Deng Xiaoping and the Transformation of China (81 page)

The essence of Chen Yun's approach to planning was balance: balance income and expenditures, loans and the ability to repay, and foreign currency income and expenditures. He also sought a balance between investment in consumer goods and producer goods, between heavy and light industry, and between industry and agriculture. In 1978, some 57 percent of China's industrial output was from heavy industry and only 43 percent from light industry.
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Chen Yun, like many other officials, believed that China's economy had been out of balance since 1958, with food and consumer goods sacrificed for more heavy industry than the people could bear. In 1980, under Chen
Yun's direction, heavy industry grew only 1.4 percent whereas light industry grew 18.4 percent; and in 1981 heavy industry declined by 4.7 percent whereas light industry grew 14.1 percent.
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At the Wuxi conference, held April 5–28, 1979, shortly after the announcement of the readjustment policy, local officials and ministry officials complained of the overly tight centralization of economic planning. Chen Yun was willing to allow more flexibility for markets at lower levels, but he insisted that planning remain primary. Those who had been expecting new plants in their localities were understandably upset. As a participant from Tianjin said, reflecting the dominant mood at the meeting, “We were in high spirits. Now suddenly to propose readjustment, it is pouring a bucket of cold water on us; it is a blow to our high spirits.”
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Hu Yaobang sought a directive to reassure local officials that the party still wished to promote industrial development. Zhao Ziyang spoke out supporting readjustment, explaining that it provided the necessary conditions for later reform and development. Gu Mu, whose trip to Europe had set off the exuberance, joined in, loyally explaining the need for readjustment. Once Zhao and Gu Mu had spoken, the atmosphere at the meeting changed; local officials reluctantly approved the written report supporting readjustment.
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Deng joined in, explaining as Zhao did that the readjustment policy was necessary to create a solid basis for future growth.

Local officials were constrained by the readjustment policies, but they found creative ways to use their counter-policies to Beijing's policies to avoid reining in investment and expenditures as much as Chen Yun sought. Chen's efforts were also hampered by his own illness. On October 24, 1979, while in Hangzhou, Chen was operated on for colon cancer and he remained in the hospital there until December 14. After returning to Beijing, Chen was admitted to the hospital from May 20 to May 29, 1980, for additional testing and recuperation. By the time Chen Yun returned to work in late 1980, the budget deficits had ballooned to become the largest since the Communists took over. The seriousness of the problem made Chen Yun more determined to clamp down and enabled him to gain support from other officials, including Deng. The deficit had grown not only due to the costs of the Vietnam War, but also because of the increase in procurement prices paid to the farmers for grain, the decline in agricultural taxes, and the costs of resettling people who had earlier been sent to the countryside and were now allowed to return to the cities. Moreover, the central government began allowing provinces and local enterprises to keep more of their own funds to stimulate local
initiatives, a strategy that had reduced the total amount of taxes collected by the central government.
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The result was a great stimulus for many provinces, but Chen Yun considered the serious budget deficits alarming and potentially disastrous.
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By late 1980, Chen Yun and the balancers were on the offensive and Deng supported them. At the meetings of the Standing Committee of the NPC in September, those who had been promoting rapid industrial development were accused of following the “erroneous heavy industry policy” of the Cultural Revolution.
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Adding to the momentum favoring the balancers, in the fall of 1980 Deng Liqun, in a series of four lectures at the Central Party School on Chen Yun's economic thought, praised Chen Yun so lavishly that some accused him of promoting a cult of personality. Since 1949, Deng Liqun said, Chen Yun's policy proposals have all been correct. What went wrong during the Great Leap? Others failed to follow Chen Yun's advice. And what is wrong now? People are not sufficiently adhering to Chen Yun's words of wisdom. It is essential to carry out readjustment thoroughly.
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The balancers also jumped on the story of the collapse of an oil rig in the Gulf of Bohai, accusing Yu Qiuli and Kang Shi'en of trying to cover up the incident, which had resulted in the deaths of seventy workers. Their alleged cover-up of the incident became a pretext for removing them from their administrative positions. In fact, as experienced professionals who knew they would be held responsible for their errors, Yu Qiuli and Kang Shi'en were more careful than the political leaders who had urged them to expand their projects. At the NPC meeting in February 1978, Yu Qiuli had warned that China would have difficulty increasing oil exports because no new oil had been discovered in recent years, and because even if it were discovered, it would take three years to move from discovery to production.
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After the oil rig collapsed, Yu Qiuli gave a thorough explanation of how and why it had occurred. Even Li Xiannian, who remained close to Chen Yun, later acknowledged that Yu Qiuli had accepted responsibility for things for which he should not have been held accountable.
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Although Yu Qiuli was removed as director of the State Planning Commission, he was allowed to remain on the Politburo. Furthermore, Deng still had enough respect for Yu that he used his military connections to get Yu appointed as head of the Political Department of the PLA. But by late 1980, Chen Yun had made sure that those officials who were committed to tighter financial control over new projects and new construction had firm control
over economic affairs.
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Accordingly, one of Chen Yun's allies, Wang Bingqian, became minister of finance.
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And Yu Qiuli's replacement was Chen Yun's longtime ally Yao Yilin, who was widely respected for his administrative abilities as well as his knowledge of the economy.
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On October 28, 1980, Deng, responding to accusations that drawing up ten-year visions had led to the creation of wish lists without careful analysis, accepted Chen Yun's view that they stop drawing up ten-year visions. Long-term economic discussions would focus on the more careful process of drawing up five-year plans.
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In November 1980 China's economic growth rate targets for 1981 were set at a much lower rate, 3.7 percent, and capital construction allocations were reduced from 55 billion yuan to 30 billion yuan. When there were complaints that such restraints would waste valuable time, Chen retorted, “How much time have we wasted since the Opium War? Over a hundred years. Why is it such a big thing to wait three years to move ahead?” What had most delayed China's advances since 1949, he said, was leftist errors made while rashly pushing ahead.
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Chen Yun was allowed to take firm control over guiding the drafts for the Sixth Five-Year Plan (1981–1985) and over bringing the budget and deficit under control.
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As 1980 came to a close, Chen and his balancers maintained a firm grip on China's economic policy. In late 1980, Chen delivered a major address supporting a stricter readjustment policy. On December 15, just as the series of nine Politburo meetings pushing Hua aside was coming to an end, Deng said, “I fully agree with Comrade Chen Yun's speech.” Further, he said Chen's policy of readjustment had not been effectively implemented “because party members did not have a profound or unanimous understanding of the issues involved.” To overcome this problem, they must “resolutely cast away unrealistic ideas and overly ambitious targets.”
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In short, Hua Guofeng was blamed for the unrealistic plans, Deng and Chen Yun were united, and Deng supported Chen Yun's efforts to undertake a more penetrating implementation of the readjustment policy.

Retrenchment created other problems: Deng had to explain to foreigners why China was breaking contracts for the importation of plants and equipment. Beijing had the power to handle disappointed local officials, but breaking contracts with foreign companies affected foreign relations and raised long-term questions about the credibility of the Chinese government.

The problem proved especially troublesome for Sino-Japanese relations because nearly half of all the contracts with foreign companies were with Japanese
companies; the Japanese business community, while controlled in its communications to China, was furious at the cancellation of signed agreements. As early as March 1979, when the first efforts were made to reduce purchases, some US$2.7 billion of Chinese contracts with Japan were frozen.
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The postponement of the Baoshan Steel Plant, in particular, had a huge negative effect on many of the Japanese companies involved in the project. In late October 1980, just before China formally announced the postponement of its contracts, Yao Yilin, who had worked closely with the Japanese, was dispatched to Tokyo to prepare the Japanese for the impending announcement. But it fell to Deng Xiaoping to smooth things over with high-level Japanese leaders.

Deng could not avoid the loss of much of the goodwill that had followed his visit to Japan in October 1978. He did not engage in deep humble apologies as Japanese would have done under similar circumstances, but he acknowledged forthrightly that China lacked experience, that it had made mistakes, that it faced a serious situation whereby it could not afford to pay for all the things it had hoped to buy, and that it had not always made appropriate preparations to use the plants it had hoped to purchase. But, Deng reassured them, China was willing to provide compensation to the Japanese firms adversely affected, and it expected in the long run to resume its purchases as it grew and was better prepared.

On September 4, 1980, Deng gave his explanation to visiting Japanese Foreign Minister Ito Masayoshi.
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The visit was followed on January 13, 1981 by an official letter to Baoshan Steel announcing cancellation of the second phase of the planned construction. The first senior Japanese to visit Deng after that letter was former foreign minister Okita Saburo, an “old friend” of China who arrived in February at the invitation of Gu Mu. When he met Deng, Deng acknowledged they had been overly optimistic about oil production. Okita was courteous and respectful, but he conveyed both the Japanese government's request for a full explanation and the stern message from Japanese businessmen that cancellation would tarnish China's reputation in the international business community.
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After he returned to Japan, Okita explained that because of the Cultural Revolution, Chinese officials who might have been able to provide expertise in a timely way had been unable to do so.
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Deng's meeting with Okita was followed by several others. On March 18, Deng met with the highly respected Doko Toshio, the eighty-five-year-old, plain-living president of Japan's largest business association, Keidanren.
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On April 4, Deng met with a delegation from the Sino-Japanese Friendship Association,
headed by Furui Yoshimi.
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And on April 14, he met with Prime Minister Ohira, who was making efforts to promote a Pacific community.
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Deng conveyed the same basic message to all of these leaders: China lacked experience and it had made mistakes, but it intended to revive the contracts later.

Many Japanese firms swallowed the losses so as not to endanger their future business relations with China. Moreover, the Japanese government extended new loans to help continue the projects that had already begun. One central and innovative example of such support occurred when Okita Saburo became head of Japan's Overseas Economic Cooperation Fund (OECF), the government agency that gives financial aid to promote Japanese exports. In the first arrangement of its kind, whereby OECF gave funding to a second country so it could give aid to a third country, Okita arranged to lend money to Australia so it could ship iron ore and high-grade coal to Baoshan, thus resolving the key stumbling block in allowing the project to go forward. The first phase of the Baoshan project was resumed on a modest scale in the fall of 1981, and by the fall of 1982 the Baoshan construction site was buzzing with new activity.
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When it was completed in May 1985 it became the first large modern steel plant in China, and the model for future plants.
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Before it was built China produced less than one-quarter of the steel that Japan produced. Within thirty years, the Baoshan plant and those built in its likeness had helped China produce almost 500 million tons of steel per year, roughly five times the amount of steel produced in either Japan or the United States.
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Some thoughtful Chinese officials believed that Chen Yun provided a much-needed balance to an impatient Deng. It was unfortunate, they acknowledged, that China had barged ahead and then retreated just as it was beginning its modernization drive. But, they argued, Chen Yun's readjustment policy was seriously needed and some of the problems of the late 1980s could have been avoided had Deng initially listened more to Chen.