Transforming China
Broad-based economic reform is never easy. Because: first, it takes away rents that have been built up in an economic system and therefore sets off opposition from those whose income is at risk.
Second, wholesale reform requires broad-based popular sentiment supporting leadership and systemic changes to address mass dissatisfaction through concrete programs.
The upshot is that with very few exceptions, broad-based reform seems to require as a necessary condition – a perception of crisis, or at least a sense of chronic deterioration.
China met all these prerequisites when in early 1979 it launched its reform and opening policies under the leadership of Deng Xiaoping, which in just about 30 years transformed China’s economy from ruins under ten years of the Cultural Revolution into the world’s second largest economic powerhouse after the United States.
Many books have been written about China’s economic “miracle”, the discovery of cheap land and a huge pool of low-cost labor that has attracted trillions of dollars of foreign investment that now fuels China’s export juggernaut.
One new book, titled Breaking Through: The Birth of China’s Opening-Up Policy, written by former Vice Premier Li Langing, translated into English by Ling Yuan and Zhang Siying and published by the Oxford University Press, is perhaps the first book that tells the story from an insider, one of the key players in the reform and opening movement.
Since Li was one of the key government executives who took part, not only in the making but also supervision and implementation of the opening policies and decisions, he was able to vividly chronicle the step-by-step process of decision making, the trials and errors, the actions and the thought process which brought about reform measures.
The book is a perfect reference to better understand who the main players were and the key events and milestones in the early years when Deng, against tremendous odds and resistance, led the Chinese people, who in 1978 were just recovering from the devastating effects of ten years of the Cultural Revolution, out of their decades long international isolation and economic ruins.
The book provides details about the process by which government officials at all levels executed policy decisions.
Li, who began his government career in the early 1960s as one of the top executives of China’s first domestic car manufacturer (Dongfeng), was directly involved in implementing the opening-up policy in 1978 when he conducted negotiations to tie up Dongfeng with US General Motor to modernize its factory.
He rose steadily through the ranks to enter the Party central leadership and eventually became a vice premier, which enabled him to often meet personally with Deng.
Demonstrating Deng’s reformist determination, Li quoted the Chinese leader as repeatedly asserting at their numerous personal encounters “We have to reform and open up, otherwise we are doomed”.
Li played a more pivotal role in the opening program when in early 1982 he was appointed a director general and later a vice minister at the ministry of foreign economic relations and trade in charge of foreign investment and involved directly in overseeing the development of special economic zones (SEZ).
He was widely known as a strong advocate of joint ventures between China and foreign companies in order to bring in foreign technology and equipment, initially championing the development of the Guangdong province SEZ and eventually in nine other provinces in south and southwest China, now popularly known as the Pearl River Delta regions.
He rightly devoted more than one third of the 465-page book to the early process of SEZ development. This concept has undoubtedly been the window and main instrument of China’s colossal economic transformation.
The trove of information in the book about the early process of developing the SEZ in 1979 should be a good source of lessons for Indonesia, which has still to build SEZs in various provinces under its 2009 SEZ law.
The Hong Kong factor
Hong Kong has played a pivotal role in the modernization of the Chinese economy, providing capital, logistical support, access to world markets, management know-how, technology, equipment, design and research, marketing skills, procurement services and quality assurance.
Nothing would have happened, however, had it not been for the strong leadership of Deng, who was supported by a determined team of reformers, including Li Langing.
It all began in early 1979, when a China state company based in Hong Kong applied for a license to open a factory in Guangdong province.
When this application was sent to Deng, who at the time had started promoting the idea of opening to the outside world, this reformist leader immediately wrote down his instruction, “Guangdong should be provided a free hand to to give this sort of thing a try”.
His ministers and Guangdong regional leaders immediately followed up that instruction by designing a special economic zone initially in Guangdong with more liberal economic regulations than in Fujian and other provinces in the south.
However, this process was not an easy one because the opening policy and SEZ were unprecedented in a socialist country following the lingering impacts of the Cultural Revolution.
There had been some concern that the special policies and flexibility granted to Guangdong and Fujian could slip these provinces on to the capitalist road.
Some equated the special zones with “foreign colonies” or restoration of capitalism.
Deng’s strong leadership, however, continued to push officials and state company executives in the province to implement the SEZ concept.
The name Special Economic Zone was given by Deng himself in April 1979 after officials tried to come up with a name that did not connote foreign concessions or enclaves such as free trade zones or free ports.
The success in Guangdong became a confidence-building block for developing SEZs in other provinces in southern China.
The basic idea then was to combine Hong Kong’s abundant finacial resources and advanced technlogy and efficient infrastructure with China’s low-priced mainland real estate and labor resources to bring in foreign capital, technoloy and raw materials.
Hong Kong still has an important role to play in the trading business. Its current relationship with the Chinese mainland is complementary. As a major business service center, Hong Kong and its firms package financial and business deals for corporate and private clients from Hong Kong and the rest of the world.
The Pearl River Delta, now one of the most economically dynamic regions in China, has developed into a manufacturing center of global importance and one of the world’s fastest growing economic regions due largely to the vital role of Hong Kong as an excellent international financial and supply-chain management center of global importance.
The Greater Pearl River Delta covers Hong Kong, Macao, Guangzhou, Shenzhen, Dongguan, Foshan, Jiangmen, Zhongshan, Zhuhai, Huizhou and Zhaoqing.
While Hong Kong has developed as a leading center for management, coordination, finance, information and business services, the Pearl River Delta region has emerged as a manufacturing powerhouse with few global rivals.
The idea of SEZ then was: Instead of making only incremental progress through an overall reform simultaneously in the whole mainland that could take many decades to accomplish, it was deemed more effective and efficient, and most importantly, more politically acceptable to start with bold moves in particular areas (islands), selected for their strategic roles, to establish show cases of success and thereby build confidence.
It was indeed unrealistic – given China’s vast territory and regional disparities in socioeconomic development and uncertain investment environment – for all regions to jump on the opeing badnwagon at the same time.
SEZ therefore essentially called for the development of islands of competence with streamlined licensing procedures, good infrastructure, flexible labor regulations, superior logistical efficiency, anchored on fast flows of goods, labor and documents, efficient tax administration and customs and immigration service.
They were called special ecoomic zones because the economic regulations and other rules in these zones are more liberal and flexible than most of the rest of the mainland.
Jiang Zemin, who supervised SEZ development since its launching in 1979, noted at a meeting with foreign guests in June 1987 the strategic importance of China’s decision to establish SEZ (see box story).
“Our effort to run the special economic zones played an important role in our reform and opening endeavor as a whole”, noted Jiang, who later became China’s President for ten years (1993-2003).
Second, wholesale reform requires broad-based popular sentiment supporting leadership and systemic changes to address mass dissatisfaction through concrete programs.
The upshot is that with very few exceptions, broad-based reform seems to require as a necessary condition – a perception of crisis, or at least a sense of chronic deterioration.
China met all these prerequisites when in early 1979 it launched its reform and opening policies under the leadership of Deng Xiaoping, which in just about 30 years transformed China’s economy from ruins under ten years of the Cultural Revolution into the world’s second largest economic powerhouse after the United States.
Many books have been written about China’s economic “miracle”, the discovery of cheap land and a huge pool of low-cost labor that has attracted trillions of dollars of foreign investment that now fuels China’s export juggernaut.
One new book, titled Breaking Through: The Birth of China’s Opening-Up Policy, written by former Vice Premier Li Langing, translated into English by Ling Yuan and Zhang Siying and published by the Oxford University Press, is perhaps the first book that tells the story from an insider, one of the key players in the reform and opening movement.
Since Li was one of the key government executives who took part, not only in the making but also supervision and implementation of the opening policies and decisions, he was able to vividly chronicle the step-by-step process of decision making, the trials and errors, the actions and the thought process which brought about reform measures.
The book is a perfect reference to better understand who the main players were and the key events and milestones in the early years when Deng, against tremendous odds and resistance, led the Chinese people, who in 1978 were just recovering from the devastating effects of ten years of the Cultural Revolution, out of their decades long international isolation and economic ruins.
The book provides details about the process by which government officials at all levels executed policy decisions.
Li, who began his government career in the early 1960s as one of the top executives of China’s first domestic car manufacturer (Dongfeng), was directly involved in implementing the opening-up policy in 1978 when he conducted negotiations to tie up Dongfeng with US General Motor to modernize its factory.
He rose steadily through the ranks to enter the Party central leadership and eventually became a vice premier, which enabled him to often meet personally with Deng.
Demonstrating Deng’s reformist determination, Li quoted the Chinese leader as repeatedly asserting at their numerous personal encounters “We have to reform and open up, otherwise we are doomed”.
Li played a more pivotal role in the opening program when in early 1982 he was appointed a director general and later a vice minister at the ministry of foreign economic relations and trade in charge of foreign investment and involved directly in overseeing the development of special economic zones (SEZ).
He was widely known as a strong advocate of joint ventures between China and foreign companies in order to bring in foreign technology and equipment, initially championing the development of the Guangdong province SEZ and eventually in nine other provinces in south and southwest China, now popularly known as the Pearl River Delta regions.
He rightly devoted more than one third of the 465-page book to the early process of SEZ development. This concept has undoubtedly been the window and main instrument of China’s colossal economic transformation.
The trove of information in the book about the early process of developing the SEZ in 1979 should be a good source of lessons for Indonesia, which has still to build SEZs in various provinces under its 2009 SEZ law.
The Hong Kong factor
Hong Kong has played a pivotal role in the modernization of the Chinese economy, providing capital, logistical support, access to world markets, management know-how, technology, equipment, design and research, marketing skills, procurement services and quality assurance.
Nothing would have happened, however, had it not been for the strong leadership of Deng, who was supported by a determined team of reformers, including Li Langing.
It all began in early 1979, when a China state company based in Hong Kong applied for a license to open a factory in Guangdong province.
When this application was sent to Deng, who at the time had started promoting the idea of opening to the outside world, this reformist leader immediately wrote down his instruction, “Guangdong should be provided a free hand to to give this sort of thing a try”.
His ministers and Guangdong regional leaders immediately followed up that instruction by designing a special economic zone initially in Guangdong with more liberal economic regulations than in Fujian and other provinces in the south.
However, this process was not an easy one because the opening policy and SEZ were unprecedented in a socialist country following the lingering impacts of the Cultural Revolution.
There had been some concern that the special policies and flexibility granted to Guangdong and Fujian could slip these provinces on to the capitalist road.
Some equated the special zones with “foreign colonies” or restoration of capitalism.
Deng’s strong leadership, however, continued to push officials and state company executives in the province to implement the SEZ concept.
The name Special Economic Zone was given by Deng himself in April 1979 after officials tried to come up with a name that did not connote foreign concessions or enclaves such as free trade zones or free ports.
The success in Guangdong became a confidence-building block for developing SEZs in other provinces in southern China.
The basic idea then was to combine Hong Kong’s abundant finacial resources and advanced technlogy and efficient infrastructure with China’s low-priced mainland real estate and labor resources to bring in foreign capital, technoloy and raw materials.
Hong Kong still has an important role to play in the trading business. Its current relationship with the Chinese mainland is complementary. As a major business service center, Hong Kong and its firms package financial and business deals for corporate and private clients from Hong Kong and the rest of the world.
The Pearl River Delta, now one of the most economically dynamic regions in China, has developed into a manufacturing center of global importance and one of the world’s fastest growing economic regions due largely to the vital role of Hong Kong as an excellent international financial and supply-chain management center of global importance.
The Greater Pearl River Delta covers Hong Kong, Macao, Guangzhou, Shenzhen, Dongguan, Foshan, Jiangmen, Zhongshan, Zhuhai, Huizhou and Zhaoqing.
While Hong Kong has developed as a leading center for management, coordination, finance, information and business services, the Pearl River Delta region has emerged as a manufacturing powerhouse with few global rivals.
The idea of SEZ then was: Instead of making only incremental progress through an overall reform simultaneously in the whole mainland that could take many decades to accomplish, it was deemed more effective and efficient, and most importantly, more politically acceptable to start with bold moves in particular areas (islands), selected for their strategic roles, to establish show cases of success and thereby build confidence.
It was indeed unrealistic – given China’s vast territory and regional disparities in socioeconomic development and uncertain investment environment – for all regions to jump on the opeing badnwagon at the same time.
SEZ therefore essentially called for the development of islands of competence with streamlined licensing procedures, good infrastructure, flexible labor regulations, superior logistical efficiency, anchored on fast flows of goods, labor and documents, efficient tax administration and customs and immigration service.
They were called special ecoomic zones because the economic regulations and other rules in these zones are more liberal and flexible than most of the rest of the mainland.
Jiang Zemin, who supervised SEZ development since its launching in 1979, noted at a meeting with foreign guests in June 1987 the strategic importance of China’s decision to establish SEZ (see box story).
“Our effort to run the special economic zones played an important role in our reform and opening endeavor as a whole”, noted Jiang, who later became China’s President for ten years (1993-2003).
