INTERVIEW WITH WANG GUIWU

Chairman - Chinese Reform Forum (1)

THE CHINESE REFORMS

Serge Berthier.- Many experts have increasing doubts about the 8% GDP growth target for 1998 and ther sustainability of such rate for the future. What is your opinion?

Wang Guiwu.- Before July, many people, even officials at the government level were worried that we could not achieve the 8% growth target because the growth registered in the first part of the year was just about 7%. After August, the mood changed because the effects of the massive investments made in infrastructure and other sectors started to be visible in the statistics. Today, I would say that the target is achievable.

S.B.- At the Chinese Communist Party's 15th Congress, President Jiang Zemin vowed to overhaul the state sector. Barely a year later, the government is propelling the economy through massive spending. Isn't that a bit contradictory?

W.G.- When Mr. Zhu became Prime Minister, he announced that the government should shed 50% of its staff. That is a tremendous effort to down-size the government and to improve efficiency. On the economic side, the investments are badly needed as we have a very weak infrastructure. Furthermore, they are part of our ninth five-year plan (2). I don't see any contradiction with what was said at the last Congress (in September 1997).

S.B.- Every government is trying here and there to down-size its civil service. Most of the time, the reform creates more bureaucracy rather than less because of a stiff resistance by the bureaucrats themselves. In China, the National People's Congress promulgated a law in 1993 to overhaul the civil service (3). The law has still not been fully implemented everywhere. What is different this time?

W.G.- At the time, Zhu Rongji was not Prime Minister. Now, he is Prime Minister and he has said that each agency will have to shed 50% of its staff. The message is very clear.

S.B.- I understand. But is the civil service itself cooperating?

W.G.- You can't expect everyone to support such a policy. Some civil servants don’t like it. So the party and the government must give them orders. It has already started, so in my opinion, the reform will succeed. In the meantime, the unhappy ones are just trying to buy time.

S.B.- How many have already left?

W.G.- A quarter to a third will leave the civil service this year.

S.B.- What incentives do they receive?

W.G.- The government takes care of their retraining. Some choose to go to university, others to vocational technical institutes. Then, you have a number of them who are turning to the business sector, especially the state-owned companies that are looking for better trained staff than in the past. Ex-government officers are generally better educated and better trained than the old staff of the state-owned companies. If the enterprises want to progress, and they need to, they have to improve the quality of their managers. That is where the redundant government officers are useful.

S.B.- 1997 was marked by a number of social disturbances in the provinces due to the rise in unemployment. How do you gauge the social situation today? Is it more stable or less stable?

W.G.- I think it is more stable today than last year. We do not have major social disturbances. I do not deny that we have problems here and there . In a country, in any country, you do have problems here and there. But the society as a whole is quite satisfied. There is a simple reason for that. Most of the people can look back, and they are better off today than they have ever been. Most of them have, for example, a refrigerator. In the past, they didn't have one.

S.B.- Yes, but in the past when a person was hired, it was for life and the population being a lot less numerous, there was work for everybody. In the past decade, unemployed people used to come to the cities where they could expect to get a job. Today, unemployment in the cities is on the rise. Where are the people going if they want a job?

W.G.- Several years ago, and for many years, many people came from the rural areas to the cities to find jobs. Since last summer, many have returned to the countryside, and what is new is that we even have some people from the cities going to the small towns (known as townships) to find jobs (4).

S.B.- What do they do? Why such a trend?

W.G.- There are several factors. One of them is that job creation in the cities is not as significant as it was in the past. Rural firms create most new jobs, whereas the state-owned enterprises cannot grow as rapidly. You now have staff made redundant by state-owned enterprises going back to the rural areas, from cities to townships. Even in cities such as Beijing, Shanghai, Wuhan and Xian, many unemployed workers are turning to farming or to activities related to farming.

S.B.- If they were not farmers in the first place, what can they do? Can they get land for example?

W.G.- They can get some land on loan, but what most former state-owned employees do is they work in other related areas of farming. Some will grow vegetables, fruit and other crops, but when in rural areas, ex-city workers have a comparative advantage in some fields. They have better knowledge, they are better versed in mechanization than the farmers, so they can bring new technologies to the farmer and better use of equipment. Most of the farmers have a poor knowledge of mechanization. They need help and training. They need to maintain their equipment. Most of them do no know how to harvest or plough with a modern equipment.

S.B.- But surely, if such things are happening, it can't be on a scale large enough to cope with the demand for jobs arising out not only from the natural growth of the population but also from the restructuring of the state-owned enterprises and the civil service?

W.G.- That is why we have put a lot of money to construct highways, ports, and other infrastructure projects. Most of the investments are labor-intensive. They create jobs on a large scale. You also know that we recently suffered the worst flooding of these past fifty years. A lot of houses and infrastructures were wiped out. President Jiang and Premier Zhu have both emphasized that what we reconstruct should be of a better standard than what was destroyed. This is going to create quite a number of jobs outside the coastal cities which were not affected.

S.B.- Is then the massive rural emigration we have witnessed in a recent past, which was very disruptive and cause major social problems, over?

W.G.- Several years ago, The labour force was moving wildly (5). The government had little control over it. Last year, new policies were put in place by the government to control the flow of rural migrants to bring stability. Without such stability, you cannot progress.

S.B.- But it is precisely last year that social discontent was at its highest. Is it as a result of such policies that people felt they could not seek a job as freely as before, even if it meant leaving their home town?

W.G.- In inner China, with the new economic conditions facing the state-owned enterprises which were the main source of employment, many problems erupted. People were left on their own. But in April 1998, the government instructed the state-owned enterprises to setup in each enterprise what you call in modern enterprise "a human resources department". They didn't have any before because it was a practice, since 1949, that when a person was taken as an employee, he or she will remain on the payroll until death. The government said that the department has two responsibilities: one is to keep track of the employees and their career, salary, etc.…, the other is to deal with a redundant employees and help them find a new job. In practice, it means that the state-owned enterprise has to find an alternative job or has to offer some compensation. Since then, we do not have the same kind of problems where people were left with no one to turn to. Now, they can go to the department to explain their grievance and their needs.

S.B.- It may bring them some comfort, but in practice, how can the state-owned enterprise which is itself most of the time in trouble find a job for its former employees?

W.G.- At the micro-level, every city, small town, or county government must implement practical measures to alleviate the unemployment problems. It can be financial help or other measures. In practice, the people have a channel and so we have less trouble.

S.B.- In the West, chronic unemployment put a lot of stress on the people. It considerably disrupted the social order. Do you see this happening in China any time soon?

W.G.- You have to keep things in proportion. I go to the state-owned enterprises. I meet a lot of workers. As I said, they have come a long way. Their living conditions have improved considerably. Most of the people you meet now have a refrigerator, but that is not all. The Chinese people are frugal. They have a lot of savings. It is maybe the most important thing that the people outside China don't understand about us. I will give you two figures that will explain the change that has happened in China in twenty years time. When in 1978, Deng Xiaoping started the reforms, wealth was with the government. The government was rich and the people were poor. The government had about 120 billion yuan and the Chinese people only 21 billion. At end of 1997, the government had about 800 billion but the savings of the Chinese people were about 5,000 billion. So, what happened is that in former days, the government was about six times richer than its people. Today, the people are more than six times richer than the government.

S.B.- So the creation of private wealth under a so-called communist system has been about 4 ,880 billion while the creation of public wealth has only been 680 billion. I thought that the paradigm of the communist creed was that public wealth was paramount.

W.G.- That is a theoretical question that we are still investigating further. Deng Xiaoping raised the issue, asking himself: "what is socialism?" This is our problem. How to construct socialism, how to resolve this question? Until now, we have not got a decisive answer. I have an opinion on the matter, but whether it is appropriate or not, I don't know. Of course, the starting point is to say socialism compared to capitalism is different, but where is it different? In fact, if you look at it, both systems have a lot in common. To me, socialism and capitalism share a number of goals. For example, in both systems, the government intends to promote the standard of living of the people. If they don't or if they fail, they will be chased out of power. Both systems have agriculture as their foundation. If you don't feed your people, you are out. Both strive for industry as a source of wealth, and circulation of goods as the bridge. Both socialism and capitalism are sustainable only if they protect the environment and make a rational use of their resources. You could give many examples like that. So where do they differ?

S.B.- In private ownership, I would say, although the figures you gave contradict my answer…

W.G.- That is where the paradox lies. That is what Margaret Thatcher thought when she launched the privatization of many industries in England. Other countries such as Argentina did the same. It was the end of socialism in England. Privatization was a return to pure capitalism. But actually, it was the contrary. When Margaret Thatcher privatized the state-enterprises, she was returning, to public ownership, what the state and a few privileged ones had confiscated for their own benefits. For me, privatization in the Western world is not privatization at all. It is to put the state-owned enterprises in the hands of the community, which is a socialist aim. Privatization does not belong to the capitalist system but to the socialist one. That is why we are all confused.

S.B.- At the leadership level, would you say that there is no difference?

W.G.- Well. In the political arena, socialism compared with capitalism has many differences. The States do not have the same attitude. At least, in socialist countries, the civil servants should be the servants of the people, like in 1870 during the Commune in France. You should not have the civil servants ruling the people for whatever purpose they see fit. Nowadays, it is of course much more complicated. It is a question of attitude. President Jiang and Premier Zhu are reaching out to the masses. It is a correct way to approach the role of a government.

S.B.- I would like to come back to the question of the wealth of the Chinese people. Savings are enormous, so are the debts of the state-owned enterprises. The state is running a deficit. Obviously, it is not a balanced situation nor a healthy one. Can it be sustained?

W.G.- That is the problem. How does one use the savings? For the time being, they end up at the banks, in saving accounts. Very few Chinese invest in anything. The banks have a lot of deposits which keep growing. The banks are state-owned. They feel secure in their ownership and also because without doing anything, they keep receiving the savings of the people (6). They have the best of both worlds and not surprisingly, they become careless. We are very traditional in our ways, and in a bank, tradition is even stronger than elsewhere. We have been used to a planned economy for so many years. The four commercial banks the government owns have always worked in such a system. Last year I made a suggestion to the Prime Minister. I told him that all over the world, commercial banks have shareholders. They are accountable to their shareholders. And so these four commercial banks controlled by the government should be transformed and have shareholders too, so that the public has a stake in them. It will change the way they behave more than anything else because then they cannot escape the scrutiny of their shareholders.

S.B.- What did the Prime Minister say?

W.G.- He always says that he is prepared to listen to any suggestion, but that it has to be a better one than his own ideas. But talking about my remark as regards the banks, it could be the next step, in few years. The banks have to be accountable, and as the government, as an enterprise, must leave the scene, something has to be done.

S.B.- It is not the first time that we have heard that the government wants to leave the economic scene, retaining control over just a few key strategic sectors of national interest. However, it hasn't happened. Is it likely to happen soon?

W.G.- The problems of the state-owned enterprises were identified as early as 1984. But until now, because of previous mistakes, many state-owned enterprises cannot be made independent. However I expect the reforms to be completed by the year 2000.

S.B.- What sort of previous mistakes?

W.G.- Every country has inner conflicts or various tendencies and ideas on how to govern best. China is not different. However, what is clear today is that Jiang Zemin, Zhu Rongji, Li Peng, Li Lanqing and Wu Bangguo as a group, have very strong ideas on how to reform the country and how to move forward. That is why I am confident that the reforms will be completed by year 2000.

S.B.- We have been talking about reforms in China for two decades, and we still have further reforms in front of us. Why does it take so long to change China once the decision has been made to implement a market-led economic system?

W.G.- Our leaders have very clear ideas about where to go, and what to do, although I must admit it is not cast in iron. But they have to take it slowly, step by step. They cannot do too much. The Soviet Union is a good example of what to avoid at all cost. You know what the general population of China is , its size and its complexity. So you know what sort of body our leaders administer. The reforms are like a Chinese medicine. The adjustment is done step by step (7), notwithstanding the fact that we are still researching further the theory of communism because we are in a situation without precedent.

S.B.- You have a lot of faith in the present government but last year ordinary people were pretty much dissatisfied with the party officials and the government…

W.G.- Several years ago, it is true that you could see in the press that the people thought the government, or the party, were not very good. They were unhappy because they could see that there was corruption. Corruption is a real problem. As I said, the civil service must serve the people, not abuse them. At the last Congress, a lot of power was given to Wei Jianxing (8) to root out corruption. He is the highest-ranking member ever to be in such a position. This has added credibility to the government. Then during the disastrous floods of the summer, President Jiang and Premier Zhu have been everywhere, and the army, which is not only there to protect the country but also to help the people, has done a tremendous work. It has enhanced the image of the government in the people's heart because they saw that the government was doing its best.

S.B.- Is the government winning the fight against corruption?

W.G.- Corruption is unacceptable, that is why it is important to erase it at all levels. In former days, it was difficult to tackle corruption at the highest level because there was no real mechanism. In the past, we did not have a high ranking official in charge of such a matter. So, in the case of high ranking officials, such as Chen Xitong (9), who was not only mayor of Beijing but also a politburo member, it was very difficult to act. Now, it is different and my guess is that other ongoing investigations are going on because what happened with Chen Xitong may have happened elsewhere.

S.B.- Is the party going to be reformed so as to open the door to more democracy in China?

W.G.- Jiang Zemin, Li Peng, Zhu Rongji, Li Ruihan, Wei Jianxing (10), Hu Jiantao, Li Lanqing, these seven members, in my opinion, have a common view on how to reconstruct the party, but as I said we still have no definite answer as to how to construct socialism in China.

S.B.- Martin Lee, the leader of the Democratic party in Hong Kong complains that there is not much of a political system in China. Deng Xiaoping himself said : "when there is no system, even good men cannot do good and may be forced to do evil". What sort of system is currently used to elect the leaders, and do you see such a system lasting?

W.G.- We have what we call a "generation" plan. People are promoted generation after generation from the provinces where their work has been recognized as excellent, then they come to the central government.

S.B.- But who chooses those people?

W.G.- The central government officials can see what sort of job they have been doing. Their performance speaks for itself, so they are promoted to the central government having done their job at the provincial level. However, currently, you have in the government Wang Zhonyu, Sheng Huaren, Zeng Peyan (10) who have been promoted outside the generation plan, just because they did an outstanding job in their former posts. So you could say that the system is to promote according to the performance. The fact that we do not necessarily stick, all the time, to the generation plan shows that there is some flexibility and that the ability, expertise and competence of the potential candidates are taken into consideration.

S.B.- Maybe there is flexibility but it is hardly what we call a democratic way of choosing the government…

W.G.- That is the way you see it, but I believe that democracy is spread in the process. There is no doubt that day by day there is more accountability. At the local level, as you know, elections have been held in the Jilin and Jiangxi provinces. Those experiments will be extended nationwide, maybe before 2000. However we have to be watchful of the quality of these elections.

S.B.- Why?

W.G.- You can only have meaningful elections when people understand the issues. The difficulty is that the education level of the general population is still very low. It is my belief that when people know very little, they are credulous and superstitious. In such an environment, elections are not very good. The government has a duty to help the people. That is why President Jiang and Prime Minister Zhu always emphasize that China has to improve a lot in the field of education and sciences.

Autumn 1998

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Notes;

1.- China Reform Forum is a society whose members are scholars, economists and thinkers. Its main purpose is to organize seminars between the academic world and the government organizations. The China Reform Forum is closely associated with the China Society for Research on Restructuring the Economic system, which was setup in 1985, and whose members are mainly retired high-ranking civil servants of the State Commission for the Restructuring of the Economic system, which is acting as a think-tank for the State Council and the Prime Minister.

2.- The 1996-2000 development plan is the first comprehensive economic program to carry the stamp of the country's third generation leadership. In 1994, the State Commission for the Restructuring of the Economic System warned that China would fall apart if regional disparity was allowed to grow rapidly. The new 1996-2000 plan was therefore meant to correct the imbalance by increasing development funding to the inland and frontier regions. By the year 2000, the nation's per capita gross national product will quadruple from its 1980 level - which is the prediction Deng made at the time- provided the year-on year growth stays at around 8-9%. The plan emphasizes quality rather than speed.

However, during the first two years of the plan (1996-1997) the government had to cool an overheating economy and slowdown capital investment, although overall growth remained well above the 8% target. As regards the infrastructure, it is a fact that the road network of China and its harbour infrastructures are still small even by Third World standards. Although by 1996, China had about 1 million km of road, it included only 2000km of expressways, and 70 000km of relatively good grade I and grade II roads. In the new plan (1996-2000), the government aims to build about 250 000km of road, including 7,000 to 8 000km of expressways and more than 120 000km of grade I and grade II roads. The growth rate of capital investment in the 1996-2000 plan is an average 38% per annum, amounting to 3,900 billion yuan. The priorities are those outlined by Wang Guiwu: agriculture, water works, transportation, telecommunications, and energy. The capital investment budget in new projects over the period is 8,250 billion yuan, an average of 1,650 billion/year.

3.- In 1993, the National People's Congress promulgated the Provincial regulations on State Public Servants, which defined the new rules applicable to the Civil Service. For the majority of people employed in all levels of government, semi-government institutions and party organizations, working in a society where it was firmly established that a person was hired for life (the well-known "iron rice bowl" concept), the new system was revolutionary for it bans the old practices stipulating that people receive the same treatment whether they work well or not, and that people can be promoted but never demoted. It was only in 1986 that government organizations began to dismiss employees on the grounds of incompetence and for other reasons. Public Security bureaus were the first to face the axe but for a long time, many government departments found they could dismiss only a small number of incompetent or miscreant officers as large-scale dismissals would have created serious social problems. Therefore only 3000 government employees were dismissed in the first five years of the decade. An important improvement to the quality of the civil service has been the introduction of examinations when recruiting. Examinations had been abolished in 1949 and thus recruitment was done mainly through acquaintances.

4.- Agriculture remains by far the largest employer, although its share of total employment is falling to about 50% of total employment. State-owned enterprises employ about 100 million people. However the number of employees in all small towns enterprises stand above 130 million, that is about one third of the rural labour pool. (A small town enterprise is defined as originally launched by rural communities with their collective savings rather than financed by the state investment budget). Not all township firms are in the industry. Commerce and services are playing an increasing role. The State sector produces about 41% of the gross domestic product, while small town and village enterprises produce 35%. The non-public sector, that is self-employed, private and joint-ventures accounts for 24%.

The high number of jobs generated by the small town enterprises and the private sector is, year after year, barely enough to satisfy the rural job demand. (In official mainland terms, the increase in job demand is derived from the number of people who have reached 16, the legal working age, minus all those who will remain in various full-time educational programs). In absolute terms, there are more than 10 million people every year who belong in the "newly-increased job-seeking population". Of this number, young peasants make up between 70 and 80%.

5.- It is said that China needs to create about 18 million jobs a year just to keep up with the demographic growth of the country. As job creation has been uneven, a massive job-seekers migration took place throughout the country in the mid-1990s.

6.- In June 1998, the government cut the commercial banks deposit rate - the rate commercial banks receive on their deposits at the Central Bank- to 3.2% from 5.2% in order to spur lending and consumption. Yet deposits kept growing.

7.- It is said that Chinese medical scientists have developed a unique theoretical system (Traditional Chinese Medecine or TCM) adopting a method entirely different from that of Western medicine. One of its characteristics is "judging the interior from the exterior". Maybe what Wang Guiwu wants to express is that the reform is more a process of abstract thinking and logical inference (as diagnostics are in TCM) than the result of economic facts that need to be corrected. Or does he want to say that between the economic forces at play and the society, there is among them an interdepending and interrestraining relation which prevents any acceleration of the process?

8.- Wei Jianxing, 66, is an engineer by training. He was appointed Minister in 1987, in charge of the supervision of the Civil Service, a position abolished in 1959. He is currently one of the seven Politburo Standing Committee members of the Party. He is responsible for the Central Commission for Discipline Inspection, the party's internal watchdog, a position he holds since 1992. He concurrently served as Beijing's temporary party chief, replacing Chen Xitong, whose investigation he led. His position within the party as nº7 gives the Central Commission for Discipline Inspection the power that was lacking so far to investigate the highest echelon of the hierarchy.

9.- Chen Xitong, 68, was made a State Councillor in 1988 and he became a politburo member in 1992. He was then Mayor of Beijing and Secretary of the Beijing Communist Party. Under investigation, he resigned both positions in May 1996 but did not resign from the Politburo until he was expelled from the party. He was tried in 1998 and found guilty of corruption and abuse of power. He was jailed for fifteen years.

10.- Wang Zhongyu, 65, has been Chairman of the Economic and Trade Commission (1993-1998). He is currently State Councillor. From Jilin, he was a provincial cadre when he was called to the central government. Sheng Huaren was president of China Petrochemical Corporation when he was asked to head the revamped State Economic and Trade Commission. Zeng Peyan, currently Chairman of the State Development Planning Commission, was picked out by President Jiang to join the central government.

Autumn 1999

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