China Boom CMS

<p>In the 1980s we talked about reform a lot, but the only reform we did was rural reform. So, China changed only in the 1990s; the toughest reforms were accomplished in 1990s, and SOE reform was one of them. We always say SOE reform or <i>gaizhi</i>, meaning restructuring, but that&rsquo;s only a euphemism for privatization. It's actually privatization. Between 1995 and 2005, we privatized 90% of SOEs, so now if you go to China, of course, you still see those huge SOEs, but you don&rsquo;t see a lot of small and medium sized SOEs. Most of them have been privatized. So, because of privatization, China changed a lot. I don&rsquo;t think you can still call China a traditional socialist country based on public ownership. The private economy contributes at least two-thirds to China&rsquo;s GDP, and in industry, the contribution of private firms is even higher. People put it at around 80%. So at least China becomes kind of a mixed economy, it&rsquo;s not a pure socialist economy anymore. SOE reform has to be done, I think that&rsquo;s a courageous move, and it was a right move.</p>

<p>China was very lucky. And for me, there are two extraordinary figures. One was Deng Xiaoping, but the other was Zhu Rongji, who took China into the modern world in a way unthinkable ten years before he did it. Who had the sheer fortitude, the guts to press forward, to persuade within his own government, of that vision. It is that vision, unalloyed. Zhu Rongji did not have a vision as a political matter, he had a vision in a very different way, as a non-ideological, ultimately rational way. It is that kind of unalloyed vision, not politically directed, but directed in a manner best suited to the economic growth of the country, to the proper deployment of the nation&rsquo;s resources, to the proper reform of entities that need to be reformed, to the use of wealth in a way to achieve initially rapid growth with job creation, and then spreading that growth in the country as best as possible. These things, in sort of hyper-form are still yet to come into being.</p>

<p>The last big leap which China had to make which was the privatization of urban property. And resulting from that was was everything we see today now in urban China: the boom and the intellectual boom that is going on with it, the social change and upheaval that is going on with it, a huge change in the mental attitudes of urban residents, a huge change in the balance of power between urban citizen s and the people ruling them. To the extent now that we have a China that has an enormous diversity of ideas, raging debates, as well as a vibrant economy, pretty well a capitalist one. There is one final step that has yet to be taken, and I think they are edging towards that &ndash; the privatization of rural land. The story is not yet over and there are ideological barriers to taking that final step, but I think the crucial one was taken in the late 1990s and we are now sort of moving into the end game of this.</p>

<p>I, personally, was born in Shanghai. I think that the biggest change that was brought to me by that era was when I entered university. I started my studies at Fudan University in 1988. In 1989, because of the June 4th incident, even though we were only first-year students, the incident made us think a lot. The whole atmosphere of Fudan university was changed. In the past, we were probably more concerned with philosophy, or topics regarding how to change society but, after the June 4th incident, the university became a place where people would want to dance and party. Perhaps everyone thought that there was not much meaning in discussing these topics. So, everyone focused more on how to find a better job, how to improve our materialistic life. So, when I graduated in 1992, the whole of China also changed the way it assigned graduates to jobs. We were no longer assigned by the government, we had to find our own jobs. Well, at that time, my job search was directed towards foreign companies -- joint venture enterprises -- because, at that time, comparatively speaking, the pay of joint venture enterprises was the highest. Another reason is because it didn't require backdoor influence or connections. You just needed to take an exam, interview, and if they liked you and you had the ability, then you could get the job. Because my parents were only common workers, I could only rely on my own grades to get into university. So, when I saw my classmates using backdoor influence and doing a lot of things in order to get jobs in state-run work units which, at that time, they were very attractive, I thought that my parents couldn't do this for me and I didn't like it either. So, I decided to go for joint venture enterprises. I remember my first job should have been DHL. And a lot of my friends above me actually went to The Portman, a five-star hotel where they worked as bellboys, or housekeepers. But, they thought the pay was high, there was a lot of freedom, and they thought that in the future if they wanted to go to America and other countries to study, this would give them a very good foundation. At that time, I also thought this way. But, during graduation, I suddenly changed my mind and gave up the job at DHL and went to Shenzhen. At that time, Shenzhen had just opened up. For us, Shenzhen is a special zone, a mysterious place. So, I decided after graduation to go to Shenzhen and find a job. Maybe also because my family is a little different from other people's, I have relatives in Shenzhen who established a company, because at that time, there was encouragement for individuals to open up businesses, so you can say that they were the first wave. So, I went with them to Shenzhen to see how we can do business. I think that during that year, you could see how the market and economic reforms brought a lot of change to peoples' lives. At that time, I saw a lot of people who suddenly got rich, but after a year, disappeared, or became very poor, or went to prison. Right now, thinking back, of the many rich people I knew ten years ago, around 90% of them are in prison or have lost their money. It was a very big change. Because at that time, right at the beginning of the Reform and Opening, rich people weren't those who were well-educated, university-educated or part of the elite. At that time, in 1992, if you had money, you were part of the lower social classes who were willling to try new methods. They will create wealth. However, these people will not accumulate wealth, so after a few years, a lot of them disappeared. So I think that this is one of the very meaningful experiences I had in Shenzhen. Well, I stayed in Shenzhen for a half a year, but I guess, for a university graduate like me, doing business is not very appropriate, so, in the end, I took a job at a joint venture, Pricewaterhouse where I began to work as an auditor. One of the good things about being an auditor is that during those two to three years, you get to see a lot of joint ventures. At that time joint venture was a very fashionable saying. Apparently state-owned enterprises were all searching for foreign partners to try to get preferential tax treatment, policy preferences, including entering the market. However, at that time, if you looked at these accounting firms, there were the &quot;Big Six&quot;. When they were competing for businesses in China, there was a distinct &quot;Chinese characteristic&quot;. Because, at that time, if you wanted to get a deal, you needed to know people, you needed to find connections, you needed to find partners. If they had connections with leaders, then they could get more deals. At the time I was at PW, I always heard that our PW partners compare with AA, Arthur Andersen, partners because they got more deals than us -- they no longer exist. This is probably because they had a partner who knew someone high up in the government, so every time a SOE (state-owned enterprise) had an IPO or there was a merger, they got more deals than anyone else. At that time, I saw these foreign enterprises begin this profession so, now, when I look back to see why so many foreign enterprises are being sued for bribery or business, I feel that this is not at all surprising. Because, from the beginning of the Reform and Opening period, when foreign enterprises came to China to do these things, they had to follow these regulations. The situation has not changed a lot in these years.</p>

<p>In 1992, when Deng Xiaoping spoke in Shenzhen. Move fast, develop the nation, and I was in the university that day. I was teaching at the university, because I promised my school president that I would stay there and teach for five years. A lot of people just changed jobs immediately when they signed on for the job, but I was assigned to teach at the university, and I promised my president, five years, I'm not going to change my job. In 1992, I was just in the third year. I was like, &quot;Oh my god, if I did not promise, I would probably get another job.&quot; My pay at that time was 10 dollars a month, but people offered me 120 dollars a month. And I said, &quot;No, a promise is a promise.&quot; But that was the period when I said, &quot;When I finish my five year promise, I'm going to do some real business.&quot; So, the change, to me, is that people do not feel ashamed to be business people. People think doing business is good. And people think, you can be rich, you can help other people be rich. At the beginning of my business career, I just wanted to change myself. I think everything I told my students, on the face, I learned from books. And I want to be a business person for ten years and go back to teach, share the real experience with young people. That was my thinking.</p>

<p>The significance of 1989 is that economic development's moral barrier disappeared. There are two major benefits. On the one hand, you don't have to think about socialist ideology any more. When you look at the reform in 80s, there was a lot of struggle but, during the 90s, it was very smooth, a lot of things were done. So, there was no frame of ideology. On the other hand, the dark side, we no longer needed to worry about justice. You could do very dirty things. Such as <em>xiagang</em>, (lay-offs), you could break all of your contracts, your promises. You could do whatever you wanted. So, each coin has two sides. On the one side, it accelerated the absorption of all sorts of resources by interest groups which already possessed major social resources and these resources were turned into money. On the other hand, it destroyed the development of social justice that very well could have existed. This is an economic development without social moral or moral barriers. On the positive side, it's like a speeding car on the highway, the car has reached its highest speed. On the negative side, you don't know when it will suddenly halt.</p>

<p>You look at Deng Xiaoping opening up China, you probably look from '78 to like 1989 and Tiananmen. That was really an experimental period where people were first able to unleash their capitalist instincts, but then they had to hide them. You couldn&rsquo;t really do private companies, you had to call them village enterprises. So an entrepreneur would work with his village chief and register it as a village enterprise, but it was really that person doing it. But you had to be under some kind of a state cloak. In those days, corruption was rampant, but it was only high-level corruption. It was the people who were really connected who were getting in the middle of deals that were state deals. You know, equipment procurement, land, and so there was an elite group of people making a lot of money and that&rsquo;s one of the things that led to Tiananmen. That and inflation and just, also, political instability within the Party where there were divisions in the Party. After Tiananmen, this may sound kind of crass, but corruption became more democratic. Really, in a system like this, we can condemn corruption, but if you look at America&rsquo;s history, in our robber baron era, it was our Congress, our courts, and our entrepreneurs were corrupt as hell. And China&rsquo;s been going through that same period but, what happened after Tiananmen is, everybody got a chance on getting in on the game, and playing the difference between the state system and the private system. And, also, it became a land of opportunity, everybody had an opportunity and you could actually act like what you were. I was in Wenzhou, when Deng made his trip, his <i>Nanxun</i> [Southern Tour], in late '91, early '92, I guess, and I was meeting with this guy in this private finance company. And as I was sitting with him, the word of Deng&rsquo;s <i>Nanxun</i> came out, and that, remember Deng went down south, and the papers in Beijing did not cover it. And so he went to Shenzhen and talked, and the Hong Kong papers covered it, and then the Shenzhen papers covered it, and then it got back to Beijing, because the conservatives he put in charge after Tiananmen were even acing him out. So, he had to go offshore to knock them down and then it was like, basically, be Chinese again, be natural. So when this guy heard about it, he goes, &quot;Oh, now I can do my bank.&quot; And he pulled out of his drawer blueprints, and that was going on all over China, because in the 80s, people were ready to roar ahead, but then they got stopped by Tiananmen, they had to keep their heads down. So, that&rsquo;s why, in the early 90s, things just went so fast.</p>

<p>If it was a democratic or semi-democratic regime that was committed to Reform and Opening, there could still be economic development. Because one of the important conditions for economic development is not the stability of authoritarianism or totalitarianism but, rather, the country's ability to provide people with a long-term expectation for society. Then, people are willing to bind their property, wisdom, time, and energy to the nation. There might be a lot of instability or political change in the near term but, in the long run, they still believe China will move forward. So, they want to invest. It's like when you invest in options. If I already know what the price of a stock will be next year, no matter what fluctuation there may be in the meantime, I will definitely invest in it. The most important thing is not that the price is always rising during this time, but the belief that, in one year, the price will reach a certain level. During this period, the price can even drop below the current price, I don't care. The belief that the future price will be higher is the most important thing. Deng used his grand vision to give expectations to the social elites of that time. The success of those elites has given their children expectations. The open market, joining the WTO, globalization have given hope to the generation born after 1990. The hope is handed over generation by generation. But there is an unshakeable belief, no matter what kind of political instability occurs, that, in the future, China will maintain a relatively open attitude and will be tied to the whole world.</p>