Globalization, Market Transition, and Variety of Developmental Models: a comparison of Four Automakers in the Chinese Car Industry

5.1.1 “Zhejiang Phenomenon”

“Ever since the reform, among provinces competing with each other, there come out very few of them accomplishing the ‘leap-forward development’, while Zhejiang was indeed one exception, called as ‘Zhejaing Phenomenon’.”

In a recent issue of Business Week, after comparing Zhejiang to other regions of China such as Jiangsu and Shanghai, Huang Yasheng (2008) praised Zhejiang as “a free-market success story, and reminded the Chinese policymakers to “look no further than its own star province” when figuring out the future of China.

Comparison of the two periods of Zhejiang in the pre-reform and post-reform era offers some very illustrative pictures about what has been going on in Zhejaing:

First of all, GDP related statistics present some very impressive results.¹ From 1953 to 1978, the annual GDP growth rate in Zhejiang was only 5.7% (Lv 2008), lagging behind the national average of 6.1%. In 1978, GDP of Zhejiang was 12.4 billion, about only 3.4% of the national GDP. In contrast, from 1978 to 2005, the average GDP growth rate of Zhejiang increased to 13.2%, much higher than the national average, about 8.6%. The size of GDP in Zhejiang totaled 1343.8 billion in 2005, 7.3% of the national total. In terms of GDP per capita, from 1979 to 2001, the growth rate in Zhejiang reached 12.1%, the fastest one ahead of all the other provinces across China (Wang 2002). In 2005, Zhejiang became the first province in China with the GDP per capita overcoming the threshold of 3,000 US dollars.

Secondly, growing in such an outstanding speed, Zhejiang’s economy has reached an unprecedented position in China. As can be seen from Table 11, Zhejiang was rising up so quickly in the national economy ranking: In about twenty years, Zhejiang’s economy had jumped up to be one of the top 5 in China.

Source: Wang 2002

Note: The data used statistics of 1978.

However, Comparison with other fast-growing provinces could further fully illustrate the uniqueness of Zhejiang. In the years after 2000, Zhejiang’s rank of GDP in China maintained as stable as the fourth, following provinces of Guangdong, Shandong and Jiangsu. However, the development pattern of Zhejiang is totally different from any of them. As can be seen from Table 12, compared with these top three provinces, Zhejiang is smaller in the population size and geographic area, which partly explains the GDP gap between Zhejiang and the other three provinces. However, if the value per capita is checked, Zhejiang is much more advanced. In comparison with Jiangsu holding the second highest GDP per capita among the four, the value of Zhejiang is 10.5% higher. While, a more striking fact is that GDP per capita was not implying a number on paper, but real welfares for the ordinary Zhejiangnese: compared with the richest Guangdong, the urban residents of Zhejiang have more disposable income by 14%, while the rural resident have more net income by 44.4%; compared with Shandong, the last one in the top three, he income advantages of Zhejiangnese are more significant, 49.8% in urban and 67.9% in rural. In fact, the high personal income is one of the most important features of the Zhejiang economy: For seven consecutive years from 1999 to 2006, the personal disposable income of the urban residents in Zhejiang maintained as the number one across China; from 1984 to 2006, the net income of Zhejiang rural residents had kept as the national highest for 22 years (ETC of Zhejiang Province 2007).

Source: Based on Ding (2007) and Zhejiang Statistics Bureau (2007)

Why the personal income matters so much here? This virtue of Zhejiang actually gets its significance based on the inherent dilemma of the Chinese economic development, namely a poor society with a growing economy. In the economic development, China emphasizes to participate in the economic globalization via promoting large-scale of import and export, introducing the foreign investment and joining in the international labor division. The richest province, Guangdong, as China’s first opened place to the foreign capital and market, is representative of this type of development. As can be seen from Table 12, the total import and export of Guangdong were far more than the sum of the other three provinces; the foreign trade dependency ratio was about 60% higher than the nation average. Though not comparable to Guangdong in these two indicators, Jiangsu, a later follower of this model, is leading in the application of foreign investment. Its actually used foreign capital was even higher than that of Guangdong, while 81% of Jiangsu’s export was done by the foreign enterprises (Table 12). The model practiced by Guangdong and Jiangsu is based on such a mechanism, in which foreign capitals are closely combined with the Chinese cheap labors. In such comparative-advantages-pursuing arrangement, the price of labors is fundamental for China sustaining its competitiveness in the global economy. Therefore, it is always not easy for wages to be elevated, even when local GDP have been greatly enhanced. By comparison, Zhejiang was obviously on another track. The development of Zhejiang economy was less driven by the foreign trade and investment: According to Table 12, the actual-used foreign investment in Zhejiang was only about a half of the amount of Jiangsu; in comparison with that fact that four fifth of export was done via foreign corporations in Jiangsu, the ratio in Zhenjiang was only about 40%, though the total import and export of Zhejiang was similar to Jiangsu; In addition, the foreign trade dependency index of Zhejiang was also much lower than the national level. Therefore, not following the common development methods prevalent in China, Zhejaing may represents a model of endogenous growth, which has turned out to bring more welfare to the local society.

Then there comes another question, how Zhejiang could develop quickly without using foreign market and investment? The secret was the local private economy, the most active one across the country since the reform.

The activeness of Zhejiang private economy could be shown by the macro-economic data. From 1978 to 2006, the private economy of Zhejiang increased by an amazing annual rate of 28.9%, more than twice of the local GDP growth rate; as a result, the weight of the private economy jumped from only 5.7% of the local GDP in 1978, 15.0% in 1990, 33.5% in 1997, 40.9% in 2000, to 53.8% in 2003 (Zhejiang Statistics Bureau 2007). In Table 12, the economic value added from the private economy in Zhejiang accounted for 54.9% of the GDP, much higher than Guangdong, Jiangsu and Shandong.

At the organization level, in terms of the registered capital, realized industrial output, sale, total retail sale of consumer goods, foreign currency from export and the number of public corporations, the private-owned enterprises of Zhejiang had been ranked the number one across China for eight consecutive years from 1998 to 2006 (Zhang and Yang 2006). In the investigations on the private-owned enterprises by the All-China Federation of Industry and Commerce from 1997 to 2006, Zhejang enterprises always made up the strongest group: in 2006, for example, among the top 500 Chinese private enterprises, 203 came from Zhejiang (Zhejiang Statistics Bureau 2007).

At last, the prosperity of Zhejiang’s private economy is reflected on the individual level, namely the Zhejiang private entrepreneurs. According to the annual reports of the Hurun Research Institute, private entrepreneurs from Zhejiang have build up the strongest group: In 2005, among the top 400 richest Chinese, for the first time, Zhejiangnese exceeded the Guangdong group; In 2006, in the top 500 list, Zhejiang ranked the first by holding 106 entrepreneurs, while the second one, Jiangsu, only had 60 local entrepreneurs.

5.1.2 Private Economy, Rising Up in Transition

A comparison between Anhui and Zhejaing could be helpful to resolve the above inquiries. These two provinces were comparable in that both are located near Shanghai, the economic center of China; both shared the similar national economic ranks at the beginning of the reform (Zhejiang, about twelfth; Anhui, about thirteenth), while in 2005, GDP of Zhejaing rose to be the national 4^th and Anhui degraded to the 15^th (Yu 2006). In such a comparison, some unrelated factors could be easily distinguished. Obviously, the natural resources did not promote the private economy at all, since Anhui was definitely much more resource-abundant than Zhejiang; Anhui’s advanced human capital in comparison with Zhejiang, represented by the local nationally outstanding colleges, also contribute very little for the private economy; if the local culture was considered, Anhui’s historical business tradition instantiated by the famous Hui business gang also seemed less relevant here. These analyses falsify such an argument that the favorable business environment would not necessarily facilitate the growth of private economy in the market transition.

The above comparison has a major implication: The development of the private economy, which is supposed to be one of the major goals of the market transition, may rely on not only the replacement of the market rules with the precious command system, but also the birth of the private entrepreneurs as the real agents operating the new system. However, these agents themselves were neither given, nor automatically born out of the institutional changes in the market reform, but a kind of human resources to be cultivated under specific conditions and efforts. Therefore, we cannot naturally assume that the better business environment or natural endowment could necessarily result in the growth of private economy, but have to explore other responsible mechanisms.

In Zhejaing, there indeed existed certain institutional logics rooted in the economic transition, which were highly responsible for the local extraordinarily-activated private economy. As proposed by Zheng Yumin, a head official in charge of Zhejiang economy, the secret of Zhejiang development is “Three No”, namely no natural endowment in Zhejiang, no investment in Zhejiang and no special policy treatment from the central government (Zheng 2008). This seemingly irrational reasoning, that the miracle of Zhejiang just came from “nothing”, in fact offered some critical leads to understand the origin of Zhejiang’s active private economy.

In the planned economy era, Zhejiang was “institutionally” neglected and even forgotten by the central government. From 1952 to 1978, the national investment in Zhejiang was only 7.7 billion yuan so that each Zhejiangnese only had 410 yuan, a half of the national average; Such a small amount made Zhejiang only ahead of Tibet among all Chinese provinces in terms of national investments (Lv 2008; Pan and Sha 2003).² In a planned economy system, where the destiny of the local economy was commonly determined by the arrangement of the central government, the economy of Zhejiang was certainly doomed under such a treatment.

Such a poor position of Zhejaing was well grounded in the minds of national policymakers. First, Zhejiang was disadvantaged in resources so that it may not be efficient for the nation to invest its limited capitals into this region. According to an estimation on basic resources per capita, Zhejiang was ranked as the last but two among 28 provinces, autonomous regions and municipality directly under the central government in China:³ with the national average being set as 100.0, the score of Zhejiang was as small as 11.5, only ahead of Shanghai and Tianjin as two cities (RDRC of State Council 1987). Another concern of the central government was that Zhejiang was geographically at the front line of war toward Taiwan. Due to the military preparation, it was almost impossible for any critical industrial projects to be located there.

In the planned economy era, with little investment from above, Zhejiang was often having troubles in sustaining itself and sometime, even the basic survival of Zhejiangnese became a serious problem. According to a local saying, the basic geo-economic situation of Zhejiang was depicted as “seven mountains, one water, and two arable lands”. Unfortunately, at the same time, Zhejiang was also a populous province in China: by the end of 1981, Zhejiang, with about 38.7 million people, held the tenth largest population across all Chinese provinces; the population density reached as high as 380 people per square kilometer, which was the fourth highest in China (Chinese Statistics Yearbook 1981). As a result, the agricultural land shortage in Zhejiang was so extreme that the arable land per capita was less than a half of the national average. Thus, without any significant supports by the central government, the local economy was often fragile to support local people and there were always great pressures for Zhejiangnese to make a living in the planned economy system.

In consequence, there emerged survival-driven private business in Zhejiang during this period, which often had to go underground. Take Yiwu, a small county in Zhejiang as an example.⁴ Even in Cultural Revolution, when the communism ideology was most prevalent to depress the private economy, Yiwu people still managed to practice the so-called “feather for sugar”⁵ in order to make a living. As can be seen from the statement below, in this small county of Zhejiang, agents for the later emerging market had already been cultivated inside the planed economy system:

“(During Cultural Revolution), even rural officials could not save themselves, while ordinary peasants could not survive through the collective economy.” (Chen 1997)

“In my village, there were about fifty ‘shoulder poles’, doing the feather for sugar business. According to their agreement (with the production team), they should turn in 100 jins of feathers per month, or 1 yuan per day to the production team. If the condition was met, the team would give them the full load of working points. (If not going out to do private business), even though the all working points were gained, we could only be compensated at the end by 90 yuan, 400 jins of paddy and 100 jins of wheat. With these foodstuffs, we could hardly survive. Not even mention any left-over. But, these people who went out for business could gain all working points, and also have extra profits after turn-in. Needless to say, the income of people going out was much better than staying at the production team. ” (Pan 1997)

The unfavorable condition rooted in the institutional arrangement prior to the reform, on the contrary, could also be favorable for cultivating the seeds of the private economy, which served as a major way out for local people to survive the ignorance from the centrally-designed system and the execrable environment. On the one hand, the vigor of private economy in Zhejaing was actually stimulated by the institutional discriminations in the planned economy era. On the other hand, “the weakness of planned economy in terms of penetration and control made it relatively easy for the private economy to grow ‘out of the system’” (Zhejiang Statistics Bureau 2002). In consequence, in 1978, the beginning of the economic reform, state-owned industrial enterprises only accounted for 61.3% of the local total industrial output, lower than the national average of 80.8%, while the weight of non-state-owned industrial enterprises had been already two times of the national average (Fang et al. 2000).