Deng Xiaoping and the Transformation of China (73 page)

To be sure, views about how successful policies had been and what might work in the future were colored by the varying lenses of different officials, some more conservative and others more liberal and cosmopolitan. Deng made an effort to maintain the support or at least the acceptance of a substantial minority as well as the majority. On those issues where he sensed strong opposition—even from a small but influential minority—he would seek to find ways to win their cooperation or at least their passive acceptance before undertaking a major initiative. Otherwise he might postpone taking a firm stand until the climate became more favorable.

Ultimately, democratic centralism requires that everyone jump on the bandwagon to endorse a particular policy. With policies they considered appropriate, people were ready to sign up because they knew that if they failed to join quickly, they might suffer the consequences. For Deng, being a successful leader meant not just determining the correct strategic direction for the long run, but also knowing how to shape the atmosphere and how to time his bold steps so that they occurred when other officials and the public were ready to jump on board.

On November 11, 1977, Deng Xiaoping, in Guangdong for discussions to plan for a Central Military Commission meeting in Beijing, was briefed on the problem of young men trying to escape across the border from China into Hong Kong. Tens of thousands of youth were risking their lives each year by attempting to run or swim across the border. Until that point, Beijing had regarded the problem as a security issue. A barbed-wire fence was maintained all along the twenty-mile land border, and thousands of police and troops were assigned to patrol the area. When Chinese youth were caught trying to escape, they were housed in large detention centers. After hearing the briefing, Deng—characteristically forthright in acknowledging unpleasant realities—said the problem could not be resolved by the police or the army. The problem, he said, had arisen from the disparity of living standards on the two sides of the border; to solve it, China needed to change its policies and improve the lives of those living on the Chinese side.
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During Deng's meetings in Guangdong, local officials also complained about the shortage of foreign currency, which was needed to pay for foreign technology and to underwrite construction projects. Deng supported the view that to earn foreign currency they should establish two agriculture collection centers (one in Bao'an county, later part of Shenzhen, near the border with Hong Kong, and one in Zhuhai, next to the border with Macao) to collect fresh fruits and vegetables to be exported across the border. Aware that the local areas had only limited agricultural surpluses, he said that the other provinces could help supply the produce for export. He also said that Guangdong should build modern hotels and other tourist facilities to earn additional
foreign currency. At the time, some local officials were trying to revive local handicrafts, but Deng did not mention the prospects for industrial exports; there were then almost no factories producing goods for export and no immediate prospects that foreign companies would be allowed to build them. Foreign investments were also not yet allowed.
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After Deng's visit, Beijing's interest in Guangdong's development picked up. As the government began to consider purchasing foreign technologies, officials focused on the shortage of foreign currency. Informed planners already knew that the failure to find new oilfields had ended their hopes of exporting high-priced oil after the 1973 oil shock. From April 10 to May 6, 1978, with the full support of Chairman Hua Guofeng, a delegation from the State Planning Commission in Beijing visited Guangdong to explore how to increase exports.
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Beijing officials, under the leadership of Gu Mu, encouraged local officials in Guangdong and the neighboring province of Fujian to develop their tourist industries. They also suggested establishing export processing zones, where foreign goods and machinery would be brought in and local labor would produce goods for export.
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In April 1978, just as the State Planning Commission delegation was in Guangdong to encourage local initiatives, Xi Zhongxun, newly appointed as a provincial party secretary, arrived in Guangdong to help prepare for China's greater openness to the international economy. Before Xi Zhongxun left Beijing, Marshal Ye, a Guangdong native and an enthusiastic supporter of Guangdong development, had told Xi that to get wholehearted cooperation from the people of Guangdong (who were overwhelmingly Cantonese) at home and abroad, he should first reverse the verdicts on the Guangdong officials who had been accused of localism in the early 1950s.
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By the end of 1978, Xi Zhongxun had replaced General Wei Guoqing as first secretary of the province and was following through on Marshal Ye's suggestions. In the meantime, Yang Shangkun had arrived in Guangdong as provincial party secretary to help Xi Zhongxun lay plans to transform the province. Yang worked well with Xi, assisting his preparation for the export zones and serving as a personal liaison to Deng.
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When Xi Zhongxun first arrived in Guangdong, he had a great deal to learn. Newly appointed after being under a political cloud, Xi began by following the official political line of the time—that is, pursuing class struggle. In one of his first meetings with local officials, he expressed Beijing's official line: the Chinese fleeing to Hong Kong were pursuing a bourgeois line and should be punished. A brave local party secretary spoke up, telling Xi that
people on the Guangdong side of the border worked day and night and still did not have enough to eat, but after fleeing to Hong Kong, within a year they had all they needed. On the spot, Xi announced that the official was fired, to which the man retorted that there was no need: he had already quit. After the meeting, Xi listened to others explain the situation; they also told him about Deng's approach while visiting Guangdong the previous November. The next day at a meeting with other officials, Xi undertook a self-criticism at his own initiative and he apologized to the local official, asked him to stay on, and pledged to work to enrich the economy on the Chinese side of the border. From that moment, Xi Zhongxun became a great supporter of the province and worked tirelessly to enlist Beijing's help in improving the local economy and boosting exports.
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Xi Zhongxun was originally from Shaanxi province, but after he retired in 1989, he chose to live in Guangdong. His son, Xi Jinping, born in 1953, was selected in 2011 to become the president of China beginning in 2012. (For more on Xi Zhongxun, see Key People in the Deng Era, p. 739.)

Upon his return to Guangdong from participating in the Third Plenum in December 1978, in which Deng became the preeminent leader, Xi Zhongxun briefed local officials on the implications of the new policies of reform and opening for Guangdong. For three decades local officials had been frustrated that Beijing—concerned about Guangdong localism, bourgeois attitudes, and security risks in a location that was so close to the open seas and the border with Hong Kong—had held back Guangdong's industrial development. Now, at last, Beijing, eager to promote exports, was willing to give Guangdong officials the opportunity for which they had been waiting: the chance to develop their own industry.

On January 6, 1979, scarcely two weeks after the Third Plenum, Xi was given the green light by Beijing to prepare a proposal seeking Beijing's formal permission for Guangdong to accept foreign investment. Unlike Deng's suggestion of November 1977, which called for agricultural produce to be exported, this proposal was for the establishment of manufacturing facilities that would make industrial products for export. Xi Zhongxun immediately convened a two-week-long meeting to prepare for the drafting of the proposal. Fujian province, across from Taiwan, was to be given the same status as Guangdong, but since Taiwan at that time did not allow trade with the mainland, Guangdong would take the lead, with the understanding that Fujian would later develop its export industries in similar ways. As Xi Zhongxun and local officials began preparing the proposal, Gu Mu was made director of
the newly created ministerial-rank Special Economic Zone (SEZ) Office (
tequ bangongshi
) and was assigned to coordinate work between Guangdong and Beijing. In his new position, Gu Mu made several trips to Guangdong to assist Xi Zhongxun and other local officials in preparing for Guangdong's special status. Gu's familiarity with foreign trade and construction, the respect he enjoyed in Beijing, his commitment to reform and opening, and his skill in solving problems made him an effective go-between.
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On January 31, 1979, scarcely a month after the Third Plenum, Li Xiannian approved the first case of foreign investment, a proposal by the Hong Kong Merchant Steamship Group headed by Yuan Geng. To meet the strong demand in Hong Kong for scrap metal for its booming construction projects, Yuan Geng proposed destroying old Chinese ships that were no longer serviceable and selling the scrap to Hong Kong builders. For years, he had been seeking a site for such a project. Hong Kong was too crowded, so he proposed a site in Shekou, at the west end of Shenzhen in Bao'an county.

Yuan Geng's proposal was the perfect trial balloon for Guangdong's new initiative. Since the destruction of old ships did not require the erection of new factories, work could begin almost immediately. Even more important, though officially his company was considered “foreign,” Yuan himself had joined the Communist Party decades earlier and he had deep experience in Guangdong and Beijing. Originally from Bao'an county (part of which later became Shenzhen), Yuan had fought there in the local Communist guerrilla forces during the civil war. After 1949, he worked in the International Liaison Department of the Communist Party in Beijing, and later headed international liaison work for the Ministry of Communications. The Hong Kong Merchant Steamship Group, descended from a late imperial government company that had been taken over by the Communists, had been placed under the Ministry of Communications, with an autonomous branch company in Hong Kong, which Yuan Geng now headed.

Yuan Geng's proposal, which Li Xiannian approved, was forwarded to Li from the Ministry of Communications, then under Minister Zeng Sheng, also a Bao'an native who had been Yuan Geng's superior in the guerrilla forces during World War II and later his superior in the Ministry of Communications. Yuan Geng had asked for a relatively small tract of land in Shekou, at the southwest tip of Shenzhen, but Li Xiannian offered a much larger one, where Yuan's business could do more than simply tear down old ships. Shekou thus became the first place in China to allow foreign direct investment and the first area where decisions about a company inside China could be made by
people located outside the country. For Chinese leaders, it was a very special safe case of “foreign ownership,” but it was a breakthrough nonetheless, for it opened the door for other foreign companies to seek permission to establish enterprises on the mainland. And although there were some rumblings among national planning officials, who worried that granting so many freedoms to Guangdong would interfere with overall national plans, the Guangdong officials won out with their argument that without more freedoms, they could not attract foreign companies to establish plants.

In early April 1979, Xi Zhongxun, at a party work conference in Beijing, argued that Guangdong, and other provinces as well, did not have enough autonomy to do their work effectively. He was bold enough to say that if Guangdong were a separate country, then within several years it would take off, but as it stood at the time, any change would be difficult. Other high officials were fully aware that China's economic planning had become overly centralized. Hua Guofeng, who like Deng supported granting Guangdong more independence to develop exports, assured Xi Zhongxun that Guangdong would be given the autonomy necessary to attract foreign investment.
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On April 17, 1979, Xi Zhongxun and his team of leaders from Guangdong brought their draft proposal to Beijing for a round of discussions with Deng Xiaoping and others before the final documents were drawn up. Xi and his colleagues, drawing on advice from Gu Mu, proposed that the entire province be allowed to implement a special policy that would give Guangdong the flexibility to adopt measures to attract foreign capital, technology, and management practices necessary to produce goods for export. China would supply the land, transport facilities, electricity, and labor needed by the factories, as well as the hotels, restaurants, housing, and other facilities needed by foreigners. Beyond the general effort to assist the provinces of Guangdong and Fujian, additional efforts, supported by the central government in Beijing, would be concentrated in three SEZs in Guangdong (Shenzhen across the border from Hong Kong, Zhuhai across the border from Macao, and Shantou [Swatow] on the northeast coast of the province) and one in Fujian (Xiamen [Amoy]).

Deng was completely supportive. He told Xi Zhongxun, “Let's call them special zones . . . since in the past the border region in Shaan-Gan-Ning (Shaanxi-Gansu-Ningxia, later headquartered in Yan'an) was called a special zone. [The party center] has no money. So we will give you a policy that allows you to charge ahead and cut through your own difficult road.”
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In saying this, Deng was responding directly to the appeal that the Guangdong
delegation had made in Beijing: if you don't give us
qian
(money), then how about giving us the
quan
(authority) to raise our own funds?
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