. From our experiences of 1987, stabilizing the economy and growing at a certain pace can happen concurrently. Bringing the macroeconomic situation under control can be done at the same time as freeing activities at the microeconomic level.

After the 13th Party Congress, the general political and economic situation was good. If we had continued to adapt the measures and policies learned from the successful experiences of the past few years, the situation in 1988 could have continued to improve.

However, that is not what happened. Instead good became worse and in the end was quite bad. There are a lot of lessons that can be drawn from what happened.

R
ising prices was a hot issue in 1988; it was inevitable during the reform process. The 7 percent rise in 1987 was not very high, but higher than in the few years prior.

In the first quarter of 1988, prices continued to rise, especially for food. The cause was the mediocre agricultural output over the previous few years. At the same time, our approach had been problematic, as we had not followed market rules. Grain prices had been raised, but meat and egg prices had not, resulting in shortages. During the Spring Festival of 1988, some cities were considering a return to the ration system. If we had immediately adjusted prices of agricultural produce to lift that sector, and at the same time provided compensation to urban residents, the problem could have been resolved.

However, there were concerns. Prices were rising every year, and the cumulative rise was significant. People were complaining, and we were reacting by making further adjustments—yet the overall pricing system had still not been straightened out. We considered quickly raising prices to their correct levels within a few years, enduring the pain for the sake of breaking through the difficulties of reforming the system. At the same time, we would raise workers’ wages.

With the benefit of hindsight, however, this idea was not practical. In those years, the coexistence of two markets, with a two-track pricing system, created so much friction and corruption that it was impossible to institutionalize the market. We wanted to come up with a coordinated plan to eliminate the coexistence of two systems as soon as possible.

We also believed that the reforms to date had been relatively easy, and while the results had been good, the things left to accomplish were more difficult. The task at hand was to tackle the thornier issues and achieve a breakthrough; if we shied away from confronting them, things would not improve, and might get worse.

In moving from a planned to a market economy, we had always taken a gradual approach, especially when adapting new elements. The nation’s economy was divided into two sectors. We were increasing the market sector and gradually weakening the planned sector. These two efforts were coordinated.

The government did not directly intervene in the market sector, especially not through administrative means. Production was self-initiated and prices were freely set according to market forces. In the market sector, family enterprises, privately operated firms, and joint ventures were all self-initiated and responsible for their own profits and losses.

The planned sector was basically under the control of the state, and here the state set prices. Some products in this sector also were put on the market, but they mainly did not respond to market mechanisms. The state-owned enterprises had no real autonomy.

In the market sector, enterprises were free to set their own prices. In the planned sector enterprises’ prices were set by the state, or at least the state retained authority over the process. The same was true for wages. In the market sector, enterprises were free to set wages themselves. In the planned sector, wages were set by the state or, even if the state ceded some of this power to the enterprises, it still retained ultimate control. The market sector in those years grew out of nothing, from infancy to maturity, while the planned sector gradually shrank. Still, in 1988, the planned sector accounted for more than 60 percent [of the economy].

Though the two-track system caused friction and created opportunities for corruption, overall it brought vitality to the economy, especially the market sector.

It was not possible to transform large and midsize state-owned enterprises into market entities through a one-time reform of the system, prices, and wages. They could only be transformed bit by bit through gradual reforms to the planning, pricing, and ownership systems. The gradual approach was more stable, less risky, and easier for society to accept. We had been proceeding this way all along, though not consciously.

We knew that pricing reform was critical. And we always thought that at some point conditions would be right to take measures, all at once or in several steps, to transform the state-owned enterprises. This implied that the development of the market sector was a prelude to a final breakthrough.

In May 1988, I gave a report to a Politburo meeting titled “Establishing the New Order: The Socialist Market Economy,” in which I said the task was to reform the pricing system in the next few years while raising workers’ wages appropriately. We believed this was the decisive battle in the transformation to a market economy: ending the coexistence of the two systems and the two-track pricing system.

The existence of these concerns indicated that price reform was not a simple problem. After August, I concluded that the success of price reform and wage reform depended on deepening the entire reform. If price and wage reform ultimately required us to transition all medium and large state-owned enterprises toward a market model, then there was a feasibility question. It was difficult for the plan to work.

There also were tactical problems, specifically involving price reform. The original plan was problematic—but it was highly publicized before implementation, without consideration for people’s psychology. Economic conditions were good in 1987, but in 1988 there were tensions in the market.

Abroad, this is known as the psychological anticipation of inflation. If people know that the state will raise prices, even if they know there will be government compensations and that their living standards will not drop, they will be concerned about preserving the value of their savings.

Because we did not raise the banks’ interest rates in time to address the issue of preserving the value of savings, people started panic buying and hoarding to preserve the value of their money. This was primarily psychological. Even though we announced repeatedly that the price hikes would not lower people’s living standards, we had overlooked the issue of people’s savings. It was common sense, but we lacked experience at the time.

In August, we discussed the issue of pricing reform at Beidaihe. Immediately the newspapers began publicizing the breakthrough, reporting that there had been a decision to raise prices. People started to panic. They rushed to banks to make withdrawals and frantically bought up commodities. Suddenly there were shortages, and it seemed as if the economic situation had worsened.

In fact, the economic situation in 1988 was not bad; there wasn’t an excessive supply of money. The main issue was the psychological factor: people were in a panic. Of course, there still was some hangover from the overheated economy and excess currency of earlier years. People’s buying power had not yet materialized in the form of large amounts of savings. There was perhaps 1 trillion yuan deposited in banks; once people panicked they withdrew their funds and started buying.

The issue was the improper publicizing of price reform. If we had announced a cessation of price reform and then raised interest rates and promised value-guaranteed savings, people would have felt more secure. If we had then scaled back the tens of billions of yuan being spent on infrastructure, saving several million tons of steel, the economy would not have suffered any problems.

Back then, the Central Economic and Financial Leading Group repeatedly proposed to the State Council that interest rates be raised as quickly as possible and that value-guaranteed savings be put into practice. However, at the State Council, Li Peng and Yao Yilin worried that if savings’ interest rates were increased while interest rates on loans to the state-owned enterprises could not be raised accordingly, that would put too much burden on the banks. They were indecisive for a time, before eventually putting value-guaranteed savings into place.

In fact, as soon as value-guaranteed savings were in place, savings deposits rose again. That started in the fourth quarter of 1988 and accelerated in the first quarter of 1989. The situation quickly stabilized. This proved that the economy did not have any serious problems. Inflation was not higher. But when people were in a panic, they withdrew cash that amounted to years of savings to purchase commodities, making it appear that inflation was getting worse. In fact, inflation had gone down after 1987, though it had not fully subsided.