China Boom CMS

<p>So, the economic component was also there in terms of the need for growth, but I would say corruption and the need for greater political reform plus inflation, which was also a factor, which was economic, of course, and, to a certain degree for the students, academic conditions, both physical and in terms of freedom, so there was a variety of causes. So, it helped to produce Tiananmen Square and I think you are right to point to that as another turning point of reform. Deng had already begun to make reforms domestically in terms of opening to the outside world, including the United States, but I think the Chinese leaders were very scared of their hold on power after Tiananmen and they recognized an increased sense of urgency to step up economic performance to keep people relatively happy, counting on men or women living by rice alone and not yearning for political freedoms as well. So, I do think, as a result of the threat of Tiananmen plus the experience of the USSR, they followed closely Gorbachev&rsquo;s experience, thought he had made a mistake going for political reform before performing well economically, they were determined to get the economic situation squared away and not have too much political reform because they saw that Gorbachev, in reform, had lost not only communist control, but a whole Soviet empire. So they drew those conclusions from the Soviet experience, plus the close call in Tiananmen to decide that they would do everything they could to raise the standard of living of the Chinese people and hoped that that would lead to political stability and to go slow on political reform.</p>

<p>I think that 5 year period from 1989 to 1994 in China was absolutely critical. In the late 80s, you had this Hundred Flowers Bloom. You had a lot of people screaming for democracy. Obviously, in the Tiananmen Square crackdown, what led to that was this craving for democracy. They didn't know what it was at the time, and I remember interviewing kids and they were saying, &quot;We don't know what democracy is but we know we need more of it.&quot; That was the approach at that time. The crackdown happened, a lot of terrible things happened, people, students, were killed in Tiananmen Square. The economy ground to a halt. It had been growing 9, 10% every year and it ground to 4%, which is really pretty bad in China. The question was: How long would that last? So, we knew that the government had very strong levers with which to manipulate the economy. But, you know something, that next year the ice began to fall. And the critical thing in 1990 and 1991, '92 was figuring out: When was it going to resurge? And we got the inkling of it. People thought the political atmosphere was going to kill the economy, was just going to choke it. But, we, actually, really were convinced that, no, once you have put in China the taste of growth, once that the ordinary Chinese had the taste of what it is to acquire things, there was going to be no stopping it. So, the question was finding out when was that resurgence. I remember taking a tour through the south of China because that was always the forefront of the economy so, if they were actually beginning to recover, you thought the rest of China would follow. And I was visiting a factory that made bathroom equipment, bathtubs, toilets, everything. It was an American company. I was walking through this their display room, they have this huge jacuzzi, huge! And I said, &quot;In China, what is this doing here in the show room?&quot; And I asked the manager, &quot;So, do you really sell these?&quot; And he pulled me aside and quietly said, &quot;Yeah, we just sold two of them.&quot; And I said, &quot;How much are they?&quot; And it was some astronomical sum, like the equivalent of 50 thousand dollars. In China back then, no one had that money. And I said, &quot;Please, tell me who was it?&quot; He said, &quot;No, I can't tell you that.&quot; And I said, &quot;Please, tell me who it was.&quot; And I coaxed it out of him and, sure enough, it was the President of China, Jiang Zemin, who had bought a jacuzzi. I knew then and there that things were not actually going to fall. And I was right. That was the beginning. China started to recover, and since then it has been almost unstoppable. Yeah, there are fits and starts, but there is an enormous engine going there that will be hard to stop.</p>

<p>Looking around us in urban China at that time, it was still, very much, the same sort of picture you would have seen several years earlier. And officials in 1986 were, by and large, still locked in that ideological mindset of many years earlier. Their attitudes towards the foreign media were still certainly of that mold. And it was then not at all clear that the kind of economic changes that had occurred in the countryside would indeed take off in the cities. Everyone was still working in state-owned enterprises, people had no choice over their careers, they had no property, they lived in state assigned housing. Yes, the political rhetoric had shifted towards urban economic reform, but huge debates were raging in China, at the time, over whether or not they should be applied, how they should be applied and indeed what the outcome of such reform would be if it was carried out to the fullest extent. And whether there was a risk that urban reform would lead to utter chaos and the end of the Communist Party. From top to bottom in the system at the time, there was huge doubt about where to go and what to do. But, it was only one section of the Communist party, and that Maoist part that didn&rsquo;t understand economics, that was deeply fearful of capitalism and felt that the party itself would be destroyed, remained very influential through the 1980s and into the early 1990s. So, it was a long process of disentanglement from the Maoist era. I think the truly revolutionary change, we didn&rsquo;t begin to see until 1992.</p>

<p>So, what really happened in 1984 and '85 was not so much that reform started in the urban areas as that a new wave of urban reform started that certainly drew some very important elements from rural reform, but also reflected several years of frustrating experience and reformulating and trying to figure out an approach that would work in the Chinese circumstance. Now, clearly, the key leader in this was Zhao Ziyang. Zhao Ziyang had taken direct authority over economic policy in 1980, whereas the elders had been in charge of economic policy before that time, Chen Yun and Li Xiannian. So, Zhao Ziyang had been in charge for a while. He had to deal with a kind of conservative backlash in '81-'82, but he had weathered it, and he had thought carefully about how to maneuver in the direction that he wanted to move. And so, I think it really makes sense at this period to think of Zhao Ziyang as a &ndash; he&rsquo;s like a defensive driver. He&rsquo;s maneuvering. He knows he doesn&rsquo;t have absolute power. You know, the elders like Deng Xiaoping and Chen Yun have more power than Zhao Ziyang does, but he has his hands on the day-to-day levers of authority, and he knows he has to keep the elders happy and yet find a way to push the system towards more flexibility and an opening towards marketization. And I think that as Zhao Ziyang does this, he also becomes, in a sense, more radical, that he begins to believe that the system really needs to be transformed into something that&rsquo;s more of a truly market-based economy. And I think also he becomes committed to a degree of political reform. So, in that process, he works hard, and creates a model of economic reform that ultimately succeeds. But, at the same time, on both political and economic grounds, runs into increasing conflict with the elders. And that ultimately leads to the debacle at Tiananmen Square.</p>

<p>These newly resurgent Asian countries were able to develop because of their political autocracy and economic freedom. This undoubtedly applies to China. Because China was a very closed country prior to the reform, China's labor costs and environmental costs were the lowest. Also, compared with South Korea, Taiwan, Singapore and Hong Kong, its political centralization was the strongest. In past 30 years of globalization, China's opportunities and growth surpassed that of the Four Tigers because of this combination of low cost and high political centralization.</p>

<p>I think that the Tiananmen Square Incident of June 4, 1989 happened at an immature moment in history, with an immature populace, including government officials, forming an immature political movement with unclear goals. So, its ending was also tragic. What do I mean by immature? Because I experienced it, I feel that I have the right to say this: &nbsp;it was immature because, for one, at the time, China's system was basically state-owned. Not 100%, but at least 90% of the workers either worked in state-owned enterprises or for the government, society was not diversified. Even in economic life, society was not diversified. CCP leaders, or government entities, were in every kind of enterprise. It was the same in terms of politics, it was one-faceted, there were not diversified interest groups. So, in this one-faceted social system, to suggest multi-faceted political reform, a multi-faceted democratic movement, was immature. Secondly, I think China at the time, the youth, middle-aged people, and even the elderly, everyone shouted democratic slogans, but they could not explain what democracy was. Many people did not have a real understanding. Democracy isn't just theories and principles, Democracy is more of a habit. At the time, for more than 90% of the Chinese people--100% of Chinese people--habit was a thousand year old tradition of autocracy. So their demands of political reform, and their demands of democracy were vague and sometimes unrealistic. This is what I mean by an immature period, an immature populace, and the result of an immature, necessarily tragic political movement.</p>

<p>First, Japan was seen as a model of modernization. Deng Xiaoping visited Japan first in 1978 and many, many public leaders followed. And they were greatly interested in the way that Japanese businesses were run, the Japanese industrial policies. For sometime after that, Japan became the model of China. So that was one way. And the second way is, from the late 1970s, the Japanese government decided to provide ODA to China, and China accepted it. As far as the Japanese government was concerned, they did not want China to go back to the Cultural Revolution days and they thought that by supporting the Reform and Opening policies, by supporting China's economic growth, they were actually supporting the Chinese leaders who were trying to push China forward into further reforms and opening. Thirdly, the Japanese businesses also played a large role, because many of the Japanese business leaders at that time had personal experiences with China before and during the war. And a lot of the Japanese leaders felt remorse about Japanese deeds during and before the war and they wanted to compensate for that. And we cannot deny that that that has also played a big role in Japan's cooperation with China.</p>

<p>Well, first of all, if China was located elsewhere, not in East Asia, but in Latin America, or South Asia, or Africa, it would probably view its record of economic development during the 60s or even 70s as not so bad. Even before the market reform between 49 and 79, the average growth rate was almost 4 percent. By 3rd world standards it's not bad at all. And also, in terms of human development indicators, China did a very impressive job in life expectancy, reducing infant mortality rate, things like that. But, China is surrounded by many, many extremely successful late industrializing economies. The neighboring East Asian economies, they have pursued an export oriented industrialization strategy. So this is kind of a bad practice, exemplified by Taiwan, South Korea, and other countries. So, that also gives China the kind of guidance or encouragement so that, at least the coastal part of China, can follow in the footsteps of Taiwan, South Korea, Hong Kong, and Singapore, to move rapidly into this export-led growth. Lastly, there is a visible transplantation of capital, know-how, and skill from overseas Chinese communities, primarily from Hong Kong and Taiwan. Remember that in the early 90s, which was right after Tiananmen Square incident, most foreign companies, I mean western companies, or even Japanese companies, were very reluctant to go into China. And also, the relationship between China and the west was very contentious right after the Tiananmen Square incident. But the Taiwanese companies, and companies based in Hong Kong, and also some companies owned by overseas Chinese seized the opportunity because at that point they could get the best tax breaks, they could get a very lucrative package from the Chinese authority. So they move in en mass, really en mass. To extend that, virtually all the light manufacturing activity in Taiwan was totally transplanted to China, especially to the Pearl River Delta. And I think that&rsquo;s a very important transfer not of capital &ndash; actually China, itself, has enough domestic savings, it is not really short of working capital -- but knowledge about the foreign market, knowledge about how to organize this supply network, how to do quality control, and how to plug oneself into this global chain of production. I think that&rsquo;s really very precious for China from the very beginning. And also those people happen to speak the local language. So, they can communicate very effectively with the local cadres, with the local manager, with the local employees. So, I think that actually created a tremendous spillover effect. Many of those successful exporting companies in Guangdong right now, many of them are former employees of Hong Kong or Taiwanese run companies. They work for them for a couple of years and then learn all the tricks, all the know-how, and start setting up their own company. So that preparation is really a key to the success in places like Guangdong, and later on in Jiangsu.</p>

<p>Well, Taiwan's opening up to China in the late 80's coincided with a period of Chinese opening up and a policy of engaging with the rest of the world economically. So, the Taiwanese business people who went into China early on were certainly in a position of comparative advantage. In a sense that they spoke the language, a common language, and they had a slightly better understanding of the Chinese culture than perhaps other western competitors, businesses wanting to go into China. So, within just a few short years of opening up, Taiwan eventually grew to become one of the largest foreign investors in China. The economic relationship has certainly enhanced mutual understanding but, at the same time, the irony is that the Taiwanese identity has also strengthened during that period. So, there are more people in Taiwan who are advocating that it is possible not to compromise politically for the sake of economic engagement with China. And this is a policy decision that many countries around the world have to make when they want to do investments in China and they want to do business with the Chinese. Do they have to concede on certain political positions? Do they have to silence themselves on human rights questions? I don't think that's necessarily the case. And the Taiwanese need to become much more skillful at positioning ourselves as well.</p>