Deng Xiaoping and the Transformation of China (42 page)

From April to May 1978, officials from the State Planning Commission and the Ministry of Foreign Trade visited Hong Kong to evaluate its potential for assisting Chinese developments in finance, industry, and management. The officials explored the possibility of setting up in Bao'an county, Guangdong province, across the border from Hong Kong, an export processing zone—a place where materials could be brought from abroad to be manufactured by Chinese laborers and then exported without any tariffs or other restrictions. Within a few months, the State Council formally approved the establishment of such an area, which later would become the Shenzhen Special Economic Zone (SEZ). At the time, Guangdong was suffering from a real security problem: tens of thousands of young people each year were escaping to Hong Kong. When told of the problem during a visit to Guangdong in 1977, Deng explained that the solution lay not in tightening border security with more fencing and more border patrols but in improving the economy of Guangdong so young people would not feel that they had to flee to Hong Kong to find jobs.

After the State Planning Commission delegation returned from its visit to Hong Kong, Beijing formed a Hong Kong and Macao Affairs Office under the State Council, and in December 1978, Li Qiang, vice minister of foreign trade, stopped in Hong Kong to strengthen relations between Beijing and the Hong Kong colonial government. While there, Li urged Governor Murray MacLehose to take measures so that Hong Kong could play a major role in the modernization of China; he also invited the governor to visit Beijing.
Before the State Council visit to Hong Kong, contacts between Hong Kong and the mainland were highly restricted. The visit paved the way for Hong Kong to become a major conduit to China for capital and knowledge about global economic developments.

Chinese leaders were interested in Japan not simply because it was a source for modern industrial technology, but also because it offered successful strategies for managing the overall modernization process. A delegation headed by Lin Hujia, deputy head of the Shanghai Revolutionary Committee (in effect the vice mayor of Shanghai), visited Japan from March 28 to April 22, 1978. The group included representatives from the State Planning Commission, the Ministry of Commerce, the Ministry of Foreign Trade, and the Bank of China. Japan was of special interest because it had dealt successfully with problems similar to those that China was then facing. At the end of World War II, the Japanese economy had fallen into a disastrous state. Under strong central government leadership after the war, however, the Japanese economy had progressed rapidly and caught up with the West. On the way, Japan had also moved from a wartime system with tight economic control, centralized economic planning, rationing, and price controls to a much freer, more dynamic civilian economy in which consumer industries were major drivers of industrial growth.

Upon its return to China, the Lin Hujia delegation reported to the Politburo on Japanese economic progress since World War II: the Japanese had boldly introduced foreign technologies, made use of foreign capital, and vigorously developed education and scientific research. The Lin Hujia mission reported that the Japanese government and business community were prepared to provide aid and technology for Chinese development. Among other projects, the delegation recommended to the Politburo that a ten-million-ton steel plant be built. Although a later deterioration in Sino-Japanese relations led the Chinese government to play down Japan's role in China's resurgence, this delegation, as well as the Deng visit to Japan the following October, helped facilitate substantial Japanese contributions of capital, technology, and industrial management.

Of all the study tours in 1978, the one that had by far the greatest impact on Chinese development was the study tour led by Gu Mu to Western Europe from May 2 to June 6. It ranks with the November 1978 Central Party Work Conference and the December 1978 Third Plenum as one of the three major turning points in China's reform and opening.

Gu Mu's Trip and the Modernization Forum, May–September 1978

Gu Mu, second only to Li Xiannian and Yu Qiuli in leading the economy, led a high-level delegation to Western Europe—France, Switzerland, Germany, Denmark, and Belgium—from May 2 to June 6, 1978. Although the group was briefed before the trip, the members had very little background knowledge of the West. What these highly respected officials saw and learned in Europe, and how they articulated the new possibilities for China at the state forum that followed the visit, made their observations extraordinarily influential. Unlike Deng's five-day trip to France in 1975, which had focused on foreign relations and had included only brief visits to enterprises, the five-week Gu Mu tour, which consisted of a team of officials with a broad base of expertise, delved deeply into possible technologies and ideas that China might make use of. Gu Mu recalled that on the eve of the trip, when Deng met with him to give his instructions, he said, “Have broad contacts, make detailed investigations, and carry on deep research into the issues. . . . Look at how they manage their economic activities. We ought to study the successful experiences of capitalist countries and bring them back to China.”
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The twenty members of Gu Mu's delegation had been appointed by Hua Guofeng.
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No fewer than six of those traveling were of ministerial rank, including the vice ministers of agriculture and water power and the director of the State Planning Commission of Guangdong. They had been selected, as the members of the Iwakura Mission had been, because they were expected upon their return to lead various sectors of the economy.
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Vice Premier Gu Mu, an experienced and widely respected economic bureaucrat, had been a top leader in economic circles since coming from Shanghai to Beijing in 1954 as deputy head of the State Construction Commission. During the Cultural Revolution, he had risen to become second only to Li Xiannian in leading the economic work in the
yewuzu
to provide overall economic direction. He had worked not only on economic planning, but also on science and technology. Though Deng initially had some doubts about Gu Mu because he had become more important during the Cultural Revolution, as Deng observed that Gu Mu was an effective pragmatic official who supported modernization, these doubts were quickly cast aside. Gu Mu managed to maintain good relations both with senior officials who returned and with those who had risen during the Cultural Revolution. In fact, Gu Mu was sufficiently respected that following the European study tour he was given the
leading role in guiding the development of foreign trade and in developing the SEZs.

When the Gu Mu study mission set out, it was not yet clear when relations with the United States would be normalized. But China had already normalized relations with all five European countries that the group visited, and the heads of state of all those countries had sent high-level delegations to China in the 1970s. As China's first state-level delegation to most of these Western European nations, Gu Mu's group was received at the highest levels. Except for the Belgian ambassador in Beijing who was ill, all the other ambassadors in Beijing flew home to accompany the delegation as it toured their respective countries.
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Given that China was just beginning to emerge from a Cold War mindset, the members of the Gu Mu delegation had been prepared to be treated as enemies. Despite the informative briefings to prepare them for the trip, the friendliness and openness of their hosts took them by surprise. At that time most Chinese factories and many other facilities were clothed in secrecy, and were not even open to ordinary Chinese, so the Chinese were shocked at the willingness of the Europeans to open for inspection factories, offices, shops, and virtually any other facility they asked to see.
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The group visited fifteen cities in five countries. They observed ports and rode on ships and trains as well as in automobiles. They visited electric power plants, farms, factories, markets, research institutes, and living areas. The group divided into subgroups for some visits, in total touring over eighty different locations.
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They were briefed as they traveled and collected materials from places they visited.
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Because they were focused on economic issues, they met mostly economic specialists, but they also met diplomats, politicians, and military officials. They viewed factories making silicon chips, optical equipment, and chemicals. They had little time for sightseeing but they did visit Karl Marx's birthplace in Trier, paying homage to their Communist origins while observing Germany's success with capitalism.
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They were impressed with the levels of mechanization and automation and with the overall productivity of the workers. They were stunned by the use of computers at a Swiss power plant and at the Charles de Gaulle Airport, where takeoffs and landings were guided electronically. For the first time, at the Port of Bremen, the Chinese representatives saw modern containers lifted onto ships. Agricultural productivity was higher than they had ever imagined. They concluded, as Deng had several years earlier, that China needed to concentrate on learning about science and technology.
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The members of the group had expected to see evidence of exploitation of laborers, so they were stunned by the high standard of living of ordinary workers. Wang Quanguo, head of the State Planning Commission of Guangdong province, summarized their impressions as follows: “In a little over one month of inspection, our eyes were opened. . . . Everything we saw and heard startled every one of us. We were enormously stimulated. . . . We thought capitalist countries were backward and decadent. When we left our country and took a look, we realized things were completely different.”
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Delegation members were also taken aback by the willingness of Europeans to lend them money and to offer them modern technology. At one banquet alone, a group of Europeans announced they were prepared to lend as much as US$20 billion.
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The group was surprised as well by how the European countries gave local governments the freedom to handle their own finances, to collect their own taxes, and to make decisions about their own affairs. The group returned from abroad believing that Chinese finance was far too centralized, with not enough leeway given to more locally based party leaders.
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Upon their return to China, the Gu Mu delegation was scheduled to report immediately about the trip to a meeting of the Politburo, chaired by Hua Guofeng, that began at 3 p.m. Politburo members were so excited that that they decided to continue the discussions over dinner and did not conclude the meeting until 11 p.m.
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Those who heard the Gu Mu reports were surprised to learn how enormous the gap was between China and the outside world. Some Chinese leaders suspected reports about the West, but they knew and respected the members of the Gu Mu delegation, whose credibility was unquestioned. After all the years of fearing the West, they were even more surprised that Europeans were such warm and gracious hosts and were so open and willing to extend loans and technology. Knowing his colleagues' suspicions of capitalists, Gu Mu explained that the Europeans were eager to invest because their factories were operating below capacity and they hoped to sell China their goods and technologies. Gu Mu suggested a number of possible ways that foreigners could assist China in improving production—compensation trade, joint production, and foreign investment—and suggested that China should carefully examine all these possibilities. Lest there be any doubt that Gu Mu might have been exaggerating his accounts, the top officials most familiar with foreign developments—Marshal Ye, Nie Rongzhen, and Li Xiannian—all praised Gu Mu for his objectivity and for the clarity of his presentation. Very impressed, the Politburo members agreed that China should move immediately to take advantage of these opportunities.
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For if other countries can import capital and materials and carry on the processing of goods for export, “Why can't we?”
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Over the next few weeks the delegation organized their materials which they presented as an official written report to the Politburo on June 30. Deng Xiaoping, who chose not to spend his time attending Politburo meetings that he had trouble hearing, met with Gu Mu individually. When they met, Deng said that China should move as quickly as possible to follow all of Gu Mu's suggestions, including borrowing money from abroad.
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To begin with, Chinese leaders decided to concentrate on textiles; cloth was in such short supply in China that all clothing purchases then required the use of ration coupons. Increasing the supply of cloth would quickly demonstrate to the public the value of opening to the outside and would gain support for further reform and opening. Moreover, because there were grain shortages, it would not be easy to expand rapidly the cotton crop to increase the supply of cloth. Instead, then, Gu Mu advocated quickly introducing factories that would produce synthetic fibers as needed and, like in Japan, Taiwan, South Korea, and Hong Kong, allow textile and apparel industries to drive the takeoff of light industry in China.
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China's new willingness to work with capitalist countries as a result of the Gu Mu trip required not only rethinking specific industrial plans, but also revising government rules and bureaucratic procedures to allow foreign firms to operate in China. Suspicions that Western capitalists would take advantage of China's ignorance of international practices did not disappear, but Chinese officials still pushed ahead. They considered new questions touching on all aspects of the economy: Which firms in China would be allowed to work with foreigners? How could they best guard against foreigners taking advantage of them? How would foreign trade be integrated with the Chinese planning system? How should they decide which localities and which sectors should receive the incoming loans and technology?