Heading south

The year 1992 was a difficult one in China. Economic growth had slowed for three consecutive years and Deng Xiaoping’s reforms were being stymied by conservative forces who argued that the country was moving too fast and too far from the Chinese Communist Party’s ideological roots. There was even a fear that the Party could suffer the same fate as its eastern European counterparts, which had collapsed after the fall of the Iron Curtain.

To rally support and reboot the modernising effort, Deng set off on a trip to southern cities such as Shenzhen and Zhuhai, where officials were more liberal-minded. The month-long tour started on January 18 and as he travelled the paramount leader made hard-hitting speeches along the way, with promises that opponents of reform would be turfed out of office.

Deng’s eventual victory was far from preordained. Editors in the state-run media weren’t sure about publicising his speeches or news of his whereabouts, because of fears they could end up on the losing side in the Party’s power struggle.

Shenzhen Special Zone Daily was the first to take the risk by publishing the “spirit” of Deng’s speeches – without quoting him directly – in a series of op-eds titled “Commentaries in the Year of Monkey”.

Braver editors at other newspapers began to pick up on the same theme, sharing the news from Shenzhen.

Xinhua, the biggest of the state news agencies, finally provided word of Deng’s ‘Southern Tour’ on March 30, more than a month after his return to Beijing. Senior cadres then began to get in line, pledging their commitment to reform. Changes in the economy picked up pace and China embarked on two decades of unprecedented growth.

The mythology of the ‘Southern Tour’ has captivated most of China’s senior leaders in the generation since it happened. And it has been a talking point for the media again this week, with President Xi Jinping setting off on a rare trip to southern China himself.

Why did Xi go?

There are a few similarities with Deng’s tour, most notably China’s souring relations with the United States. Back in 1992 American sanctions against China included the suspension of high-level exchanges between the two countries. Bilateral relations reached a low point after President George HW Bush signed off on the Hong Kong Policy Act that allowed Washington to treat Hong Kong separately from China on matters such as exports. This was passed in spite of Beijing’s vigorous protests.

Fast forward a quarter of century, and there is a renewed sense of estrangement between the two governments. Beijing is consumed not only by the rising stakes in the tariff war with Washington but also by a growing concern that these trade and tech rows could flare into a new “Cold War” (see WiC428).

Domestically, the political mood isn’t nearly as tempestuous as 1992 (when fear of a military coup is said to have prompted Deng to bring his family with him on the Southern Tour, plus Yang Shangkun, an ally who had control of the People’s Liberation Army.)

Nonetheless, some international media outlets have been speculating for months that Xi’s handling of the clash with Trump has created rifts at senior levels (see WiC420).

Another area for discontent among the elite that has been reported on is the campaign to glorify Xi’s leadership. Efforts to celebrate China’s rise as a superpower have also been criticised for fanning excessive nationalism.

But the biggest internal disputes, as ever, are about how to handle the Chinese economy. Growth has slowed to 6.5% (the lowest rate since 2009). Investor confidence in Chinese stocks has been plummeting too, taking the key Shanghai Composite Index to a four-year low.

Against this backdrop the debate over guijinmintui, or “the state advances, as the private sector retreats” has returned with gusto (see WiC428).

Part of the fascination with Xi’s trip this week was whether he would signal a commitment to pushing further ahead with China’s market reforms, or take the side of those favouring a more dominant state sector.

What was Xi’s message?

It’s not the first time he has taken a trip to southern China. In December 2012, just a few months after he became supreme leader, he made Shenzhen the destination for his first official inspection trip. By following in the footsteps of Deng’s 1992 tour, and making stops in a province where his own father had governed at the onset of China’s opening up, Xi looked to be sending a message that he would push for further economic reform himself.

The president’s critics have been disappointed in him since then, saying that bolder initiatives have been put on ice. But political analysts predicted Xi might unveil something more significant after Beijing postponed an all-important visit by the Japanese prime minister by a few days (see page 9).

Xinhua started giving details of Xi’s southern trip on Monday, with the Chinese leader making Zhuhai, one of the first special economic zones, his first stop. There, he visited a new industrial park in Hengqin – another special zone that’s adjacent to the enclave of Macau. After that he dropped in on Gree Electric, an air-con maker that has been trying to diversify into higher-tech businesses such as electric vehicles and semiconductor chips. On Tuesday, Xi then attended the opening ceremony of the Hong Kong-Zhuhai-Macau Bridge (the HZM Bridge), a 55-kilometre engineering feat linking Hong Kong and Macau, two former colonies, into the Pearl River Delta. Then he travelled to Guangdong’s Qingyuan city to see how e-commerce has been helping to alleviate poverty in what was once one of the province’s poorest cities.

On Wednesday he went to Shenzhen to see an exhibition celebrating the 40th anniversary of Deng Xiaoping’s 1978 economic reforms.

What got the most attention?

The launch of the new ‘HZM Bridge’ made the most headlines, with more than 800 political and business leaders turning up for the opening.

Xi didn’t deliver the keynote address that they had expected to hear, however, offering only the short sentence: “I announce the Hong Kong-Zhuhai-Macau bridge is officially open”. It was a spectacular contrast to his opening speech at last year’s Party Congress, a 3-hour, 23-minute marathon oration.

Instead Xi saved time to later offer words of congratulation to the megaproject’s designers and engineers. Opened for traffic on Wednesday, the HZM Bridge is the world’s longest sea crossing. It extends 20 times the distance of California’s Golden Gate Bridge and is supported by enough steel for 60 Eiffel Towers.

Erecting this superstructure across the Pearl River estuary was no easy task. Construction started in 2009 and suffered major delays and massive cost overruns. But the People’s Daily was happy to celebrate the trickiest bit: a 6.7-km undersea tunnel, that was built with some of the world’s most complicated technologies. Xi was also keen to hail the bridge as further proof of Chinese innovation. “The state-level project demonstrates China’s comprehensive national strength and innovation capability,” he told the project’s construction teams. “I am proud of your achievements and you should be proud of yourselves.”

The government has plans to integrate 11 cities in the Pearl River Delta zone into a single megalopolis known as the Greater Bay Area and position it as China’s answer to Silicon Valley. Taken together, the area has 67 million residents, boasting a trillion-dollar economy that surpasses Japan as the world’s fourth-largest exporter, according to HSBC estimates.

Transport projects like the bridge are an important part of bringing the region closer together. The new link will shorten the time for a Hong Kong-Zhuhai-Macau journey from four hours to about 45 minutes, for instance. Together with the Guangzhou-Shenzhen-Hong Kong high-speed railway, which finally started service last month, the so-called “one-hour economic zone” linking Macau and Hong Kong with some of the most productive parts of Guangdong province is now firmly in place (see WiC426).

Although Xi didn’t say much himself, his colleagues were keen to give him credit, including Guangdong Party boss Li Xi, who underlined why the bridge is so important.

“The Greater Bay Area was plotted and planned personally by President Xi Jinping. It is an important national strategy which he personally pushed for. It provides important opportunities for Guangdong, Hong Kong and Macau,” Li assured.

What other messages was Xi sending?

During his previous trip to Guangdong six years ago, Xi visited Tencent’s Shenzhen headquarters. The internet giant’s share price embarked on a spectacular run for the next five years (although it has reversed course sharply this year).

Because of that earlier experience, investors might want pay attention to Xi’s tour of Shenzhen-listed Gree. Visiting the Zhuhai manufacturer’s R&D labs, he turned back to bigger-picure themes, telling his hosts that the confrontation with Washington over trade and tech know-how was teaching a deeper lesson.

“We must seek innovation by relying on ourselves, and I hope all enterprises will work in this direction,” he urged. “To go from a big country to a strong one, we must give paramount importance to the development of the real economy.”

The visit to Gree and other private sector firms in Guangdong was also an effort to influence the guojinmintui debate, the Hong Kong Economic Times believed. Just days before setting off for Guangdong, Xi had vowed “unwavering support” for the private sector. The letter, which was published by Xinhua last Sunday, said the sector’s contribution to the country’s development was “indelible” and “should not be doubted”.

“Any words and practices that negate and weaken the private economy are wrong,” Xi insisted.

Private companies have suffered most from the slowing economy as well as Beijing’s clampdown on borrowing, finding it much harder to get loans from the banks than state-owned enterprises.

A blog posting by a commentator had also hit a raw nerve last month by extolling the virtues of a wholly centrally-controlled economy, causing a much wider stir across the domestic media (see WiC428).

Recognising the febrile mood, the State Council announced on Monday that it would set up a bond financing programme for private sector firms facing liquidity difficulties. The China Banking Regulatory Commission also instructed the major banks to be more flexible before forcing companies into fire sales of their assets.

And on Wednesday, an adjunct of the Communist Party published a list of the “Top 100 outstanding private entrepreneurs” to coincide with the “40th anniversary of reform and opening up”, aiming to “encourage the non-public sector of the economy to make new contributions” to the country. The Hong Kong Economic Times thought that the initiatives were all designed to boost the mood among private sector bosses, alleviating their concerns about guojinmintui.

Was the Southern Tour a success?

If Xi’s last Guangdong tour was a tribute to Deng’s economic policy, his trip this week sent another clear message about further opening up, the state broadcaster CCTV reported.

“At a time of economic downturn associated with structural reshuffles, as well as an unprecedented trade war waged by the US against China, the continuation of reform and opening up is what is most needed,” the channel proclaimed.

Truth be told, the international media hasn’t been quite as captivated.

Meanwhile another news item just ahead of Xi’s trip was certainly a lot less welcome. Shortly before the opening of the HZM Bridge, China’s top official in Macau, Zheng Xiaosong, jumped off a building to his death. The central government’s Hong Kong and Macau Office quickly issued a statement suggesting that he had been suffering from depression and implied that he had committed suicide because of stress. Whatever his state of mind, Zheng’s demise could not have been more strangely timed…

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