WE MUST USE FOREIGN INVESTMENTS BOLDLY1
AUGUST 10, 1988
The only way to revitalize Shanghai is to further open up, implement the economic development strategy for coastal areas, engage in large-scale importing and exporting, and attract large amounts of foreign investments—otherwise we will have no future. I am not precluding the development of a large domestic cycle of circulating goods, stronger horizontal collaboration and contacts with other provinces and municipalities, and the use of domestic raw materials to the extent possible, but given the present circumstances, it seems this will be increasingly hard to do. Shanghai is such a “gigantic creature” that it can’t be “rescued” without relying on international capital.
Because urban construction is highly indebted, it will be very hard to change Shanghai’s appearance without an investment of tens of billions of dollars. The only way to achieve this is to utilize foreign investment on a large scale. To do so, we must have the ability to repay, and in order to repay, we must have goods that can be expected to earn forex. This means we will have to make a major effort to revamp existing enterprises and strengthen their ability to earn forex through exports. Once we have the products, we will still have to open up export channels. The only way out for Shanghai’s enterprises is to form joint ventures with foreign firms and draw foreign entrepreneurs here, so that their products can find their way into international markets. Without such a foundation to ensure that exported products can earn forex, we can’t dare to borrow tens of billions of dollars from the World Bank and the International Monetary Fund to rebuild our city’s infrastructure.
Foreign investments have great potential to speed up the pace of urban construction, but Shanghai still hasn’t done enough in this regard. When I recently discussed this with Jiang Zemin, he agreed we should use foreign investments more extensively to rebuild our urban infrastructure. The question now isn’t whether to use foreign investments more extensively or more quickly, but whether our corresponding renminbi and construction capacity can keep up.
Speaking at a reception celebrating the signing of a contract for a US $128 million syndicated loan for the Shanghai branch of the China Construction Bank, February 28, 1989.
Our current pace of foreign investment utilization is too slow. The central government has given Shanghai permission to use US$3.2 billion during the period of the Seventh Five-Year Plan. Of this sum, US$1.4 billion is to be used for building urban infrastructure, yet so far we’ve used less than US$100 million. I’ve discussed this with Vice Chairman of the State Planning Commission Gan Ziyu, who said that provided Shanghai has the ability to use foreign investments, it won’t be limited to US$3.2 billion—the city may use whatever it is able to use. One major project in this category is designed to channel water from the upper reaches of the Huangpu River and thus solve Shanghai’s problem of drinking water—a serious concern of the city’s residents. Last year the first phase of this project was completed, but the second phase was halted for lack of funds. I say we absolutely can use foreign investment for the second phase.
Many foreigners are now willing to lend to Shanghai. The World Bank, for example, has already promised to lend us US$200 million annually, of which US$50 million will be soft loans. There are still two-and-a-half years left until the end of the Seventh Five-Year Plan. I think there’s no way the US$1.4 billion allocated for urban infrastructure in the plan can all be used up—at the present rate, we would only use US$500 million to $800 million. I’ve therefore asked the Municipal Planning and Construction Commissions to hurry up and write reports on how to start work on the Waigaoqiao port, the Hongqiao International Airport, the Huangpu River Bridge, and the Metro as soon as possible.
Apart from these large urban construction projects, we can also make arrangements for a batch of infrastructure projects. If we don’t have enough money, we’ll boldly use foreign investments. I’m not worried about our ability to repay because of the US$3.2 billion of usable foreign capital in the plan: beside the US$1.4 billion to be used for building urban infrastructure, there’s still US$1.3 billion for technical upgrading and US$500 million for promoting tourism and other tertiary industries. We know from many calculations that we are entirely capable of repaying US$3.2 billion. The terms of these foreign loans are very favorable: repayment isn’t required for 10 years. Don’t tell me Shanghai doesn’t have even a little bit of such ability? That’s why foreign investment can be boldly used to step up the pace of urban infrastructure construction and offers Shanghai its only hope of becoming an international city.
Although the hard investment environment in Shanghai still has quite a few problems, a significant improvement can be expected after about three to five years of planned reconstruction. Few other cities in the country can match Shanghai’s current hard environment, whether it be in transportation, telecommunications, tourism facilities, or hotel facilities. However, many management problems need to be addressed right now, so the key is to focus on developing the soft environment.
In recent years, Shanghai’s soft investment environment has definitely improved, but not enough. The “one chop” agency can only solve problems of project reviews and approvals. If factory directors won’t change their mindsets and still opt for joint ventures with others, they’ll only want to “eat meat” but won’t be willing to “gnaw on bones.” But especially when they see others making a lot of money, they’ll feel that they have lost out, causing many deals to fall through. At this rate, it won’t help no matter how much the soft environment is improved, because the foreign businessmen will have left in a huff before they even get to the stage of project reviews and approvals. I’ve always said that if others make a lot of money, it’s because they are capable. Once you’re capable, you too can make more money, but if you make the deal fall through now, you won’t make any money at all. This is a matter of changing mindsets. Shanghai is at a turning point in its development right now. If the mindsets of factory directors don’t change, they won’t be able to adapt to this historic turning point, and foreigners won’t come to invest in Shanghai. I’m asking Ye Longfei2 to carefully compile examples of business negotiations with foreigners marked by unliberated thinking on the part of leaders and rigid mindsets of factory directors. He should report on these extensively to promote a change in the mindsets of Shanghai’s businessmen.
In attracting foreign direct investment, we mustn’t only think about how much money a single project can make. More joint ventures would be good for us—they can help with product exports to some extent, and they can introduce technologies to some extent. And we needn’t expect each one to make too much money—at least it will pay more taxes and make more of an impact. Shanghai’s enterprises will only be able to depart from their various backward ways in the shortest time possible if they engage in joint ventures or other types of cooperation with advanced foreign enterprises. Of course not every kind of project will be acceptable: highly polluting or labor-intensive ones won’t do. The present domestic market is a seller’s market: no matter how poor the quality of a product, if you can make it, it will sell. We want our products to be able to fight their way into international markets—that would be true ability. It looks as though enterprises can’t be overhauled and technology upgraded well without a prod from joint ventures or other forms of cooperation.
No matter what, the Municipal Foreign Investment Commission must enter into a few more joint ventures, a few major projects this year. Provided we keep doing sound work, it will be possible after this year to gradually generate a tide of foreign entrepreneurs rolling in to invest in Shanghai. We must hurry up and improve the soft investment environment so as to hasten the arrival of this high tide.
1. These are highlights of Zhu Rongji’s conversation with a reporter from the Xinhua News Agency.