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Hitachi Research Institute

President Column

Commentary by our President, Hitoshi Shirai

President Column #3: China, December 1986

When our aircraft touched down at the freezing Beijing Airport, the scenery of the world outside looked somber and desolate. It was if we had traveled back in time to another era some decades earlier. It was my ninth year at Hitachi and my first overseas business trip. I was to spend roughly two weeks in China to take part in a trade mission for a Japanese industrial association. After arriving in Beijing, we began what was quite a demanding itinerary, traveling to Shenyang in the northeast of China, on to Shanghai, and then to Guangzhou and Shenzhen in the south before finally returning to Japan via Hong Kong.

The purpose of the mission was to search for materials that could be procured for use in the machinery industry. Today a mission of this kind seems quite incredible but at the time this was more or less the state of trade relations between Japan and China. In 1986 annual exports from Japan to China stood at nearly 1.7 trillion yen, and exports from China to Japan at 965.8 billion yen, with Japan having an enormous trade surplus of 700.7 billion yen with China. After the signing of the Plaza Accord the previous year in 1985, the yen suddenly began to climb, but it would take some time before the number of Japanese companies producing locally in China would begin to increase and imports from China to Japan would increase.

After spending a number of days in Beijing where we visited machinery industry- and trade-related representatives of the central government, we transferred to Shenyang in the northeast by overnight sleeper train from Beijing. Beijing Station at dusk was like a veritable “sea of people,” with droves of people filling every corner of the station. At that time a feeling of anxiety gripped my mind: if I should be separated from the other members of the mission, I could be stranded here forever.
Once the train departed Beijing at dusk, I dozed off almost immediately in my berth on the train, the fatigue from the trip getting the better of me. When I awoke at dawn as the first dim rays of morning light began to filter into my window, expansive plains that stretched in all directions as far as the eye could see came into view. A female train attendant came around to distribute breakfast and set down a small roll, an aluminum cup, a plastic bag filled with white powder, and a teapot filled with hot water. Not knowing what the white powder was, I looked around to see what the Chinese passengers were doing with it and saw that they were placing it into the aluminum cup along with the hot water. Some of you who are of a certain age or older will remember a time prior to the mid seventies in Japan when this same white powder, or nonfat powdered milk, was served with our school lunches, and we would drink it dissolved in hot water in the same way. Having to drink this milk so many years later since elementary school, I felt as if I was in a time warp and I cannot honestly say that the milk had a pleasant taste.
This business mission took us to Shenyang where the severe cold made me feel as if my ears would shrivel and fall off, to Shanghai with its cosmopolitan atmosphere combined with its remaining vestiges of prewar days, to Guangzhou where I was served exotic dishes like snake soup and bear’s paw, and to the newly completed artificial city of Shenzhen. It was truly a trip full of novel surprises that made me feel as if I were traveling in another dimension.

Unfortunately, this mission was unable to achieve adequate results in terms of its original purpose. As I wrote in my mission report at the time, the products that could be purchased from China were limited to elevator counterweights (lumps of iron, with the understanding that they would suffice for the time being if the weight was sufficient) and electrical wire and cables.
At the end of my report, I also stated some of the issues in the machinery industry in China, such as the insufficient understanding of cost and the lack of control systems. I also indicated that the Chinese side was lacking in export mentality in the area of sales as well and that their pricing mechanisms were unclear. It was clear that a market economy had not yet taken root in China, and that essential systems such as production control, process control or quality control had not yet been established in factories.

In a matter of a quarter of a century after that, China achieved such astounding development that it has come to be referred to as “the world’s factory.” In 1989, after the Tiananmen Square incident, investment in China slowed for a period but rebounded and began to expand after Den Xiaoping’s Southern Tour in 1992. After becoming a member of the World Trade Organization (WTO) in 2001, China moved ahead impressively with efforts to transform the country to a market economy, and by 2006 had completed almost all the system reforms it was obliged to undertake. It is interesting to note that some years later in 2012 Japan posted a trade deficit of 3,529.6 billion yen with China, with exports to China amounting to 11.5 trillion yen and imports from China amounting to 15 trillion yen.
At present China is faced with the new challenge of making the transition from an economy dependent on exports based on labor-intensive industries, whose underlying strength at present is low wages, to a more value-added industrial structure. The road ahead will not be easy but I do not believe the obstacles China will encounter will be as daunting as those it has already overcome in the past quarter of a century.