The Fifth Tiger Is On China's Coast

When the Shunde county government decided to gear up output at its Pearl River Refrigerator Factory in 1989, the timing seemed ideal. Its refrigerators were China's favorite domestic brand, and the plant was selling all it could produce. Then came Tiananmen Square, followed by a freeze on bank credit to consumer industries ordered by Beijing's hard-liners. Ignoring Beijing, Shunde's gung-ho officials completed the $50 million expansion anyway. To pull it off, officials relied on an ever-popular proverb: "The heavens are high, and the emperor is far away."

Not anymore. In late January, the factory received a snap visit from the emperor himself, paramount leader Deng Xiaoping. But rather than give Shunde officials a tongue-lashing, Deng praised them for "blazing a trail for Chinese industry." It was a message that a surprisingly spry Deng repeated often during his nine-day swing through Guangdong province, whose economy surged 13.5% last year, double the national growth rate.

For Guangdong officials, the ringing endorsement from the 87-year-old patriarch was sweet vindication. The implications for China, however, are much greater. In a far-reaching policy shift, Deng is holding defiant Guangdong up as a model for the rest of China. No longer considered a capitalist experiment run amok, it is Deng's weapon against conservatives who have opposed market-style reforms. In probably his last great battle, Deng is trying to edge out old political enemies and dictate the slate of next-generation leaders. That effort will culminate in a crucial party meeting this fall. "Deng is quickening the succession struggle," says a Western diplomat in Beijing.

MASTER PLAN. Emboldened by Deng's trip, officials in Guangdong aren't waiting for the power struggle to be settled. For the past decade, they have stoked the growth of the province of 66 million by an average of 12% annually, while industrial output has soared nearly 20%. If Guangdong were a country, it would be the fastest-growing in the world. But now, local officials want more. They want to catch up with the current level of Asia's Four Tigers--South Korea, Taiwan, Hong Kong, and Singapore--within two decades.

The master plan is mind-boggling: Some $35 billion is going into construction of new superhighways, power plants, container ports, and optical-fiber phone lines. Current targets call for annual growth of 8.1%, which would enable gross domestic product to double to $58 billion by the year 2000 and for exports to rise 150%, to $26.5 billion.

This progress is what allows Deng to bring new pressure on his opponents, whose own economic strategies have flopped. Even leading conservatives such as Prime Minister Li Peng have lined up behind Deng's approach. In mid-March, the 15-man politburo declared that Deng's reforms and open-door policy would remain in place "for 100 years." The government also said it will open a dozen more free economic zones along China's coast, similar to the three in the Guangdong cities of Shenzhen, Zhuhai, and Shekou.

Whether Deng has the clout to achieve everything on his agenda is far from certain. Despite his support of the overall reform package, Li Peng is still vowing crackdowns on "bourgeois liberalism," the hard-liners' code word for Western influence. And he warns about the dangers of instability from fast growth, including runaway inflation, supply bottlenecks, and a rekindling of social discontent.

The Deng camp is willing to risk those ills to lift China out of grinding poverty. The collapse of communism in the Soviet Union was a turning point, say China watchers. Deng now believes, says Parris H. Chang, a China specialist at Pennsylvania State University, "that to avoid the fate of the Soviet Union and Eastern Europe, China must reform itself and create better conditions."

FLOUTING BEIJING. China's central planners probably couldn't slow down Guangdong if they wanted to. With only 3% of its capital investment supplied by Beijing and easy access to funds from Hong Kong and local banks, the province has the means to flout the central government's dictates on everything from foreign investment to fiscal policy. One important wedge for Guangdong is money. The province sends 40% of its tax revenue to the central government, or more than $1 billion, compared with the old rate of 20%.

That allows Guangdong to be more open to foreign investment than any other province. The massive shift of low-wage production work from Hong Kong and Taiwan has made it one of the world's biggest exporters of garments, toys, watches, and appliances. But the Pearl River delta region is much more than a big sweatshop for foreigners. It is coming into its own as a regional power. Enterprises owned by local governments and run by independent managers are evolving into large manufacturing conglomerates. A nascent stock exchange in Shenzhen, which by yearend will have 20 listed companies and a market capitalization of some $4 billion, is a smash with both private Chinese investors and companies hungry for capital.

That prosperity is no longer confined to the provincial capital of Guangzhou and the special economic zone of Shenzhen, the area where the open door policies began back in 1979. Across the province, through former backwaters such as Zhongshan, Donguan, and Nanhai (map), such once novel items as mobile phones, stylish apartment complexes, satellite dishes, and Japanese-style karaoke bars are becoming commonplace.

Especially cheering to Deng, still a communist at heart, is that a surprisingly dynamic sector of the boom is owned by townships, counties, and even old rural farming collectives. That bolsters his argument that China can absorb some trappings of capitalism without completely destroying socialism. Take Shunde County. Before 1979, the 930,000 residents of the area, which is mostly sugar and rice fields, subsisted on about $125 a year each. Now, the region is a hotbed of county-owned manufacturers of home appliances, textiles, and machinery. Annual per capita income is nearing $1,000.

Other important engines of growth are outfits such as Pearl River Refrigerator. Eight years ago, it was an auto repair shop that was owned by a rural township. Now, it's a sprawling complex with 2,800 workers who turned out 480,000 refrigerators in 1991. More than two-thirds of these were sold outside of Guangdong.

BROKEN BOWL. Guangdong's growing stature is lending credence to its management techniques. Its success, for example, clearly challenges the inefficient state enterprises in other parts of China. At the Weili Washing Machine Factory in Zhongshan, the city officials who own the plant leave managing to the plant's executives, who are elected by the 2,000 workers. "The line between owner and management has been well settled," says Vice-General Manager Li Guo in the company's meeting room. "We have the final say." Moreover, workers' pay is pegged to their productivity, a sharp deviation from China's traditional "iron bowl" of guaranteed income.

Resistance to the "Guangdongization" of China will be led by conservatives such as Chen Yun, China's 86-year-old doyen of economic planning and Deng's archrival. These forces are mounting a stiff fight, raising the specter of inflation and social unrest. Some foreign bankers, too, worry about a repeat of pre-Tiananmen Square days. In 1988, 11.2% growth fueled runaway inflation, panic buying, bitter competition for scarce electricity and raw materials, and widespread corruption.

What Deng wants is a boom that endures. To assure that his policies continue, he is angling to stock the top leadership with younger reformers such as Vice-Premier Zhu Rongji and party chief Jiang Zimin. He also could engineer the comeback of Zhao Ziyang, who was an advocate of rapid growth and boosted Guangdong before he was toppled as premier in 1989. "Deng Xiaoping is making his last stand," says Pennsylvania State's Chang. "If he cannot get his reform program accepted and get his favored group of successors endorsed, then he will go down in history as having his reform program aborted."

However the battle unfolds in the run-up to the 14th Party Congress this fall, officials in the Pearl River delta don't sound worried. "The course of reform is irreversible," declares Shunde official Wu Xiuhao. "China has no other way out." For its part, Guangdong is intent on becoming Asia's Fifth Tiger. The question is whether the rest of China will go along.

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