Deng Xiaoping and the Transformation of China (75 page)

During Deng's era, mainland officials in Guangdong and Fujian, especially in the SEZs, learned valuable lessons from the cosmopolitan Hong Kongers—from their increasingly open television shows, newspapers, personal contacts, and from the factories, hotels, restaurants, and stores that they built in Guangdong. On the streets of Guangdong in the early 1980s one could distinguish by appearance and manner the stylish, well-dressed people who came from Hong Kong or elsewhere from the rustic people who had grown up on the mainland. But these differences gradually began to disappear, and by the end of the Deng era in 1992 many mainlanders in southern Guangdong were indistinguishable from the residents who had come from Hong Kong.

From 1978 through the early 1980s, the Communist organizations
in Hong Kong—such as the New China News Agency (Xinhua), the Bank of China, China Resources, the trade unions, “patriotic schools,” and “patriotic” businesspeople—played a crucial role in informing mainland officials about the situation in Hong Kong. But by 1983, as Deng Xiaoping began seeing more often Hong Kong business leaders like the shipping magnate Y. K. Pao, the small community of mainland representatives in Hong Kong had largely completed their historical mission as go-betweens.

The Communists working in Hong Kong had not been part of the mainstream. They lacked the easy access to the Hong Kong elite whose cooperation Beijing now urgently needed. Chinese officials in Guangdong and Beijing began to bypass their local Hong Kong Communist comrades and go instead directly to Hong Kong's mainstream leaders. In 1982 Deng sent to Hong Kong a former provincial party secretary, Xu Jiatun, who had direct access to Deng and other high-level leaders in Beijing, to be the new head Communist representative in Hong Kong; he was to deal directly with the Hong Kong elite.

The opening of China was timed perfectly for Hong Kong factory owners in labor-intensive industries: they had begun to lose their ability to compete in international markets because a labor shortage in Hong Kong was then driving up wages and costs. The low-cost labor available on the other side of the border would not only save these owners of textile, toy, and electronics factories in Hong Kong, but also provide vastly expanded opportunities. The shift happened rapidly, sometimes astonishingly so: Hong Kong newspapers reported some cases in which Hong Kong factory workers arrived at their factories in the morning to find that all the production equipment had been removed during the night and taken to a village on the other side of the border where a new factory had been established. Hong Kong construction companies that had developed advanced building techniques during the Hong Kong construction boom in the 1960s and 1970s suddenly found limitless opportunities on the other side of the border.

Foreign businesspeople from Europe and North America who traveled to China in the 1970s and early 1980s usually entered through Hong Kong, then took the train to Guangzhou where they could fly to other destinations. Before they went to China, they were briefed by Hong Kong businesspeople, who would sometimes become either their partners or their representatives in China. Foreigners forbidden by law in their home countries to pay bribes could work through the less-constrained Hong Kong agents, who did what was necessary to pave the way with local Guangdong businesses. Taiwan businesspeople,
who were prevented in the 1980s from trading with the mainland, also worked through Hong Kong partners. Deng's experiment to open the “great southern gate” between Guangdong and Hong Kong had become China's most important channel through which flowed investment, technology, management skills, and ideas about the outside world.

By the late 1980s, as China opened further, the flow extended to many other parts of China, including Beijing. The changing pattern of relationships was reflected in the dialect which Hong Kong businesspeople used in dealings with the mainland. During the early years after 1978, if there was a lingua franca between Hong Kong and Guangdong, it was Cantonese, the street language in Hong Kong and most of Guangdong. By the late 1980s, however, as other parts of China opened more widely to the outside world, Mandarin was becoming the new common language. Many Chinese settling in Shenzhen and Zhuhai were from the north and spoke Mandarin, not Cantonese. Hong Kong continued to play an important role and Cantonese continued to be used, but as Hong Kong businesspeople started interacting with partners throughout China, they began improving their Mandarin. The change in language reflected the transition from regional experimentation in Guangdong to national implementation.

The Takeoff in Guangdong and Fujian

Within three decades after Guangdong and Fujian were granted special status, Chinese exports had multiplied over one hundred times, from less than US$10 billion per year in 1978 to more than US$1 trillion, with more than one-third from Guangdong. In 1978 there were virtually no factories in Guangdong with modern assembly lines. Within three decades, a visitor to southern Guangdong would see skyscrapers, large industrial sites, apartment buildings, world-class hotels, superhighways, and traffic jams.

The entire Pearl River delta area stretching from Guangzhou to Hong Kong was transformed. In the 1980s, towns and villages in the area (formerly production brigades or communes) welcomed small manufacturers, first from Hong Kong and later from Taiwan and elsewhere, to set up factories. By the late 1980s, the entire 104-mile route from Hong Kong to Guangzhou was lined on both sides with factories.
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In 1979, Shenzhen, just over the border from Hong Kong, was a town of some 20,000 residents, but two decades later the population of Shenzhen city, which now stretched to some of the former rural areas nearby, was approaching 10 million and still growing rapidly.
Although no exact figures are available, it has been estimated that as many as 100 million migrants had flowed into the coastal areas of Guangdong by the time Deng retired in 1992; many later returned to their original homes but tens of millions stayed.

Xi Zhongxun and Yang Shangkun worked to win Beijing's approval for the measures that enabled Guangdong to take off, but the person who was Guangdong's pilot during the critical takeoff from 1980 to 1985 was first party secretary Ren Zhongyi. He was paired with Governor Liang Lingguang, the former minister of light industry, to help Guangdong develop its light industry. After Deng stepped down, just as people all over China thanked Deng for initiating the reform and opening, those in Guangdong thanked Ren Zhongyi for his bold leadership. Years later when President Hu Jintao visited Guangdong, he showed his respect for Ren Zhongyi, who had retired two decades earlier, by paying him a personal visit (for more on Ren, see Key People in the Deng Era, p. 734).

According to a circular of January 1982, Guangdong was required to submit to Beijing for approval requests for light industrial projects costing over 30 million yuan and heavy industrial projects costing over 50 million yuan.
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When criticized by Beijing for exceeding the limits, Ren deftly dodged the accusations, reporting that the project in question was not a single project, but several that happened to be located next to each other, each of which fell under the limit. Ren's subordinates loved his willingness to work around the rules for Guangdong development and his courage in supporting them. Indeed, Ren once said that his job in Guangdong was that of an electric transformer. The electricity (Guangdong's policies and resources) came from Beijing, but he adapted and directed it to local needs. As Guangdong officials put it, “Beijing has its policies and we have our counter-policies” (
shang you zhengce, xia you duice
).

Appointed provincial leaders were rarely invited to meet the top leaders before they took up their posts, but Ren Zhongyi and Governor Liang Lingguang were invited for private meetings with Deng, as well as with Hua Guofeng, Wan Li, Chen Yun, and Marshal Ye. When he met them, Deng told them that their job was to help explore a path for the future. Deng, aware of the passions that the issue of localism had aroused in Guangdong, told Ren and Liang his views on how to treat divisive problems from the past: they should not avoid the subject entirely, but instead treat the issue in a general way, avoiding specifics. Deng said that if in their new positions they introduced the proper policies, their work would go smoothly. Deng also told
them that he wanted officials in Guangdong and Fujian to provide guidelines for other localities based on their experiences. When Wan Li met them, he was bold enough to say that if Beijing's directives didn't fit the local situation, they should do what was necessary to meet local needs.
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Because Guangdong was a cutting-edge experiment and vulnerable to being criticized as capitalist, Ren and his staff became a target for those who feared capitalism and did not want to see the Guangdong experiment, which was proving attractive to other provinces, spread to the rest of the country. Officials under Ren were charmed by his wit and impressed with his ability to make sound strategic choices, but what most won their loyalty was his willingness to accept responsibility when criticisms came from Beijing.

Even without political pressure from Beijing, local officials found it difficult to chart an entirely new course. When they discussed building a road between Guangzhou and Shenzhen, for instance, the officials, worried about the limited budget and unable to imagine the rapid growth of motor vehicles, erred on the side of caution and decided to build a two-lane highway. Within a decade, it had to be replaced by an eight-lane expressway. Inexperience and political concerns also played a part in missteps in one of the most sensitive areas, that is, how to deal with foreign businessmen, for they wanted to attract their investments without becoming vulnerable to accusations of being soft on foreign capitalists. Initially, they did not know how to determine a reasonable amount of tax concessions, how much local infrastructure support was required and how it should be priced, and what local products could be marketed abroad. Consequently many errors were made, with some locals dragging their feet and even cheating the outside investors, and some investors cheating the locals. In addition, new factories went up faster than regulations were promulgated to control them, and the new rules did not always prove workable. As the bolder, more ambitious local leaders stepped out in front of the more cautious bureaucrats, the results not infrequently confirmed the nightmares of the conservative skeptics.

Lessons from the Experiments

In Guangdong and Fujian, local officials learned that to attract foreign factories, they had to set up “one-stop” decision centers. Early foreign investors had been frustrated by having to deal with different government bureaucracies to arrange for electricity, transportation connections, construction materials, labor supplies, and various permits. By the mid-1980s, the areas that
were attracting the most foreign companies were those that had been able to reorganize and centralize decision-making so that officials could make all key decisions from one office.

Another lesson learned had to do with how much to charge the outside investors. Local governments, initially with little understanding of how to calculate costs in a market economy, often began by demanding fees that were far too high or too low by global standards. Within several years, they developed a much better sense of prices in foreign markets and began to set prices appropriately. Because the labor supply from migrants was virtually unlimited, however, the costs of labor remained far lower than in more industrialized countries.

In addition, officials in localities that competed for investment funds learned early on that if they did not allow the outside investors to earn what they considered to be reasonable returns on investment, the investors would go elsewhere. Initially, some Chinese officials, hearing of the high prices that products brought abroad, insisted on selling products to the foreigners at high prices, arguing that the Chinese laborers were being exploited by foreign capitalists. Gradually, however, Chinese officials began to accept the prices in the international markets, and found that they and their workers could benefit even if their workers earned far less than businesspeople selling their goods overseas.

Yet another learning curve had to do with reliability. If local officials wanted an outside partner who would expand his investment, they had to be reliable. When foreigners wanted assurances that if problems were to arise, there would be a fair resolution, Chinese officials signed contracts and introduced some legal procedures. Local officials found that the Chinese localities that did well over the years were those that honored the agreements. Not surprisingly, foreigners were willing to continue to invest when they found groups of local officials who were reliable and could resolve, creatively if necessary, all of the unexpected problems that arose in the early, wild years of primitive unregulated markets in China. Local managers working in foreign companies in China also learned how important it was to complete work on schedule and how to manage their various tasks efficiently. Other managerial staff learned modern accounting—how to prepare spreadsheets, how to calculate costs, and how to use calculators and then computers.

Hong Kong architects and construction companies, too, which had developed procedures for building skyscrapers during the 1960s and 1970s during the Hong Kong construction boom, began teaching their partners in Guangdong
how to organize and administer such projects on the mainland. They also brought in modern construction equipment and taught local workers how to operate it.

Customer service was another area sorely in need of development. Before China's opening and its introduction of markets, Chinese state stores sold a small range of staple goods. The staff in those stores took little interest in customers; they made it clear they were not so stupid as to work hard when they were compensated so poorly. But when Hong Kong businesspeople opened the Guangzhou Hotel—the first modern hotel in Guangdong—they knew it made good business sense to bring in sales managers and service personnel from Hong Kong to teach cleanliness, efficient organization, and responsiveness to customer desires. The hotel's restaurants immediately began to attract crowds of customers, and other restaurants began to compete by offering comparable services.