Prisoner of the State: The Secret Journal of Premier Zhao Ziyang

by Adi Ignatius

  For example, these activities were all treated as crimes: technicians working for collectives who had a private business or paid jobs in their spare time; organizations using the extra foreign currency that they had been allowed to keep after exporting goods or trading other currencies; public relations expenses between procurement people and their trading partners. Many people were wrongly convicted. Later, these cases had to be reevaluated and reputations restored.

  This led people to start having doubts about the reform. They didn’t know what was allowed and what was not. They were confused. Some comrades working in the economic arena had to wait and watch before taking any action. Some procurement personnel and sales staff refused to go out for several months.

  As a result of the notice from the Central Committee, people in the disciplinary and organizational agencies around the country who maintained their traditional views and were uncomfortable with reform took it upon themselves to go to factories and enterprises to conduct repeated inspections and investigations, causing tremendous headaches for the businesses. Many reform programs came to a standstill.

  In the autumn of 1988, there was concern about a project in Yangpu on Hainan Island.

  The Yangpu region was a stretch of barren land. It would have been difficult for us to develop it, but if we rented it to foreign businesses, they would be able to develop it quickly. [Hainan’s Party secretary] Xu Shijie and [Hainan’s governor] Liang Xiang got in touch with [the Hong Kong subsidiary of Japanese construction company] Kumagai Gumi with such a proposal, and the company agreed to invest several billions.

  I reported the Yangpu project to Chen Yun, but he did not express his view. I then reported it to [Deng] Xiaoping, who was very supportive and said that it should be done quickly.

  At the time, many people across the country had not yet had a chance to think this thing through. In the past, China had been colonized or half colonized, so people were very sensitive to the issue of sovereignty. Zhang Wei [vice president of Tsinghua University] had done some research and written a report saying that large areas of land rented out to foreigners were like independent territories within a country, implying a selling out of sovereignty. This became a major issue at the National People’s Congress in 1989 and caused quite a disturbance. Xu Shijie gave an explanation at the Congress, but many people did not want to listen to it; their opposition was fierce. I don’t know whether the opposition had ulterior motives, but they were determined to cancel the project and wanted to hold the Hainan officials responsible.

  When [Party elder] Li Xiannian learned that the Yangpu project was being led by [Vice Premier] Tian Jiyun and had my approval, he wrote a document accusing the project of being “a loss of dignity, an insult to our nation, and a betrayal of our nation’s sovereignty.” It was another example of Li Xiannian’s resistance to reform, and his vigilance in finding opportunities to attack and incite others to oppose me. Prior to this, I had never had any conflicts with Comrade [Party elder] Wang Zhen, and I had always been able to discuss issues with him and win his support. However, the situation changed in 1988 when he began actively opposing me. After June Fourth, he accused me of being a “counterrevolutionary” and the “behind-the-scenes boss for a small gang of conspirators.” His change of heart was probably the work of Li Xiannian and Deng Liqun.

  Li Xiannian also sent a letter to Comrade Deng Xiaoping condemning the project. Deng was not aware of the details, but after seeing that so many people opposed the matter, he said, “For the time being, this project should not proceed.” Just prior to this, Comrade Chen Yun had also forwarded a document to me and had asked me to be “cautious on this matter.”

  The center of the controversy was the issue of sovereignty, so I had people prepare a detailed document explaining how the development of Yangpu had nothing to do with sovereignty. I sent a letter, along with some information, to Deng. I wrote, “Whether the lease is a good deal or not is something that can be studied. However, this has absolutely nothing to do with sovereignty.”

  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 b
usinessman 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]* 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.*

  4

  Finding a New Approach

  How did a communist leader arrive at the conclusion that China should abandon its centrally planned economic policies and move toward free markets? It started with Zhao’s realization, first achieved when he was a provincial administrator working on rural policies, that China’s economy was woefully inefficient and needed to be quickly transformed.

  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.