A SPEECH TO CADRES FROM THE SHANGHAI PLANNING COMMISSION
JUNE 1, 1990
I’m in the same line of work as all of you—my work was originally in planning, so we share the same background, and the work of the Municipal Planning Commission is of special interest to me. Following are some thoughts on the commission’s role.
1. The Commission’s Important Role in Economic Development
You should all fully recognize the very important role of the Planning Commission in Shanghai’s socioeconomic development, and thus of the important responsibilities on your shoulders. One might say the commission is the general staff office of our city government and manages the economy of the entire city; that, of course, also includes its social and cultural development. I worked at the State Planning Commission for over 20 years and at the State Economic Commission for almost 10 years and have always felt that the work of the Planning Commission was the most important. A very large part of the responsibility for how well China’s economy performs lies with that commission.
Since coming to Shanghai in 1988, I’ve continued to think that the Planning Commission should be an agency that comes up with guiding principles, plans, and policies. Of course you can’t expect everything to come from the Planning Commission—you have to rely on the various departments. Guiding principles should first be proposed by them, and then given overall balance by the commission. At the moment, the Municipal Planning Commission isn’t entirely playing such a role; not all its relations with all the bureau-level departments have been rationalized, many things are done awkwardly, there are delays at every level, powers that should be devolved haven’t been devolved, and powers that should be centralized haven’t been centralized.
I am here today to again make it clear the Municipal Planning Commission is the city government’s general staff office that manages the entire city’s economy. How should it do this? The commission should examine this question in detail.
2. The Role of the Commission under the Current Economic Model
The Party’s 13th Central Committee defined its basic line as “one center and two basic points.” This refers to our current economic model: a planned commodity economy in which “the state adjusts the markets and the markets guide enterprises.” In the aftermath of last year’s political turmoil, Deng Xiaoping delivered an important speech emphasizing that this basic line established by the 13th Central Committee should not be changed. The standard phrasing now is “a combination of a planned economy with market adjustments.” Exactly what does this mean? We still need to explore this question, and I hope you’ll all think about it. I myself am preparing to study it in the context of the situation in Shanghai.
The defining feature of socialism with Chinese characteristics is the idea that public ownership should remain the system’s dominant principle. Although we insist on the dominance of public ownership in order to achieve our goal of common prosperity, this does not preclude shareholding. There must be a unified plan if public ownership is to remain dominant, but at the same time we must let the markets fully play their role.
For several decades, we made many mistakes by relying solely on subjective plans to determine prices and to determine which projects to undertake or forgo. Administrative measures are necessary, but administrative decisions must be based on the markets. Every enterprise must not only answer to its leaders, but even more it must answer to the markets for its performance. This point is relevant to the thinking that will guide the Planning Commission in the future, especially in determining how we should invigorate the markets. In other words, each enterprise must become an organic entity with its own particular interests if it is to answer to the markets and not just to its leaders. The previous excessive blind faith in unleashing enterprises, where everything was devolved to enterprises, not just to factories but even to shops—this method won’t work.
We must remember that on one hand, if supervision is imperfect under a system of public ownership, anyone can take a piece. On the other hand, if all powers are devolved to a factory director, he is entirely able to hollow out the enterprise, which means that enterprises can’t rely on the market alone for guidance. Without direct administrative intervention from above, enterprises could operate completely outside the law. Therefore we must not just emphasize devolution of powers to enterprises. It will take a very long time before enterprises can be entirely guided by the markets. First of all, the system of supervising enterprises will have to be perfected; then the enterprise leadership teams will have to mature. That’s why planning must be part of our economic model for a fairly long time to come—it won’t work to rely entirely on market adjustments.
At the same time, we have to recognize that there are many drawbacks to administrative means, but we still have to use them. Otherwise things will go awry, particularly in Shanghai, where uncentralized decisionmaking is a serious problem. There are many “capable people” here, each doing as he pleases and not truly representing the interests of the enterprise—often they issue orders blindly. If we don’t strengthen planning, we won’t be able to ensure that our key projects will be completed, and our economy won’t grow. That’s why we especially have to stress the important role of a planning commission in building socialism with Chinese characteristics.
Therefore the Planning Commission must be able to take measures. What do I mean by measures? The most important ones are policy measures. It doesn’t have to directly determine a project or a planned target—those aren’t the most important. Ultimately, you have to rely on policy measures and economic levers to adjust the markets; if markets are to guide enterprises, the several conditions I just described must be present. To regulate markets, the state must still rely on policy levers, including those that pertain to pricing, financial matters, fiscal subsidies, and labor allocation. The important thing is to draw up good policies—this measure should be in the hands of the Planning Commission. A policy can often lead to unexpected outcomes and mobilize everyone, so the Planning Commission controls the most important measure.
3. Several Specific Requirements for the Work of the Planning Commission
The Party group of the Municipal Planning Commission will study the best way to organize the offices of the commission on the basis of what I just said, but it won’t take any immediate action—we want to keep things stable. If the division of labor between offices doesn’t make sense, this can be resolved for now in one of two ways.
—First, every specialized section should look at things in terms of overall balance and work on achieving overall balance. The commission’s leaders must not divide up all their forces and assign them to different tasks—it’s all right to emphasize certain areas of work, but frequent exchanges of information should take place, and horizontal links should be strengthened.
—Second, specialized sections must not become spokespersons for different sectors; instead, they should judge everything comprehensively, accept or reject the views of the various bureau-level departments, and then present their own views for their leaders’ consideration.
Now I’m going to list four expectations for the commission and its work.
First, Insist on Good Economic Analysis. In-depth and meticulous investigative studies must be followed by economic analysis, especially quantitative analysis—this is the most important task of the Planning Commission. Studies should go deep into the grassroots and collect large amounts of data. The Economic Information Center should think of ways to condense the greatest possible amount of information into the most briefly worded text: “Great masters only need the lightest touch.” That’s the only way to make it useful to leaders. I hope section chiefs will take the lead in extensively reading economic analyses and general materials from Shanghai, the whole country, and abroad, as well as letters from the people. Unless large amounts of information are examined, it’s very hard to make correct judgments and decisions.
During this stage of development, plans play a vital role in economic intervention, and if they’re poorly executed, we will commit errors and be saddled with a very heavy burden. The Planning Commission is the general staff office—the ideas of the city government’s decisionmakers come from you, and your errors of judgment will affect us. Look at the many figures relating to the current economic situation, for example. What should we make of such data? Two interpretations have emerged. One is that industrial production bottomed out this April and is climbing back up, that the national economy has begun to turn around. I think this might be a bit too optimistic. The other view, which is pessimistic and disappointing, is that Shanghai won’t be able to complete its fiscal tasks this year.
So far, I still believe in Shanghai’s people and in its enterprises. Provided everyone correctly assesses the situation, takes substantive action, dares to manage, takes genuine action, focuses on product quality, and updates our products, we can still make up for things in the second half of the year, so there is still hope for completing our tasks for the year. I’d like to ask our colleagues at the Planning Commission to discuss whether my assessment is correct. On the one hand, we must fully recognize our difficulties, but on the other hand we must see the possibility of a turnaround. We’re not emphasizing production value, we’re emphasizing adjustments. Also, investments in the three major practical projects—roads, housing and gas, and the “vegetable basket” project—will give impetus to the markets. This work is going well and will show results in the second half of the year.
Economic analysis should stress quantitative analysis. The Planning Commission has access to a lot of numbers and information, and is in a position of being able to use its data to speak up. Only quantitative analysis can guide us in making correct decisions. Every two months, I invite people from theoretical circles, economic circles, and arts circles to attend seminar discussions. From now on, the economics seminars can be organized by the Planning Commission. You should frequently invite theoreticians, researchers, professors, factory directors, accountants, and technicians from all sides to these seminars so they can carry out economic analysis and come up with ideas.
Second, Compile a Planning Program and Propose Policy Measures. Plans come from all agencies, and the commission has to balance them all. You have to grasp the crux of the matter and not do any work that is redundant; you must focus on broad areas and not try to vie for power. A major concern at the moment is that a single wrong decision can put our work under severe constraint for several years down the road. Hence you must act as gatekeepers for the Municipal Party Committee and government. If we want to avoid committing economic errors, we will have to rely to a large degree on the commission’s gatekeeping. Since I started working in Shanghai, the only major project I agreed to was one for cold-rolled steel plates—it won’t work to do too many projects.
Many of the current major projects were decided on previously and I’m only implementing them. Right now, many projects are awaiting approval, some industries need technical upgrading, and we must come up with matching funds if we are to utilize foreign investments. The Planning Commission must be cautious in balancing all these and only do what our capacities allow. The plan must ensure key projects—if several pillar projects are handled poorly, we will pay a heavy price in the future. You have to balance the four major elements well: funding, forex, credit, and materials. Balance is relative, not absolute, and it’s dynamic, not static—the situation is constantly changing. Right now we haven’t come to any conclusions on many issues, and I hope you’ll study them well. They include the following:
The question of prices. Prices are the most important economic lever. Many foreigners are saying that now is the best time for China to undertake price reforms; what they oppose most is fiscal subsidies. I think about this from two angles. On the one hand, we still have fresh memories of the 1988 buying frenzy; if there is another round of volatility, people will lose confidence in the government. On the other hand, it won’t do if there are no price adjustments whatsoever. If we keep giving out billions of renminbi in subsidies each year, we’ll never accomplish anything. You should therefore undertake a detailed study of how to use the pricing lever expertly so that it doesn’t create a panic and is acceptable to the people, yet stimulates growth in production.
The question of allocation. A very serious problem now is unfair allocation. The salaries of government agency workers and intellectuals are too low and adversely affect their enthusiasm for work. Salaries at joint ventures are high—this has a great impact on state-owned enterprises (SOEs) and will cause them to collapse if not handled properly. You should come up with ways to resolve these contradictions.
The question of energy strategy. Shanghai’s weakness is that it has no energy resources. We’ve added quite a lot of power-generating capacity over the past few years, but the price was very high, and should coal not be available, the problem still won’t be solved. Thus we must examine how to find new sources of energy, but at the same time address the very big problem of conservation. You’ve proposed setting up an Office of Comprehensive Energy Use and Conservation, and it looks like this is necessary. Its office can be housed within the Municipal Economic Commission but the Planning Commission should be in charge of this, including the comprehensive use of fly ash. Numerical concepts should be used in solving Shanghai’s energy problems: how many steps should be taken, how much each will cost—all these must be made specific.
A program for development of the metallurgical industries must be decided on quickly—we can’t go on arguing about it. Henceforth Shanghai’s steel industry will have to live off product variety, quality, and performance; it should develop deep processing and have the basic equipment in place. It needn’t try to produce too much—5 million tons a year is enough. The main thing is to undertake as much technical upgrading as its present capacity allows and to make up deficiencies. We also have to hurry up and study measures to address the current losses in the metallurgical industries and increase exports. The Planning Commission must come up with methods.
The direction of the textile industry. The textile industry must develop deep processing as well, and it should mainly be export oriented, aiming for international markets; domestically it can’t outdo others and will only wither [if it is domestically oriented]. It’s all right to have fewer spindles; the key is to improve product quality and variety and raise selling prices.
The direction of high-tech industries. How should these industries develop? For example, Shanghai Beiling’s products have excellent prospects but the work so far hasn’t been very good. For the high-tech sectors we have our eyes on, we must have the determination to build them up. We must have an overall plan, use existing equipment, bring in technology, management, capital, and markets, and enter into cooperative projects with foreigners.
Third, Strengthen Supervision, Inspections, and Feedback Regarding the Implementation of Plans. We can’t run everything from just a booklet without strengthening inspections of implementation. As I’ve said before, we should use 90% of our energy to inspect how plans are being carried out, learn about problems that emerge in implementation, and provide feedback about the situation. For example, there are still many problems in implementing the foreign trade agency system. The Planning Commission must work with the Foreign Economic Relations and Trade Commission, the Economic Commission, and the Office of Systemic Reforms to study these. To begin with, the method already decided on this year for improving the agency system must be properly implemented, and you should mediate to help resolve the issues arising during implementation. Next, you must hurry up and think about next year’s reforms—we must take another step next year. Then, we have to establish an overseas sales network, organize industrial groups specifically to export their products, open up international markets, and raise selling prices—you must conduct good studies and trials in these areas.
Visiting workers who stayed on the job during the holidays at the construction site of the Shanghai Yichang Sheet Metal Factory, October 1, 1990. On the left, Huang Ju, vice mayor and deputy secretary of the Municipal Party Committee; on the right, Li Qishi, vice chair of the Municipal Economic Commission and director of the Bureau of Metallurgical Industries.
Another example of a current inspection problem can be seen in financial and trading operations. Many fake and shoddy goods from outside are getting into the Shanghai market through kickbacks, yet Shanghai products are being blocked from outside markets. The Planning Commission should be involved in studying this and strengthening inspections.
Fourth, Mediate and Help Resolve Implementation Problems. Problems uncovered during inspections must be resolved in a timely way, and some may require appropriate adjustments to the plan. The Planning Commission is the largest mediating agency. Most problems should be resolved at lower levels, but the Planning Commission should take the initiative and mediate those that can’t be solved—this is its responsibility. If you veto other people’s plans, you must propose alternative plans, and you mustn’t use your veto power lightly.
The Planning Commission must maintain close contacts with the city government’s chief decisionmakers, such as myself and [Vice Mayor] Huang Ju, and should inform us of developments at any time. You may send a few more people to major decisionmaking meetings on economic matters—we won’t limit you. This is the only way to facilitate decisionmaking, mediation, a timely exchange of information, and the timely resolution of problems.
4. Undertake More Studies of Strategic Goals
We must have an explicit strategy for Shanghai’s development over the next 5 to 10 years, and we must be very clear about which things to concentrate on. My tentative thinking is that over that period, Shanghai will have to solve the following problems.
First, we have to complete the restructuring of industrial enterprises and the upgrading of their products. Generally speaking, we must see obvious results within five years. At least 70–80% of all enterprises must have a new look—they might become joint ventures or joint operations, or have imported technology—in short, they must change their look. Their production should be based on the markets, there should be a series of measures for technical upgrading, and all enterprises incurring losses must be shuttered, halted, merged, or transferred.
Second, no matter what, urban construction and the three practical tasks must be done well. In 5 years, the basic traffic layout should have taken shape; in 5 years, gas connections must be completed—a plan for this already exists. It will take an estimated 10 years to solve the housing problem, with us building 5 million square meters of floor space annually; for the “vegetable basket,” the main thing will be ending subsidies and rationalizing prices. Actually, we should try to achieve everything just mentioned in 5 years; the time can be extended to 10 years for things we really can’t do in 5.
Third, enterprise reforms must be completed. Enterprises should have supervised autonomy. They should study how to establish boards of supervisors so that there are constraints, yet they are fully free to operate.
Fourth, arrangements must be made for several major projects. This is very important. The expansion of the Waigaoqiao Petrochemical Company’s ethylene project could certainly be a joint venture. The company would import some technology and do deep processing. There’s little risk, and there’s no future in low-end products. We must do a good job with the Beiling Company. To develop Pudong, we have to get some world-famous companies to invest. Unless they take the lead in this, small and medium enterprises won’t dare come. Our decision to establish a securities market and allow foreign banks is a sort of gesture to show foreigners that we are confident about reforming and opening up. The main thing in auto production is to improve quality. We can consider changing models, but basically we must form a system for the indigenous production of parts, and these must be produced in large quantities. After we dominate the domestic market, we can think about the next step and concentrate our efforts on exporting parts—market demand will be very great. It’s very possible that in the future, the auto industry will become the biggest industry in Shanghai.
Investment consulting companies are very important. When the Planning Commission—the general staff office—conducts project evaluations and validations, they act as the commission’s strategists, and the commission should support their work. The consulting companies must also do their best to make their project evaluations more scientific. They should focus hard on evaluations of major projects like the Ningguo Road river-crossing project1 and the second phase of the water-channeling project on the upper reaches of the Huangpu River. The key is to explain clearly the views from all sides and the different approaches.
Finally, I just want to say that I came to the Planning Commission today to give you my backing, and I hope you will do your work with no qualms.
1. The Ningguo Road cross-river project refers to the present Yangpu Bridge. It and the Nanpu Bridge are known as “sister bridges.” It has a total length of 7,658 meters and its main arch has a span of 602 meters. The main section of the bridge is a river-spanning twin-tower, dual-cable, diagonal cable-stayed structure. Total investment in this project was RMB 1.33 billion; construction began in May 1991 and it was opened to traffic in October 1993.