China Emerging_ 1978-2008 - Xiao-bo , Wu [46]
At about the same time, the State Council announced that it was “going to further the housing system reforms that were implemented in cities and towns and that it was expediting housing construction.” The housing supply system would now “take affordable housing as its core.” The People’s Bank of China then issued regulations on housing loans. The policy permitted commercial banks to begin offering mortgage loans and permitted borrowers to pay back on the basis of constant payment mortgage (CPM) or constant amortization mortgage loan (CAM). The new policies were highly effective in stimulating the economy. China began a real estate boom that has lasted for over ten years now. Numerous stories of sudden wealth have been generated in the process.
An old man cycling in a decrepit Hutong.
Since the housing industry was tightly linked to a broad network of other industries, the new policies were especially helpful in stimulating areas such as steel, cement, and other resources. Economists were later to confirm that, “The policy was a turning point in the effort to boost the market demand after the Asian financial crisis. The impact has persisted over the course of a full decade. Consumer loans stimulated the demand for housing. Largescale infrastructure projects stimulated demand in the financial markets. Many enterprises were able to expand significantly with the infusion of capital. Since investment funding was available, the energy supply and basic materials industries were able to maintain steady growth. This provided an excellent market environment for the state-owned enterprises that were in an upstream position.”
Zhu Rong-ji had promised that within three years he would help the state-owned enterprises to emerge from their problems. This was undoubtedly the most difficult of his three commitments. In 1998, as the Ministry of Finance reported, the reality was that state-owned enterprises frequently filed false reports as a way to cover up their very serious straits. The Ministry conducted a survey of one hundred key state-owned enterprises in 1997 and 1998. The results showed that 81% of enterprises reported assets that were “non-existing” and profits that were “empty,” i.e., false. No explanations were provided for this but everyone knew: Since they belonged to the people at large and nobody was responsible for the consequences, the state-owned enterprises had been gutted.
Premier Zhu Rong-ji and the CEO of Kodak, George Fisher.
Five days after the press conference at which he mentioned landmines, Zhu Rong-ji signed off on what seemed like a crazy plan. The Chinese government agreed to allow the largest photographic film company in the world, Kodak, to come into China and buy its entire film industry. The industry comprised seven Chinese enterprises. According to the agreement, these were to be incorporated into a joint-venture company with Kodak. Kodak promised to invest US$1 billion and to bring the world’s premier photosensitive technology to China. This shocking news soon came to be referred to as the “98 Agreement.”
The photographic film industry in China could serve as a mirror to all other state-owned enterprises. Similar to the home electronics and beverages industries, the film industry reform after 1978 also began with importing complete production lines. Starting in the 1980s, all local governments competed for “projects.” Such projects signify economic activities that have been approved and funded by the government. Therefore, with government funds,localgovernmentsbegantoimportfilm-making equipment from Fuji, Kodak, and the German company Agfa. Among these, Xiamen’s investment in Kodak imports totaled RMB 1.5 billion, and Shantou’s investment in Fuji importstotaledRMB4billion.Intheshortspaceoftenyears,Chinaestablished seven film-making factories, making it the world’s most film-intensive country. All the chronic illnesses of state-owned enterprises were exhibited in the film industry. These included massive duplication in investments, the inability to absorb technology, the failure to be