Business and technology in china

Business and
Technology in
China


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Business and
Technology in China
JING LUO

UNDERSTANDING CHINA TODAY


Copyright 2010 by Jing Luo
All rights reserved. No part of this publication may be reproduced,
stored in a retrieval system, or transmitted, in any form or by any

means, electronic, mechanical, photocopying, recording, or otherwise,
except for the inclusion of brief quotations in a review, without prior
permission in writing from the publisher.
Library of Congress Cataloging-in-Publication Data
Luo, Jing.
Business and technology in China / Jing Luo.
p. cm.—(Understanding China today)
Includes bibliographical references and index.
ISBN 978-0-313-35732-9 (hard copy: alk. paper)—ISBN 978-0-313-35733-6
(ebook) 1. Business enterprises—China. 2. Technological innovations—Economic
aspects—China. 3. China—Economic policy—21st century. I. Title.
HD2910.L85 2010
338.0951—dc22
2010000947
ISBN: 978-0-313-35732-9
EISBN: 978-0-313-35733-6
14 13

12 11 10

1 2 3

4 5

This book is also available on the World Wide Web as an eBook.
Visit www.abc-clio.com for details.
ABC-CLIO, LLC
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This book is printed on acid-free paper

Manufactured in the United States of America


Contents

List of Figures and Tables

vii

Preface

ix

Chronology of Recent Events in the People’s Republic of China

xiii

1.

Growth

1

2.

Handling the Global Financial Crisis

33

3.

Growing Pains

49

4.

Innovative Nation

85

5.

Economic Reform

125

6.

The China Model and Sustainability

161

Notes

193

Bibliography

217

Index

223
Photo essay follows page 84


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List of Figures and Tables

Figure 1.1: China’s GDP Growth 1978–2008

2

Table 1.1: The U.S.-China Business Council Top 15
U.S. exporters to China in 2008

14

Figure 1.2: Per Capita Annual Income (Yuan)

15

Table 1.2: Urban and Rural Incomes of Selected
Regions

16

Table 2.1: Losses of Chinese Banks during the Global
Financial Crisis

39

Table 2.2: Losses of Chinese Firms during the Global
Financial Crisis

39

Figure 4.1: Technical School Graduates in 10,000s

113

Figure 4.2: Number of Students Abroad and
Returned

121

Figure 4.3: Number of Postdoctoral Graduates
(1985–2008)

123


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Preface

In roughly three decades, China has grown from a povertystricken country into the third-largest economy in the world. As
we speak, China is making yet another leap: emerging from the
global financial crisis, it is transforming from ‘‘world’s
manufacturing center’’ into the world’s biggest buyer. But the
best part of the story is not yet heard: China’s next target is to
build an ‘‘innovative nation’’ with a knowledge-based and
energy-efficient economy. Imagine that a blue sky will come
back to the cities and that rural streams once again will be safe
for women to wash clothes and children to swim. In fact, that is
exactly what the world depends on for a better future.
The question is what has fundamentally changed to make
all this happen? An obvious answer is the adoption of the market mechanism in 1978. A less obvious but more profound
answer is that Mao Zedong had created, unintentionally,
through prolonged and ruthless class struggles, not only the
reversing economic momentum, but also a mentality ready to
reject ideological entanglement. Thus, the China phenomenon
is a fruit of the conjugation of push and pull, of which the
pushing force, or the internal force, was decisive. The result is
overwhelming: once the ordinary Chinese were allowed to get


x

Preface

rich, their will cannot be thwarted and their creativity knows no
limit. The new generation is free-thinking and pragmatic. In
their mind, if the West appropriately learned technology and
got strong as a result, so too can the Chinese; if democracy
brings social harmony, the Chinese embrace it and gradually

phase it in; if globalization is the way of modernity, the Chinese
charge in that direction wholeheartedly. If, however, the West
sinks into ‘‘subprime mortgage crisis’’ and the like, the Chinese
are not willing to follow. The past 150 years of modern history
have done much of the enlightenment, to a point at which the
Chinese are just too cynical to let the ‘‘invisible hand’’ of market
mechanism run loose. They carefully maintain the prosperity by
shrinking the gap, building a safety net, developing domestic
markets, and working toward justice, fairness, equality, rule of
law, and so on, so that elements that may derail the economy are
under control. In this, the Chinese Communist Party, the middle class, and people of all strata seem strongly bonded together.
This is known as the ‘‘China Model.’’
Going forward China faces a strong headwind. Rising costs
of labor, shortage of energy, shortage of natural resources, and
government-monopoly-induced corruption are but a few of a
long list of hurdles. Successfully managing the market mechanism may be the best of challenges. Ask a government official
or a grassroots entrepreneur, and they will tell you that the
market economy is such that if you try to regulate it, you may
end up killing it; but if you fail to regulate it, it grows out of
control. This book presents China’s challenges in six chapters:
Growth, Handling the Global Financial Crisis, Growing Pains,
Innovative Nation, Economic Reform, and The China Model
and Sustainability. The book will present challenges and show
how the country prepares itself to win.
The book was written with classroom needs in mind. Chapters are structured to complement typical lectures on modern China. Special terminologies are explained; a bibliography
with abundant online resources and a chronology are included.
The book is also intended for the general public. Instead of


Preface

xi

extensive theoretical discussions, the reader will find individuals’ stories and cases that are helpful for understanding the
nature of events.
I am indebted to the generous supporters surrounding me.
Dr. Lu Bin, chair of the Department of Urban and Regional
Planning at Peking University, and Professor Gong Liwei,
architect and senior engineer at the Design and Research Institute at Tsinghua University, provided enormous help during
my research in Beijing. Mr. Luo Qiang, of Golden Concord
Non-Ferrous Metals Holdings Limited, was an important
source of inspiration on industrial development in China. I
am appreciative of Ms. Kaitlin Ciarmiello of ABC-CLIO for
her careful editing work. Last but not least, I would like to
thank Bloomsburg University where I work for its generous
support of all academic work that I do.


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Chronology of Recent
Events in the People’s
Republic of China

1949

1950

1951

The People’s Republic of China (PRC) is founded on
October 1 in Beijing. The Nationalist government
withdraws to Taiwan. Mao Zedong declares the ‘‘People’s Democratic Dictatorship.’’ Mao is appointed chair
of the Central People’s Government; Zhou Enlai is
named premier; and Zhu De becomes general commander of the People’s Liberation Army (PLA).
The Sino-Soviet Treaty of Friendship, Alliance, and Mutual Assistance is signed in Moscow by Mao Zedong and
Joseph Stalin. In June, Mao denounces American aggression in Korea. In October, the Army of the Chinese People’s Volunteers publicly enters Korea in support of North
Korea. Also in this year, the Marriage Law is promulgated
by the central Government. The Trade Union Law and
the Agrarian Reform Law of the PRC are also passed.
The Korean War progresses, with Chinese troops taking Seoul. Mao Zedong’s son, Mao Anying, is killed in


xiv

1952

1953

1954

1955

1956

Chronology

Korea. Domestically, the Agreement of the Central
People’s Government and the Local Government of

Tibet on Measures for the Liberation of Tibet is signed
in Beijing; the agreement recognizes Tibet as part of
China and grants the region autonomous status.
The Three-Antis Campaign is launched in January, targeting corruption, waste, and bureaucratism. In February, the Five-Antis Campaign begins; focused on
business operations, it is commonly viewed as the precursor to deprivatization campaigns. Deng Xiaoping
becomes deputy premier.
The armistice ending the Korean War is signed on July
27. The First Five-Year Plan (1953–1957) starts. Deng
Xiaoping becomes finance minister.
Zhou Enlai and Indian prime minister Jawaharlal Nehru
sign a joint communique that becomes the first international declaration to include the PRC’s ‘‘Five Principles
of Peaceful Coexistence.’’ The first National People’s
Congress (NPC) convenes. Deng Xiaoping becomes
deputy chair of the National Defense Council.
Zhou Enlai attends the Asian-African Conference (Bandung
Conference) in Bandung, Indonesia; the conference
seeks to build a united front of Asian and African nations
against colonialism and racism. Deng Xiaoping is elected
to the Politburo. The Chinese Language Reform Committee releases the first batch of simplified Chinese characters for use in newspapers in Beijing and Tianjin.
In April, Mao Zedong delivers his influential speech ‘‘On
the 10 Major Relationships.’’ In September, the Eighth
Party Congress elects Mao party chairman; Liu Shaoqi,
Zhou Enlai, Zhu De, and Chen Yun are elected deputy
chairmen; and Deng Xiaoping is elected as secretary general of the Chinese Communist Party (CCP). In May,
Mao Zedong calls for greater artistic and academic


Chronology

1957

1958

1959

1960

1961

1962

xv

freedom with the slogan ‘‘let a hundred flowers bloom,
and a hundred schools of thought contend.’’
Mao Zedong delivers his speech ‘‘On the Correct Handling of Contradictions among the People.’’ In June, the
People’s Daily states that rightists are trying to overthrow
the Communist Party and an Anti-Rightist Campaign is
launched.
In May, the Great Leap Forward is launched with the
phrase ‘‘more, faster, better, and more economically
soundly’’ as its general guiding principle. In August, at
the Politburo’s Beidaihe Conference, the People’s Communes plan is endorsed; the plan results in the organization of 26,000 communes in less than two months.
In March, the State Council appoints the Panchen Lama
to chair the Preparatory Committee for the Tibetan
Autonomous Region. Democratic reforms start in April
in Tibet. In April, Liu Shaoqi replaces Mao Zedong as
president of the PRC, with Song Qingling and Dong
Biwu as deputies. During July and August, an extremely
serious drought hits vast areas of China, affecting 30 percent of farm production. Rebellion erupts in Tibet. Lin

Biao replaces Peng Dehuai as defense minister.
In July, the Soviets notify China of their withdrawal of
technological support. With the exception of Xinjiang
and Tibet, serious famine occurs across China, causing
tens of millions of deaths.
Wu Han’s controversial play Hai Rui’s Dismissal is published in January. The 26th World Table Tennis Championships take place in Beijing, with the Chinese
winning both the men’s and women’s singles titles.
In October, Chinese troops launch major offensives
on the Sino-Indian border. A cease-fire is declared in
November. Mao Zedong steps up emphasis on class
struggle.


xvi

1963
1964

1965

1966

1967

1968

1969

Chronology

In May, Mao Zedong launches the socialist education
movement in rural areas.
In January, Zhou Enlai launches an extensive tour of
Africa. In August, the United States bombs North Vietnam. In October, China carries out its first nuclear test.
In May, China carries out its second nuclear test. In June,
the Wenhuibao newspaper denounces Wu Han’s drama
Hai Rui’s Dismissal as an anti-Party poisonous weed,
thereby signaling the coming of the Great Cultural Revolution. The Tibetan Autonomous Region is formally
inaugurated in September.
In May, the Politburo sets up the Cultural Revolution
Group and calls for attacks on all representatives of the
bourgeoisie who have infiltrated the party, government,
army, and cultural world. In July, Mao Zedong swims in
the Yangzi River at Wuhan, refuting the rumor that he is
sick. In August, Mao Zedong, Lin Biao, and Zhou Enlai
preside at a Cultural Revolution rally in Tiananmen
Square at which Red Guards make their first appearance.
The Guards subsequently begin destroying historical
relics. Chairman Mao’s Quotations are first published in
the form of the Little Red Book. Deng Xiaoping is ousted
from his offices.
In June, China tests its first hydrogen bomb. By
December 25, 350 million copies of Mao’s Little Red
Book have been distributed.
The army takes control of government offices, schools,
and factories. Millions of young people are sent to the
countryside to receive reeducation from peasants.
In March, Chinese and Soviet forces clash at Zhenbaodao Island in the Ussuri River. More clashes occur in
the following months. In July, the United States lifts
restrictions on travel to China, and in December, it lifts

its partial trade embargo. Liu Shaoqi dies.


Chronology

1970
1971

1972

1973

1974

1975

1976

1977

1978

xvii

In April, China launches its first satellite.
In April, the U.S. ping-pong team visits China and is
followed by U.S. Secretary of State Henry Kissinger,
who comes to Beijing in July. In October, China is
admitted to the United Nations.
In February, President Richard Nixon signs the joint

Shanghai Communique in China, admitting that there
is one China and that Taiwan is a part of it. In September,
China purchases 10 Boeing 707 civilian jet airliners
from the United States.
Deng Xiaoping becomes vice premier in August. The
United States and China announce their intention to
establish liaison offices in each other’s capital.
In April, Deng Xiaoping addresses the United
Nations and denounces the world hegemony of the
United States and the Soviet Union, the world’s
‘‘superpowers.’’
In January, Deng Xiaoping is elected deputy chairman
of the Chinese Communist Party Central Committee
(CCPCC).
An earthquake hits the city of Tangshan, killing more
than 250,000 people. Premier Zhou Enlai dies in January,
and Mao Zedong dies in September at age 82. Mao’s
death ends the Great Cultural Revolution. The radical
group called the ‘‘Gang of Four,’’ led by Mao’s widow
Jiang Qing, is arrested by Hua Guofeng, Mao’s handpicked successor.
University admissions based on college entrance examinations start. Enrollment based on recommendations
ends. Deng Xiaoping is politically rehabilitated.
The ‘‘Deng era’’ begins. Deng Xiaoping steps into the
spotlight as an important leader and begins to repair
the devastation caused by Mao Zedong’s rule. Deng’s
market-oriented reforms, embodied in the maxim ‘‘to


xviii

1979

1980

1981

1982

Chronology

get rich is glorious,’’ spark over 20 years of exponential
growth, lifting the masses out of poverty. In December,
the Coca-Cola Company reaches an agreement with
China to sell its soft drinks in the country and open up
bottling plants. In the same month, the Third Plenum
of the 11th Chinese Communist Party Central Committee (CCPCC) shifts the party’s focus to modernization,
which is also seen as the onset of the economic reforms.
In January, Deng Xiaoping visits the United States and
resumes the Sino-American diplomatic relationship.
From January to February, Chinese troops invade Vietnamese territory and destroy logistics facilities. In July,
the Fifth National People’s Congress (NPC) announces
the Criminal Law and the Organic Law of the Local People’s Congresses and Local People’s Governments. Special economic zones are opened, including Shenzhen,
Zhuhai, Shantou, and Xiamen. In September, the party
criticizes Mao Zedong’s Cultural Revolution as ill
judged and calamitous. In October, political dissident
Wei Jingsheng is sentenced to 15 years in prison.
In February, the NPC Standing Committee declares regulations on issuance of academic degrees. In December, the
People’s Daily declares that Mao Zedong made great mistakes during his last years and that his Great Cultural Revolution was a disaster.
Deng Xiaoping is elected chairman of the Military
Commission, and Hu Yaobang replaces Hua Guofeng

as chairman of the Chinese Communist Party Central
Committee (CCPCC). Both Zhao Ziyang and Hua
Guofeng are appointed deputy chairmen. The trial of
the Gang of Four is held.
In September, British prime minister Margaret Thatcher
arrives in Beijing to start discussions about the future of
Hong Kong.


Chronology

1983
1984

1985

1986

1987

xix

Selected Works of Deng Xiaoping is published in July.
Sino-British talks over Hong Kong’s future begin.
In October, the Third Plenum of the 12th Chinese Communist Party Central Committee (CCPCC) adopts a decision on reform of the economic structure, shifting the
focus to urban enterprises. Measures are taken to
strengthen the Tibetan economy. Fourteen coastal cities
and the island of Hainan are opened to foreign investment. A Sino-British declaration on Hong Kong’s return
is signed.
In May, the Chinese Communist Party Central Committee (CCPCC) releases its Decision on the Reform

of the Educational System.
In September, Deng Xiaoping, during an interview
with Mike Wallace of CBS for the television show 60
Minutes, endorses Mikhail Gorbachev’s reforms in the
Soviet Union and indicates that China’s economic
reforms are not in conflict with communism. In September, the Shanghai Stock Market reopens for the first
time since 1949. The Bankruptcy Law is issued in
December. In May and December, students in large
cities stage demonstrations demanding more rapid
reforms and more democracy.
Faced with rising democratic pressures, the Chinese
Communist Party (CCP) reiterates its determination to
stick to the ‘‘Four Cardinal Principles.’’ Hu Yaobang
resigns in January. Writer Liu Bingyan is expelled from
the party. Zhao Ziyang is appointed general secretary of
the CCP, replacing Hu Yaobang. Student unrest occurs
in 22 Chinese cities. In November, Deng Xiaoping
remains in control of the Central Military Commission.
In December, Zhao Ziyang resigns as premier and is
replaced by hard-liner Li Peng. In October, 2,000 Tibetan monks demonstrate in Lhasa in favor of Tibetan


xx

1988

1989

1990

1991
1992

Chronology

independence; the demonstrations lead to clashes with
Chinese authorities.
China slides into economic chaos due to the rising inflation that peaks at more than 30 percent in the cities, ultimately setting the stage for future protests and
prodemocracy demonstrations. Hainan is approved for
provincial status. The first exposition of nude paintings
opens in Beijing in December.
On May 16, Deng Xiaoping and Mikhail Gorbachev
meet and announce the normalization of Sino-Soviet
relations. On June 4, followed by several weeks of students protesting in Tiananmen Square in Beijing,
troops arrive with tanks, allegedly killing hundreds of
protesters. The event once again isolates China on the
world stage. On June 5, President George Bush suspends high-level relations with Beijing in protest
against the massacre. On December 10, U.S. National
Security Adviser Brent Scowcroft meets Deng Xiaoping
in Beijing. Soon after, Deng plucks Jiang Zemin, who
was relatively unknown, from Shanghai to be the new
Communist Party chief. Jiang replaces Zhao Ziyang.
In January, almost 500 students who participated in the
demonstrations of the previous year are released from
detention. In April, President Yang Shangkun promulgates the Basic Law of the Hong Kong Special Administrative Region (SAR) adopted by the Seventh National
People’s Congress (NPC). The law is scheduled to take
effect on July 1, 1997. Campaigns that aim at strengthening patriotism and discipline are launched at educational institutions.
The first partial direct elections are held in Hong
Kong.
During his tour to Hainan and coastal cities, Deng

Xiaoping reiterates his determination to continue


Chronology

1993

1994
1995
1996
1997

1997–
1998

1999

2000

2001

xxi

China’s economic reforms. Beijing establishes diplomatic relations with South Korea.
Chinese president Jiang Zemin meets with U.S. president Bill Clinton in Seattle, Washington, during an
informal meeting of APEC leaders.
The Three Gorges Dam project starts.
Hong Kong holds legislative elections.
Dong Jianhua (Tung Cheehua) is selected chief executive of Hong Kong.
Deng Xiaoping (1904–1997) dies at age 93. Deng’s

successor, Jiang Zemin, visits Washington. The British
formally hand Hong Kong back to China on July 1.
The Asian Financial Crisis negatively affects many of
China’s coastal businesses and causes severe deflation.
The Chinese government maintains the yuan’s value.
U.S. president Bill Clinton visits Beijing.
NATO’s accidental bombing of the Chinese embassy in
Belgrade, Yugoslavia, sparks a crisis in Sino-American
relations. China and the United States reach an accord
on the terms of China’s entry to the World Trade Organization (WTO). China recovers sovereignty over Macao.
Chen Shuibian of the Democratic Progressive Party is
elected president of Taiwan, while Li Denghui (Lee
Teng-hui) of the Kuomintang Party (KMT) resigns.
The 9th National People’s Congress (NPC) is held in
Beijing in March; the Congress stresses anticorruption
efforts and economic cool down.
In an act of terrorism, hijacked civilian planes take
down the World Trade Center in New York City on
September 11. An Asian-Pacific Economic Cooperation (APEC) meeting held in Shanghai in October is
attended by American president George W. Bush. Jiang
Zemin pledges to support the American war on


xxii

2002

2003

2004

2005

Chronology

terrorism. China joins the World Trade Organization
(WTO) in December. China wins a bid to host the
2008 Olympic Games.
The 16th Congress of the Chinese Communist Party
(CCP) is held in November. The party completes a
sweeping leadership reshuffle. Jiang Zemin and other
older leaders allow for a younger generation to take
control, headed by Hu Jintao and Wen Jiabao. Jiang
Zemin remains chairman of the Central Military Commission. The SARS outbreak occurs in November, and
attempts to cover up the spread of the SARS infection
cause scandal.
The Tenth National People’s Congress (NPC) is held
in March. Hu Jintao and Wen Jiabao are elected president and premier, respectively, of the PRC. Jiang
Zemin and Zhu Rongji step down.
Hu Jintao quietly consolidates power while both he and
Premier Wen Jiabao reveal populist agendas in their first
year in office. Chen Shuibian is reelected president of
Taiwan in March, taking advantage of the popularity generated by an unsuccessful attempt to assassinate him. The
growing belief that the assassination attempt was contrived sparks suspicion of Chen Shuibian’s campaign strategy. In September, Jiang Zemin steps down from his last
position as chairman of the Central Military Commission.
In December, President Bush meets with Hu Jintao at the
12th APEC meeting. Both sides express a commitment to
a stronger Sino–U.S. relationship.
CCP stresses curbing corruption and strengthening education of morality and ethics. A Chinese exploration team reaches the highest peak of the South Pole.
National People’s Congress passes the Anti-Secession Law.

China starts floating the renminbi (RMB) based on market demand and in reference with major currencies.


Chronology

2006

2007

2008

xxiii

Shenzhou 6, a manned spacecraft, is launched and returns
successfully. The agricultural tax of 1958 is eliminated.
The State Council makes a proposal to stress China’s
innovative and competitive abilities in building a newstyle country. Protection of migrant workers’ rights is
urged. The Three Gorges Dam is completed with a total
length of 2,309 meters. The Qinghai-Tibetan Railway of
1,958 kilometers opens. Three volumes of Selected Works
of Jiang Zemin are published. China hosts the Beijing
Summit of the Forum on China-Africa Cooperation.
National People’s Congress passes Property Rights Law,
emphasizing investment in low-income housing. The
State Council proposes a plan to expand the service sector and issues National Rural Minimum Living Standard Guarantee System. Chang-e 1, a lunar exploration
satellite, is successfully launched. The Shanghai Stock
Market Index rises from 3,000 early in the year to
6,124 on October 16. The State Council makes energy
saving and emission reduction part of the evaluation
package for businesses managers.

The Labor Law is promulgated to require a clearly
defined contractual period. Violent riots break out in
Lhasa, Tibet. A 7.9 magnitude earthquake hits Wenchuan
County, Sichuan Province, on May 12 killing 69,227
people. During August 8–24 and September 6–17,
Beijing successfully hosts the 29th Summer Olympics
and the Special Olympics. China ranks first in gold
medals in both Olympics. The scandal of melaminetainted formula produced by Sanlu is revealed. Thousands of children are poisoned. China successfully
conducts the flight of Shenzhou 7, a manned spacecraft.
Shanghai Stock Market plummets to 1,600; the government cuts benchmark interest rate and one-year
bank deposit rate. Lehman Brothers declares bankruptcy; the government deploys a stimulus package of


xxiv

2009

2010

Chronology

4 trillion RMB. The Chinese mainland and Taiwan
start direct air and sea transport and postal services,
ending a 59-year ban.
The State Council announces a plan of reform in healthcare and medicine to provide basic healthcare to all rural
and urban residents. Hu Jintao attends a financial summit in London and commits to joining efforts in combating the global financial crisis. The State Council
urges preventive measures for H1N1 flu. The China,
Russia, India, and Brazil Summit is held in Russia to
outline cooperation between the countries. Serious ethnic riots break out in Urumqi, Xinjiang Autonomous
Region, killing more than 180 people. Gross domestic

product of the first six months grows by 7.1 percent,
reflecting economic recovery.
China reports 2009 GDP of 33.5 trillion RMB or 8.7
percent increase over the 2008 figure. Google threatens
to pull out of China after accounts of political dissidents are hacked, reveals that hackers exploited a ‘‘back
door’’ intended for government’s forensics research.
Secretary of State Hilary Clinton gives speech on free
Internet. U.S. makes $3.1 billion arms sale to Taiwan.
President Obama meets Dalai Lama in the White
House, triggering Beijing’s strong protest. In defiance,
Google stops censoring web searches and news services
in China and plans to redirect users to its services in
Hong Kong.