The MacNeil/Lehrer Report; China Business

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ROBERT MacNEIL [voice-over]: The Chinese have a bold dream-- to transform their country into a modem industrial state by the end of the century. But the China of today is still much like any developing nation: short on skills, technology and capital. To acquire them, the Chinese Communists are doing some very un-Marxist things.

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MacNEIL: Good evening. Early next month China will open its first official trade exhibit in this country. Businessmen in San Francisco, Chicago and New York will get a hard sales pitch on products of China`s industries. Since relations were normalized last year, the two countries have had an unequal partnership in trade. Right now, the U.S. is selling three times as much to China as it`s buying. But the Chinese are determined to turn that around, and with it their standard of living. It`s all part of China`s much-publicized Four Modernization`s Policy announced in February `78. By rapidly modernizing industry, agriculture, technology and defense, the Chinese hope to increase per capita income from the present equivalent of $150 to $1000 U.S. dollars a year by the year 2000. The Chinese leaders have taken an interesting first step to motivate greater production. They are permitting a significant amount of old-fashioned capitalism. Recently they allowed a team from the BBC to film some examples. So, tonight an unusual glimpse of China`s new business spirit. This report appeared on the BBC`s `Money` program. The reporter is Paul Barry.

PAUL BARRY [voice-over]: If the Chinese have got their figures right, one quarter of the world`s population lives in China. The national income per head is only $150 U.S. dollars a year, scarcely higher than India, and the sort of money a Westerner might spend in a weekend. But you don`t see beggars on the streets. If there`s no job or house for you in the city, they send you to the countryside to work on the land. And you go, because China is a very disciplined society. Each year there are 12 million more mouths to feed, 12 million new pairs of hands to keep busy. It`s a miracle that they can raise living standards at all. To give these extras jobs in industry would mean building 6000 new factories a year. That`s the scale of China`s modernization task.

When you look at China`s industry, it`s like going back in time, revisiting the Industrial Revolution. Never mind that it looks worse in parts of Wolverhampton, some of these factories are China`s pride and joy. The Far East Fan Factory, near Canton, is one of them. There are 1500 factories in China making electric fans, and this is one of the most modern. It turns out 60,000 fans a year to cool the hot spots of Africa and the Far East, and the assembly line makes it look bang up to date. But when you get to the process, you begin to have your doubts. Isn`t this more like `do-it- yourself than mass production? And the further you look, the stranger the story gets. This man is counting fan parts to be sent into the countryside. There they will be rubbed smooth by peasants and then brought all the way back to the factory for painting. It`s a crazy way to run a business. But China has its own way of doing things. This year, the factory plans to raise output by a staggering 50 percent. How? Well, it`s easy really.

LIN BIAO, technical manager [through interpreter]: We first tell our workers we are going to produce more, 30,000 fans more, and then every team in the factory guaran-tees that it will fulfill its quota. We try everything we can to encourage the positive attitudes of the workers, and we all apply greater effort. Some of the workers will carry out technical innovation to improve their equipment. There are many projects among the different units, but we`re all trying to produce more than our quota, and that`s how we do it.

BARRY [voice-over]; Like many factories in China, this one desperately needs to mod-ernize. Surprisingly, it did make a profit last year, but the state took most of it away to spend on other factories. Only $25,000 U.S. dollars was left to buy badly-needed new equipment, and it`s the same all over China. The jam is too thinly spread. When the need for modernization is so great, can such a pitifully small amount of money be enough to bring factories like this up to date?

BIAO [through interpreter]: We have to modernize in two ways. One way is to make the machines ourselves, self-reliantly. And then we also buy advanced technology from abroad. But we can`t do it all at once. We have to do it step by step. So. the $25,000-- yes. that is enough.

DAVID McLEOD, Hong Kong businessman: They have not got money. A lot of people have taken the view that this another Middle East, just waiting to sort of bounce off into the stratosphere. They haven`t got enormous resources. They have an enor-mous population, and they arc short of money. There`s no doubt at all. So, it`s going to be a slow process. Deng Xiaoping himself said the country would be modernized by the year 2000. In a country that size, the communication`s difficult, a lot of things are very difficult indeed, and they are short of money. So, it`s going to be a slow progress.

BARRY [voice-over]: The cultural revolution in China hasn`t exactly helped their chances of modernization. For JO years `til 1976--the country was frequently in almost total chaos. Factories would stop work for months, when the Red Guards arrived to root out reaction-ary thinkers. Millions of ordinary Chinese lost their jobs or were banished to the farms for political re-education. Many committed suicide to escape persecution. For a decade, political purity was paramount, and production took second place.

FACTORY MANAGER [through interpreter]: During the period of the Gang of Four, there was anarchism running amok in our factory, We have tried our best to re-educate the people, but the anarchic practices are still there, and we have to wipe them out gradually. We have to educate the workers to be more disciplined and to get rid of waste, because there is a lot of waste. So, we have to improve the quality and quantity of our production, and we also have to improve our management so that we can make a better contribution to the Four Modernization`s of our country.

BARRY [voice-over]: The manager of this Canton textile factory survived the Cultural Revolution days. Then, he was just a worker in the factory, but now managerial skills like his are back in favor.

FACTORY MANAGER [through interpreter]: Before, intellectuals and educated people were struggled against and criticized. There`s an old saying of the Gang of Four, `The more knowledge you have, the more reactionary you are.` But after the downfall of the Gang of Four, many changes have taken place. We`ve reinstated three engineers and more than 20 technicians who had lost their positions. The Gang of Four had sent them into oblivion, but we brought them back again.

BARRY [voice-over]: The Cultural Revolution slogans have faded now. Boundless loyal-ty to Chairman Mao and his thought has been rubbed out. But for all the improvement, the same old problems remain. China still lacks skilled labor and technicians, and the machin-ery is still old-fashioned. Even by Third World standards. China has some catching up to do. Textiles is China`s biggest industry, as in many developing countries. It earns a third of the country`s foreign exchange, but it needs to do well to pay for China`s modernization. But it lacks raw materials, and it`s not going as fast as the planners would like. So. here, as in all factories, the new message from the propaganda machine is going up, `Work harder, fulfill the quotas, let`s forget about the politics.* And the call to the people of China is `work with one heart and one voice, achieve the Four Modernization`s of our country by the year 2000.` But since the death of Mao, more has changed than just the slogans. The capita list-roaders are back in command, and they know you can make someone die for communism, but it`s harder to make them work for it. Most girls in this factory earn the standard industrial of $17 a month, but since last year they can earn an extra $7 or $8 a month in bonus payments if they work hard. And, as the cynics would expect, it`s doing the trick in raising production. And the workers like it, but for good socialist reasons, of course.

WOMAN WORKER [through interpreter]: We are all very happy with the bonus system. It`s very good for production, and it also increases our income. But we don`t just work for the bonus. We also want to increase production and to produce better textile goods.

REPORTER: Do you work harder since the bonus system was introduced?

2nd WOMAN WORKER [through interpreter]: Yes. of course. We work much harder since the bonus system started, and with much greater enthusiasm. And the harder we work, the more the state rewards us. So, we are very happy.

BARRY [voice-over]: In the Harrod`s of Canton, the motives of the bonus- seekers seem perfectly obvious. There`s no reason to believe the Chinese have a special aversion to money and consumer goods, or that the Chinese leadership is not deliberately dangling these rewards. At weekends and lunch times, the shop is packed with people lured in by what the new consumer society has to offer. This summer, plastic sandals, that would once have gone down well in London`s Kings Road, are all the rage. There are Chinese-made radios, too, for those with the money. But these radios arc not for the Chinese market, even though they`re assembled in a Chinese factory. They`re Binatones bound for Britain and bearing, rather strangely, the Honk Kong label on the back. The Chinese are acting as subcontractors because the factory can`t afford to buy the parts. For the job, they get the princely sum of 80 pence a radio, and each worker produces just three a day for the grand total of $2.40 for the nation`s coffers. It seems an appalling deal for the Chinese, but it`s all part of the drive for modernization.

JOHN BARKER, British trader: The Chinese now are anxious to develop their industrial capability. They are anxious to attain their legitimate and rightful place in the world economy by producing quality products, and they recognize that in order to achieve those objectives, they are going to have to accept certain basic principles of capitalism.

REPORTER: So, would you say they`re a lot less interested in ideology than they used to be?

BARBER: Most decidedly, yes.

BARRY [voice-over] At the Canton Trade Fair, the businessmen press in like prospec-tors. They`re pursuing the dream of conquering the world`s biggest market, and they`ve come from all parts of the globe -- Japan, especially, but the Slates. Australia and Europe too. They`re here because China needs them. They have the money and the know-how that China lacks. The businessman`s dream is simple: a thousand million customers. Sell one button to every Chinaman and you`ll be a millionaire many times over.

But it has not been the gold mine that the diggers expected. It`s a simple problem. You can`t sell to people if they have no money to buy with. And here at the Canton Fair, the Chinese are most interested in selling. Canton is the shop window for China to dress her wares to the world. It`s what every businessman sees when he comes, China`s brave new world, packed with machines that would make every Chinese factory manager go green with envy.

Generally, the quality of Chinese products is reckoned to be good, perhaps even too good for Western markets tuned to obsolescence. But it`s the style that`s the problem. They don`t seem to have much of a clue about Western fashions. No doubt the idea of throwing something away because you don`t like the cut strikes the Chinese as repulsive behavior, not socialist at all. But if they don`t pay more attention to the style of goods that Westerners want, there will be a limit to their sales abroad. So, more and more the foreign textile merchants are telling them what to make. Then, supplying them with patterns, the raw materials and sometimes even the machines to make it with. That`s what this Amer-ican deal is all about. The foreigners get their garments cheap, and the Chinese get machines without putting down hard cash. It`s called a compensation trade deal, and it`s happening more and more in China today. The surprise is that China needs help on even the simplest projects. Here, on Canton`s waterfront, a Hong Kong property developer and a Hong Kong bank are putting up an ultra- modern, 37-story hotel to lure tourists into China and earn more valuable foreign exchange for the country. It`s the sort of thing you`d expect the Chinese to be able to do for themselves, but they`ve not got much experience of high rise building, and they`ve even less of running a modem hotel with the standards of service that the cosseted Westerner expects. The project is a true joint venture. The China and Hong Kong partners are sharing the risk. But it`s one of the first in China. It`s also the first time the Chinese have let anyone film it. They`ve been strangely reticent in the past. The hotel should be ready in 1983. The Chinese have provided the land and labor as their stake in the project. The Hong Kong developer and the bank bring the money, the management, expertise and design. In return, they end up with their share of the profits, granted that all goes as smoothly as they expect.

BILL MOSELY, Hong Kong banker: The risk? I believe the Chinese are absolutely first class risks. We`ve been dealing, and we`ve had an office in Shanghai right through the Cultural Revolution. We`ve made profits, we were allowed to remit profits out. To the best of my knowledge, all the deals together with China`s large purchase of wheat, where they`ve bought, have all been settled promptly. I regard them as absolute first class risks.

REPORTER: Is this something we`re going to see more of? Are the Chinese commit-ted to this policy?

MOSELY: Yes, they-- very much the name of the game is trying to export now, and they`re very much committed to joint ventures, and 1 believe we shall see many more of them in the years to come.

REPORTER: And how much do they need them? What`s the advantage for them?

MOSELY: Well, the advantage to them is to get the foreign exchange element of a joint venture in from the foreign partner, the expertise, and the marketing expertise, selling the products eventually abroad.

TIN FOK: It is amazing how much they have done in the span of seven months.

BARRY [voice-over]; Tin Fok, the developer, has the advantage of long close ties with the People`s Republic. His father is one of the richest men in Hong Kong, and yet also a great ally of the Communists. It`s said that Henry Fok, the father, ran guns for Mao`s army during the revolution. In any case, the Communists made him richer by giving him the exclusive right to market Chinese sand to Hong Kong. So. for Tin Fok, making money in Communist China is almost second nature.

FOK: Basically, the Chinese-- we are a very pragmatic people, and I think we are also business people. I think they do agree that I don`t think they enjoy the kind of exploita-tion they have been getting for so long, but they certainly know the businessman`s profit is the first consideration. And with certain faith. I think, you know. I think you can make good, reasonable profit in China.

BARRY [voice-over]: If you have doubts about what the Chinese are capable of under the right conditions, you need look no further than Hong Kong. Its prosperity rests on the most naked capitalism in the world today, but also on Chinese who live and work here. It`s now the financial center of the Far East and the thorn in the side of half of British industry. The income per head is 20 times higher than across the border, but this could be a taste of the China of the future. Certainly, the ways of capitalism are creeping into China wherever you look. The old China traders say, `Put two Chinese together, and you`ve got a market.` And in Canton, markets are being allowed to flourish again. Peasants in China are now allowed to raise produce on their own land and sell the surplus in the cities. Some will walk miles to do it. And the Chinese leadership is discovering what many people already knew, that you work hardest if you`re working for yourself. But they`re allowing this enterprise to flourish because they realize it will speed the country`s modernization, just like incen-tives are doing. This is the dream of China in the year 2000, the next economic miracle from the Far East. But at the moment it`s just an illusion. The TV factory is in Canton, but the tubes come from another China, Taiwan. And China will never quite match the miracle economies of the Far East like Korea or Singapore because it will never have foreign money pumped in in such vast quantities. Money is vital, and even the world doesn`t have enough to make more than a passing difference to China. And China will surely never go all the way down the capitalist road. Already the small steps she is taking are putting the system under enormous strain.

At the border of China and Hong Kong, the overseas Chinese march in by the thousands to see their relatives. But as the radios, TVs and automatic rice cookers arrive, so the lure of capitalist goodies makes more people want to get out. For every one discontent that tried the home run to Hong Kong in 1976. 200 will do it today. This year, 200,000 could succeed. And even at the textile factory back in Canton, the tide of capitalist influence is having a profound effect. At this meeting to decide who will get a wage increase next year, the voice of individualism is disturbing the collective quiet.

WOMAN WORKER [from subtitles]: It`s not fair. Things are very hard. It`s crap.

2nd WOMAN: You mean that you work harder and get the same amount of pay.

1st WOMAN: I am the most skilled worker.

BARRY [voice-over]: Arguments like this must surely shake China`s socialism. By the year 2000, some predict China will no longer be communist, but it may combine the best of capitalism and socialism if they`re lucky. Only one thing is certain. In modernizing, the Chinese leadership has set out to change China faster than it has ever changed before. And for that, they`ll suffer from the old Chinese curse. They will live in interesting times.

KANG SHI`EN, Vice Premier [through interpreter]: Our country is still under the leadership of the Communist Party. AH we`re doing now, is we`re giving more atten-tion to the welfare of the individual. This will not lead to capitalism.

MacNEIL: That report was by the BBC. That`s all for tonight. We will be back on Monday night. I`m Robert MacNeil. Good night.