China to Speed Export Industries Along Coast : Low-Wage Operations Sought to Follow Model of East Asian Trading Powers

China has decided to encourage its coastal provinces to develop low-wage, export-oriented industries as rapidly as possible, following the model of smaller East Asian nations that have become trading powers.

Foreign investment, production for export and integration into the international economy are the keys to rapid economic growth in the coastal area, Communist Party General Secretary Zhao Ziyang said in comments published this weekend in People’s Daily and other official newspapers.

The strategy outlined by Zhao--which has taken shape over several years but has never before been presented so forcefully--is a fundamental reversal of the approach favored by the late Chairman Mao Tse-tung, who for reasons of military security and social equality stressed development of China’s poorer interior.

Missed Opportunities

In an apparent reference to this Maoist policy, Zhao said that opportunities to develop the coastal provinces have been missed in the past.

“We cannot allow ourselves to miss this chance again, and we should have a sense of urgency,” he said.

Conditions for development of these areas, which have a population of about 200 million people, are good because the world economy is seeing a shift of labor-intensive industries to countries with low wage rates, Zhao said.

“We should be able to attract sizeable foreign investment since our coastal areas boast the advantages of low-paid laborers with high expertise, good transport facilities and infrastructure and scientific and technological development capability,” he said.

Familiar Strategy

The strategy outlined by Zhao resembles that employed by South Korea, Taiwan, Hong Kong and Singapore in their emergence over the last two decades as prosperous trading powers.

China has already taken important strides in this direction, with southern coastal provinces leading an export surge last year.

The Ministry of Foreign Economic Relations and Trade announced Friday that the value of 1987 exports shot up 28.1% over the previous year, to $34.6 billion. Imports were valued at $32.7 billion, down 1.1%, giving the country its first trade surplus since 1983.

Zhao’s drive to further boost the export strength of coastal provinces is supported by nationwide economic policies that are beginning to make state enterprises responsible for their own management and their own profits and losses.

Laws strengthening these reforms are due to be approved at a National People’s Congress that opens in Beijing on March 25. Among the major agenda items will be new laws on state-owned industrial enterprises and Chinese-foreign joint ventures, according to Chinese press reports.

New President Expected

The congress, which is China’s Parliament, also is expected to elect a new Chinese president to replace retiring President Li Xiannian and to confirm acting Premier Li Peng as premier.

The new industrial enterprises law, which was published in draft form earlier this month after approval by the policy-setting Politburo, is aimed at freeing factory managers from Communist Party interference and making them more responsible for profits and losses. Party secretaries, who have traditionally been the most powerful individuals in enterprises, would be expected to support the manager rather than interfere with decisions on production, marketing and personnel.

General implementation of a bankruptcy law, which would allow the government to close unprofitable factories, has been linked to passage of the enterprises law.

The new joint ventures law, according to a mid-January report by the official New China News Agency, will cover investment rules and also “employees and unions, purchasing, marketing, the balance of foreign exchange, the remittance out of China of profits of foreign partners and salary of foreign employees, as well as the extending of contracts and the settlement of disputes.”

Problem Areas

Foreign investors have encountered problems in all of these areas, due in part either to restrictions or the lack of clear rules. If the new law helps solve these difficulties, it will help draw the increased investment envisioned by Zhao.

Other reforms are to be pushed forward administratively.

The focus of nationwide economic reforms in 1988 will be enterprise management, the wage system, banking and the distribution of goods, according to recent statements by Li Tieying, head of the state commission for restructuring the economy.

Large state enterprises will make greater use of a competitive process to choose qualified managers, while smaller state enterprises will operate on a leasing system that gives the manager a high degree of autonomy, Li said in remarks published in late December by the influential Chinese weekly, Outlook.

A “piece-work” wage system, directly tying workers’ incomes to productivity, should be implemented by all state enterprises, Li said.

Expanded Markets

Investment in key projects will be in the form of loans, rather than grants, and markets will be expanded both for material goods and for trading in securities and bonds, he added.

The ideological basis for these reforms was set last fall at the 13th Chinese Communist Party Congress, which endorsed a report by Zhao declaring that China is still in the “primary stage of socialism.” During this lengthy period, Zhao said, anything that contributes to economic growth “is in keeping with the fundamental interests of the people and is therefore needed and allowed to exist by socialism.”

The party congress also endorsed reform of China’s irrational pricing system, in which many subsidized commodities sell for less than their true cost while others are priced higher than necessary. But officials have said they intend to move slowly in this area.

This is partly because price reform is seen as encouraging inflation, which ran at about 10% in 1987 and has become a sensitive political issue. Also, Chinese economists and reformist political leaders have recently said that factory management must be improved before price reform can be expected to significantly boost economic efficiency.

Inspection Trips

Zhao’s comments on coastal development--which were made after inspection trips to Shanghai and the provinces of Zhejiang, Jiangsu and Fujian--came against the background of these broader plans. In addition to the areas he inspected, his remarks applied to the Pearl River delta area of Guangdong province, Hainan Island and the Shandong and Liaodong peninsulas, according to Chinese media reports.

These areas should give top priority to developing labor-intensive industries and the processing of imported materials, Zhao said. They also should put more emphasis on wholly foreign-funded enterprises, joint ventures and co-production agreements using foreign investment, he said.

Foreigners should be granted a greater role in managing such enterprises, he added.

“Their involvement in enterprise management will help shake off the fetters of the old Chinese system and make enterprises profitable, attract more foreign investors and train more Chinese management personnel and workers,” he said.

Local governments and enterprises should be given a greater role in the management of foreign trade, and village and township industries should place more emphasis on production for export so as to increase foreign exchange earnings, Zhao said.

He declared that these policies would not only speed coastal development, but also increase the ability of these regions to contribute to economic growth in the interior.