GOOD PROSPECTS FOR SHANGHAI’S ELECTRICAL MACHINERY EXPORTS1
OCTOBER 23, 1989
Shanghai’s way out and way forward lie in implementing the economic development strategy for coastal areas and building an externally oriented economy, in having “both ends abroad,”2 and in increasing exports.
The Importance of Exports
The final step in developing an externally oriented economy is exporting. For Shanghai, hopes rest on exports of electrical machinery rather than textiles, which have a problem with raw materials. Since their raw materials cannot be supplied domestically, the textile industry must rely on imports, but if imports rise, we will have less forex, which puts limits on how much the industry can grow. I’m not saying that we shouldn’t make a great effort to develop textiles—we still have to do that—but our best hopes lie with electrical machinery because its raw materials can basically be supplied domestically. Apart from a few very high-precision components that must be imported, its level of imports is much lower than that for textiles.
However, the textile industries can also think of ways [to export]. For example, since it’s very expensive to import wool and therefore difficult to earn forex through exports, you might consider deep processing and manufactured apparel. That would fetch a better price and thus make it possible to consider importing wool and then exporting. But I’m afraid you can’t rely only on wool; you’ll also have to think about producing synthetic fibers yourself.
By contrast, the prospects for exports of electrical machinery are very good. Although the export targets proposed by the city’s Office of Electrical Machinery Exports are acceptable, they’re also extremely hard to reach, so they shouldn’t be pushed any higher; you should just try your best to surpass them in the course of actual execution. The target now is US$810 million, or 16% of export forex earnings. By 1995 it will be US$1.7 billion, and by 2000 it will be over US$3 billion. That means it will double twice in a decade. In terms of the share of exports, these now account for one-sixth of the total; by 1995 they are to account for a quarter, and by 2000 it will be a third. If these targets can be reached, there will be great hope for Shanghai. If we can’t reach them, things will be very difficult. We must therefore use every means possible to try to reach or surpass these targets—of course this will entail very arduous work.
To truly reach this goal, you must first decide what to export. You must have a very sound plan. On this issue, the city’s Office of Electrical Machinery Exports has identified 20 types of key products. This was done from a macro perspective, but just announcing this list isn’t enough; it must be made specific for individual enterprises. Which enterprises can export which products? How can the proportion of exports be increased in the next 10 to 12 years? There should be a plan for technical upgrading and technical progress, and this must be carried out in every single factory. Each factory should draw up its own plan for product exports.
Yesterday, I heard that Second Light Industry Bureau recently held an exhibition featuring some new inventions, small innovations, and adjustments to the mix of new products. This is very important because it’s not the case that all products are slow to sell—it’s only the same old familiar products. Many small items are attractive, practical, and original, and people will want such products. If our enterprises are to escape their plight, they will have to adjust their product mix and develop new products. They should do likewise with exports: once they see what sells well in the world, they should learn about these things and also innovate—that’s the only way they can export. Therefore in order to export, they must first have a fairly practical concrete plan and then integrate this into other plans. If we don’t give them special support, if we don’t give enterprises the investment needed for technical upgrading, they won’t be able to export, and the percentage of exports still won’t increase.
Conditions Required for Exports
Exports must meet three preconditions: quality, market sales, and after-sales service. We must take forceful measures to improve all three.
1. Product Quality. Product quality refers not just to the product itself, but also to its packaging. Last year, I asked the city’s Bureau of Light Industries to focus on the Shanghai Industrial Sewing Machine Factory for a year. Although its volume went up, quality was still subpar, especially in the case of its packaging. This factory spent over US$10 million to install the latest equipment from Japan—it was even more advanced than the heavy machinery factories in Tokyo, yet the products it made just weren’t as good as those from Japan. Moreover, the packaging was a mess and easily fell apart, so how could they be sold? We have to really focus on this.
Viewing new products and hearing about exports in the display room of Shanghai’s Second Bureau of Light Industries, October 1, 1990, with Yu Nanping, deputy director of the bureau.
Our product quality is often like this—it’s good when the product is introduced, then after some sales over a few days, it goes downhill. That’s why the Office of Electrical Machinery Exports must think of some concrete measures to prod enterprises to improve product quality. The city’s Bureau of Technical Supervision and Bureau of Commercial Inspections should emphasize random unannounced inspections of export goods. Shen Beizhang3 has recently been preparing to compile a list of all the problems surrounding export product quality, and we’re going to convene a citywide meeting to discuss these. If enterprises don’t spend some energy on strengthening management and don’t improve product quality, how will they survive?
2. Market Sales. Just now [Sun] Gengduo4 summed up in several points how the various ways we have now for marketing won’t work. One is called “waiting for the rabbit to come to the tree,” that is, sitting at home waiting for customers to come to you; another is called two-bit operations, because of its small purchases and small sales; there’s also the “livestock market,” and now we’re bringing the “livestock market” to other countries.
We have to study forms of marketing and think of ways to do better—we’ll have to “fight our way out.” Right now, it isn’t that we haven’t gone out—we do have people in other countries, some of whom are performing well and some not so well. I had a look when I was visiting Osaka and Tokyo. Shen Beizhang, all sorts of companies have people stationed in your office, and they’ve done quite a bit of work. But these offices and representative offices are no longer able to fulfill the role of fighting their way into international markets because they are at too low a level. It isn’t very useful to send out too many low-level people. They should be high-level people, who can meet with leading figures in the local government and large industrial enterprises. They don’t have to be senior officials, but they do have to be of high caliber, adept at social activities, and capable of making their way into the higher circles of business—that’s the only way. It’s now become urgent to strengthen our work in this area.
Your office doesn’t have anyone from the industrial side, so you can only handle the foreign trade aspects. It’s hard for you to solve problems involving the quality of industrial products and after-sales service, and nobody will pay you any attention no matter how many telegrams you send. Huang Ju and [Vice Mayor] Gu Chuanxun, this is why I’m now considering establishing an overseas company. A top-level head of a commission or office, a rather capable cadre, someone who knows a foreign language and has an understanding of international affairs and foreign trade should be in charge of it. This person should be in overall charge, but not run things too rigidly. He must also be able to sum up experiences and discover problems. He has to be able to play this role and study strategies for getting into international markets, and be able to interact with leading local figures.
While we should consider sending capable people from the industrial and foreign trade sectors to other countries, we mustn’t bring on a fever for going abroad and send those who basically do nothing and have reached retirement age. What I mean is that this shouldn’t be treated as a type of perk—we should send people who can really get things done and who know foreign languages. Moreover, there must be criteria for evaluating one’s efforts—the work you do must be worth the money you spend. Some people who go abroad don’t even do a few hundred dollars’ worth of business, yet spend who knows how many tens of thousands of dollars. From now on, we must assess each company: how many million dollars of business did you do, and how many dollars did it cost? The reason for establishing an overseas company is to assess the information and clients provided by each person stationed abroad, to assess how much his suggestions for getting into international markets are worth. If they’re essentially useless, then hurry up and remove him—we don’t want this sort of person.
We must link Shanghai up with international markets. Since we get poor information at the moment, the best thing besides sending people out is to hire some abroad, including students from Shanghai who are studying abroad. Needless to say, their political caliber should be evaluated to make sure that they are truly serving Shanghai. It’s very hard to find well-rounded people to send out. They have to understand production, know foreign languages and foreign trade—it’s very hard to find people with such qualifications. It’s all right to spend a bit more money and hire some people abroad.
Recently, the deputy general manager of China International Trust and Investment Corporation (CITIC) looked me up. He’s in charge of Rong Yiren’s5 overseas company and his factories have made a lot of money. He hasn’t paid out a lot—he has the ability to repay all his bank loans with money to spare, and has made several hundred millions. His companies all hire locally and he’s the boss. He suggests that we do likewise. I was wondering: where do some of our raw materials like paper pulp or even cold-rolled and hot-rolled steel plates come from? We can find more sources, for example, by buying some shares. All this requires planning by people who are very familiar with local conditions, and only then can we be truly integrated into the international markets. We must have strategic vision and think about selecting such a group of people to send abroad. We can’t do it without them.
3. After-Sales Service. Particularly with exports of electrical machinery, nobody will use your products if after-sales service is poor and parts aren’t readily available. Consider what’s happening with industrial sewing machines, for instance: the Municipal Light Industrial Import-Export Company isn’t able to find its footing in international markets just now, so you might as well talk to the Tokyo Heavy Machinery Factory and export through their channels, even if you make less money and pay them a large commission. After you find your footing, you can do it yourself. That’s what many big capitalists did: they started as employees, left after learning the business, and founded their own companies. Otherwise, what are we going to do with enterprises that are neither dead nor alive? All this has to be studied. We need to think about how to hook up many of our electrical machinery products with companies that are internationally well-known companies and export through their channels. We’ll only make a little money initially, but after we’re fully fledged, we’ll make a lot.
Ming Zhicheng,6 that’s why when you’re thinking about exporting electrical machinery, you must also think about parts production and repairs. To market a product, you must first establish a repair center. Our Santanas have a bit of an edge now because their parts and repair centers can be found all over the country—this is an excellent arrangement. The future competitiveness of the Santana is going to depend on its after-sales service, and on how easy it is to buy parts for it. Our Office of Electrical Machinery Exports should take a good look at after-sales service; otherwise we won’t be able to export electrical machinery.
I have a suggestion that I’d like [Vice Mayors] Huang Ju and Gu Chuanxun to think about and Shen Beizhang and Ming Zhicheng to study further, namely, how to strengthen institutions doing overseas marketing and after-sales service—come up with a plan to organize this. We should transfer capable people from the various industrial bureaus and commissions to improve our overseas marketing and after-sales service. They must be nimble at directing operations—as soon as a telegram arrives from abroad, the goods should be shipped out and people sent out from here; otherwise we won’t be able to get into international markets. Moreover, we have to clean up the ranks of those who are currently stationed abroad and gradually bring back anyone who is muddling along and getting nothing done. Of course the income and benefits of those stationed abroad should be more generous. I’ve told both Shen Beizhang and Ye Longfei7 that if people stationed abroad are truly creating economic returns, we should be more generous in this regard; otherwise we won’t be able to attract talented people.
We ought to follow this principle: make it more advantageous to sell abroad than domestically; that is to say, exporting should result in better income and benefits for all parties than selling domestically. But the difference shouldn’t be too great. Just now someone said that a 20% difference is too large, because this problem can’t be solved just by one link in the chain. Even if wages increased by 100%, enterprises might not be able to export, and in the end their wages will have increased but not exports—that wouldn’t be worth the effort. But we must make selling abroad more advantageous than selling at home. This has to be studied, and next year we must have a policy that strongly encourages exports.
1. This is part of a speech by Zhu Rongji at the 52nd mayor’s administrative meeting of Shanghai’s municipal government.
2. Translator’s note: the “two ends” refer to the sources of raw materials and the destinations of finished products.
4. Sun Gengduo was formerly vice chairperson of the Finance and Economics Commission of the Shanghai People’s Congress; at the time, he was a member of the city government’s Advisory Group on Urban Administration.
5. Rong Yiren was then a vice chairman of the National People’s Congress and chairman of the All-China Federation of Industry and Commerce.
6. Ming Zhicheng was then vice chairperson of the Shanghai Economic Commission and vice chairman of the Shanghai Foreign Investment Commission.