SOME THOUGHTS ON THE THREE-YEAR RESTRUCTURING OF SHANGHAI’S INDUSTRIES AND THEIR LONG-TERM GROWTH1
SEPTEMBER 27, 1989
Industrial planning is a very important component of long-term economic planning. Shanghai won’t be able to develop if we don’t increase industrial production and performance and ensure the key projects for industrial growth. The city’s Economic Commission and the various industrial bureaus have made a great effort to draw up a broad outline within a very short period of time—this wasn’t at all easy. Of course further steps still have to be taken, a few of which I’d like to discuss here.
1. Adjusting Product Mix and Industrial Structure
This subject should be a prominent feature of the plan for industrial growth, the key points of which have yet to be spelled out and its focus sharpened. At least we can’t go wrong with the following projects.
Color TV Tubes. We are treating this as the most important project. Even though we have stockpiled color tubes right now, it is advisable to focus on this project. There’s no way the project’s 1 million color tubes would be rejected in China—they will be in great demand once they’re produced. That’s why we cannot waver on this matter under any circumstances: we cannot let up, we must start production this year. Its 12 supporting projects must also get under way. I just received word—apparently the State Planning Commission has also taken note of our glass [TV tube] envelopes and hopes that we will start producing them, and that we will hurry up and start work on the 12 supporting projects.
Each imported color TV tube now costs over US$90. Even without its accessory parts, we would save US$40 to $50 making the tube here, so overall we would save US$20 million to $30 million a year. After we make the parts, we’ll save even more, and the benefits will then become obvious. This is the only way we’ll be able to rescue our color TV industry. No matter how great the difficulties, surely we should be able to produce 500,000 color tubes next year. That means next year we’ll have saved ourselves, the benefits will be much greater, and we won’t have to worry about falling prices.
Cold-Rolled Steel Plates. We can’t go wrong working on cold-rolled steel plates: no matter how stagnant the economy, they will sell. Hot-rolled steel and whatever else is associated with cold-rolled steel must also keep up—that is, we must have a tight grasp of this key project and not let go. I agree with [Chen] Datong2 that we should focus on quality and on alloys. Shanghai shouldn’t keep producing ordinary steel. Of course we can still produce a little for our own needs, but we should mainly focus on “high-quality, stainless, and high-end steel,” on “plates, tubes, and bands,” and then export these to solve the problem of survival—it’s very hard to survive just relying on the domestic market. (Chen Datong: we’ve already exported 80,000 tons of steel, so it’s still worth importing 150,000 tons of pig iron.) The Municipal Bureau of Metallurgical Industries lives off product variety and quality. To put it in more bluntly, we must live off product variety.
Lu Guanqiu3 has become famous simply for taking steel from the Shanghai No. 5 Steel Mill, processing it a bit, and then exporting it. Therefore this is something Shanghai can depend on. We in Shanghai keep acting like an emperor rather than caring about what customers want. On a visit to a dairy products factory in Inner Mongolia, I found the equipment made by our petrochemicals machinery factory quite outrageous—the noise it made was so incredibly loud that nobody could enter the room. As soon as I saw this, I said it’s disgraceful for Shanghai to produce equipment like this. Although the factory recently put out a self-criticism, it still failed to draw the correct conclusions and merely pointed to objective reasons for its inadequacies. There will be no hope for Shanghai if it goes on like this. The first couple of machines might be a bit better, but the later ones are just so-so. They’re shipped out in a messy state with no regard for quality. How can Shanghai survive if we go on this way? Mi Qiting,4 you had better focus hard on the quality of your power-generation equipment—don’t trip up on quality.
Thus adjusting Shanghai’s industrial structure is a key step that merits greater prominence. Of course each industry calls for a specific kind of work. Regardless of how much longer a factory’s director can remain on the job, the heads of the various industrial bureaus should ask each enterprise to mobilize all the workers and technicians in the factory to study how to adjust its product mix and how to open up markets. They should be looking 5 or 10 years ahead. This key point should be made prominent in the draft of the plan.
2. Developing an Externally Oriented Economy
Shanghai really has no way out apart from following an externally oriented model. Even if the state were to strengthen the mandates of its plan, it wouldn’t be able to protect Shanghai, so we must “fight our way out.” We therefore have to draw up a series of long-term policies to promote exports. Although exports are emphasized here, many still haven’t been spelled out concretely. I propose that this matter be studied by the city’s Economic Commission, Finance and Trade Commission, and Office of Systemic Reform, with the addition of two deputy secretaries-general. They should integrate this with the compilation of our long-term plans and do it as soon as possible, especially because it’s almost the end of the year and we need timely studies now about what major measures to take to promote exports next year.
This year, we instituted a system of export agents. The textile sector was the first to start a pilot program, but it seems that many problems remain unsolved. This is a transition and can’t be called a true agency system. Can we hope that the features of an agency system will be stronger next year? What policies should we have to that end? Before anything else, of course, we need to solve the problem of working capital. How do we do this as we implement an agency system?
The method we used this year was to hand money over to foreign trade companies to see if they could rescue the industrial enterprises. We didn’t state explicitly how much they were to give Shanghai, how much to other places, how much could reasonably be circulated, how much should be kept in place, and how much couldn’t be recovered from other places. That’s why we must hurry up and examine ways to solve the problem of working capital for foreign trade next year—we mustn’t stop the research that was done earlier.
A second question of immediate concern is how to allocate retained forex. I’ve kept saying that we should distribute the forex for the first half of the year, then give out the third quarter’s forex on a quarterly basis and the fourth quarter’s forex on a monthly basis. How has this work been progressing? Forex is extremely important to enterprises. If our forex exceeds the planned amount, we should give the entire surplus to enterprises, which can then exchange it in the currency swap markets where a dollar can be sold for at least 6 yuan—this will be very helpful for offsetting losses. Therefore we must get the forex into the hands of enterprises in a timely way, and we need to settle on a method for doing so quickly.
With Li Lanqing (far left), minister of foreign economic relations and trade, and Lü Dong (second from left), chair of the China Society of Industrial Economics, at the East China Export Commodities Trade Fair, March 4, 1991. (Photograph by Liu Zhongyang, Xinhua News Agency)
Also, we have to draw up some rules regarding the “two notifications and four joint actions.”5 Other countries stimulate exports by adjusting exchange rates. We use forex swap markets, which in fact also play this role. Let’s see what other ways there are to encourage enterprises to export, so that they feel this is more advantageous than selling domestically. It is vital to do this next year if exports are to increase. We need a set of matching policies in order to build an externally oriented economy, and this should be treated as a major research topic.
3. The Issue of Forming Corporate Groups
This isn’t a task that can be completed next year—it will take several years. Why was the textile industry able to achieve such high labor productivity in the past? Before reform and opening up, Shanghai’s textile industry was the best in the country, and it was the best managed of all of Shanghai’s industries. A prime reason for this was that Shanghai was at that time a classic example of a planned economy. The allocation of cotton, the initial work processes, the subsequent work processes—these were all entirely controlled by the city’s Bureau of Textile Industries. Who would dare go against its plan? Also, cotton was very cheap—this was a transfer of value from cheap raw materials. None of these conditions exist anymore: you can no longer use the methods of a planned economy to control the factories; you can no longer enjoy cheap raw materials. That’s why there are setbacks every step of the way and constant decline.
In addition, once administrative companies were abolished, all enterprises were out for themselves, each looking for a way to survive. As a result, the upstream processes of our 500 or so textile enterprises no longer care about the downstream processes and the downstream processes don’t care about the upstream ones. That’s why it’s unrealistic to still think of using a set of ideas from the 1950s to resolve the textile industry’s problems. The most pressing task at hand is to hurry up and study how to organize the 500-plus textile enterprises into a textile corporate group that accords with the needs of an externally oriented economy. The upstream and downstream processes must be linked up. This doesn’t have to be done too rigidly, nor does the group necessarily have to be very tightly bound together, but they must not be administrative companies, and in particular we must not allow those people who were originally running administrative companies to make a comeback. The problems with their thinking haven’t been resolved; we must not revive administrative companies but rather should organize corporate groups.
Ding Li,6 when you go back, study this issue diligently. We don’t have to swallow up all 500 or more textile enterprises in one go—might it be possible to start with two or three of them? If you still can’t think of ways to organize conglomerates and develop new technologies, you won’t be able to serve as head of the city’s Bureau of Textile Industries. Without cotton, what kind of bureau head would you be? You must think of ways to develop new technologies, to connect upstream and downstream processes, to organize a system, to initiate after-sales service, to organize research on foreign markets, and to train personnel.
The Municipal Textile Bureau, Economic Commission, and Office of Systemic Reform should jointly study this. Start with the Textile Bureau and study how to organize corporate groups. As for whether or not other industries like home appliances can join together, we can go slow there and not become impatient—this will be the direction to take. Three or four factories are making refrigerators, each producing just a small number, but they’re unable to develop new product varieties and the quality of what they do turn out is barely acceptable. You can tell at a glance that they’re not up to international standards. If you can’t concentrate your technical forces, if you can’t develop after-sales service and a sales network, then don’t even think of trying to enter international markets. Look at how “Wanbao” got started: they integrated scientific research very well, and “Wanbao” brand refrigerators recently passed certification tests for high quality. A home appliance research institute in Guangzhou that I’ve visited several times is very good—it has integrated the quality testing required in order to export. Others are a step ahead of us. We in Shanghai are always falling behind—can’t you bureau heads be a bit more impatient?
4. The Question of Revitalizing Large and Medium Enterprises
This report on industrial planning by the city’s Economic Commission and the various industrial bureaus offers some views that are put quite well. Recently, everyone has put some effort into studying how to hold a good ideology conference for all the industrial enterprises in the city. This conference will look into the question of how to revitalize large and medium enterprises. Everyone should visit the factories—I too am thinking of not doing anything in mid-October except for going to factories. The two research offices7 will also come with me in order to conduct studies. This activity itself will encourage factory directors and Party secretaries to lead their enterprises out of their difficulties.
The success of the conference will depend on two key outcomes. The first is whether it has served to keep the mindsets at enterprises steady. There is no contradiction between keeping factory directors and Party secretaries stable on the one hand and strengthening ideological work on the other—we don’t want “instability in both enterprises and their leaders.” As the Central Committee puts it, we should stir up the initiative of both factory directors and Party secretaries. We must make this clear to everyone, and the emphasis will be on large and medium enterprises. So we’ll go down, do studies, and pump up enthusiasm at large and medium enterprises.
The other problem we have to resolve concerns the conduct of our factory-level cadres. If their conduct doesn’t change, large and medium enterprises will never do a good job, no matter what. The burden on enterprises is excessive now because the state collects too much money from them. If in addition they are required to buy raw materials at negotiated prices, they won’t be able to cope! If you give them inexpensive raw materials and ask them to produce a certain amount, they’ll come alive. However, it’s not very realistic to do this now. The key is still to rely on internal factors, particularly the initiative of factory-level cadres.
Also worrying are the reports of cadres going to wine and dine at jointly operated factories, a phenomenon that has become quite widespread. I’ve received far too many letters on this subject. Both eating and taking—if they go on like this they’ll be seriously detached from the people. I agree with giving factory directors slightly better compensation and widening the income difference slightly. Give it to them as normal practice and don’t use such underhanded methods. Many of these cases were a result of the larger environment and we won’t excessively pursue things that happened in the past, but we cannot go on like this in the future. We must institute a system through this conference. I hope our factory directors will all lead by example, energize themselves, go through thick and thin with the workers, run their enterprises well, develop some new products, and forcefully strengthen management, so that the quality of Shanghai products can truly reach advanced world standards. I think we should primarily commend people and boost their spirits—we shouldn’t pursue what happened in the past at great length. Shanghai’s hopes lie in having its 1,700-plus factory directors rouse themselves and go through thick and thin with their workers.
Furthermore, in our long-term planning, we should think seriously about relocation. If an enterprise is housed in an unsafe building, disturbs the residents of that area, and pollutes the environment, then don’t repair the unsafe building—be determined to move it to Pudong. When it moves, don’t let it keep operating in the same old way. Introduce new technology and make new products through new processes. Polluting factories must move, but factories that don’t pollute the environment must also be dispersed and shouldn’t be so concentrated in the urban area. To the greatest extent possible, those that can be moved should be moved, in conjunction with the plan. We must be quite resolute in this regard; at least we should be thinking this way in our long-term planning. We can now speed up the development of Pudong because the principal leaders of the transportation agencies are here and we’ve already persuaded them to first develop the port at Waigaoqiao. Once this port is developed, and once the Huangpu River Bridge is also opened to traffic, we will be able to develop Pudong.
I hope you will factor these things into projects and funding, because only then will we be able to formulate an overall plan. For example, you should calculate how much internal funding from enterprises will be needed in order to reach these targets. How much will the Municipal Planning Commission be able to provide? How much can be freed up if we do some industrial restructuring? We have the broad outline, but must fill it in more clearly. Of course, a very important factor here is the state of local SOEs. In order to invigorate them, we have to develop an externally oriented economy, develop Pudong, and proceed with restructuring.
1. This is part of a speech by Zhu Rongji following a report by the Shanghai Municipal Economic Commission titled “The Three-Year Plan for Restructuring Shanghai’s Industries and the Conceptual Outline for Development during the Eighth Five-Year Plan.”
2. Chen Datong was a former vice chairperson of the Shanghai Municipal Economic Commission and at the time a member of the city government’s Advisory Group on Urban Administration.
3. Lu Guanqiu, a private entrepreneur, was then director of the Wanxiang Universal Couplings General Works in Hangzhou.
4. Mi Qiting was then general manager of the Shanghai Joint Power Company.
5. The “two notifications” refer to industries notifying foreign trade companies of the production costs of their export products and foreign trade companies notifying industries of the currency exchange costs of export products; the “four joint actions” refer to industries and foreign trade companies jointly traveling abroad on study trips, jointly negotiating with foreign parties, jointly signing contracts with foreign parties, and jointly making production arrangements.
6. Ding Li was then deputy director of the Shanghai Bureau of Textile Industries.
7. The two research offices were the research offices of the Shanghai Municipal Party Committee and the Shanghai municipal government.