Gu Mu, China’s champion of export discipline

The concept of “export discipline” is an important one in my understanding of the development of Asian economies, and the functioning of industrial policy more generally. The phrase, which I take from Joe Studwell’s 2013 book How Asia Works, describes a particular type of relationship between the government and business, one in which the government pushes business to make sure that its energy and investment are going into improving national productivity. Exporting does that by forcing companies to compete in global markets and meet global standards. Absent such discipline, businesses can easily turn into lazy monopolists, rent-seekers, or property speculators–activities that generate lots of profits for them but do not do much to raise the nation’s living standards (see my last post on the topic).

Of course, this is easy to say in the abstract, but how is export discipline actually applied in real-life politics and business? Studwell’s book has some good stories about this, for instance the one about how South Korean president Park Chung Hee in 1961 put the nation’s leading businessmen in jail until they agreed to do what he wanted: develop heavy industry and obtain foreign technology.

The official history of China’s economic reforms is rather more sanitized, but the memoirs of Gu Mu (谷牧), who was vice premier in the 1980s and in charge of foreign trade, do help show how export discipline was applied in the Communist bureaucratic system (see this post for some more interesting tidbits from Gu’s memoir).

China initially decided to open up to foreign trade through the famous Special Economic Zones: the coastal cities of Shenzhen, Zhuhai, Shantou, and Xiamen that were given dispensation from many of the stifling rules and procedures of the planned economy. And from the beginning there was some ambiguity about what the function of the SEZs would be, as Gu relates in his account of the March 1980 meeting that decided to create them (these and following quotes are from the official English translation of his memoir):

During the discussions, in light of the practice of starting the special zones, the comrades also considered that we should not only develop industry, but also commerce, tourism, real estate and other sectors. We should not only expand export trade, but also play multiple functions in the economic life of the whole country. So the term “special export zone” could hardly cover all of their functions and roles. Based on these discussions, I came up with the term “special economic zone,” which had a wider connotation and was endorsed by everyone.

In other words, the SEZs were originally general laboratories for economic reform, rather than solely being solely focused on exports (as an aside, it’s interesting that Gu takes credit for coining the term SEZ). And Gu relates how the deregulation in the SEZs allowed them to quickly become centers for smuggling, which attracted lots of criticism from conservative elements in the Party. While he is emphatic that Deng Xiaoping’s strategic justification for the SEZs was mainly to export and attract foreign technology, he also makes it clear that many people in the SEZs were reluctant to sign up to this vision.

From 1979 to the end of 1984, five special documents were issued by the Party Central Committee and the State Council on SEZs or containing content relevant to SEZs. For the orientation of the economy of SEZs, these documents repeatedly pointed out: “Priority should be given to the utilization of foreign capital,” “Priority should be given to conducting industrial productive projects,” “Products should be mainly for export,” “Great efforts should be directed to introducing advanced technology.” The basic intention was clear.

But some comrades who worked in Shenzhen SEZ and several experts and scholars had long held different opinions. They thought that the conditions were bad for Shenzhen to develop industry. Products for export ran against the investment goal of foreign businessmen, which was for their products to enter the Chinese market. Their proposal was to build Shenzhen into a financial, commercial, foreign trade and tourist center, and their cries became louder and louder.

Here is the impulse that export discipline has to counter: local bureaucrats and businesspeople want to make money in ways that are convenient to them, but that don’t build national productivity. Gu worked consistently against these arguments, and tried to stop Shenzhen from focusing so much on property development:

I agreed the SEZs should develop tertiary industry like finance, commerce, foreign trade and tourism. But priority should be given to industry, and related industries should be developed correspondingly to make them comprehensive export-oriented SEZs centered around industry. Without industry on a certain scale and level, their economic foundation was not solid, with no source of goods for export, or vehicles for the introduction and digestion of advanced technology, and other industries would not develop. … So this argument, which went against the policy of the Party Central Committee and the State Council, was inadvisable and unrealistic.

Since I perceived these problems, I wanted to hold a meeting to unify the understanding and action. … I talked about the positive situation of opening up in the country, about the new progress of SEZs, and also pointed out some problems that needed careful attention, including the overextended scale of capital construction, too fast increase of funds for consumption, and the gaining of easy money by taking advantage of the preferential policies. … I emphasized that SEZs should not be content with erecting big buildings; they should not be average industrial cities. They should become export-oriented special economic zones based principally on industry earning foreign exchange through export, so that their products could enter international markets and earn foreign exchange for the state. …

At the meeting I focused on guidance rather than criticism. But this was no easy problem to solve. The meeting was over, but there was no agreement on how to develop an export-oriented economy. Some SEZs still acted according to their own beliefs. In 1985, the scale of construction in Shenzhen was even bigger, with the plan increased by 40 percent over the actual scale of 1984. My opinions were dismissed, and little attention was paid to similar criticisms from others. … I realized that general talk would not solve the problem and we needed systematic work.

The bureaucratic maneuvering that followed is too detailed to quote in full, but basically Gu commissioned some expert reports that would back up his goal of an export-oriented economy, and sent some of his trusted cadres to Guangdong to convince working-level officials of the rightness of his views. The leadership team of the Shenzhen SEZ was also reshuffled, which presumably (though Gu does not say this directly) helped lessen resistance. He then organized a nationwide meeting, running from late December 1985 to early January 1986, of almost all the central and local government officials involved in SEZs, where his speech advocating for export-oriented SEZs achieved the backing of the top leadership. That ensured that the local officials got the message:

This meeting was new starting point for the SEZs to advance in a pioneering spirit. The SEZs unified their understanding and carried it out properly. … they stressed industrial production and a better range and quality of products; they made great efforts to open international markets and increase exports; they cleaned and reorganized companies and overcame disorder in product circulation. These measures were carried out swiftly and resolutely. In that year, Shenzhen cut 51 buildings of more than 18 stories from its capital construction planning. Its scale of capital construction was reduced by 30% from that of the previous year. Hundreds of substandard companies were removed or merged. This was a major shift in focus.

Gu Mu (2nd from right) in Shenzhen in 1980

After reading this account, it hard not to feel that the importance of effective bureaucratic battlers like Gu is probably underrated in recent Chinese history (and probably all history) relative to charismatic leaders like Deng Xiaoping. I also have to wonder who in the current Chinese leadership is serving as the champion of export discipline?

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google photo

You are commenting using your Google account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s

This site uses Akismet to reduce spam. Learn how your comment data is processed.