Chapter 2: The Path to Azure Clouds 35. The Magic of the Market (Part I)

Just as the sales system had been put in order, before its results had fully begun to show, the end of 2002 arrived almost without my noticing. Around that time, an epidemic later known as atypical pneumonia began to spread. Since little was understood about the illness, all kinds of rumors circulated.

Beginning in January 2003, a few critically ill patients from other parts of the country began to be transferred to several major hospitals in the Guangzhou area for treatment. The number of cases gradually increased. Fortunately, the central government attached great importance to the matter, kept information about the epidemic open and transparent, and mobilized every available resource to deal with it. In the end, the outbreak was brought effectively under control, and SARS eventually disappeared altogether.

During the SARS epidemic, there was a period of panic buying. Rumors spread that fumigating with white vinegar or drinking isatis-root preparations could prevent the strange disease, and signs of a buying frenzy began to appear in the markets. In the early stages of the outbreak, peracetic acid, one of our factory’s products, also began to show a marked increase in demand because of its disinfecting properties.

I instinctively noticed the trend and suggested to Director Shi that we work overtime to produce peracetic acid, directing our manpower, raw materials, warehousing, transportation, and other resources toward it. As it turned out, this was the right decision. As the epidemic worsened, sales of peracetic acid grew dozens of times over their normal level. Even with production running around the clock without interruption, we not only sold off all the inventory that had previously been sitting idle, but also found ourselves unable to keep up with demand.

At first, the selling price was raised slightly. Later, quite a few people at the factory, including senior managers, repeatedly urged Director Shi to raise it substantially. Fortunately, he was wise enough not to do so. The government later introduced price controls and began investigating cases of arbitrary price increases, at one point even looking into the rise in the price of our peracetic acid. Fortunately, our increase had taken place before the government directive was announced, and it had not been particularly large. We also donated a batch of peracetic acid to the government and to schools, and the matter was eventually brought to a peaceful conclusion.

After the epidemic subsided, I reviewed and summarized what had happened to our peracetic acid business during the crisis. This process prompted me to reflect on several matters. People often say that selling has become increasingly difficult, yet there are always certain best-selling products that become “star products.” What magical hand, I wondered, was directing all this from behind the scenes?

Over the next few months, I arranged for my colleagues in the department to compile statistics on the sales of every category of product over the preceding several years. Apart from the obvious differences in total sales volume and revenue, I was even more interested in the trends of increase and decline over those years. After analyzing and reflecting on the data, I gained a clear understanding of the sales situation for every type of product at the factory.

At the same time, I collected information from various sources on nationwide sales of these product categories and analyzed changes in the national market. I discovered that the sales growth trends of many products closely resembled those of the country as a whole.

Through all this analysis and reflection, an idea gradually became clear in my mind: it was the market, that invisible hand with its mysterious power, that was directing us. Although the concept of a socialist market economy had been put forward many years earlier, many enterprises—especially state-owned ones—were still mired in the era of the planned economy. They cared only about organizing production according to their own plans, then finding a way to sell whatever they had produced.

Our factory was just like that. For years, we had continued producing the same products. During the factory’s early years, the number of production lines had gradually increased and the product range had expanded, but there had been no real change for many years. Each year, production was organized according to the production plan. Any adjustment to the plan was merely a minor variation based on the previous year’s sales and the contracts signed for the coming year at the procurement conference.

Yet in recent years, some products had been losing customers, and their sales had declined noticeably. Very few of those products had actually been phased out. As a result, some slow-moving products occupied resources while generating little return, whereas certain best-selling products could not expand their sales because production capacity was limited.

I felt enormous pressure in the face of the decline in sales of some products. Yet confronted by the market’s mighty hand, I also felt powerless. Changing the situation was not something the sales staff could accomplish through greater effort alone. The only solution was to adjust production and adapt to market demand.

One day, I discussed the matter with Ruan Changqing. He agreed with my view, but believed that such an adjustment might prove difficult. Many people had grown accustomed to the existing way of doing things over the years, and they might find such a major change hard to accept, at least at first. He suggested that I report my ideas to Director Shi and see what his attitude was.

So, one day, after reporting on some other work in Director Shi’s office, I briefly explained my thoughts to him. After listening, Director Shi showed no particular reaction on his face. He merely said:

“Little Wang, it is good that you are willing to use your head. As for this issue, I have not thought it through either. Let us do this: bring it up at the next directors’ meeting, and have everyone discuss whether it is feasible.”

I had not expected Director Shi to agree immediately simply because of my contribution to the earlier cancellation of the agency rights, or because my recommendation concerning peracetic acid had produced such good results. The matter was complicated to begin with. I thought it was understandable that Director Shi would want to proceed cautiously. After all, he had still asked me to raise it for discussion.

A few days later, after the other items on the agenda had been discussed, Director Shi said:

“That concludes the matters scheduled for discussion today. Recently, Comrade Dongshan has been giving some thought to a few issues. I think everyone should listen to him, then offer their opinions and discuss whether his ideas are workable.”

Everyone’s eyes turned toward me at once. Those attending the directors’ meeting were all cadres at or above deputy department-head level. I had rarely felt the attention of so many leaders focused on me at once. I steadied myself and began to explain my ideas and the reasoning behind them. I started with an analysis of the sales data, moved on to the relationship between planning and the market, and then discussed the necessity of reforming production.

I felt as though I had returned to my student days and a public-speaking competition, at times quoting from the classics, at times speaking with impassioned conviction. At last, I poured out everything I had been thinking on that high-level meeting.

When I finally finished, I paused to catch my breath and took a sip of tea. After another long moment, however, I realized that the conference room had fallen completely silent. No one said a word. The atmosphere was cold, awkward, and painfully still.