Freeman

ARTICLE

Chinas Entrepreneurs: Keeping the Faith After Tiananmen

OCTOBER 01, 1991 by SHEILA MELVIN

Sheila Melvin is a free-lance writer based in Washington, D.C. The names of some of the Chinese entrepreneurs in this article have been changed to protect their identities.

“Judging by China’s experience, I advise you not to adopt socialism, at least not vague and unclearly principled socialism.”

—Deng Xiaoping speaking to Joaquim

Chissano, President of Mozambique,

in the spring of 1988.[1]
“The modern capitalist system is a great creation of human civilization.”

—Xu Jiatun, formerly Beijing’s chief representative

in Hong Kong, speaking in 1988. Mur. Xu left

Hong Kong for the United States nine months

after the crushing of the democracy movement

and later was expelled from the Communist Party.[2]

“During the 1980s we experienced tremendous success, and during the last two years we have continued to make progress even in the face of foreign pressure and domestic problems, enabling socialist China to stand rock solid in the East. The fundamental reason for this is that we have been following the road of building socialism with Chinese characteristics.”

—Chinese Premier Li Peng, addressing

the National People’s Congress,

China’s rubber stamp parliament,

on March 25, 1991.[3]

The life of an entrepreneur in the People’s Republic of China has never been an easy one. Aside from all the general problems faced by entrepreneurs worldwide and the specific problems faced by entrepreneurs operating within the confines of a Communist country, China’s entrepreneurs must somehow cope with the unpredictable political winds that blow out of Beijing and sweep across the nation.

For much of the 1980s, the winds were good. Deng Xiaoping came to power and declared that “to get rich is glorious.” He explained his policy of economic pragmatism with the oft-quoted proverb, “It doesn’t matter if the cat is black or white, so long as it catches mice.”

By the late ‘80s, inflation was running high. In an attempt to regain control over the economy and to curb inflation, the central government, in October 1988, instituted an austerity plan. The economy slowed, but the position of private entrepreneurs still seemed secure; that same year, China’s constitution was amended to legitimize the status of private enterprises. (A “private enterprise” in China is defined as a private, profit-seeking business with at least eight employees.) By early 1989, laws that not only regulated private enterprises, but protected them, were coming into existence.[4]

Then in June 1989, the winds changed direction. How the 23 million men and women engaged in private business in China have fared in the face of these shifting winds can be gauged through the experiences of a sampling of entrepreneurs and non-state sector employees from across the country.

“China’s No Good”

Miss Zhang is the proprietor of a coffee house in a small town in Xishuangbanna, an autonomous prefecture in China’s southwest Yunnan Province. Like many residents of Xishuangbanna, Miss Zhang is not an ethnic Chinese, but is a member of one of China’s 55 officially recognized minority groups, the Dai. She opened her coffee house, which doubles as a disco in the evenings, in 1986. The coffee house is just a few miles from China’s jungle border with Burma, and numbers among its customers Thai and Burmese traders who have sneaked into China on horseback. Most of the clientele, however, are tourists from other parts of China.

Miss Zhang is only in her 30s, but she has about her a tired, cynical air that makes her seem older. To Chinese customers, Miss Zhang is curt, but to me she is friendly and open, eager to discuss the trials and tribulations of entrepreneurship in China.

“Is it hard to run a private business like yours in China?” I asked her one scorching afternoon as I sipped iced Nescafé.

“Hard? Hard? It’s ridiculous! Taxes, taxes, taxes—all we private business people do is pay taxes. The government doesn’t want any private entrepreneurs to earn money. I can’t sell alcohol—only the government can do that. The police are always coming to bother me. I have to give them money to keep them away. It’s terrible. Terrible.”

Private businesses in China are required by law to pay 52 percent of their profit to the state and to put 30 percent back into the business.[5] The remaining 18 percent is often eaten away by local taxes and fees and by the necessity to pay bribes.

Miss Zhang leans forward and lowers her voice conspiratorially, “To tell the truth, China’s no good. This government is no good.”

“No good,” is harsh criticism when directed at a supposedly benevolent government that claims to be a “democratic dictatorship of the people” with only the best interests of the masses at its heart. It is, however, a criticism echoed by entrepreneurs across China.

Demands for more rapid economic liberalization were an integral part of the pro-democracy protests of 1989. These protests came to a bloody end when troops of the People’s Liberation Army entered Beijing on June 4 and slaughtered an undetermined number of civilians. But the dissatisfaction, disillusionment, and hope for a better future that fueled the protests did not end.

In the wake of the crushed democracy movement, government hard-liners turned on reformers and blamed the market-oriented reforms implemented in the 1980s as the major cause of the “turmoil.” Former Communist Party chief and heir-apparent to Deng Xiaoping, Zhao Ziyang, the main champion of economic liberalization, lost his job and was placed under house arrest

In the subsequent crackdown, economic retrenchment replaced economic reform. Both private enterprises (siying qiye) and individual businesses (getihu) were singled out for attack as the central government tried to regain control over the non-state sector. Too many “flies”—such as the desires for individual liberty, free speech, and economic self-determination—had come in through the “open door.” In August 1989, two months after the massacre in Beijing, the State Taxation Bureau began a two-month campaign to detect tax evasion in the non-state sector and issued a circular on “rectifying the tax order” for individual firms.[6]

Most Western experts agree that some “rectification” was in order, since millions of private business owners did actively try to conceal their operations in order to avoid paying taxes. The campaign, however, went beyond mere “rectification” and bordered on open harassment.

Private and individual enterprises were reportedly forced to buy government bonds (as were state workers) in order to help fund the country’s budget deficit. Some complained of being made to pay extortionate fees for necessary services. Jiang Zemin, who replaced Zhao Ziyang as General Secretary of the Communist Party, indirectly referred to private entrepreneurs as “exploiters” and said that they should not be allowed to join the Party. He also accused private entrepreneurs of profiteering, cheating, and taking advantage of the people.[7]

I asked Miss Zhang how she had been affected by the post-Tiananmen Square crackdown.

“Business!” she replied. “My business has been affected. The government isn’t letting any nonresidents into the border region. If no non-residents—tourists—come, then I have no business!”

“Why isn’t the government letting any nonresidents into the border region?”

“I don’t know,” she replied bitterly. “They just want to control everything and everybody.”

Miss Zhang stared unhappily into space and then changed the subject.

“Is it true that America is full of terrorists and murderers?” she queried out of the blue.

Startled by the question, I told her that America did, indeed, have murderers but that it wasn’t “full” of them and that we had very few problems with terrorism.

“Well, then,” she continued, “is it true that Americans don’t get married and hate children?”

“No, it’s not true. Who told you all this?”

“I learned it in school—that’s what our books tell us. I always wondered because sometimes Americans come in here and they always seem nice and polite. They don’t spit and they don’t throw food on the floor.”

So saying, she gestured at the floor, which was littered with cigarette butts and peanut shells.

“Your books aren’t very good,” I suggested. “I think the government wants to criticize America because we are capitalist and they are Communist.”

“Yes,” she nodded. “Actually capitalism is much better, isn’t it?”

“I think so.”

“China is no good. I wish I lived in America.”

Success Is Dangerous

George is a businessman employed by a private enterprise in Wen Zhou, the coastal city chosen for China’s most far-reaching experiment in capitalism in 1984. Wen Zhou was selected as the site of the experiment in part because it had no airport or rail head. It was therefore sufficiently isolated both to act as a laboratory and to prevent the spread of too many capitalist ways to the rest of China.

In this novel capitalist experiment, private businesses were encouraged to set up shop. To help them succeed, the first privately owned banks in Communist China were established to lend entrepreneurs money. Business boomed, industrial output skyrocketed, and the people of Wen Zhou grew rich. Any outside observer would have deemed the experiment an unqualified success.

The company George works for produces medical equipment and machinery. George travels around China selling this equipment, although he says his best customers are in Wen Zhou itself, since it is one of the few places in China where people have money.

George isn’t a native of Wen Zhou, but he spoke of his adopted city in glowing terms as the most prosperous place in China. According to him, Wen Zhou is richer than Canton or Shenzhen, the special economic zone near Hong Kong, and better, too, because Wen Zhou makes its money from manufacturing rather than trade. Best of all, Wen Zhou’s factories, many of which produce electrical appliances, are owned by Chinese families, not just foreign investors.

“If it is so successful,” I asked him, “why doesn’t your government open up all of China to be like Wen Zhou?”

“Because,” he answered, “if all the people in China were allowed to have their own factories and their own money and ideas, they would not be so easy to control, and our government would lose its power. The government does not want to lose its power, and it is much easier to control poor people.”

Wen Zhou hasn’t fared well since the crushing of the pro-democracy movement. In 1989, the output of the city’s 150,000 private businesses fell, and many businesses went bankrupt.[8] The campaign to collect taxes was carried out with a special vengeance in Wen Zhou. The level of tension between the government and the private sector escalated to such a degree that in October 1990 two street peddlers attacked three tax collectors, killing one and beating up the other two.

George, well aware of all this, has decided to leave China temporarily and has accepted a job at a prestigious American university.

“I want to be a millionaire,” he explained, “or a billionaire.”

“Why?”

“I want to open my own factory and be rich. But first, I must have a green card. If you have a private business and a green card, you are safe—then you are American, and the Chinese government can do nothing to you. But, if you have a private business that succeeds and you are Chinese—then it is dangerous.”

Yangshuo

The problems faced by entrepreneurs since the crushing of the pro-democracy movement can be seen in microcosm in Yangshuo.

Yangshuo is a tiny town in the Guangxi Zhuang Autonomous Region in south-central China. It is an hour-and-a-half by bus, and several hours by boat, from the nearest major city, Guilin. Yang-shuo is perched on the banks of the Li River amidst an other-worldly setting of spectacular limestone peaks, known as karsts. The scenery of Yangshuo, as well as its bigger neighbor, Guilin, is famous throughout China and has been extolled by artists and poets for centuries.

When tourists started flocking to China in the early 1980′s Guilin quickly became a prime destination. A huge tourist industry burgeoned, much of it private. Tourist boats journeying up the Li River from Guilin stopped briefly in Yangshuo, leading local entrepreneurs to establish a tourist market on the dock.

As the ‘80s wore on, more and more individual travelers began making their way to China. Yang-shuo entrepreneurs couldn’t compete with Guilin for the tour-group tourists, but they could try to entice individual travelers to come and stay in their town. Restaurants serving banana pancakes, french fries, muesli, and pizza sprang up. Tailors began selling sun dresses and shorts sewn from the bright, tie-dyed fabrics favored by young Westerners. Musicians came in from the countryside to entertain backpackers as they sipped beer at sidewalk cafes.

By 1988, the year I first visited Yangshuo, the town boasted China’s only two privately owned hotels that accepted foreigners, the “Good Companion Holiday Inn” and the “Yangshuo Sheraton.” (Neither hotel had any affiliation with the American hotel chains.)

There are only two major streets in Yangshuo, and the hotels were located on the same one, practically next door to each other. Competition between them was fierce. Old women, some with bound feet, were hired by the hotels to catch foreigners as they arrived at the bus station. Hobbling on canes and cackling in broken English, the women, who worked on commission, would try to persuade backpackers to stay at whichever hotel employed them. Both hotels had one rustic toilet per floor and outdoor showers, but they were clean and cheap. The owner of the “Sheraton,” where I stayed, rented out bikes, organized outings to nearby villages and midnight tubing expeditions on the Li River, in addition to providing a laundry service and a train and bus ticketing service.

Just up the street from the hotels, the owner of Napoleon’s Bar served up Mongolian Hot Pot, with a special tofu version for vegetarians, and chatted with the guests at each table. A young waiter charmed diners with his ability to speak flawless English in a variety of accents and his street-smart knowledge of countries he had never seen. For candlelight, rock music, and after-dinner drinks, travelers could wander over to the “Hard Rock Cafe/Yangshuo,” and even buy 100 percent cotton tee shirts bearing the plagiarized Hard Rock Cafe logo with the word “Yangshuo” silk-screened beneath it to prove they had been there.

Travelers found Yangshuo’s breathtaking scenery, leisurely pace, Western food, and English menus so convivial after the rigors of traveling in the rest of China that they stayed for days, even weeks. Many, myself included, bypassed Guilin completely, using it only as a staging point to get to Yangshuo.

But, this was all before the June 4 massacre in Beijing two years ago. In September 1990, I returned to Yangshuo to see how its entrepreneurs had managed in the ensuing time period.

“Too Much Dust”

The first blow to hit Yangshuo in June 1989 was the desiccation of the tourist industry that immediately followed the massacre. Suddenly, no tourists were coming to China, and those already there were lining up to get out. (Tourist arrivals in China plunged in 1989, and tourism revenues dropped 20 percent after increasing at an annual rate of nearly 13 percent the previous 10 years.)[9] Entrepreneurs in Yangshuo—and across China—who had sunk everything into a business geared exclusively toward foreign tourists suddenly had no customer base.

The “Hard Rock Cafe” closed from July to September of 1989 because of the dearth of customers. It re-opened in October, but, soon after the re-opening, government officials came and ordered it to close down. The reason? There was “too much dust” on the street, so all private restaurants had to close.

Undeterred, Collin, half-owner of the “Hard Rock,” moved his business to Yangshuo’s second main road, West Street, and opened again in November. But then, in April 1990, private restaurants quietly re-opened back on Yangshuo’s main drag, where Collin’s cafe had been, and government officials said nothing. Another entrepreneur opened a second “Hard Rock Cafe” in the building originally occupied by Collin’s “Hard Rock Care.”

Collin takes the arbitrary changeability of his government’s policies in stride. Asked if he isn’t angry about the competition from a second “Hard Rock Cafe” brought on by the government’s closure of his restaurant, he jokes, “Yeah. I should have copyrighted the name.” Collin is the son of farmers who raise pigs and ducks and grow rice. He is a college graduate, and his parents think he is “crazy” for running a private business. They think this not only because being an entrepreneur in China is such a risky undertaking, but because, like all college graduates who choose to work in the private sector, Collin must reimburse the government for the cost of his education. Collin’s business partner, however, is doing the same thing Collin did, majoring in English at Guangxi’s main university while Collin runs the business; it is a measure of the “Hard Rock Cafe’s” profitability that both young owners can support themselves, help their families, and pay for college education out of the money the cafe makes. Business, Collin said, was much better in 1990 than in 1989, but not nearly so good as prior to the massacre. Asked what he expects for the future, he replies, “I don’t think about it.”

Napoleon’s Bar closed its doors for many months, both because of the lack of customers and the “dust” problem. The couple who owned it divorced, and the charismatic young waiter was laid off. With no private businesses able to hire him, he was forced to turn to the government for employment and worked for a while as a tour guide. He didn’t like working for the government, and eventually found a job at the privately owned Green Lotus Peak Wine House. His one ambition in life is to find a sponsor to help hun leave China. “I want freedom,” he explained simply. Unlike the “Hard Rock Cafe,” Napoleon’s was able to reopen at its original location on Yangshuo’s main street. However, the restaurant still wasn’t back on its feet in the fall of 1990. In an effort to woo customers, it was offering a 30 percent discount for all items on its already cheap menu.

The “Good Companion Holiday Inn” and the “Yangshuo Sheraton” were both shut down by the government in November 1989. The “Holiday Inn” was subsequently re-opened in the “Sheraton’s” building, but is now owned by the government. The “Sheraton” is defunct.

Tiger, a former owner of the “Good Companion Holiday Inn,” is bitter.

“I was a 40 percent owner,” he explained in English. “I lost a lot. Almost everything.”

In the difficult year that followed the massacre, Tiger also went to work as a government tour guide, but he didn’t like the government travel agency. “They cheat and lie,” he explained. When the now government-owned “Good Companion Holiday Inn” opened, Tiger went to work as its manager, quite a comedown from being the hotel’s founder and principal owner.

Tiger differs from every other entrepreneur I met in that, rather than supporting the student movement, or at least being sympathetic to its goals, he blames it for the destruction of his business.

“why were the hotels in Yangshuo closed down?” he asks rhetorically. Because of corruption. Yangshuo was the only place in all of China where private hotels took foreigners. We were able to take them because of corruption. Many hotels want to take foreigners, but they cannot. The students Protested against corruption, and so the government shut us down as an example.”

Getting more riled, Tiger continued, “I don~ blame the government for what it did in Tiananmen Square. Any government in the world would have done the same thing. The students were trying to overthrow the government, and the government did what it had to do.”

Later, in conversation with other entrepreneurs, I learned that Tiger was not a popular figure in Yangshuo.

Glorious Wealth vs. The Socialist Road

Entrepreneurs in China come from all walks of life. Some are. college educated, some are barely literate. Men, women, Han Chinese, and minority groups alike choose the capitalist road, with all its associated, risks, ‘over the .socialist road of state-sponsored security. The crushing of the pro-democracy movement and the crackdown that followed dealt a blow to entrepreneurs and other members of the non-state sector, but not a knock-out.

Miss Su is a tailor in southern Yunnan who specializes in sewing the clothes of Yunnan’s minority peoples. Her shop is a neat shack across the street from a pigpen. Miss Su is paraplegic and, in China, is therefore considered virtually unemployable.

Miss Su opened her shop in 1985. In a good month, she earns 200 yuan, in a bad month 100. (In 1990, 100 yuan was roughly 20 dollars.) For the 10 months following the June 4 massacre, she didn’t have a single customer and was forced to rely on her parents for support. She quietly voiced the hope that “nothing like that would ever happen again,” but she has no plans to give up her business.

Miss Ye sells made-for-export clothing out of a tiny stall in Beijing. Her stall is in the thriving silk market located in an alley close to the Friendship Store and the Jianguomenwai embassy compound, an area of the city that is frequented by many foreigners. By Chinese standards, she is quite well-off. Despite her business’s prime location, Miss Ye complained that China’s economy is terrible.

“After the turmoil, we had no business,” she said. “Of course, there are always people from the embassies, but it’s people like you we really count on.” ‘

“People like me left China, or stopped coming, because we opposed what your government did in Tiananmen Square,” I responded.

“I understand that. Of course, I opposed it too. But, when there are no foreign tourists, we private business people can’t make any money.” “That’s a problem,” I agreed.

“This economy—it’s really hard for us private business people. Really hard.”

“What do you think the main problem is?” “Socialism! Socialism is the problem! You’re either capitalist, or you’re socialist, but not both. Our government wants money, but it does not want full capitalism. It’s no good.”

Miss Ye’s words, in a nutshell, sum up the Chinese government’s economic policy.

Premier Li Peng has stated that China needs to strike a balance between “building socialism with Chinese characteristics” and continuing with market-oriented reforms. Until he and the rest of the Chinese leaders realize, as Miss Ye already has, that such a balance is ultimately untenable, China’s entrepreneurs will remain stuck in the unenviable position of looking toward Beijing to see which way the winds are blowing.


1.   Daniel Southerland, “China Bests Soviets in Real Gains,” The Washington Post, July 3,1988.

2.   Ibid.

3.   Lena H. Sun, “China’s Premier Urges Tight Controls, Slow Reform,” The Washington Post, March 25,1991.

4.   Alison E. W. Conner, “Private Sector Shrinking Under Intense Criticism and Increasing Controls,” East Asian Executive Reports: China, December 15, 1989, page 10.

5.   Adi Ignatius, “A Troy Chinese Venture into Capitalism Feels Icy Chills in Wake of Crackdown,” The Wall Street Journal, March 8,1990.

6.   Conner, East Asian Executive Reports.

7.   Ibid.

8.   Ignatius, The Wall Street Journal.

9.   Peter Goodspeed, “Slouching Toward Stagnation: Productivity Shudders to a Halt,” The Toronto Star, as reprinted in World Press Review, May 1990.

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