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31 6 Speed Up Indigenous Production of Very Large-Scale Integrated Circuits1 March 11, 1988 Accelerating indigenous production of Shanghai Bell’s S-1240 programcontrolled switches is in the interest of both China and of Shanghai Bell—their interests are aligned. In the course of its development, Shanghai Bell encountered two difficulties. The first arose out of the technical decision to initially install exchanges only in Hefei and Qingdao, which caused Shanghai Bell’s reputation to become somewhat tarnished at one point. Second, in consequence , Shanghai Bell received few orders, and many foreign exchanges took this opportunity to enter the China market. With the lack of orders, production costs went up, so the firm was not competitive enough. I should point out that during your most difficult period, the Chinese government did its best to adopt measures to help you. Even so, great difficulties remain, and you have a long way to go to gain an edge in technology and price. Therefore you still need government help. However, government efforts alone will not get you there. Henceforth, we must work together and solve all the technical problems so that customers will order products enthusiastically. At the same time, you still have to bring down costs—clearly a major problem, with its solution dependent on indigenous production. Only by indigenizing will you be able to use less forex and bring down costs. Provided we cooperate in earnest and make joint efforts, Shanghai Bell will yet be able to dominate the Chinese market, for it is very large. I totally agree with Mr. Stan Abloose’s2 view that indigenously produced components must be of high quality. You must unreservedly tell us your standards , and we will indigenize production according to these standards. That is how we handled the Santana’s indigenization, in which case all of our parts ultimately exceeded the standards required by the Germans. In this instance, the core of indigenization will be very large-scale integrated circuits (VLSIs), so both sides must do their best to establish the company 1. These are the main parts of a speech by Zhu Rongji at a joint venture meeting on indigenization held at the Shanghai Bell Telephone Equipment Manufacturing Company. 2. Mr. Abloose was then the general manager of Shanghai Bell. Zhu_Shanghai Years_1987-1991_hc_9780815731399_i-xii_1-620.indd 31 12/26/17 12:00 PM 32 Speed Up Indigenous Production of Very Large-Scale Integrated Circuits involved—the Beiling Company—successfully.3 At a meeting convened in January by Zhang Jingfu, the responsible people from various departments of the State Council reached a consensus that fiscal support should and would be given to Shanghai Bell. The issue now is to move forward as quickly as possible. All the important figures in the market are here today, and since you’re all in agreement, you should speed up construction. How can progress on the Beiling Company be so slow? We can’t just talk about improving the investment environment without taking any concrete measures. The key is to do a good job with the existing joint ventures. Since the only joint ventures in Shanghai with some impact now are Shanghai Santana and Shanghai Bell, they must be run well! At this point, I would like to say a few words to our Belgian friends. First, Shanghai Bell is a symbol of the friendly cooperation between China and Belgium ; Belgium’s former prime minister and China’s leaders have all paid attention to this enterprise. Since it depends on the transfer of VLSI technology, I hope you can guarantee that this will take place. Second, at the outset, production runs of indigenized components will be small so their prices won’t be comparable to international prices right away. As a result, there should be a price curve. However, we believe that prospects are very good—and that you will definitely benefit from indigenizing production. Even if prices temporarily match those in international markets, you would save on shipping and handling costs, so overall the project would still be worth it. No matter what, the joint venture contract for the Beiling Company must be signed by the end of April, so I hope you can make some friendly concessions. Apart from indigenizing production of the specialized VLSIs, which will account for 47% of total costs, we should do the same for other parts to the extent possible. Shanghai Bell should submit its required standards, so as to help us achieve indigenization. The Chinese side must form...


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