China One for the Money, One Goes Slow

By Howard G. Chua-Eoan

Austerity-minded officials from Beijing sometimes complain that touring Guangdong province in South China is like visiting a foreign country. In contrast to much of China, Guangdong exudes abundance: successful farmers living in multistory houses, townships producing consumer goods ranging from shoes to toys to microwave ovens, thousands of privately owned businesses blossoming. Set in the humid delta of the Pearl River, Guangdong's capital, Guangzhou, better known in the West as Canton, seethes with enterprise. The Dongping Street free market is filled with stalls selling all sorts of food: fish swimming in tubs of fresh water, poultry, a greengrocer's delight of vegetables and fruits. Most important is a bountiful selection of grades and cuts of pork, which has been rationed in such huge cities as Beijing and Shanghai.

Bureaucrats from the capital are more likely to recognize the threadbare inland province of Hunan, just across Guangdong's northern border. In Hunan, Mao Zedong's birthplace, most people still regard private enterprise with condescension. While the province once benefited heavily from investment in state enterprises, some of those facilities have become a drain on resources. With local officials abiding by the directives of central planners in Beijing, state-owned stores are consistently short of both agricultural and consumer goods.

A decade ago, China appeared to be a monolith, but times have changed. After nine years of Deng Xiaoping's "Second Revolution" -- economic reform -- two Chinas have emerged. In the relatively prosperous coastal regions, millions of successful entrepreneurs are building a future in exports to the outside world. Meanwhile, most of the interior provinces lag well behind, thanks to stagnant state planning, price-controlled agriculture and millions of cadres clinging to Mao's rusty concept of the "iron rice bowl," lifelong employment guaranteed by the state. In parts of the interior, especially the large cities and Sichuan, Deng's home province and the laboratory for economic reform, some have prospered. But not many. The eleven western provinces and territories, including the huge Tibetan and Xinjiang autonomous regions, with 300 million of China's 1 billion people, produced only 17% of the 1987 GNP of $293 billion. The ten provinces and municipalities in the east, with 360 million people, account for a remarkable 53%.

This month, when the 3,000-member National People's Congress, the country's legislature, meets in Beijing to consider speeding up the pace of economic reform, the disparities between the two Chinas are likely to become even more pronounced. One item on the agenda will be the proposed transformation of Hainan Island, now part of Guangdong, into a separate province with the mandate to become a capitalistic special economic zone. Both Communist Party General Secretary Zhao Ziyang and Acting Premier Li Peng called for further development of the coastal industrial cities and special economic zones, even at the risk of letting the rest of the country languish. Said Li: "We must persevere in our policy of permitting a part of the people to become prosperous before the rest."

Privately, however, the factions around the two leaders do not see exactly eye to eye. Zhao envisions the 11,200-mile coast as a powerful economic engine to which the backward interior provinces can eventually hitch themselves and thus be pulled into the 21st century. The more conservative party leaders who support Li caution that the increasingly well-off coastal economies could create instability. But only the speed of the reforms is being questioned, not their necessity. Last week State Councilor Song Ping proposed recombining 14 existing ministries and commissions into ten new ones. If adopted, the proposal would cut 10,000 people, or 20%, of the State Council staff by the end of the year. The state-owned rail, oil, coal and nuclear industries would become public corporations under ministerial supervision but responsible for their own profits and losses.

The benefits -- and pitfalls -- of Zhao's coastal approach are most visible in the contrast between Guangdong and Hunan. Since 1985, for example, Guangdong has allowed the price of pork to rise, as it did earlier with other foodstuffs. Popular demand not only spurred local pig production but, with Guangdong merchants paying more than twice the state-controlled price of 2.80 yuan per kg (35 cents per lb.) for pork in Hunan, also began to siphon off the output of pig farms in the neighboring province. As a result, the supply of pork decreased dramatically in Hunan's state-subsidized markets.

While the rest of the country frets over the inflationary perils of free- floating prices, Guangdong's 63 million people are barely concerned. After all, their economy grew 18% in 1987. This year the growth rate is a more sedate but still impressive 11%. Guangdong's producers and consumers have learned that when prices are allowed to respond to supply and demand, they may initially shoot up but begin to decline as new production reaches the marketplace.

Guangdong, burdened with fewer state-run plants than other regions to begin with, has proved especially congenial to the entrepreneurial spirit. In Beijiao, about 15 miles south of Guangzhou, Ou Jiangquan, 49, general manager of the Yu Hua Industrial Co., has seen his firm expand from a bottle-cap producer to a manufacturer of electric fans and microwave ovens for export. "It's not easy for state-run enterprises to compete against us," says Ou. "They have to carry out reforms, or they will have no way out."

In sharp contrast with such assertiveness, a sense of defeatism permeates parts of Hunan. "When it comes to running businesses," concedes the province's vice governor, Yang Huiquan, "we're not on a par with people in the coastal areas." To a large degree, central planners still require Hunan's state farms to grow grain instead of cash crops. Yang would like Hunan and its 56 million people to imitate Guangdong. He is even seeking investment from the neighboring province. But the desire for prosperity does not seem as deeply rooted in Hunan as in Guangdong, particularly among older people. "Social morality has deteriorated," complains a 63-year-old retired party cadre in Hunan. "There are no more nameless heroes. Everybody thinks about making money."

The young certainly do. Prosperity next door has become a magnet for young Hunanese, though they may still lack the skills to benefit quickly. Those who remain behind contend that the lure of Guangdong saps Hunan of its best and brightest. In Changsha, the capital of Hunan, one government functionary demands a radical solution. "We should not merely ask for higher prices for our rice and vegetables," he says. "We should demand 40% of Guangdong's foreign-exchange earnings. Otherwise we would really become its colony." Some Hunanese have gone so far as blockading the border to prevent the outflow of goods.

For the moment, Hunan officials are doing their best to downplay the tensions created by growing inequality with their neighbors. Says Vice Governor Yang: "The old and the new systems coexist." To avoid friction between the provinces, says a Western diplomatic analyst in China, Beijing must "either roll back the reforms or expand the experiment to the rest of the country as quickly as possible." As Premier Li pointed out at the NPC, however, the government is not likely to take either course at this time. While one China presses on, the other must wait its turn.

With reporting by Sandra Burton/Guangzhou and Jaime A. FlorCruz/Changsha