The Two Chinas

Tom Peters

The room in which I was conducting a seminar was dark and grimy—very grimy. Spittoons dotted the hall outside, placed every eight or ten feet along both walls. All participants, mainly chemical factory directors and coal-mine chiefs in their mid-50s, wore gray or dark blue “Mao suits.” The discussion was desultory. Outside, a smog that makes Los Angeles at its worst look like paradise added another dimension to the gloom.

This is Datong, population 1 million, a typical heartland industrial city in China near the border of Inner Mongolia, but barely 100 miles from Beijing. There was a smattering of “free-market” food stalls on some secondary streets, but otherwise China’s 10-year-old economic reform program seemed a million miles and several decades away.

Just a two-hour flight south by CAAC, China’s airline, is Guangzhou (formerly Canton) in Guangdong province, a stone’s throw from Hong Kong. But the trip to the city of 3 million felt more like two light years. My seminars there, often with hundreds of young engineers, managers, and economics or management students, were animated. Nothing was taboo: The Beijing government, seen to be moving all too rapidly toward economic reform by the denizens of Datong, is roundly criticized in Guangzhou for continued interference in enterprise affairs.

The blues and grays of Datong (and Beijing, for that matter) are replaced by a palette of bright colors in Guangzhou. At my meetings there, western garb was the norm, and I rarely spotted a Mao suit. Gow Di Street, one of the two main “entrepreneur streets” in Guangzhou, teems with thousands of small businesses. A handful of these entrepreneurs are rumored to be millionaires. Motor scooters (rather than China’s ubiquitous bikes), pocket calculators (rather than the incessant clicks of the more usual abacus), and a mood of excitement set the city apart.

I took a side trip to a nearby Special Economic Zone, one of several officially designated areas where numerous special rules aim to eliminate bureaucracy and grant incentives, such as lower taxes, to attract foreign capital. On the way, we passed numerous “world-class” hotels, including one built and managed by a former peasant farm commune. The special zone was a shock, even compared with vigorous, nearby Guangzhou.

At previous seminars throughout China, my comments about the need for superb quality in order to compete internationally had fallen on deaf ears (after all, I was told, when vendor supply is uncertain, you take what you can get). Here the message was embraced. The seriousness of intent was underscored during a subsequent tour of a soft-drink canning plant (a joint venture between China, a Hong Kong operative and America’s Ball Corp). It has quickly achieved top quality marks from Coca-Cola. In fact, it is good enough to have garnered the contract to produce all Coke’s cans for the Seoul Olympics this summer. To top it off, the plant had been built from scratch in a startling seven months, just half the U.S. average according to Ball’s executives.

At a luncheon in the zone, my hosts queried me vigorously about fiber optics, venture capital, share ownership, and worker incentives. Several of these businessmen have come to the zone from Shanghai. They say this area is 10 years ahead of that city, which most Americans think of as the centerpiece of China’s economic reform. Well, if Guangzhou and its environs are a decade ahead of Shanghai, they’re at least twice that many years ahead of Datong and other heartland, non-coastal metropolises.

So which is the real China? Datong? Guangzhou? The special zones? Or China’s 800 million peasant farmers (While some “peasants” have become entrepreneurs, one Chinese official told me that a lot of the countryside “looked like a vestige of the Middle Ages.”) The answer, it appears, is that right now there are two Chinas. In fact, Zhao Ziyang, China’s top leader and chief proponent of the economic reforms, has used the just-completed People’s Congress to urge even more special dispensations to spur the growth of the export-oriented coastal provinces.

But Mr. Zhao has anything but free sledding ahead. A strong conservative faction, under recently “elected” Premier Li Peng, reflects the concerns of the large majority who still lag so far behind. Moreover, the disparity is clearly increasing. Guangdong province wants more, more, more reform and seems determined to push aggressively to get it. Tension on the provincial borders is already rising. For instance, adjacent land-locked Hunan province is deeply concerned about “brain drain”—its youths are leaving to head for the coast in hopes of becoming “rich” entrepreneurs. Incomes are routinely four or five times higher in parts of Guangdong. Furthermore, prices are soaring in Guangdong, and Hunan’s farmers, partially freed up by the reforms, are holding back their pork from local markets and sneaking it across the border in search of windfall profits. Hunan has sporadically started to guard its borders and even has demanded 40 percent of Guangdong’s export profits in recompense for the various inequities.

Which of the two Chinas will emerge as dominant? My despair (personal and professional) in Datong was quickly replaced by near euphoria in Guangzhou. It’s tempting to believe that Guangdong is the new China and that Datong is the anomaly, just a reminder of the past. Guangdong feels right (the more familiar always does), and Datong is hard to believe—could it be that backward? That dirty? But while Guangdong is China’s aspiration at this point, the Datongs are still China’s reality. As the tension between the surging coastal minority and the backward inland majority mounts, we can expect almost as many steps backward (some possibly quite frightening) as forward. When it comes to considering an investment in China, only the tenacious foreigner, who can learn to live with China’s fits and starts, will likely profit.

(c) 1988 TPG Communications.

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