REPORTING TO YAO YILIN ON THE DEVELOPMENT OF PUDONG1
MARCH 29, APRIL 2, APRIL 7, 1990
From March 28 to April 8, 1990, on behalf of the Party Central Committee and the State Council, Vice Premier Yao Yilin led a delegation to Shanghai that included leading members from the State Council Office of Special Economic Zones, the State Planning Commission, the Ministry of Finance, the People’s Bank of China, the Ministry of Foreign Economic Relations, the Ministry of Commerce, and the Bank of China. They conducted special studies and discussions on issues concerning Pudong’s development and drafted a report to the Party Central Committee and the State Council titled “An Outline Work Report on Several Issues Regarding the Development of Pudong in Shanghai.”
1. March 29, 1990
When it comes to raising the issue of Pudong’s development, [Wang] Daohan2 is the most zealous of all; he’s much more zealous than I am. However, it was [Chen] Guodong3 who first raised the subject, and we presented two reports on this matter to Deng Xiaoping and Yang Shangkun during their recent visit to Shanghai.
The first issue to consider is what direction Shanghai will take and the exact strategic position the central government is assigning to it. The second issue is that developing Pudong provides a way out [of Shanghai’s difficulties] and we must further open up. I agree with this view, as does [Hu] Lijiao.4 I also think that to solve Shanghai’s problems, it won’t work to try to get something from the central government, or to depend on other provinces and municipalities. They won’t even give us cotton anymore, for example. In 1987 all 300,000 tons were allocated; in 1988 we received 200,000 tons only after a tremendous effort by the central government; in 1989 we received only 150,000 to 160,000 tons, or one-half; this year we estimate we’ll only receive one-third. If the textile industry continues to shrivel up like this, it will be impossible for Shanghai to meet its target of having textiles account for 40% of its exports.
Given this trend, it won’t work to rely on the central government or try to make it reduce Shanghai’s export target in its budget. The problem now is that you wish Shanghai to make a greater contribution, but we can only do as much as we are capable of. Of course we will still have to rely on fellow provinces and municipalities, but this is increasingly difficult. After thinking it over, I’m wondering if we can forge a way out through an externally oriented economy, because Shanghai is already inextricably tied to an externally oriented economy—a third of our products are exported. If we don’t export, we won’t survive, and we won’t even have the forex to import raw materials.
Besides, we have a unique problem: at present Shanghai has US$2.7 billion in foreign debt, and of this amount, US$700 million was borrowed to build tourist hotels. Now no visitors are coming, so how are we supposed to repay these debts? It looks as though the only way to get Shanghai out of its current dilemma is to open up further and develop Pudong. At the same time, Pudong’s development is bound up with that of Shanghai—without dispersing to Pudong, we can’t solve Shanghai’s traffic and housing problems. But to disperse to Pudong, we must solve the problem of river crossings. Only by linking the development of Pudong to Shanghai’s growth can we ease Shanghai’s present dilemmas.
Another consideration of ours is that Shanghai is “living in an inopportune time,” in view of which we hope the central government will give us some preferential policies. We are laying a foundation during this period. If we don’t have such a period, foreign businessmen won’t come. That’s why the central government should first give us policies, call on us to open up and lay a solid foundation. Then, once the international climate changes, Shanghai will “live in an opportune time.” When [Chen] Guodong spoke with Yang Shangkun, he asked that Shanghai be given policies that are even more “special” than those for Shenzhen. Precisely because Shanghai is “living in an inopportune time,” we should be given some preferential policies in order to have appeal—otherwise things will be difficult.
Are there any dangers? My sense from two years of working here is that the people of Shanghai basically play by the rules. There won’t be any major disruptions, they don’t have any serious crooked tendencies, they won’t commit any major blunders, and they won’t all rush to attempt great achievements, because the city doesn’t have that large a labor force. When I was in Beijing recently, Qian Weichang5 especially came to have a talk with me. He told me that Fei Xiaotong6 had an idea: the two of them would jointly suggest to the central government that the Yangtze Delta become much more formidable than the Pearl River Delta, and they would suggest building a “Hong Kong” in Shanghai. Deng Xiaoping had originally said we should build several “Hong Kongs.” Fei Xiaotong was in the process of lobbying Jiangsu and Zhejiang to have Shanghai take the lead in further opening up and to have them follow along. I said at the time that I’d be delighted if Shanghai could provide good services, because right now Hong Kong is making a lot of money from Guangdong. The Pearl River Delta is a processing factory, and all the lucrative services like finance, information, and forex settlement are in Hong Kong. Shanghai has strengths in these areas—we’re not worse than Guangdong, and it’s possible for us to develop banking and securities to serve Jiangsu and Zhejiang. (Yao Yilin: not just Jiangsu and Zhejiang, there’s also the Yangtze basin.) I said we’re willing to develop such services, but Shanghai can’t be their leader—there are still many contradictions here. We just hope the central government will give us policies so that we may serve the Yangtze Delta. Besides, we can’t take the place of Hong Kong. Even after many years we won’t be able to take the place of Hong Kong.
In conversation with Yao Yilin, vice premier and member of the Politburo Standing Committee of the Chinese Communist Party’s Central Committee, April 2, 1990, when Yao was listening to a report by the Shanghai Municipal Party Committee and the Shanghai municipal government on the development of Pudong.
In short, we feel that Shanghai has now reached a turning point. [Yao] Yilin, you come to Shanghai every two years. I hope this time you can thoroughly resolve the problems—don’t come again in two years. If there are still problems then, we’ll be able to manage without you coming. By then you’ll [just] come for an inspection tour, just to have a look.
2. April 2, 1990
Yilin was asked by Jiang Zemin and [Premier] Li Peng to come to Shanghai to study the issue of Pudong’s development. After listening to your remarks, and to those of He Chunlin7 and Chen Guangjian8 and others in responsible positions, we truly feel encouraged. For one thing, Yilin has explicitly indicated that he supports the development of Pudong; for another, responsible colleagues from various departments are also giving Shanghai favorable treatment. Of course we realize that the central government has its difficulties, so to be realistic, we can’t expect it to devote great effort to this matter. In helping Shanghai, our central government colleagues have considered everything very thoroughly and soundly. You are giving us great support, which truly demonstrates how much the Party Central Committee and the State Council care about Shanghai. At the same time, you’ve also demonstrated how much Yilin and other colleagues understand and support Shanghai—these words come from the bottom of my heart. To tell you the truth, having encountered such great difficulties, we originally felt a bit disheartened and tended to give too much weight to the difficulties. Once they came here, Yilin and his delegation brought us hope and encouragement.
I mentioned to [Vice Mayor Ni] Tianzeng today that I’m over 60 years old and the rest of us are in our 50s. We only have these few years in which to go all out, but we are still eager to work and can still really do something for the people of Shanghai. When I started working here, I had a lot of drive. After these two years of tempering, I’ve come to deeply realize that Shanghai is now like an old man in his twilight years, showing his age and utterly exhausted. I’m not overemphasizing difficulties, just describing things as they are. I haven’t been idle these past two years—I’ve constantly been calling for this and focusing on that, working as hard as I can, but it really has been difficult. It’s not as if you can change things just by criticizing, exerting pressure, or making strict demands. There really are historical reasons and objective difficulties that gave rise to this condition. That’s why we need Yilin to come once every two years, to give us a shot in the arm.
The 1987 “shot” of fiscal contracting was the most powerful one of all—it was like installing a pacemaker in Shanghai and gave us great support. That’s why I was so confident when I took over the job of being mayor. The central government was giving us such great support and the momentum was really quite good. This mainly relied on some support from various central government departments. But later, we encountered political turmoil and change in the international situation; then there was rectification, while our ability to cope with market weakness wasn’t as good as that of other provinces and municipalities. Negative growth in production started during the fourth quarter of last year and continued into the first quarter of this year. We had really run out of measures and had no choice but to ask Yilin to come again.
Shanghai’s economy consists mainly of processing industries—our burden is heavy, we are not at all competitive, and the central government wouldn’t be able to shoulder our load even if it wanted to. In accordance with the principles of price reform, the prices of energy and raw materials have been raised continually, yet those of the products of Shanghai’s processing industries cannot be raised correspondingly, so the result has been a sharp drop in fiscal revenues. People in other provinces and municipalities that have also had sharp declines in revenue are saying they should learn from Shanghai’s experience, meaning that once this happens, they’ll get support from the central government. But honestly speaking, who would want to use a revenue drop to win central government support? The drop is an objective trend.
Just now someone suggested asking the central government to continue allocating us grain at mandated low prices—that’s impossible. Our experience of the past few years has shown that there has been less and less grain available at a mandated cost, so we have to add several billion renminbi in subsidies. Raw materials and energy are continually going up in price, which adds another billion renminbi in subsidies. The proportion of cotton allocated by the plan is constantly declining, so we either have to rely on imports or force factories to halt production—this situation will of course increase the cost of our products. Why did I tell Xiang Huaicheng9 that Shanghai’s revenues will be less than RMB 16.5 billion for the next few years? They actually will have reached RMB 16.5 billion, but increased subsidies every year for grain, edible oil, non-staples, and for losses incurred in buying raw materials will offset [the total], so I estimate that we won’t reach RMB 16.5 billion for the next few years. Although revenues will go up, they’ll all be offset, they’ll be transferred over to other provinces and municipalities. (Yao Yilin: Shanghai’s burden is too heavy—my view on this has never changed. I had originally thought that we would try to keep the absolute amount handed over to the central government unchanged by increasing production, so that the percentage handed over would be lower. Now it appears that even this won’t be possible. That’s why I think that the difficulties Shanghai is describing are facts.)
I don’t think anything is scary except our present state-owned enterprises (SOEs). They’re already like old men, creaky with age, or like old cattle dragging broken carts. First of all, Shanghai’s industries don’t enjoy the preferential policies extended to Guangdong, Fujian, Jiangsu, and Zhejiang. The sums to be handed over through fiscal contracting constitute a very heavy burden, so there’s no way for the SOEs to make technological progress. Second, Shanghai’s industries lack the advantages in energy and raw materials found in Shandong, northeastern China, and cities and provinces in the interior—this is what has caused the fall in revenues.
Shanghai’s only strengths are its people and sci-tech, but every day we lose some of this advantage. Recently, Shanghai’s finest thoracic surgeon left to settle in the United States. The truly talented people at universities and research institutes are all moving abroad. As a result, the caliber of workers and technicians at enterprises has greatly declined. Shanghai is the kind of place where those living in high-rises still have to carry coal briquets for cooking upstairs. There are 1.1 million coal stoves in Shanghai, and gas is used far less than in Beijing and Tianjin. Hundreds of thousands of gas pipes have already been connected to households, but we have no source of gas at the moment. Rush hour commuting is another hardship, drinking water doesn’t look like water, and housing is ridiculously overcrowded. Under such circumstances, it isn’t very easy to drum up enthusiasm in people.
Guodong asked what direction Shanghai will take. It is being forced to look abroad, but how can we attract a bit of foreign capital, how can we bring in some advanced technology and management so that our products can catch up to international standards and be sold in international markets? Domestically, we can’t outcompete other provinces and municipalities—our labor is expensive, energy and raw materials are expensive, and their policies are more preferential than those for Shanghai—we can’t outdo them no matter what. Our only hope lies in the development of Pudong.
After raising the idea of developing Pudong, Shanghai received the support of the Central Committee and the State Council. I might say that we hadn’t expected this to happen so quickly in such a short time. The question now comes down to one thing, namely, how can we start up? We want to use foreign capital, but that requires infrastructure; yet infrastructure construction must be considered in terms of the whole city. We can’t just build infrastructure in Pudong without doing it citywide—that just isn’t possible. So it is going to require startup funding.
Our intent regarding startup funding is this: we don’t want to take anything away from the central government; that is, we won’t reduce the amount handed over. However, in describing some of our fiscal problems just now, the point was to say we’re not taking anything, nor are we handing over less; the problem lies in the considerable increase every year in the amount to be handed over. We only hope that the Ministry of Finance will give us some consideration so that Shanghai’s finances can achieve a certain level of stability. If you add to our burden, there will really be no way for us to make technical progress.
We hope the central government can support us with a little startup funding. Shanghai is penniless right now—our finances are in the red. As we develop Pudong, foreign capital won’t come all at once—not much will come for three years. Without a little support from the central government, developing Pudong might just be empty talk. (Yao Yilin: I very much agree with this assessment.) Our work will mainly take place during these three years, during which we will build up the infrastructure and thus greatly change the city’s appearance. After three years, the infrastructure will be completed; after the software and hardware are all complete, it will be possible for Shanghai to lift off, and by then the international situation will also have taken a turn for the better. We therefore hope that for those three years, the central government will support Shanghai by giving us the necessary startup funding.
I’ve reported to Yilin that I really want to go all out to do one thing: to see how to get money from the people to start up the markets, through the “vegetable basket,” housing, and transportation, including gas. Given Shanghai’s condition, this isn’t impossible, because the people aren’t buying home appliances like color TVs now. They don’t spend much money on clothing, food, housing, and the like; instead they keep it all in the bank. If by solving problems that affect their immediate interests we can encourage everyone to use their money in a variety of ways—it doesn’t matter if it’s through pooling money, investing in a fund, or making installment payments—I believe we can rouse the enthusiasm of Shanghai’s people to solve their immediate problems. But there has to be a precondition here. As I reported to Yilin about the gas problem, we must first build one or two gas factories. Then, once you unveil this method, they’ll pay the money and they’ll have a gas connection within half a year—that’s how we establish credibility. If you ask them for the money and two or three years later they still don’t see any gas, they’ll feel you’re cheating them. That’s why this work needs to be started up with some funding.
Another issue involves land leasing. If we continue with the original policy of handing over a fixed proportion [of city income], frankly speaking, nobody would be able to lease out land and you wouldn’t receive any money. It would be better to let Shanghai run a pilot program and just let us keep [the income]. In general, I feel that if the central government gives us this support, it will give a boost to Shanghai’s production and start up its markets. As a result, we would be able to guarantee that we will hand over [our required amount].
If we don’t start up [the markets] like this and industrial product continues to show negative growth, then we absolutely won’t be able to hand [that amount] over.
The last question to consider is when to announce that Shanghai will open up further. Yilin raised this subject the other day and I felt he put it very well—this is a very important question. Personally, I think it would be best to announce this when Li Peng comes to Shanghai. This is a political trump card that can help turn around the international situation. Foreigners are watching us now to see if we can remain stable in April, May, and June. Some hope for our downfall, but some hope to speak out after we’re stable. If at this time we announce that Shanghai will further open up and unveil some preferential policies—moreover foreigners still see Shanghai as a good place to invest—I think this could be helpful to turning the situation around. That’s why I hope Yilin will take my opinion into consideration and suggest that this policy be announced when Li Peng comes to Shanghai in mid-April. The effect of this publicity will be very good.
3. April 7, 1990
Yilin and leading members from various central government departments have made this trip to Shanghai at the behest of the Central Committee and the State Council. During their brief stay, they’ve given encouragement to the people of Shanghai, ignited our hopes, and braced our spirits. In a certain sense, I had never expected this. How should I put it? Discussions about developing Pudong have been under way for a long time. Our original idea was to see if the central government could give us a policy. As Deng Xiaoping said, we have to announce our opening up with a flourish—it should be a grand gesture. This will help improve Shanghai’s image, attract more foreign investments, and be effective publicity.
I’ll say it again—we’ve invested over a billion dollars in hotels here, and if no one stays in them, we won’t even be able to repay that debt. Even if foreigners don’t come to invest, just their staying here would lighten our burden. To tell you the truth, at the time this was the only thing I could think of. I was also thinking that without startup funding, this publicity would just be an empty phrase, because while we might have the policy, people still won’t come if the infrastructure isn’t better. We’re also aware of the central government’s difficulties, so when Yilin came, we weren’t thinking of asking for anything. At the time I thought the central government might just give us the policy and let us crawl along on our own. I feel that this wise policy decision was truly arrived at through the keen understanding and sound judgment of the Central Committee and the State Council, and especially of Yilin and his colleagues from the various central government departments.
In the past, while I did come to Shanghai three times in one year, my understanding of it was shallow, but I’ve learned some things from my experiences of the past two years. A good example can be found in the silk-spinning factory that Yilin visited yesterday. It’s quite representative of the current state of affairs in Shanghai, and most of our factories are of this type. We spent US$300 million a year renovating a batch of them. But some of them weren’t successful—some equipment was bought but not put into production. Such cases are not unheard of. We basically did this for three years, spending a total of US$1 billion on renovating these factories. It is this batch that now manages to have some markets.
What can we discover from these factories? That Shanghai’s industrial foundations are still quite good, and that its workers are indeed of a higher caliber than those elsewhere. I’ve seen a good many factories all across the country and have a deep understanding of this. That is to say, if you just give them a bit of startup funding, a bit of money for renovation, their potential and their performance will be much greater than in other places. Shanghai people are quite practical, but they’re not very demanding. They have a sense of honor in taking on tasks, but right now their spirits are low and they can’t summon up the zeal. If we can just give a little boost to their spirits, their potential will come into full play. I therefore feel that the impact of this decision will go far beyond Shanghai, and its benefits to the country will be much greater than the benefits to Shanghai itself.
Shanghai’s load is truly one that no one else can shoulder. To tell you the truth, we ourselves don’t feel very good either, having to go to Beijing every year to ask for coal and raw materials and to borrow stockpiled cotton—this greatly increases the burden on the country. Of course I should also say something about Shanghai’s contribution to the country. Our gross domestic product (GDP) is only one-tenth of the national total, but given how much we hand over, as well as our being an economic and cultural center second only to Beijing, we really do play a critical role. (Yao Yilin: Times are tight; many factories in Shanghai are like this.)
Our cadres are also like this. Recently the People’s Daily published a report mentioning that several of Shanghai’s vice mayors were sharing an office, which some people couldn’t quite believe, adding that even if their offices were a bit crowded, what about their housing? I can say this today: when it comes to housing, Jiang Zemin and I are slightly better off, but the deputy secretary-general of the Municipal Party Committee and the vice mayors have no bathing facilities at home—if they want to take a bath, they have to go to bathhouses. That’s the way it is. Shanghai is maintaining its tradition of frugal living. That’s why both Guodong and Daohan said that the central government can be sure that Shanghai won’t make a mess of things: we won’t abuse this power.
I don’t have any more comments on the “Outline Report”10—it’s very well written, and our colleagues from the various central government departments have thought about Shanghai very carefully. However, might the last few items be worded slightly more positively? Because as I understand it, the central government can make a final decision on this document very quickly. Once that decision is made, it will be very hard to revise this document for several years, which would delay matters. So I earnestly ask Yilin and the leading representatives from the various central government departments to reconsider the following issues.
The first concerns policies on land leasing and differential land rents—these two policies are of the greatest importance to Shanghai. If we are to change the appearance of the city, it will be by relying on these policies. If the income from land leasing still has to be handed over in the current way, Shanghai won’t be able to do a thing, we won’t be able to carry on. The income from land leasing is a major source of funding for developing Pudong, so I hope this “Outline Report” takes a positive view of it, that is, allows Shanghai to conduct a pilot program. If we had to vie with others, there’d be no way to do so, and we’ve never tried to vie with Guangdong. Just try it out—each project can be subject to review and approval by the central government.
Also, this differential land rent policy is urgently needed to quickly disperse the industrial enterprises from over 70 square kilometers in Puxi to Pudong, and then technically upgrade them. Like the silk-spinning factory we saw yesterday—it doesn’t have any more room on its grounds for new buildings, and the only way to build is to relocate. You have to give an enterprise a sum of startup money, otherwise how can it relocate and build? This is going to come from land rent; that is, when the enterprise moves over there [to Pudong], it will pay lower land-use fees, so its costs will be lowered. Of course we will be extremely cautious when implementing this policy, because we know that right now enterprises already cannot cope with their burdens.
I’m in favor of Yilin allowing us to charge a certain sum. On top of the township and village land-use tax stipulated by the Ministry of Finance, we would collect an additional sum. The amount would be determined by Shanghai as it gradually experiments in its pilot program. We would conduct these trials very cautiously and wouldn’t add excessively to the burden on enterprises; otherwise they would have no staying power. But if this works well, it is likely to alter the look of enterprises. That’s my first comment.
My second comment is this: the wording on page 6 of the “Outline Report” says “without altering the existing fiscal system and forex management system, and without affecting Shanghai’s obligations to hand over fiscal revenues and forex to the central government, or affecting the obligations of Shanghai-based centrally owned enterprises to hand over profits.” I wonder if we might dispense with the first clause? Because the current fiscal system can’t be explained clearly. Shanghai is implementing a type of fiscal contracting that differs from the systems in other places, and we also have contracting for forex. The terms of these contracts will expire soon—there are only two and a half years left—and how things will be done after that is subject to change. As a matter of fact, Shanghai is changing every year. That’s why it would be enough to just say “without affecting Shanghai’s obligations to hand over fiscal revenues to the central government”—that’s what we mean. We’re not saying the amount should be reduced; we’re only asking that it be kept stable, and we’re only asking that new taxes should not further increase Shanghai’s burden.
1. These are Zhu Rongji’s main comments on the work reports covering the basic concepts and master planning for Pudong’s development that the Shanghai Municipal Party Committee and the Shanghai municipal government submitted to Yao Yilin. The remarks were made on three separate occasions.
5. Qian Weichang was then a vice chairman of the Chinese People’s Political Consultative Conference.
6. Fei Xiaotong was then a vice chairman of the National People’s Congress.
8. Chen Guangjian was then vice chairperson of the State Planning Commission.
9. Xiang Huaicheng was then vice minister of finance.
10. The “Outline Report” refers to the “Outline Work Report on Several Issues Regarding the Development of Pudong in Shanghai” by the central government’s research and study team referred to in note 1.