Deng Xiaoping and the Transformation of China (84 page)

Deng continued to follow the adjustments in rural policy each year after the transition to household production was completed in 1981, but not with the same intensity and personal involvement as from 1978 to 1981, when he had personally supervised the process of de-collectivization. By allowing Wan Li to tell local rural officials they could allow peasants to do what was necessary to solve the problem of starvation and then publicizing the successful results, Deng had accomplished his goal: relieving China's grain shortage. Deng had no ideological commitment to household farming. He allowed it because it solved the grain problem and the problem of rural livelihood. To reach this goal, he had to de-collectivize agriculture. He accomplished that politically difficult task without a debilitating split in the party and without personally becoming a target of attack by conservative officials. The popular enthusiasm for the results of rural reforms, both among peasants who enjoyed more freedom and income and among urban consumers who enjoyed more varieties of food supplies, greatly strengthened public support for further reforms.

Township and Village Enterprises

In a talk with a Yugoslav official in June 1987, Deng recalled, “In the rural reform our greatest success—and it is one we had by no means anticipated—has been the emergence of a large number of enterprises run by villages and townships. They were like a new force that just came into being spontaneously.”
⁷⁵
Deng did not launch the township and village enterprises (TVEs) experiment, but it fit his philosophy: when something works, support it. It also dovetailed with the recommendations of researchers in Zhao's think tanks: continue the economic planning structure but allow markets to expand as long as they do not interfere with the plans.

When communes were abolished in 1982, the small commune workshops and commercial stores automatically became enterprises under the jurisdiction of the recently reestablished towns and villages. Commune industrial workshops had relied on manual labor and primitive machinery, almost all of which, except for tractors and water pumps, was made locally. Because the transportation systems were so rudimentary, commune enterprises had to repair their own tractors and maintain the water pumps used to irrigate the
rice paddies. Some commune workers wove reeds into baskets; others forged metal in small iron foundries and with lathes shaped simple plows, discs, and harrows to be pulled by water buffalos, small tractors, or teams of young peasants. Many towns had simple food-processing plants for husking rice, making soy sauce, drying fruit, or pickling vegetables. Some communes had simple brick kilns, where they made low-quality bricks, and cement factories, where they crushed rocks and added sand to make simple cement for local use. Some villages had sewing machines for making or repairing clothes. People in towns in hilly and mountainous areas gathered herbs and roots to make simple Chinese medicines, and many built pits where they created organic or in some cases simple chemical fertilizers.
⁷⁶

Although TVEs were not planned, conditions were in fact ripe for their growth. When commune workshops became TVEs with the abolition of the communes, they not only gained some independence from commune management, but they were no longer bound by the geographical area of the commune. They were free to produce goods that they could sell wherever they wanted. Unlike state factories, they had the flexibility to adapt to demand, and unlike independent businesses that were still restricted to having no more than seven employees, they were considered “collectives” and thus ideologically acceptable, with no limit on size. Farm workers who had little incentive to become more efficient when working for the production team had a great incentive to be more efficient when farming the land allocated to their household. Fewer workers were needed to farm the land and more rural youth were available to work in the TVEs. And with the increased production of industrial crops like cotton, flax, and tobacco, the TVEs could turn the harvested crops into cotton goods, canvas, cigarettes, and other products.

Furthermore, the growth of TVEs was fueled by the investment flowing in from the outside. Throughout the 1980s, more than half of the production of the TVEs was taking place in the five coastal provinces of Guangdong, Fujian, Zhejiang, Jiangsu, and Shandong.
⁷⁷
Investment in these provinces and the technology came from Hong Kong, Taiwan, and overseas Chinese (see
Chapter 14
). Many of the towns and villages in Guangdong brought in foreign technology and partnered with local officials in creating increasingly modern factories producing for global markets. In short, as Du Runsheng said, when the communes were abolished and the government and enterprises were separated, the former commune enterprises could begin to act like economic animals, responding to the needs of the market. By the mid1980s, under pressure from the government to be more efficient, some state
enterprises even subcontracted out to the TVEs to help them meet their production plans.

Compared to state-owned enterprises, the TVEs had many advantages. State enterprises, including all enterprises in basic industries, transportation, utilities, and national defense, produced a given quota of goods according to the annual plan, with a fixed number of personnel whose salaries were set by grade. Materials were bought and sold at prices that were set by bureaucrats to reflect the priorities of the plan. In short, state-owned enterprises had no flexibility, but the TVEs were completely flexible in adapting to market conditions. Furthermore, state enterprises were expected to supply many benefits for all their employees: housing, welfare, medical care, and schooling. The TVEs could draw on young labor and avoid the higher pay and extensive welfare payments that went to an older workforce. In 1978, 28.3 million people were employed in commune enterprises; in 1992 when Deng stepped down, the TVEs employed 105.8 million people. In 1978, the value of production in commune enterprises was reported to be 49 billion yuan; in 1992 when Deng stepped down, the value of TVE production was reported to be 1798 billion yuan, almost fifty times as much.
⁷⁸
In 1978 commune enterprises comprised 9 percent of China's industrial output, but by 1990 the TVEs comprised 25 percent and by 1994, 42 percent.
⁷⁹

The TVEs began to draw materials and labor from state enterprises. In the Yangtze delta area, for example, engineers working in state factories who produced goods according to annual plans as part of their regular weekday jobs moonlighted on weekends in TVEs in Wuxi, Suzhou, and Kunshang, not far west of Shanghai, that were far more efficient than the regular state factories.

By the late 1980s, Chen Yun had become upset that the TVEs were consuming materials needed for state enterprises, that small TVEs were wasting fuel and other resources that could be used more efficiently by state enterprises, and that competition from the leaner TVEs was making it more difficult for state enterprises to operate in the black and to provide for their older staff and retirees. As a result, the balancers in state planning and finance began to demand stricter supervision over the TVEs so they would not drain too many resources and labor away from the state enterprises.

Individual Household Enterprises

Although the TVEs were independent of the government, they were still under the supervision of local party officials. Since the TVEs were considered “cooperatives,” they were easier for the Communist conservatives to accept
than “private enterprises” that were owned by individuals. Yet there was tremendous pent-up demand for the services and products that such individually owned businesses typically offered. After collectivization in 1955–1956, urban private businesses had been eliminated, but when the reforms began in the 1970s people were eager for restaurants, neighborhood shops, repair shops, and stores with all kinds of goods. Deng and his colleagues knew there was a need for small private enterprises in the urban areas, but how would they win acceptance from conservative officials to allow such businesses to restart?

The answer lay in the urgency of finding employment for young people to curb urban unrest. By 1978, there were several hundred million people who were underemployed and yet, because socialist societies theoretically eliminated “unemployment” (
shiye
), even the term “unemployment” was then too sensitive to be used. If urban youth did not have work, they were “waiting for assignment” (
daiye
). And although rationing in the early years after 1977 had made it difficult for unauthorized youth to return to the cities, as peasants in the countryside increasingly sold off their surplus in the markets, urban families found ways to feed the returned youth without ration coupons, and more youth began seeping back into the urban areas—where they could not find jobs. Also, beginning in 1977, once youth in the countryside who passed the university examinations were allowed to return to study, the envious who were left behind in the countryside began to find ways to trickle back into the cities.

In 1978 and 1979, an estimated 6.5 million youth returned to urban areas from the countryside.
⁸⁰
By the early 1980s, an estimated 20 million intellectual youth and workers, largely former urban residents, had also moved back to the cities. With the state budget under great strain, state enterprises lacked the funds to hire them. By 1979 reports of increasing crime among youth “waiting for employment” grew more worrisome to the political leaders. So just as Deng had used the danger of starvation as leverage to permit peasants to “find their own solution,” in 1979 he used the danger of increasing crime among urban youth to convince other leaders to let them form
getihu
(individual household enterprises).
⁸¹
As long as they relied on their own labor and did not exploit the labor of others, they would still be considered workers, not capitalists, and so, Deng said, they should be allowed to open a shop, repair station, or some other “household enterprise.” By early 1980, then, small markets and food stalls began to appear in cities and towns.

But how should one draw the line between heads of household enterprises and capitalists? In volume 4 of
Das Kapital
, Marx describes the case of an
employer who had eight employees and was exploiting the labor of others. Practical Beijing politicians, then, suggested that as long as the household had no more than seven employees and the household head himself (or herself) worked, the leader of the household enterprise would be classified as a “worker.”

Once they were permitted, household enterprises proliferated like bamboo shoots after a spring rain: stalls sprang up in towns and cities offering haircuts; repairs of shoes, knives, and bicycle tires; drinks or prepared foods; and handicrafts or manufactured goods. In some areas, such shops were allowed to be open only in the evenings and became “night stalls.” In July 1981, the State Council issued regulations to guide the development of household enterprises, and local communities began to regulate where they could be located and required them to be licensed. The revival of urban services, like the revival of household agriculture, proved enormously popular, both to those who now had a way to earn a living and to the consumers who now had access to needed services and products.

By 1982 it was discovered that some household enterprises were hiring eight or even more workers, and a debate ensued. Deng asked what people were afraid of—that it would harm socialism?
⁸²
He used simple examples to make his case. If a farmer has three ducks, he has no problem, but if he gets a fourth duck, is he a capitalist? Still, the issue of where to draw the line on how many employees a private businessperson could hire remained so sensitive that the final answer required the personal involvement of Deng and Chen Yun. Deng said to Chen Yun that if they publicly discussed the issue, people would be afraid that the policy allowing private enterprise could be changed, so he suggested that they “let it continue for a couple years, then see how it's working” (
kan yi kan
). Although some enterprises were reluctant to grow so large that they would be noticeable, others continued to expand. Meanwhile, Deng continued to avoid public statements, a strategy that allowed private enterprises to grow in a way that would not alarm conservative officials. At the 13th Party Congress in 1987, party officials officially permitted individual household enterprises to hire more than seven employees. Deng had scored another victory by using his basic approach to reform: Don't argue; try it. If it works, let it spread.

By 1982 the success of Chen Yun's retrenchment policy had, paradoxically, given Deng a much stronger case for promoting a policy that Chen Yun would not have approved: rapidly accelerating China's growth. In 1980 the budget deficit stood at 11.7 percent of revenue, but by 1982 it had dropped to 2.6 percent. In 1980 foreign reserves were only US$4 billion but by 1982 they had risen to US$14 billion. In addition, in 1982 the grain harvest was 354 million tons, up 9 percent over the previous year, and the actual rate of economic growth was 7.7 percent, nearly double the 4 percent projected rate.
¹

Deng and Chen Yun Disagree on the Growth Rate, 1981–1983

By 1981, Deng's effort to be patient with Chen Yun's readjustment policy that slowed growth rates was wearing thin. Deng had already begun talking about quadrupling industrial and agricultural output by the year 2000. When at one meeting he asked how fast China would have to grow to quadruple GNP growth from 1980 to 2000, Hu Yaobang, who had already done the calculations, immediately responded: 7.2 percent per year.
²
Yet in 1981 the economy grew at only a 5.2 percent rate. Chen Yun, Yao Yilin, and the cautious planners who controlled the planning apparatus had restricted outlays of investment for construction.