Deng Xiaoping and the Transformation of China (80 page)

Builders versus Balancers, 1978–1981

When Deng became preeminent leader in December 1978, Chen Yun, who had just rejoined the top leadership team, called attention to a potential crisis looming in the economy: visions of growth had gotten out of hand, the budget was out of balance, and commitments for purchasing technology from abroad had exceeded China's foreign currency reserves, which were needed to pay for them. Among the leaders trying to provide direction for the economy in this new uncharted era, there were countless opinions about how to proceed. But as officials at the top began aggregating the various views, the different views tended to coalesce around two opposite poles. One group centered around the builders, who eagerly sought to introduce new factories and infrastructure projects; the other group, led by Chen Yun, the balancers, cautiously tried to ensure that resources were available for all the national priorities.

Beginning in 1977, some of the leading builders began selecting foreign plants to import and arranging for their installation in China. As the economy began opening, these senior project managers sought proposals from Japan and from the West, drawing from China's experiences in the 1950s introducing new industrial plants and construction projects from the Soviet Union. The builders could see how Japan and the four little dragons (Hong Kong, Singapore, South Korea, and Taiwan), by constructing new facilities with Western technology, had achieved the most rapid growth rates in the world, and they were eager to do the same. After Gu Mu's trip to Europe in 1978, hopes for importing foreign plants soared. High-level officials, mostly in the industrial and transport ministries—with support from many local leaders who wanted to build in their localities—made wish lists of types of
industrial plants that they hoped to acquire for China over the next few years, then dispatched officials to Europe to select partners who could supply the technology and financing.

China's cautious balancers were concentrated in the Ministry of Finance, the State Economic Commission, the State Planning Commission, and the banks. Like their counterparts in other countries, officials who managed finance considered it their responsibility to balance the budget, ensure that enough foreign currency was available to repay foreign loans, and keep inflation under control. In drawing up China's economic plans, they strove to ensure that all the necessary materials, technologies, and personnel were available for production and construction in high-priority areas of the economy and that Chinese consumers would not face shortages.
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Deng Xiaoping, like Hua Guofeng, was at heart a builder who wanted to see rapid progress. He admired project managers who under adverse circumstances had been able to complete important projects that provided visible signs of progress. Deng, who had little patience with detailed calculations, considered the cautious balancers necessary, but annoying.

When Deng became China's preeminent leader, the most prominent project managers, called the “petroleum faction,” had been working together since the 1950s. From 1952 to 1966 Deng had worked closely with them, for he was then vice premier with responsibility for the development of energy resources and heavy industry. Yu Qiuli, the leader of the petroleum faction, had been glorified by Mao Zedong for leading the development of the Daqing oilfield but during the Cultural Revolution he was attacked as a member of the “Deng Xiaoping faction.”
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In 1975, when Deng was in charge of the government, Yu was made head of the State Planning Commission, much to the dismay of the balancers who were accustomed to having one of their own in that important position. After Mao's death, Yu Qiuli remained at his post and Hua Guofeng turned to him to lead the work of importing industrial plants (for more on Yu Qiuli, see Key People in the Deng Era, p. 741).

Yu Qiuli and the other project managers in China during the 1960s and 1970s encountered huge difficulties. Unlike their counterparts in the advanced economies, who could count on others to supply the necessary equipment and infrastructure, Chinese project managers had to deal with untrained workers, equipment shortages, a lack of spare parts, power outages, and delays in the arrival of needed supplies. Those managers who successfully completed projects combined dedication and perseverance with sheer ingenuity in coping with so many unexpected problems.

After Mao's death, as Hua began to promote economic development, the work of these project managers increased dramatically. Officials from the State Planning Commission, State Construction Commission, and other relevant ministries were overwhelmed as they rushed about trying to set priorities among the technologies to be imported, conduct negotiations with foreign companies, select the locations for the plants, calculate what material resources would be required, and arrange for transport and personnel. In addition, because many officials were just returning after years of absence during the Cultural Revolution, they were still entangled in political struggles with incompetent officials who had been promoted during their time away: the work that Deng began in 1975 of consolidating and selecting leadership teams was not yet complete. Ever since Mao's death, project managers under Yu Qiuli had had to scramble even to create wish lists of technologies to be imported; they certainly did not have enough time to undertake careful analysis of the steps needed to import the plants and get them running.

Less than eighteen months after Mao's death, Hua Guofeng, ignoring questions raised by cautious balancers, drew from the lists compiled by Yu Qiuli's project managers, and presented to the 5th National People's Congress (NPC) a list of some 120 mega-projects.
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The projects were expected to cost some US$12.4 billion, more than the value of all Chinese exports for the year. Hua announced that the plans called for economic growth of 10 percent or more each year.
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In February 1978, Hua announced that these plans were in accord with his ten-year vision, which was an outgrowth of the one that Deng had introduced in 1975.
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One special task that Hua Guofeng assigned to Yu Qiuli was to develop new oilfields to take advantage of the high price of crude oil following the oil shock of 1973. Hua expected to produce enough oil that foreign currency from petroleum exports would pay for all of the project imports. Unfortunately, despite high hopes and strenuous exploration efforts, no major new oil fields were discovered.

In the rush to select and import projects, the wish lists of ministry and local officials soon became the basis of contracts with foreign companies. Hua Guofeng's critics later accused him of launching a “Western-led Leap Forward” (
yang yuejin
) and of pressuring subordinates to come up with plans hastily so as to consolidate his power by showing that he had produced economic progress. His supporters countered that Hua had done his best to bring modern industry to China quickly, under difficult circumstances.

Deng fully supported Yu Qiuli and shared his enthusiasm for importing
foreign factories. In the mid-1978, the balancers, frustrated by their inability to slow down the rush to import modern projects, turned to Chen Yun for support, even though he was not then a member of the Politburo. Thus three weeks after the opening of the State Council Forum on Economic Principles, Chen Yun, who had not been invited to attend, wrote to Li Xiannian expressing his concern that some comrades were becoming overly enthusiastic about borrowing from abroad and importing plants—in his view, they had failed to first ensure that China could provide the necessary trained manpower, infrastructure, and ancillary industries to make the plans work. Chen suggested that the forum be extended in order to allow full discussion of different opinions, but the organizers chose not to do so. At the time, Chen Yun was the only high-level leader to question publicly the rosy estimates about the nation's future ability to pay for the proposed new projects.
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In December 1978, when senior party leaders turned to Deng to provide overall leadership, with special responsibility for foreign affairs and military issues, they turned to Chen Yun to lead the work on high-level personnel issues and economic policy. They believed that Chen Yun had consistently supplied the best economic advice and that in the new era he was the wisest person to guide the economy.

On December 10, 1978, during the meeting of the Northeast group at the Central Party Work Conference, Chen Yun voiced his concerns about the uncontrolled exuberance that had reached the highest level of party leaders. As if giving adult supervision to overly excited teenagers, Chen Yun laid out the problems in the ten-year economic vision. He spoke with authority, suggesting that he already knew he would be appointed to the Politburo. He said, “We should maintain steady progress and not get caught up in a headlong rush. . . . When materials are not available for a project, whether at the local or national level, it should not be launched.”
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Before the Third Plenum, Deng Xiaoping had been fully supportive of the project managers, but after December 1978, when Chen Yun warned about the lack of careful planning, Deng threw his weight behind Chen. On January 6, 1979, within two weeks after the Third Plenum, Deng called in the leading project managers with whom he had worked—Yu Qiuli, Kang Shi'en, and Gu Mu—and told them that Chen had presented “some very important opinions” and that they should lower some of the planning targets. They were to avoid large foreign trade debts and when making plans they were to first check to make sure that the necessary materials were available; they were to give priority to projects likely to provide quick returns on investments and
expand employment; and to avoid going into debt, they were to accumulate capital before undertaking projects.
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In short, Deng then completely supported Chen Yun's cautious balancing. (Chen later blamed Hua for problems resulting from his excessive haste in signing contracts to import projects. Deng was not required to engage in a self-criticism for his earlier support of Hua's ambitious plans; his earlier role in agreeing with Hua to push for faster growth was simply ignored.)

Why did Deng shift course from supporting the builders to backing the balancers, led by Chen Yun? Deng recognized the importance of putting the economy on a solid base for the new era, and the summary economic data assembled in December for the past year reflected serious problems. At the time, there was only US$4 billion in foreign currency reserves and most of the foreign currency income from exports was already committed, although contracts had been signed to purchase over US$7 billion of foreign equipment.
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Even though the imbalances would seem infinitesimal when contrasted with the foreign trade figures a decade later, they loomed large enough to worry cautious officials who were accustomed to smaller amounts and who were frightened by the leverage that such debt might give the capitalist countries. At the time, Deng was ready to unite with Chen Yun, who enjoyed great respect in the party, against Hua Guofeng. But there was another issue that influenced Deng's economic thinking at the time. He was planning to invade Vietnam a few weeks later, and that attack would be a further drain on the budget; it was prudent to cut back on commitments elsewhere.

By March 1979, Chen Yun had collected more data, done more analysis, and was ready to systematically present his proposals for cutting back on the contracts to import foreign plants and for lowering the economic targets for the next several years. Some of his proposals, and even the terminology, were remarkably similar to the retrenchment policies that he had introduced to recover from the Great Leap Forward. Rather than use the term “retrenchment,” the term he used earlier, which would have sounded very negative, Chen Yun used the term “readjustment” (
tiaozheng
). On March 14, 1979, as the attack on Vietnam was nearing completion and they could make some estimates of its costs, Chen Yun and Li Xiannian presented a formal document proposing a two-to three-year period of readjustment. They suggested that a new structure, the Finance and Economics Commission under the State Council, be established to oversee economic planning and finance. Chen Yun was to be named chairman, and Li Xiannian, who had been in charge of the
economy for the past several years, would become vice chairman, serving under his former mentor.

Chen Yun explained to his comrades that he was no longer as healthy as before and that he only had the energy to perform the most necessary tasks. He would provide overall guidance but he would rely on the people under him to do the detailed work that he had done in earlier decades. The person named secretary general of the Finance and Economics Commission, that is, the leader who would head its daily work, was the economic official whom Chen Yun most respected—Yao Yilin.

Chen Yun explained the need for the readjustment program at the Politburo meeting of March 21–23, 1979:

We have 900 million people, over 80 percent of whom are farmers. We are very poor. There are still people begging for food. We all want to modernize, but the question is what can we achieve? We need balanced development. In considering basic construction, we must first consider agriculture. We want to produce lots of steel, but we cannot possibly produce 60 million metric tons by 1985. We lack electricity, we lack transport facilities. Supplies of coal and oil are inadequate to meet needs. Some people make fun of cautious people, making it seem as if cautious people believe that the less steel we produce the better. Ridiculous. Yes, we should borrow funds and technology from abroad. But how much can we be sure that we can repay from our People's Bank? We need to ensure that we will be able to make the repayments. Officials have not done the calculations. Local industries are competing with our big national projects for materials. Five people want to eat when there is only food for three. We have made mistakes in our work; we still lack experience. I can only do my best.
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