FOREIGN TRADE: THE VANGUARD FOR SHANGHAI’S DEVELOPMENT OF AN EXTERNALLY ORIENTED ECONOMY1
MAY 4, 1988
The leaders of Shanghai’s Foreign Trade Commission have asked me to meet with you all and boost your spirits. In response, I can first point to the good results of foreign trade in the first quarter of this year. Exports increased by 21% in this period, which isn’t low. This number is most encouraging, and I want to express my thanks to you.
However, it now appears that if we don’t meet our target of earning US$4.3 billion in forex this year, we won’t be able to overcome our difficulties! I’m not overstating this target—nowadays we even need forex to buy rice to eat. When the heavy oil runs out, there will be power stoppages, and we will need to exchange forex for heavy oil. The question now is whether we have the ability to earn the forex, to fulfill our RMB 10.5 billion fiscal contract obligation, and to turn over US$1.5 billion in forex [to the central government]. Only then will we in Shanghai be able to stand tall when we speak—at the moment we cannot do so.
I hope you will all keep up your good efforts and maintain this good situation—although I know it wasn’t easy for you to achieve these results. For instance, this year’s “little trade fair”2 took place just at the height of the hepatitis epidemic3—it was Shanghai’s darkest moment. When we went to Beijing, we all became personae non gratae. Even under such circumstances, turnover surpassed last year’s. You were previously commended for this, and I know it wasn’t easy to achieve—people from Shanghai are able to find ways, after all.
Recently Shanghai was again in the front ranks of the Guangzhou Trade Fair—that’s very good. I think you should feel encouraged. Now—especially after we carry out some reforms, devolve powers, and generate enthusiasm in the districts and counties—we will be able to give Guangdong some competition in the “3+1” industries.4 Next we’ll set up the “one-chop” agency, simplify approval procedures, and improve the investment environment so that there’s a substantial increase in the amount of foreign capital attracted. Then this year’s difficulties will be eased.
Training Personnel in Foreign Trade
Our municipal foreign trade sector has held many classes to help the districts and counties train personnel in foreign trade—this is a very commendable approach. Despite the criticism being leveled at the slogan “Let everyone engage in commerce,” I think everyone in Shanghai needs to know a little about foreign trade. Shanghai is an externally oriented city. It has to have dealings with foreigners, it has to make money from these transactions, so it has to learn these skills. That’s why when you in the foreign trade sector make great efforts to train cadres from all professions from the districts and counties and from the grass roots—when you help them learn about technical cooperation in foreign economic dealings; when you help them learn some of the rules, methods, international norms, and basics of foreign trade finance; when you instill some knowledge in them so that they’re not at a disadvantage when dealing with foreigners—this is a tremendously important role.
It isn’t enough just to rely on the 34,000 people in our foreign trade sector, as I think a considerable number of you will eventually be stationed abroad. We need a very large team so that we can have people stationed for a long term in all countries, learning about the state of their markets, relationships, and channels. Without such a set of abilities, it won’t be easy to make a living in the international markets. I’m very pleased that the municipal foreign trade sector is beginning to work at this. I hope you will carry on and stay focused on this—then things will get better for us. That’s the first point I’d like to make.
The Foreign Trade Sector’s Historic Mission
I hope that those of you in the municipal foreign trade sector recognize your important mission. Shanghai is now at a historic turning point since the central government’s economic development strategy for coastal areas gave the city a path to revitalization. At the same time, they gave us autonomy and allowed us to do fiscal contracting, so we now have a much greater ability to act. Recently, Li Lanqing signed off on another document that reaffirmed the expansion of our authority to import; that is, we in Shanghai may, on our own, import materials centrally managed by the state. The special representative of the Ministry of Foreign Economic Relations and Trade in Shanghai can issue licenses—the ministry is continuing to devolve powers to us. We can now use this ability to revitalize Shanghai, and if we do our work well, we can accelerate its revitalization. On the other hand, if we fail to do our work well during the 5-year term of this administration, then the city’s revitalization might be slowed down by 10 to 20 years. It won’t do to let this opportunity slip by.
Although there isn’t a problem this year and one seems unlikely to appear next year, it’s hard to say anything about the year after that—who knows what might happen? The other day I was talking to Mr. Loh Dai Jur of the Hong Kong Shenxin Textile Mill and learned that his enterprise currently has 70,000 workers, 40,000 in Hong Kong and 30,000 in Guangdong. If there’s the slightest hint of trouble in the markets, he’ll first shut down that Guangdong factory with the 30,000 workers. That’s why he said that if Shanghai is to open up to the outside, it ought to have some unique features.
We also need to judge the international markets accurately, offer some competitive products that can fight their way into those markets, and make a real effort to attract some fairly large foreign companies to make direct investments in Shanghai and become pillar industries of Shanghai. This calls for substantive work. Otherwise, at the slightest hint of trouble in the international markets, we would collapse because we’re too fragile. This is an opportunity that must not be lost. This important historic mission rests on our shoulders. We must be conscientious and dare not let up!
You in the Shanghai foreign trade sector will be in the vanguard of building Shanghai into an externally oriented city and implementing the policy of large-scale imports and exports. First and foremost we are counting on you to “fight your way out.” If you can’t do so, Shanghai’s economy won’t come alive. I also want to point out that you are our hope—everyone is looking to you with hope and very high expectations.
Shanghai’s Current Problems and the Need to Integrate Industry and Trade
Of course it isn’t so easy to get things done at the moment, and it’s true that Shanghai is facing considerable difficulties. Originally, the plan included something for Shanghai, but now that’s no longer in the plan. They didn’t say we’re not giving it to you, but the price is higher and payment must be made in forex—can Shanghai afford it? It’s not part of the fiscal contract. Provinces, particularly those around Shanghai, all want to do large-scale importing and exporting, and they’re all adopting various measures to develop in this regard, so Shanghai is, in a sense, sealed off. As I have said in the past, this is forcing us to go to the Pacific Ocean to find a way out, but what choice do we have? We must count on you!
I’ve always asked industry to be your rearguard, to provide you with goods that are high in quality but low in price. However, industry is also in great difficulty—with prices of raw materials skyrocketing, how can they cope? Shanghai is a city of processing industries. If we can’t increase prices a little, production can’t be sustained, and enterprise initiative will disappear altogether. But as soon as prices go up, never mind the backlash from other provinces and cities, even the people of Shanghai will curse us for the “big” increase! I criticized the Municipal Textile Bureau for the very reason that they sell their products elsewhere: they sell in Shenzhen to earn forex, but they won’t supply any goods to the municipal textile company. I should add, however, that they have their own problems: they are “double contractors”5 who still have to hand over profits, and the RMB 10.5 billion target is a burden that weighs heavily on them. Besides, they also have to pay bonuses.
Speaking honestly, another problem for us right now is that workers are not very motivated. Efficiency is very low: during the first quarter, Shanghai was the only place in the whole country where labor efficiency declined—it went up in all other cities. This is indeed a very troublesome state of affairs. At present, it’s better to sell domestically than abroad. The cost of currency exchange is very high, and even though the rate in Shanghai is considered low, it’s still not enough to make up for the textile sector’s losses and won’t work.
There are objective reasons for the various conflicts between the industrial and foreign trade sectors. Under these circumstances, we still need to ask what we can do. For one thing, we could call on those in the foreign trade sector to make an effort to promote the integration of industry with foreign trade. Push the industrial enterprises up to the front lines and use various means to sell our products for good prices—don’t keep peddling them like hawkers. Shorten delivery times, and give enterprises quick feedback. That’s the only way to improve product quality and increase product variety. You can’t charge higher prices unless you can manufacture in small batches, offer great product variety, and ensure very short delivery times. Also, our industrial enterprises must try very hard to lower their forex conversion costs. If they can’t do this, they’ll have no future.
The problem can’t be solved just by continual arguments. We won’t be able to do a good job unless everyone tries to come up with ideas. That’s why I hope that those of you in the foreign trade sector recognize that your responsibility is a glorious one, act as the vanguard, think of every means possible to take over the international market, make our products “fight their way out,” and help our enterprises lower their forex conversion costs and improve performance.
This year, we carried out several trial projects that integrated industry with trade. They featured across-the-board representation, direct dealings with foreigners, and very close integration of industry and trade. A tight link was forged between the two so that everyone would share the same future and “wear the same pair of trousers,” and thus would sell for higher prices and increase exports a bit—those were the goals we hoped to reach. Unless such integration takes place, Shanghai will have no way out. That’s why I hope you will all align your thinking on this matter and do a good job. Because they are in different positions, there will always be some contradictions between industry and trade, but everyone must align their thinking because they share this common goal. They must be understanding of each other, help each other, and do this work well.
If you look at Japanese trading companies, you’ll see they are closely integrated with industrial enterprises. Whenever I’ve visited Japan, I’ve toured a factory and found it strange that my escort was always someone from a trading company rather than the enterprise. These people were very thoughtful, said good things about the enterprises, and obviously built up relationships between the two. With their excellent relations, the trading companies and industrial enterprises are almost one and the same, and the former revolve around the latter. This is one form of integration—I don’t know what form is used in the United States. In any case, industry and trade must be integrated so that industrial enterprises can directly orient themselves toward international markets and their goods can be produced entirely according to the needs of those markets. This must be done properly.
Role of the Trade Sector in Revitalizing Shanghai
Our Municipal Party Committee and municipal government attach great importance to the foreign trade sector and recognize that its members have played an important role in the revitalization of Shanghai. We pay a lot of attention to your work, and I’ve read your various publications and other pieces of information, including the briefing papers from your companies. Recently, I’ve been especially concerned about Shanghai Minmetals.6 If Minmetals doesn’t bring in cold-rolled sheet steel, tin plate, and silicon steel, the light industries in Shanghai will have to halt production, and we’ll get no taxes or profits from them. Now that powers have been devolved, you must use every means possible to buy raw materials from the international markets. Without large-scale imports, how can we have large-scale exports! I’m now willing to assume a bit of risk and buy even at high prices. I believe that we in Shanghai have the ability to absorb them, and it would still be better than halting production now.
Currently a third of our production capacity is idle. We don’t have raw materials for textiles, we don’t have raw materials for light industry, and we don’t have raw materials for petrochemicals. A substantial proportion of production capacity in home appliances, light industry, and textiles is unused, which is why I’m concerned. You must think of every conceivable way to import these things. At the moment it’s also very hard to procure raw materials domestically, and prices are quite high. I asked the Municipal Textile Bureau to provide me with a table comparing the negotiated prices or par prices of raw materials that we are buying from other provinces and municipalities with the prices in international markets. I discovered that quite a number of domestic prices are higher than international ones, so why not hurry up and buy in the international markets? Of course I don’t mean to abandon the long-term collaborative relations we have with other provinces and municipalities. We should jointly build production centers for raw materials using a cooperative model. I care very much about your work, because your work affects Shanghai’s economic growth and has a great impact.
I’d like to clarify one point at this juncture. Some people say, Zhu Rongji started off in industry, he’s biased in favor of industry, and as soon as he arrived, he sharply criticized the foreign trade sector. He’s very prejudiced. If you think I’m prejudiced, well, that’s possible, and if I have such a bias, I ask for your understanding. Why? Because I know relatively more about industry and am more familiar with the people there, so perhaps I tend to overlook their shortcomings. I’ve been working in industry for 25, maybe 30 years; my involvement with foreign trade has been at most 10 years. I don’t know it as well as I know industry, nor do I know the people as well as I know the ones in industry.
So it’s possible that I might be one-sided in many of my criticisms, and it’s possible that I’m not even-handed enough. But colleagues, there’s an old Chinese saying: “The deeper the love, the stronger the reproach.” That is to say, we’re all in the same boat. If your performance doesn’t improve, I’ll be as worried as can be. You’re the vanguard! If you don’t “fight your way out,” there’ll be no hope for Shanghai! That’s why I have such high expectations of you. I want to be in the same boat as you. That’s why if you’re not doing enough, I might reproach you more strongly or more frequently.
But getting back to what I was saying, I’m afraid my criticisms of industrial departments are also quite severe. Did you know that factory directors are very upset at me? Because on various occasions I “blasted” factory directors. I said that some factory directors in Shanghai weren’t even up to the levels of a shop foreman in other countries. If you’re not managing raw materials, if you’re not managing production, supply, and marketing, what kind of factory director are you? What kind of entrepreneur are you? What kind of operational management is this? Factory directors need training, and so do shop foremen. I criticized them harshly. Of course today I also commended the director of the city’s No. 2 Woolen Mill. When he encountered problems, he went to the markets instead of to the mayor and thought of solutions on his own. Subjectively, I’ve never intended to be harder on anyone, but objectively I might be biased in their favor. I hope you will be understanding, and I will correct myself in the future. In the foregoing, I have tried to describe where I stand, and to say I am ready to go through thick and thin with you, I want to be with you as we sail through wind and rain, and I want to work with you to revitalize Shanghai and to develop Shanghai’s externally oriented economy.
1. Zhu Rongji delivered this speech at a meeting for cadres from the Shanghai foreign trade sector who were section chiefs or higher.
2. The “little trade fair” was the sixth Shanghai Foreign Trade Fair held at the Shanghai Exhibition Center on March 1–10, 1988.
3. A hepatitis A epidemic broke out in Shanghai in January 1988 and spread explosively. It was caused by the consumption of infected clams by part of the population. The epidemic was brought under control by mid-March, leaving a total of 292,000 victims.
4. The “3+1” industries are the ones that process imported materials, process imported samples, assemble imported parts, and engage in compensation trade.
5. “Double contracting” was also known as “two-front contracting.” Under this system, industrial and foreign trade departments would jointly contract to meet forex earnings targets. This was a shift from the system in which the foreign trade sector purchased goods (from industry) to one in which it acted as an agent for industry, and the contracting was done on this basis.
6. The Shanghai Metals and Minerals Import and Export Corporation.