China and Japan

by Ezra F. Vogel

before had ordinary Chinese and Japa nese people been able to view the

  . 338 .

  Working Together, 1972–1992

  leaders of their two countries meeting each other. Never before in history

  had Chinese and Japa nese publics of this size been linked by viewing an

  event that was bringing the two countries together. When Deng visited Nijo

  Castle in Kyoto, his Japa nese host explained that all of the culture Deng

  was seeing in Kyoto had been introduced by their Japa nese ancestors, who

  had learned it from China.

  The factories that Deng visited in Japan were well selected. They were

  all excellent models for the plants that Deng wanted to duplicate in China.

  Although Chiang Kai- shek, and later Mao Zedong, accepted that Japan

  would not be required to pay war reparations, Deng had reason to hope

  that Japan would provide far more financial and technical help than any

  other country to assist China’s modernization. Most Japa nese viewed the

  assistance they were giving China as voluntary contributions carried out in

  the spirit of reparations, without paying formal reparations.

  Inayama Yoshihiro, chairman of New Japan Steel and president of the

  Japan- China Economic Association of business leaders that was supporting

  the assistance to China, personally accompanied Deng across Tokyo Bay

  in a hovercraft, something that until then was unknown in China, to the

  Kimitsu Steel Factory, the most state- of- the- art steel factory in the world.

  At Kimitsu, for his tour of the factory Deng donned a steel helmet like the

  one the workers wore. Inayama had already contributed to the moderniza-

  tion of Wuhan Steel, enabling it to become the most modern steel plant in

  China. Kimitsu was the model for Baoshan, a comprehensive, completely

  new fa cil i ty that was being built on the outskirts of Shanghai to allow China,

  which scarcely a de cade earlier was promoting “backyard steel factories,” to

  leapfrog to state- of- the- art steelmaking. In 1977 all of China produced 24

  million tons of steel, barely three times as much as Kimitsu alone was pro-

  ducing. There had been contacts between Baoshan and Kimitsu before

  Deng’s visit, but shortly after Deng’s visit, on December 22, 1978, the Chinese

  signed a contract with New Japan Steel to begin construction of the Baoshan

  Steel plant. The two huge construction proj ects, the Baoshan factory and a

  fa cil i ty for joint petroleum exploration in the Gulf of Bohai, required exten-

  sive daily cooperation among Chinese and Japa nese planners, man ag ers,

  financiers, technicians, workers, lawyers, and government administrators.

  Deng also visited the Nissan auto plant at Zama. The factory had just

  introduced robots on the assembly line, arguably making it the most modern

  . 339 .

  china and japan

  auto factory in the world. At the time, the key mode of transportation in

  Chinese cities was still the bicycle. When Deng was told that the factory

  produced 94 cars a year per worker, he responded that that was 93 cars a

  year more than workers were producing at China’s best auto factory, the

  First Automobile Works in Changchun. The industrial base that China was

  using in Changchun had originally been built by the Japa nese when Man-

  churia was the heartland of Japa nese industry, prior to World War II.

  By 2015 China would have more than 12,000 miles of high- speed rail-

  ways, more than all of the rest of the world combined. But in 1978, when

  Deng visited Japan, China had not yet even started to build its first high-

  speed railway. The first time a Chinese leader traveled on a high- speed train

  was in 1978, when Deng rode on the Shinkansen (the “bullet train”), which

  was completed in 1964 for travel between Tokyo and Kyoto. After Japan’s

  initial success with high- speed trains, Eu ro pean countries also began to de-

  velop high- speed railways. In the past, some in China had tried to belittle

  Japan’s industrial accomplishments, whereas others had fawned over Japan’s

  modern industry. Before his trip to Japan, Deng was determined to show

  appreciation for Japan’s accomplishments without groveling. When asked

  to comment on the ride on the Shinkansen, he said, “It is very fast.” Before

  long, Japa nese and Eu ro pean railway engineers and man ag ers were in China

  teaching engineers the technology. It would take de cades for China to ac-

  quire the basic technology and management know- how to implement what

  they began learning from Japan. It was not until 2008, for example, that the

  first high- speed railway from Beijing to Tianjin was completed. Thereafter,

  however, the Chinese high- speed railway system expanded very rapidly. The

  Japa nese have had an extraordinary rec ord of quality control and safety;

  even today, with more than one billion riders, there has never been a death

  in an accident on the high- speed system. In 2011, two high- speed Chinese

  trains collided in Wenzhou, China, but since then the Chinese have worked

  hard to improve safety and have maintained an excellent safety rec ord.

  In addition to visiting cultural sites in Kyoto that drew on what the Japa-

  nese had learned from the Sui and Tang dynasties, Deng visited the Pana-

  sonic factory in Osaka and met Matsushita Konosuke, who, some sixty- one

  years earlier, had founded the com pany. Matsushita had begun by making

  battery- operated bicycle lights, but he had developed his com pany into what

  had become at the time the world’s dominant maker of consumer electronic

  . 340 .

  Working Together, 1972–1992

  products. When meeting with Matsushita in 1978, Deng called him by the

  nickname given to him by the popu lar press— the “god of management.”

  Matsushita had a vision of making inexpensive TV sets and other electrical

  appliances for all of China’s relatively poor people, and he responded im-

  mediately to Deng’s suggestion that he set up factories in China. However,

  when Deng requested that Matsushita pass on his most recent technology,

  Matsushita explained that private businesses spend a great deal of resources

  inventing and developing new products, that this requires considerable time,

  trou ble, and money, and that companies depend on using that technology

  to produce income to continue inventing new technology. Matsushita

  wanted to help China develop low- cost consumer electronics to supply to

  Chinese consumers, he said, but like entrepreneurs elsewhere, he under-

  stood that his com pany’s survival in the marketplace depended on its

  keeping its advanced technology to itself.

  Nevertheless, Deng and Matsushita hit it off, and Matsushita responded

  by moving quickly to establish consumer- electronics factories in China and

  to pass on some technology— though not the com pany’s latest crown

  jewels— and management know- how. Matsushita established factories in

  many diff er ent regions of China, following his strategy of giving people in

  many localities an extra incentive to buy his products since the regional fac-

  tories provided local people with employment.

  While in Japan, Deng also asked broader questions, such as how Japan

  had moved from a government- led ec
onomic system during World War II

  to a more open market economy thereafter. It was clear that Deng was con-

  sidering how he could provide leadership for a similar transition.

  When Deng visited Japan, Tanaka Kakuei was under house arrest for

  his role in the Lockheed scandal— giving bribes to Lockheed so that ANA

  would buy its planes— but Deng persisted in asking to visit Tanaka to ex-

  press his appreciation for what Tanaka had done to improve relations be-

  tween the two countries. When a visit was fi nally approved, Deng told

  Tanaka what he had said to the families of those who had contributed to

  good Sino- Japanese relations in the 1950s, and what he had just told the

  daughter of the late Takasaki Tatsunosuke in Osaka, “When we drink water,

  we cannot forget those who dug the well.” At Tanaka Kakuei’s home, Deng

  explained that when Tanaka had visited China, he had not been able to wel-

  come him because he had been in the “peach garden” (a euphemism for

  . 341 .

  china and japan

  rusticating during the Cultural Revolution as punishment for his po liti cal

  errors). He told Tanaka, “We cannot forget what you did for our relation-

  ship,” and he invited Tanaka to visit China as a guest of the government.

  After their meeting, Tanaka told reporters that the signing of the Treaty of

  Peace and Friendship with China was the best thing that had happened to

  Japan since the Meiji Restoration. He added that of all the foreign leaders

  he had previously met, Zhou Enlai had been the most impressive, and that

  he had similar feelings when he met Deng Xiaoping.

  While in Tokyo, Deng had a two- hour lunch with Emperor Hirohito

  at the Imperial Palace. To allow the emperor to speak freely when greeting

  visitors, no rec ords are kept of his private conversations. But Foreign Min-

  ister Huang Hua, who attended the luncheon, noted that the emperor had

  spoken of the “unfortunate happening,” which Huang had taken as an

  apology to the Chinese people for war damages.

  After the luncheon the two foreign ministers, Huang Hua and Sonoda

  Sunao, signed the formal papers for the Treaty of Peace and Friendship, and

  Deng gave Prime Minister Fukuda a hug. Prime Minister Fukuda appeared

  nonplussed by the hug but quickly recovered and accepted it as a sign of

  goodwill. In their conversation, Deng said, “Friendly relations and cooper-

  ation are the common wish of the billion Chinese and Japa nese people. . . .

  Let us on behalf of the people in both countries continue the friendship

  generation after generation.”1 In a public opinion poll conducted in Japan

  not long after Deng’s visit, some 78 percent of the Japa nese public reported

  positive feelings toward China.

  Shortly after Deng returned to Beijing, a del e ga tion of leading economic

  officials from China visited Japan. In a report of their visit, they concluded

  that Japa nese business leaders had made impor tant adaptations to capi-

  talism since the days of Marx. Japa nese cap i tal ists had learned how to

  make money by providing good conditions for their workers, who then

  worked harder than the exploited workers described by Marx. It was a bril-

  liant interpretation, recognizing the value and accuracy of Marx’s observa-

  tions while also pointing out that the practices that China was introducing

  would be good for Chinese workers. The del e ga tion also understood the

  key point in Japan’s approach to quality control: make the product prop-

  erly the first time rather than relying on inspection. During the following

  . 342 .

  Working Together, 1972–1992

  years, Chinese factories displayed big banners encouraging workers to study

  Japa nese management practices.

  Many Japa nese businesspeople believed that the best way for their gen-

  eration to respond to the suffering that Japa nese aggression had caused was

  not to keep apologizing but to help China develop its industry and raise its

  living standards so that China could live peacefully with its neighbors. The

  Japan External Trade Organ ization (JETRO), under the Ministry of Trade

  and Industry, responded to Chinese requests for technology assistance by

  sending in specialists in sector after sector, to help the Chinese with their

  industrial development.

  During 1981 the number of Chinese visitors to Japan surpassed 17,000

  and the number of Japa nese visitors to China reached 110,000. The total

  number of visitors was almost five times the number in 1978.2 In 1981,

  roughly 250 scientific and technical del e ga tions from China, with a total of

  1,100 members, visited Japan to acquaint themselves with developments in

  Japan in their respective specializations. Between 1979 and 1982, approxi-

  mately 480 Japa nese students entered Chinese institutions of higher learning

  and some 960 Chinese students entered Japa nese universities and research

  institutes for advanced study. Furthermore, the number of Chinese students

  in Japan continued to grow rapidly. During this time, Japan gave some 261

  billion yen in grants or loans to Chinese applicants.3

  China’s Bud get Tightening, 1979–1981

  Chairman Hua Guofeng, who succeeded Mao after his death in Sep-

  tember 1976, stopped using slogans from the Cultural Revolution and

  started importing new technology from abroad to provide a solid basis for

  economic growth. Local governments and vari ous ministries, given the green

  light to move ahead, rushed to arrange for the import of machinery to set

  up model factories. Chinese officials eagerly began discussions with foreign

  companies and encouraged them to submit bids for proj ects. A group of

  officials known as the “petroleum faction,” because of their experience in

  organ izing huge undertakings to expand oil exploration and extraction, was

  given responsibility for supervising many of the new factory proj ects. The

  leaders of the petroleum faction had proved themselves to be dedicated,

  . 343 .

  china and japan

  creative, and even heroic in overcoming shortages of transport, fuel, and

  materials while training inexperienced man ag ers to complete proj ects such

  as the Daqing oil field. Japa nese firms, taking advantage of the improved

  relationships since normalization in 1972, were especially active in signing

  contracts to build Chinese infrastructure and industrial facilities. They were

  also active in helping to construct electric power stations and petrochem-

  ical plants. A groundbreaking ceremony for the huge Baoshan Steelworks,

  involving many diff er ent Japa nese companies, was held on December 24,

  1978, just two months after Deng’s visit to Japan.

  Chinese local officials were all so eager, so hungry, for new factories that

  it was not easy for higher- level officials to restrain them from rushing to

  sign contracts to import factories before they had completed adequate prep-

  arations for the necessary land, labor, and technical skills, or had found

  resources to make their payments. Some Chinese officials, especially in the

  Ministry of Finance, the Planning Commission, and the banks— still chas-

  tened by the devastating errors made by rushing ah
ead during the Great

  Leap Forward— were concerned that Chinese officials were moving ahead

  too quickly without sufficient capital and preparation. Chen Yun, who had

  seen his First Five- Year Plan destroyed by the Great Leap Forward, became

  the spokesman for the cautious bud get balancers.

  In February 1979, after China invaded Vietnam, it became clear that the

  war required substantial funding and China could no longer afford all the

  contracts that Chinese officials had signed to build new factories. On

  the last day of February 1979, the bud get balancers froze some $2.6 billion in

  contracts with Japa nese companies, including the contracts for Baoshan. The

  proj ect man ag ers and Japa nese companies still tried to find ways to move

  ahead. In most cases, Japa nese firms and banks arranged to provide deferred

  payments and loans. In one case, however, the proj ect came to a halt.

  In late 1980, in the strug gles between the builders and the bud get bal-

  ancers, the balancers under the leadership of Chen Yun won the day. Some

  proj ects were to be stopped. In 1978, Chinese planners had expected that

  oil production would continue to grow, but from 1979 to 1981 oil produc-

  tion stagnated. With a growing domestic demand for oil, China began re-

  stricting oil exports to Japan, which made it difficult for China to buy Japa-

  nese goods and to pay for Japa nese investments in China. As Chen Yun

  and the bud get balancers were prevailing, Hua Guofeng was being forced

  . 344 .

  Working Together, 1972–1992

  to accept responsibility for signing contracts that were beyond the govern-

  ment’s means. Deng joined Chen Yun in criticizing Hua, who had expected

  a 20 percent annual increase in oil production until 1985, for his excessive

  optimism and his neglect of economic realities. The collapse of an oil rig in

  November 1979 became the reason for criticizing proj ect man ag ers who had

  tried to move ahead too quickly with oil exploration and steel production.

  Hua Guofeng became the scapegoat for poor management, and in late 1980

  Chen Yun and Deng promoted a major readjustment policy that helped

  consolidate their power and remove Hua Guofeng from office. Many proj ect

  man ag ers were removed from their positions as well. The readjustment

  policy of late 1980 required the cancellation or postponement of proj ects