Deng Xiaoping and the Transformation of China (58 page)

Inayama, Deng's primary business host in Japan, had begun selling steel to China in 1957, and by 1971 his company was playing a major role in modernizing China's Wuhan Steel plant, making it the most modern steel factory in China. Some of Inayama's employees were unhappy that he was transferring so much technology to an outdated Soviet-style steel plant instead of building a completely new facility. Inayama responded that he was pleased to modernize the plant: when his steel company, Yawata, had opened its first factory in Japan in 1901, the iron ore had come from Wuhan, so he was happy to return a favor to the Chinese city.
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This was not the first time that Inayama had been criticized by subordinates for his
gaman tetsugaku
(philosophy of endurance), for being too generous to other companies and other countries even at the expense of his own company's interests. He did not want his company to lose money, but he sought to benefit society. He believed that the transfer of steel technology would benefit South Korea and China, and that such gifts to other countries could be mutually beneficial if all shared in the prosperity. He was willing to risk what Japanese called the “boomerang effect,” the passing of technology to China only to find later that cheaper Chinese exports were entering Japan and destroying the domestic production base. He expressed confidence that the Chinese market was large enough to absorb the Chinese-produced steel. In the hovercraft ride to Kimitsu, Inayama and Deng chatted about being born in the same year. When Inayama asked Deng how he stayed so healthy, Deng replied, “By just being a simple soldier”
(qiuba).
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Inayama later commented that Deng appreciated those Japanese who wanted to help China.

Deng expected that his trip would advance the plan to build a large, totally modern steel plant on the China coast, a project that Inayama had discussed with Vice Premier Li Xiannian the previous year. At Kimitsu, then the world's most advanced steel plant, Deng saw a new continuous-casting production line and computer-controlled technology that would become the model for China's first modern steel plant at Baoshan, just north of Shanghai. Deng
said that to make Baoshan work, the Chinese needed Japanese aid to learn management skills. He added only half-jokingly, “If the student doesn't do well, that means the teacher hasn't taught him well.”
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After visiting Japan, the term “management” took on deeper meaning for Deng, and he began to use it more often. He tried to explain to his countrymen, who believed what they had been taught under Mao about Western exploitation of workers, that the reality was really quite different: Japanese workers owned their own homes, their own cars, and electronic equipment that was unavailable in China. During his visit, Deng not only saw things that previously he had only read about; he wanted to study how Japanese organized workers to maximize their dedication and efficiency, which he summed up as “management.” From his trip he concluded, “We must firmly grasp management. Just making things isn't enough. We need to raise the quality.”
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A century earlier, Chinese patriots had insisted on retaining the “Chinese spirit” while adopting Western technology. By using the neutral term “management” to refer to studying Western ways, and by keeping his unwavering commitment to socialism and the Communist Party, Deng allowed the introduction of far more than technology while reducing the resistance of Chinese conservatives. Indeed, Deng argued that socialism could also use modern management, and the Communist Party could champion it.

Japanese media reports of Deng's visit raved about the success of the trip and about the strengthening of relations between China and Japan. The reporting in China was more official in tone and more subdued, but the essence of the message was the same. In China, films and photographs of Deng's trip allowed the Chinese public to see what modern factories were like and to gauge for themselves just how far behind China was and how much work was still needed to catch up to world levels.

The Fruits of the Japan Trip

Before the end of his trip, arrangements had been made for a delegation of leading economic officials from Beijing, Tianjin, and Shanghai to follow up with a more detailed study tour of Japan. Deng Liqun served as adviser to the delegation and Yuan Baohua, deputy head of China's State Economic Planning Commission, as head. The group arrived in Japan a few days after Deng's departure and remained for a month. After the visit, the delegation produced a remarkably upbeat report that outlined how China could learn about economic management from Japan.

Mindful of its audience of Communist Party leaders steeped in their Marxist perspective, the delegation's report explained that Japan had made important adaptations to the early capitalism described by Marx. Japanese management had cleverly learned how to earn profits by providing incentives for workers, who worked harder because they were better treated than the exploited workers Marx had observed. After the group returned to China, Deng Liqun took the lead in organizing new associations, including a Quality Control Association and an Enterprise Management Association, modeled on the associations that the delegation had observed in Japan. Drawing on what they had learned, training programs for high-level economic officials in each province were established to master some of the Japanese practices—for instance, how to adjust prices to reflect production costs, how to set production targets not by arbitrary mandatory planning but by adapting to market demand, how to manage quality control not by inspection but through care in the original production, and how to use indicators to evaluate the success of a manufacturing operation.
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Chinese factories posted banners stressing the importance of studying Japanese management systems and establishing training programs.

Deng also initiated cultural exchanges that brought Japanese culture—movies, stories, novels, and art—to China. Japanese movies, for example, proved popular with Chinese audiences and helped increase Chinese understanding of the Japanese as a people. Deng understood that this sort of appreciation would provide a solid base for expanding economic and political relations between the two countries. Under Deng's leadership, Chinese attitudes toward Japanese showed a striking improvement.

Deng thus made enormous progress in laying a foundation for sound Sino-Japanese working relationships. After his trip, business relations were hampered for three years by China's retrenchment policies, which limited foreign investment. But during most of the Deng era Japan and China continued, despite some ups and downs, to enjoy good relations.

In fact, by December 1980, Sino-Japanese relations had already improved sufficiently to convene the first joint cabinet-level discussions between the two countries.
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In addition, in that same month, Huang Hua signed an agreement with Foreign Minister Ito Masayoshi for a long-term loan from the Japanese Overseas Economic Cooperation Fund (OECF) on favorable terms. From 1979 to 2007 the OECF granted more funds to China than to any other country, a total of 2.54 trillion yen (based on the 2007 exchange rate, this amounted to roughly US$25 billion).
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Japanese industrial firms
set up factories throughout China, and Japan's External Trade Organization (JETRO) opened an office in Shanghai, using its broad network of contacts with Japanese firms to find companies willing to respond to Chinese requests for training programs in various sectors. During Deng's years at the helm, no country played a greater role in assisting China build its industry and infrastructure than Japan.

On the afternoon of August 22, 1977, just three days after Deng officially returned to work as a member of the Politburo Standing Committee, he met Secretary of State Cyrus Vance. Deng wanted to accomplish some things in his few years in office, and the timing of this meeting reflected the high priority he gave to normalizing relations with the United States. Hua Guofeng, China's chairman and premier, met Vance the day after Deng did, but American officials understood that the key visit was with Deng.

Ever since Nixon's visit in 1972, China had expected that normalization would follow quickly. Somehow, American politics had always interfered, and China already had been waiting impatiently for five years. Deng in particular, who was just back from eighteen months of forced retirement, was ready to move toward normalization and he had reason to hope that the Vance visit would pave the way. The Watergate episode had passed, and in February 1977 President Jimmy Carter invited Huang Zhen, head of the Chinese Liaison Office in Washington, to meet with him. He told Huang, “I hope we can see a strong movement toward normalization,” and he offered to host Huang at a concert or a play.
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In addition, just before Deng met Vance, Leonard Woodcock had arrived in Beijing to head the U.S. Liaison Office, with the understanding from President Carter himself that he would be negotiating a normalization of relations between the two countries.

Earlier, when Zhou Enlai and Mao had met with Kissinger and Nixon to improve U.S.-China relations, both sides were driven by the Soviet threat. When Deng met Vance in 1977, he too was driven by the Soviet threat. But in 1977 Deng was also beginning to consider what was needed for China to
modernize. He knew that Japan, South Korea, and Taiwan had relied heavily on U.S. science, technology, and education to achieve modernization. He had found that many of the patents for goods produced in Europe were held by U.S. individuals and companies, so that even technological help from Europe would require cooperation with the United States. Normalization of Sino-American relations was thus an important first step in building a relationship with the United States that would enable China to modernize.

To achieve his goal of normalizing relations with the United States, Deng was prepared to be flexible on many issues. On one issue, however—Taiwan—Deng, like Mao and Zhou, had an unshakable “principle.” He would refuse to normalize relations with the United States unless the United States broke diplomatic relations with Taiwan, ended the U.S.-Taiwan Mutual Defense Treaty, and withdrew all its military forces from Taiwan. Deng expected that with the end of the Mutual Defense Treaty, Taiwan would see few options and would accept reunification; not only Deng but also many American officials expected this would happen within several years.

Cyrus Vance's “Step Backward,” August 1977

Deng held high expectations for the visit of Secretary Vance, but U.S. politics again interfered. Carter had told Vance to lay the basis for an agreement with Beijing on normalization, but when Vance met President Jimmy Carter on the eve of his departure for Beijing, Carter expressed his concern about the Congressional support that was needed to pass the Panama Canal treaties (to end U.S. control over the Canal Zone). If the controversial matter of recognition of China were raised at the same time as the Panama issue was being resolved, the powerful Taiwan lobby would stir up enough opposition in Congress to derail support for the Panama Canal treaties. Carter thus believed that it was necessary to postpone the question of normalization with China until the Panama Canal treaties were concluded. Once the issue with Panama had been settled, Congressional support would be sufficient to normalize relations with China.

Vance personally believed at the time that achieving détente with the Soviet Union through the Strategic Arms Limitation Treaty (SALT) talks, a project that absorbed much of his working time, was a more urgent priority than normalizing relations with China. If the United States began the normalization process before the SALT talks were completed, it might upset the Soviet Union and, in Vance's view, potentially derail the SALT negotiations.
Moreover, since Carter was in no hurry to move ahead, Vance felt it would be worth trying to negotiate with China for a stronger governmental presence in Taiwan than the Japanese had been able to obtain when they had normalized relations with China.

Even before Vance arrived in Beijing, the Chinese began to get an inkling of the stance that Vance might take. In keeping with usual Chinese practice, Foreign Minister Huang Hua first met with Vance, then passed on Vance's concerns to Deng, who then could prepare to discuss the key issues. In his presentation to Foreign Minister Huang Hua on August 21, Vance explained that the United States hoped to move toward normalization, but it wanted to retain some government personnel on Taiwan. He also explained that the United States was interested in a peaceful settlement of the Taiwan issue.

Vance expected the Chinese to be disappointed, but he did not anticipate how upset they would be. On the following morning when Vance met Huang Hua for a second session, Huang Hua exploded with a lengthy diatribe attacking Vance's proposal that the United States would keep some official representation on Taiwan. Huang Hua went so far as to speak of “liberating Taiwan,” implying that mainland Chinese forces were ready to attack if necessary.
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That same afternoon, when Deng met with Vance, Deng began by jokingly reminding Vance that the last time they had met was in 1975, just before he, Deng, was dismissed from all his positions for the third time. He added: “I am internationally a well-known man. It is not because I have any capability. . . . It is because I have been three times up and three times down.”
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Vance later acknowledged that during the meeting Deng had been the “embodiment of Chinese courtesy,” but he was tough in criticizing the U.S. stance on Taiwan.