Dare to be a pioneer
Meet the man from Fuzhou who led China’s first SOE reform
The past four decades have seen a drastic shift in China’s economic system, from a planned economy to a diversified and vibrant market-oriented economy, a result of the country’s reform and opening-up policy that was announced by the central government in 1978. Significant reform of a State-owned enterprise (SOE) in Fuzhou, capital of East China’s Fujian Province, has played a vital role in breaking the shackles imposed by a planned economy. Global Times reporter Li Xuanmin recently paid a visit to Fuzhou to interview the initiator of the country’s very first SOE reform. This is the third part of a five-part story.
For Gong Xiong, former director of State-owned Fuzhou Pencil Factory (FPF), nothing he achieved in his life could have had such a farreaching, nationwide impact than the State-owned enterprise (SOE) reform he initiated in 1983.
Back then, Gong signed a responsibility certificate with the Fuzhou city government, pledging to a very high profit goal in exchange for independent production and management rights from the local authorities. That moment sparked the start of the very first SOE reform in China.
In 1984, Gong exceeded the target after implementing sweeping reforms at FPF. In the 2000s, the factory was merged with other small and mediumsized SOEs.
Inspired by his success, 54 other managers of SOEs in Fuzhou, capital of East China’s Fujian Province, wrote and signed a letter along with Gong in the March of that year to the provincial government, urging authorities to “loosen supervision of SOEs and to delegate decisions on rights to enterprises.”
The letter of appeal caused an immediate storm across the country. And two months later, the State Council, the country’s cabinet, issued a regulation that expanded the independent rights of SOEs in response to the letter. And later on that year, the country also began promoting the “holding project managers to account” system.
From then on, China’s economic system embarked on a 40-year reform, gradually shifting from a planned economy to a vigorous market-oriented economy.
Gong, a clear-sighted man now in his 70s and a witness to the transformation of China’s economic system, is still able to quickly pinpoint how exactly the first SOE reform was carried out back in the early 1980s and to describe in detail its significance to the country’s further opening-up journey.
Operating at a loss
Back in the early 1980s, almost all SOEs in China were operating with losses, including FPF.
The key reason behind this is the “highly centralized old economic system” whereby every detail involving the operation and management of SOEs had to follow orders from the government, Gong said.
“At that time, we were an accessory to the government. The factory director was appointed by the local authorities, and so were the senior managers. Even building a toilet needed approval from the top,” Gong explained.
“Also, the government made the production plan for us and gave us raw materials and funds, yet local authorities barely had any idea of how a pencil was produced and sold,” he said.
Furthermore, workers at SOEs were made to be equalitarian, and there was no difference in appreciation for less or more work, resulting in a slack working environment where employees often disobeyed orders, he added.
Feeling the urgent need for reform, Gong took a bold move in 1983 and submitted a duty pledge letter to the Fujian provincial government, saying that if he failed to deliver a promise, he would resign from his position.
In the letter, Gong specified a profit goal of 1 million ($152,447) to 2 million yuan within one year, considered very high at a time when the average monthly salary for ordinary factory workers in China was just 20 ($3) to 30 yuan.
In return, Gong asked for independent operation and management rights, financing governing rights and personnel administration rights, a milestone moment in breaking free from the planned economic system. Trailblazer The Fujian government approved Gong’s request in 1983, heralding the start of China’s very first SOE reform.
Recalling the reform, Gong still remembers in detail one of the first measures he took. He abandoned the factory’s system of “indiscriminate egalitarianism” and implemented a new system of “payment based on one’s work,” which rewarded employees who had worked overtime with bonuses.
He stood up to immense pressure and innovatively established a workers recruitment and management mechanism. Under the new mechanism, employees who violated working rules would be disciplined or even be fired.
“To further boost sales, we also studied the market, and dedicatedly and colorfully packed our products to draw the attention of children,” said Wang Wenrong, then deputy director of FPF.
Those moves, although seen as common practices today, were quite innovative at that time and in turn “largely mobilized employees’ enthusiasm for working and raised their incomes,” Wang remarked.
As a result, in 1984, Gong handed in an annual report that far exceeded everyone’s expectations.
“We not only rejuvenated the factory and turned losses into profits, but also exported our products to foreign countries and regions. The pencils were welcomed in overseas markets, bringing huge amounts of foreign exchanges to the country in the 1980s,” Wang noted.
Wide impact
The successful reform at FPF eased authorities’ concerns over a market-oriented economy. This then encouraged the central government to delegate decisions on rights to local enterprises later in 1984. And since then, a wave of SOE reforms has reached more companies in Fujian and in other provinces.
By 1989, the revenues of SOEs in Fujian had climbed rapidly, with the average annual growth rate of the province’s industrial output increasing five times that posted in 1984, according to a 2016 report by the Fujian Daily newspaper. And in the 1990s, Fuzhou ranked as the 8th most economically strong provincial capital in the country.
By 2017, revenues of non-financial SOEs in Fujian had expanded 31 percent year-on-year to 1.22 trillion yuan, with major economic indicators standing higher than the national average of SOEs.
Feng Liguo, deputy director of the China Center for Strategy and Policy Research under the Dongbei University of Finance and Economics, told the Global Times on Monday that the revolution at FPF is significant in terms of both its influence on Fujian’s economy and in promoting broader economic system reform nationwide.
“It’s fair to say that without the reform, China would still be locked in a prolonged planned economy period, unable to achieve its economic miracle in the past 40 years,” Gong said.
“And the country would be subject to the burdens and debts of small and medium-sized SOEs, which would have gone bankrupt when foreign companies swarmed into the Chinese market in the 1990s,” he added.
Feng stressed that the SOE revolution dating back to 1983 provides insight into how the government should properly handle the operation of SOEs today and ensure that the market plays a decisive role in tackling new challenges such as economic downturn pressure and supply-side structural reform.
For example, “drawing on FPF’s experience, the central government should now take innovative measures to relax limits on private capital investment in areas such as military projects and petroleum production, which have both been monopolized by SOEs,” Feng said.