UNITE AND STRIVE TOGETHER TO DO GOOD ECONOMIC WORK1
MARCH 21, 1988
Like the country as a whole, Shanghai can say its economic situation is good. We’ve basically achieved both stability and growth in our economic development, even though the pace has been a bit slow. For various reasons, however, Shanghai is still experiencing some difficulties and is not yet able to have “relatively good results as well as a relatively good pace.” Even so, we should still believe in our own abilities, be confident that we can turn this difficult situation around, and take advantage of the fiscal contract system2 that the central government is allowing us to use in order to rise from this nadir.
This advantage is not easy to come by—in all of China, only Guangdong and Shanghai have been permitted to engage in fiscal contracting. In response, many provinces and municipalities have asked to do likewise, but the central government would not agree to it. For Shanghai, this development will prove to be a tipping point. Many people still haven’t changed their thinking—they continue to eat from the same “big pot” of the central government and really need to change their mindsets. Though we’re not out of the woods yet, it won’t be too long before we can see light at the end of the tunnel.
At the moment we are facing two most urgent problems. The first is hepatitis.3 It never rains but it pours—things were already difficult enough when the hepatitis A epidemic broke out. But because the city’s entire population stood united in an all-out effort to win the battle, it has now basically subsided. This was not an easy victory. Jiang Zemin spent a lot of time and energy on this problem. When he was at meetings in Beijing, he telephoned Xie Lijuan4 daily with instructions. Xie Lijuan and those in the departments concerned also did a great deal of work in a very careful and responsible way.
Although many lessons can be learned from this hepatitis epidemic, the people of Shanghai handled it well and in so doing showed excellent organizational and management skills. They clearly have the ability to cope with sudden unexpected events and to stay calm in a crisis.
The other problem is the price of goods, as Huang Ju5 already indicated in his presentation just now. I believe that the Municipal Party Committee and government have the determination and will make every possible effort to achieve basic price stability this year. Before the end of March, all plans will have been introduced for price adjustments for goods requiring such attention. This will help improve the big picture in Shanghai, as it will turn enterprises around that are experiencing losses. At the same time, units that arbitrarily and opportunistically raise prices without approval from the Municipal Price Bureau and that violate the limits of price controls must be rigorously investigated by that bureau, as well as the Economic Commission, the Office of Finance and Trade, and the Bureau of Industry and Commerce.
In April we plan to convert the fixed per capita subsidy for non-staple foods from a hidden subsidy to an open one. Calculations for this must be detailed, the methods thorough, and all preparations complete. After Jiang Zemin returns to China on April 2, he will be in charge of the final decision. I hope this measure will have a very positive effect. Of course our own work will be the key to whether prices will be stable this year and whether the situation will continue to improve.
Today, I’d like to talk about several economic tasks that will require a unified and concerted effort from us if they are to be done well. If we do a good job, then Shanghai’s economy this year will combine relatively good results with a relatively high growth rate, and prices will also be basically stable. If we can’t be united and work together, and instead blame heaven and earth, point mutual fingers of recrimination, are dispirited and unable to execute orders, then even if the gods were to smile down on us, I think Shanghai would be unable to overcome its difficulties.
Now I’d like to discuss eight specific tasks.
1. Quickly Increase Production and Turn a Slowdown into Growth
Production is currently poor, and this, more than anything else, is making people anxious. If production can’t go up, there’ll be no way to revitalize Shanghai’s economy. At first glance, the industrial growth rate for the first two months of this year appears to be 5%, but in fact this figure applies to township and village enterprises. By contrast, state-owned enterprises (SOEs) had negative growth. Whereas our budget assumed that local industrial output would fall by 0.7%, profit taxes actually fell 11.5% below the budgeted figures. Things didn’t get any better in the first 10 days of March, with the declines occurring mainly in enterprises under the municipal bureaus of metallurgy, petrochemicals, textiles, and the second Bureau of Light Industry.
Now let’s look at other provinces and municipalities. Guangzhou grew by 23.6%, Beijing by 14%, and Tianjin by 8.8%. Why is it that others can grow quickly and we cannot? We really have to look for internal reasons. In January and February, our city’s fiscal revenues fell by 4.9%. This is the first year of our fiscal contract, and we should be alert to this downward trend. Under such a contract, increases in production and revenues will belong to us, but if we keep declining it will do nobody any good. I hope that no matter what, our economic commission and the various industrial bureaus will become more enthusiastic and focus hard on production.
We need to make up our losses from the first quarter. It goes without saying that this depends on raw materials, though in all fairness I should add that it doesn’t hinge on raw materials alone. During the Spring Festival period, colleagues in many departments worked overtime to get a clear picture of the raw materials situation. Following their report to Beijing, the state loaned all its reserves to Shanghai so that we could sustain production until April or May. We used forex to buy some materials from the State Bureau of Reserves, which was much better than paying for them on our own. Hence we can use forex for other things we can’t afford ourselves, such as thin cold-rolled [steel] plates, tin plates, silicon steel, rubber, and paper pulp. This is a great show of consideration by the state and was personally handled by Yao Yilin.6 But we mustn’t keep hoping to live off “imperial rations”—we still need to rely on ourselves to find ways to acquire raw materials.
The Municipal Textile Bureau is now organizing five big teams to search for raw materials—this is the right direction to take. We have to move quickly in importing, collaborating, and mobilizing our purchasing agents. If our production capacities lie idle, I’m going to call on you bureau chiefs and factory directors and tell you not to keep citing external factors. As soon as I arrived in Shanghai, I focused on the Santana. Now both [Premier] Li Peng and Yao Yilin have become personally interested and agreed to let us make 15,000 Santanas this year. This is 5,000 more than originally planned and will increase our fiscal revenue by RMB 300 million. I hope that those of you at the Economic Commission and those working in industries feel a sense of urgency here. You must focus hard on products like this and not let up. If problems arise, go down and coordinate. It has been confirmed that the Municipal Planning Commission will focus on 16 types of competitive products while the Economic Commission will focus on 60 types.
It is essential to follow through on this with determination—it is the most important move by which to resolve our current difficulties. Next, we have to strengthen labor discipline. Of course prices and hepatitis have had a great impact, but we still have to work harder on people’s thinking and not just keep talking about prices. Once we concentrate on non-staple foods, we’ll have vegetables to eat and prices will stabilize. We must emphasize labor discipline, stir up enthusiasm, and make production go up, no matter what.
I must point out that foreign trade exports are doing relatively well. In January and February, they increased by 18% in value, and purchases of export goods by 11.6%. But this also puts pressure on us, for although exports have grown, we still haven’t solved the problem of importing on a large scale. We now have forex but aren’t able to import raw materials. We must ask our colleagues in the foreign trade departments to hurry up and import these materials. They need to move quickly, while we’ll try every possible means to obtain visas for travel abroad to make these purchases.
Originally, imports of nine types of raw materials all had to be channeled through the central government. Now that import authority has been devolved, Shanghai can import on its own, so shouldn’t we be moving on a fast track? Apart from Guangdong, what other [province or] municipality in the country has such a privilege? Those in the Municipal Foreign Trade Commission must make haste, particularly in acquiring raw materials for textiles. The Municipal Textile Bureau originally planned to import 33 million tons but now estimate they’ll need to bring in 80 million tons. We won’t be able to import that amount without working up a sweat.
The Textile Bureau must mesh well with the foreign trade departments at all costs. We count on textiles for a third of Shanghai’s exports—it’s our lifeline. In May we plan to hold a kickoff rally for the “Two Increases and Two Decreases” campaign.7 We want to mobilize enterprises to increase production and focus on economizing. Our various enterprises have a great deal of potential right now. Economic results should come from management, not from raising prices.
2. Control the Growth of Funds Used for Consumption and Sharply Curtail Purchasing Powers of Government Agencies and Institutions
This issue deserves a lot of attention. From January to February, wage-related expenses, including bonuses, grew by 18.6%, total retail sales of social commodities by 21.6%, and total retail sales from publicly funded purchases by 31.6%. Although there were some external reasons for this—such as the increase in pharmaceutical subsidies due to the hepatitis epidemic, overtime costs, and various one-time expenses—this increase is still too large. Ye Gongqi8 has held meetings on the subject and drawn up a master plan to strengthen oversight and inspections. When we award bonuses, they must promote production and improve performance, and we also have to guard against egalitarianism, simply giving them to everyone. Giving bonuses excessively encourages waste, is harmful, and does no good; moreover, it fails to motivate workers. It can only intensify shortages of market supplies.
3. Focus Intently on Building Centers for the Production of Non-Staple Foods and on Reforming the System for Purchasing and Marketing Them
If we don’t focus on building bases to produce non-staple foods or if we fail to do this well, the subsidies that were converted from hidden to open ones will have to be switched back to hidden ones. At a recent working conference on the rural areas within our municipality, it was proposed that we speed things up and complete the three-year plan for building non-staple food production bases ahead of schedule. Why would we even wait three years? The people of Shanghai can’t wait that long. Those at the district and county levels are highly motivated. They all have high hopes for production, but they do worry about the circulation system. They’re afraid that if they produce more, they’ll be faced with the phenomena of “vegetables becoming hard to sell” and “pigs becoming hard to sell.” That’s why it is essential to reform Shanghai’s system for purchasing and marketing non-staple foods.
4. Implement the System of Responsibilities and Baseline Figures for Contracting at Every Level
After Lü Dong came to assist us in adopting the contractual system, the People’s Daily ran an article on its front page of March 1 praising our contracting, whereas in fact we haven’t done it so well and no matter what, this must be implemented. The Municipal Economic Commission and the Finance Bureau have recently been focusing very hard on this—over a thousand enterprises have already signed contracts. We must continue to implement, and in so doing, we must pay particular attention to three measures.
The first is to carry out the “three guarantees and one link.”9 The rest of the country uses “two guarantees and one link,”10 but we’ve added a “guarantee”—that of exports. Producing enterprises have to fix the quantities they make available for export, and industrial enterprises must sign export contracts with the foreign trade companies—we must be determined to make this happen no matter what. If anyone is not doing his best to implement this, he will be held responsible. If we can’t integrate industry and foreign trade well, how can Shanghai handle large-scale importing and exporting?
The second is to introduce mechanisms for competition. We must do a good job with Factory No. 101. I hope the Municipal Economic Commission and Ye Longfei11 will really do well there. If this shot over the bow isn’t loud, it’ll be hard to argue for introducing competitive mechanisms in the future. We must put some effort into studying this issue.
The third is to implement district and county fiscal contracts all the way down, level by level. This shouldn’t stop at the district and county government level. Bao Youde,12 for example, tackled this work in depth, visiting and speaking to each and every district and county. Within a day or two after each dialogue, he would give them baseline figures and ask them to implement these at each level down to the grass roots.
5. Open Up Coastal Areas: Improve the Investment Environment, Devolve Approval Powers, and Provide “One Agency, One Window, and One Chop”13 Service for Foreigners
At the last working conference on opening up coastal areas, which was attended by Li Zhaoji,14 its chairmen Tian Jiyun and Gu Mu expressed very high hopes for Shanghai. In Gu Mu’s view, Shanghai is sure to become the largest city and the largest financial and information center on the Pacific coast. This February, he told me that first Shanghai must improve its investment environment, simplify approval procedures, and achieve “one agency, one chop” in dealing with foreign investments. However, it now appears that a great many obstacles lie in its path in this regard.
According to some briefing papers I have read, certain departments worry about countless things and foresee utter chaos the minute we devolve powers. Furthermore, Shanghai has so far attracted only US$1.8 billion in foreign investments, far less than Guangdong. Central government leaders are asking us to attract US$10 billion to $20 billion in foreign direct investments. Can we do this given our current situation?
People have written me several letters saying that in the past couple of years, many foreign bosses, including the former owner of the Shanghai Baromon Company,15 have asked to form joint ventures with us. They can help us set up retail outlets in Hong Kong and increase exports, yet our agencies have failed to move on this for two years and have not given them an answer. This is several hundred thousand dollars’ worth of business—why would you want to hold such things up? Someone in Fengxian County wrote that last year they sought approvals for five “3+1” projects,16 but over a year later our agencies still haven’t responded, even though the regulations stipulate a reply should be forthcoming within 20 days. What is so scary about 3+1 projects?
At our conference on our municipality’s rural work, Jiang Zemin and I announced that powers are already being devolved, and that all 3+1 projects will only need approvals from the county government, as will projects calling for up to US$5 million. But if the Urban Construction, Environmental Protection, and Planning departments hold them up, then everything we’ve said will just be idle talk. As I’ve been saying repeatedly, the city now has a master plan and also plans for each subarea. More detailed plans should be mainly left up to the district and county governments! The Planning Bureau shouldn’t have to give its approval for every building. What is there to be afraid of? Everything is happening before your very eyes.
In dealing with these matters, we need to change the way we work: they should file an application with you, and you should exercise oversight. Don’t be afraid of chaos. Of course, we don’t want chaos either. Oversight is the way to prevent chaos. If you come up with laws and regulations and implement the rule of law, there will be no chaos. Some people have endless worries—why don’t you worry about Shanghai’s opening up?
Deng Xiaoping recently pointed out that in carrying out our strategy for developing the coastal areas, we must be bold and speed up the pace, and under no circumstances should we let the opportunity slip away. We in Shanghai have already done just that. Now that we have fiscal contracting, we will no longer continue to “miss the boat.” Can the international markets keep waiting for us? If you don’t hurry up and focus on this you won’t be able to enter them. Deng Xiaoping is always encouraging us to dare to reform, dare to pioneer, and not be afraid of risks. What worries him is that we might be hesitant, be overcautious, and let opportunities slip away. When a great opportunity for economic revitalization appears, we very much need to seize it with Marxist boldness and courage, and we need to feel a sense of urgency.
I hope that you will give this question your utmost attention—and that those of you at the Municipal Planning Commission, the Economic Commission, the Foreign Trade Commission, the Construction Commission, the Planning Bureau, and the Environmental Protection Bureau will hasten to devolve powers. With devolution, the authority to approve 3+1 projects, joint ventures of US$5 million or less, and basic construction projects of RMB 10 million or less will all be turned over to the districts, counties, and industrial bureaus. For projects above these limits, we will form an agency—we could call it the “foreign investment bureau”—to be known to foreigners as the “foreign investment service center.” We will transfer capable cadres from oversight agencies to this office so that they are coordinated in their dealings with foreigners. We must require only one chop and no longer require 126 chops. Otherwise, large amounts of foreign investment will never come here. That’s why you mustn’t keep sitting there and simply worrying. You should devolve powers and at the same time think about how to enhance macroeconomic management. Figure out ways to do this. Li Zhaoji and Ni Tianzeng17 will be responsible for this and quickly come up with detailed plans for implementation.
6. Sci-Tech Must Be Integrated with Production
Sci-tech is one of Shanghai’s greatest strengths. The central government wants Shanghai to organize its sci-tech forces around the goal of exporting in order to help enterprises elevate the grades and standards of their products. This work must be done jointly with the foreign trade departments. As Jiang Zemin has pointed out many times, “Technological advances are a pillar of Shanghai’s new economic structure.” We must do a good job of this. We must keep our eyes on international standards, make breakthroughs product by product and technical problem by technical problem, and do so in each and every project. In choosing the key projects to tackle, exporting must be our purpose, advanced international technical standards our target, and product renewal our locomotive. We must focus on the entire chain, from technological development to technological breakthroughs, from technological imports to technological reshaping [of enterprises]. The final outcome must not be to produce a single sample—it must be to industrially produce large quantities.
7. Urban Construction Must Speed Up Its Utilization of Foreign Investment
The state has given us permission to use US$3.2 billion. So far we haven’t used very much of this, and a portion of what we have used is earmarked for five major projects. This year, work will start on three of these: wastewater treatment at the confluence of the Suzhou Creek, the Huangpu River Bridge, and the No. 1 Metro Line. A command headquarters has already been set up, with Ni Tianzeng entirely focused on it. Only by starting up these three big projects can we bring hope to the people of Shanghai, change the city’s image, and create a path forward for urban construction.
Moreover, in order to keep pace with urban construction, we must quickly use some foreign investment for technological upgrades to projects that can earn forex. Currently the feasibility reports for over US$600 million worth of projects have yet to be approved. These must be approved as soon as possible: the approvals must be completed in May, and we must do our best to negotiate and sign contracts. On the one hand, this will promote technological progress at our enterprises; on the other hand, it will balance our forex.
We recently signed a contract with the Dutch for construction of a passenger terminal at our international airport, so construction can now be speeded up. The foreign trade departments are helping us obtain preferential loans from the German Federal Republic for the Metro project, and Canada also offers rather good preferential terms. I hope Li Zhaoji and Ni Tianzeng will focus on studying and comparing terms to see which country we should cooperate with and then come to a decision quickly.
Attending the ceremony marking the start of work on the Wusong Road sluice bridge project at the Suzhou Creek, October 27, 1988. Far left in back, Wang Lin, head of the leading group on comprehensive management of the Yangzi River Delta and the Taihu Lake drainage basin; second from left, Yang Zhenhuai, minister of water resources; third from left, Zhu Jiaxi, director of the Shanghai Bureau of Water Conservancy. On the right, Liu Huaiyuan, manager of Company No. 2 of the Third Harbor Engineering Co. Ltd. under the Ministry of Transportation.
8. Improve the City’s Appearance and Focus Hard on Sanitation
Ni Tianzeng and Xie Lijuan have held meetings and adopted measures that we must implement forthwith. The dirt and chaos in Shanghai right now are intolerable. When you walk around, you see garbage everywhere. Is this so hard to tackle? The only way is to contract. Enterprises are now on a contract system, and I think this issue also requires contracting.
This is how Tianjin handled the problem: it contracted out, section by section, with each unit being responsible for itself. Its street sweepers were also contracted—someone inspected them, and if they didn’t sweep cleanly, someone else would immediately take that sweeper’s place. I don’t believe there’s no answer to the dirt and chaos problem in Shanghai. It may not be possible to bring traffic under control in a short time, fully address the housing issue, or immediately repay debts that have been outstanding for decades; but we can still tackle dirt and chaos. I really worry that we’ll have another epidemic once spring arrives. I’m calling on [Ni] Tianzeng and [Xie] Lijuan to please assume responsibility for focusing on this problem no matter what.
1. This is a speech Zhu Rongji delivered at a meeting of Shanghai Party members in responsible positions.
2. On February 21, 1988, the State Council approved in principle Shanghai’s “Report on Deepening Reforms, Further Opening Up, and Accelerating the Transition of Shanghai’s Economy to an Externally Oriented One.” It agreed that beginning in 1988 Shanghai would begin to implement a fiscal system of “contracting a base figure for a five-year period.” Under this fiscal management system, the base figure for the revenue Shanghai had to turn over to the central government was RMB 10.5 billion.
3. A hepatitis A epidemic broke out in Shanghai in January 1988 and spread explosively. It originated with the consumption of infected clams by part of the population. The epidemic was brought under control by mid-March, and a total of 292,000 people were affected.
4. Xie Lijuan was then a vice mayor of Shanghai.
5. Huang Ju was then deputy Party secretary and a vice mayor of Shanghai.
7. The “two increases and two decreases” were increasing production and decreasing waste, and increasing revenues and decreasing expenditures.
8. Ye Gongqi was then a vice mayor of Shanghai.
9. On February 16, 1988, Shanghai’s municipal government approved for distribution the “suggestions for refining the operational responsibility system of publicly owned industrial enterprises” submitted by the Municipal Economic Commission, Finance Bureau, and Labor Bureau. It suggested that these enterprises guarantee the profits to be turned over, technological advances, and forex to be earned from exports, and that they link their total wage payments to their economic performance.
10. On February 27, 1988, the State Council issued the “Temporary Regulations on the Operational Responsibility System of Publicly Owned Industrial Enterprises.” It stipulated that these enterprises had to guarantee the profits they would turn over and the completion of technological upgrades, and link their total wage payments to their economic performance.
11. Ye Longfei was then a deputy secretary-general of the Shanghai municipal government and also a vice chairman of its Foreign Investment Commission.
12. Bao Youde was then director of the Shanghai Bureau of Finance.
13. Translator’s note: this refers to the institutional seal, which is the equivalent of an official signature.
14. Li Zhaoji was then a vice mayor of Shanghai.
15. Translator’s note: the Baromon Tailor Shop was a well-known Shanghai clothing store in the 1920s and 1930s that moved to Hong Kong in the late 1940s.
16. The 3+1 industries process imported materials and imported samples, assemble imported parts, and engage in compensation trade.
17. Ni Tianzeng was then a vice mayor of Shanghai.