(f cHtNA sruDtES sERtEs

HETil $TNfiTEOY F(lR

GIIIT['$ ECIIH(IMV

By Ma llong

Translated by

Yang Lin

NEW WORLD PRESS

Beijing, Chino

Ma llong, rvho also writesunder the pen name NiuZhonghuang, \Mas born in7920. He studied at theYan'an Marxist-Leninist In-stitute in 1938 and uncler-took research on social sci-ences in 1941 at the yan,anCentral Research Institute.He was an editor of ilre jour_nal The Communist. He iscurrently the president ofthu Chinese Academy ofSocial Sciences and alsoserves as an adv.lser to theSLatc Planrring Commission.I{e has rn ritten the follow_ing books: Socialist Repro_duction and the Distributionol the National lncome, Ac-cumulation and Consump-tian in China,s Nationat In_come, The Relationship Be_t'weert production and, Con_sumption During the FirstFiue-Year plan period. TheProblem o! Socialist lnd.us_trializationin China and. TheTechnological Transforma_tion of China,s Agriculture.FIe has also authored booksabout his surveys in therural areas and his investi-gations of factories in theurban areas. He was thechief editor of the book En_terprise Msnagelnent in Chi-na's Socialist State_Ouned,Industrg.

First Edition 1983

Cover design by Sun Chenwu

$ Cnino Studies Series

Published bANEW WORLD PRESS24 Baiwanzhuang Road, Beijing, ChinaPrinteil bgFOREIGN LANGUAGES PRINTING HOUSE19 West Chegongzhuang Road, Beijing, ChinaDistributed, bgCHINA PUBLICAflONS CENjrRE (GUOJI SHUDIAN)P.O. BOX 399, Beijing, ChinaPrinteil in the People,s Repubtic of China

CONTENTS

Author's Prctace

CHAPTER I A STRATEGIC SHIFT IN CHINA'S SO.CIALIST ECONOMIC CONSTRUCTION

1. The Strategic Shift tr'oflowing the Thtrd plenum ofthe Eleventh Party Central Commlttee

2. The Achlevements of Chlna's Sociallst EconomicConstructlon

3. fire Major Problems ln Chtna's Economic Develop-ment

4. The Slgnlflcance of Formulating a New EconomicStrategy

CHAPTER II TOWARDS A RATIONAL ECONOMICSTRUCTURE

1, The Present Economlc Structure and lts MajorProblems

2. Fundamental Requirements and Methods for Read-justing the National Economy3. The Achievements in Economic Readjustment over

the Past Three Years4. The Reasons for Further Economic Readjustment5. Readjustment of the Economic Structure: Objectives

and Necessary Measures6. Some Theoretical Questions Concerning the Eco-

nomic Readjustment

CHAPTER III TOWARDS A RATIONAL SYSTEM OTECONOMIC MANAGEMENT

1. Reasons for Reforming the Economic ManagementSystem

2. The Orientation in Reforming the Economic Management System

3, Two Views to Be Considered in Regard to the ProperOrientation for Reforming the Economic lVlanage-ment System

IL2

t9

31

31

46

6B

74

79

81

93

93

100

tt2

CHAPTER IV TOWARDS A RATIONAL ORGANIZA-TIONAL SETUP Or. THE ECONOMY LI?

1. Consolidation of Enterprises and Improvement ofEnterprise Management 117

2. The Establishment of Different Forms of CombinedEconomic Organizations and the Integration of En-terprises

3. The Significance of Establishing AssociationsAlong Industrial Lines and Developing ttre Eco-nomic Links Within Various Industries

4. The Establishment of Economic Centers andDevelopment of Economie Links WithinAmong Regions

5. The Signs of a Rational Organizational Setup ofthe Economy

CHAPTER V CONCLUDING REMARKS

AUTHOR'S PRE,FACE

The purpose of the present volume is to discuss thelatest developments in China's economy and the signifi-cance and prospects of its new economic strategy. Ttris isa subject in which many people abroad quite properlytake a great interest, for China, as the home of more thanone-fifth of the world's population, occupies an importantposition in the world today, possessing considerable Da-tional strengthr and immense potential for future devel-opment.

Since the founding of the People's Republic of Chinain 1949, there have been many twists and turns in thecountry's development, but by and large China has ad-vanced in the direction of the goal as enunciated by MaoZedong in 1956: "It is only 45 years since the Revolutionof 1911, but the face of China has changed entirely. Inanother 45 years, that is, by the year 2001, at the begin-ning of the 21st century, China will have undergone aneven greater change. It will have become a powerfulindustrial socialist country."**

A fundamental change in China's approach to socialisteconomic construction came with the introduction of the

r Based on 1980 statistics, China's output of grain and cottonranks second ln the world, while its output of cotton cloth isthe greatest worldwide. Coal production in China ranks thirdand its oil output sixth; its electric energy production rankssixth, pig iron fourth and steel fifth. Cement sulphuric acidand chemical fertilizer production each ranks third.

:. Mao Zed.ong, "In Commemoration of Dr. Sun yat-sen,',Selecteil Works, Foreign Languages Press, Beijin1, 1977, Vol. V,p. 330.

Appendi,t

Table 1

Table 2

Table 3

Table 4

lndet

Major Figures of China's National Economy,1949-81 (Selected Years)Output of Major Industrial and AgricultutalProducts, 1949-81 (Selected Years)National Income, Consumption and Accumula-tion, 1952-81 (Selected Years)Economic Development Since 1978 ShowingResults of Readjustment Begun in 1979

139

143

149

151

theand

153

154

155

156

t57

6 NEW STBATEGY l'OT CHINA'S ECONOMY

current program of economic readjustment and reformformulated according to the spirit of the historic ThirdPlenum of the Eleventh Central Committee of the Chi-nese Communist Party held in December 1978. It signi-fies a major shift in the development strategy of China'seconomy - a strategic shift based on the experiences andIessons gained during earlier periods of economic con-struction.

During the Fourth Session of the Fifth National Peo-ple's Congress, held in December 1981, Premier Zhao Zi-yang summed up China's historical experience since 1949and pointed out that China should blaze a new trail ineconomic construction, one which will ensure a fairlysteady tempo of advance, attain better economic resultsand bring more substantial benefits to the people. Thisrefers precisely to the new strategy for the developmentof China's economy adopted three years ago, which hasalready scored achievements in many areas as describedin Chapter II of the present book. Premier Zhao wenton to state that, during the Sixth Five-Year PIan (1981-1985), China will continue to implement the policy ofreadjustment and reform and further appropriately Iowerthe ratio of the accumulation fund to the consumptionfund in favor of the latter in order to raise the people'sstandard of living. During the plan period, we willdevote our main efforts to readjusting the economicstructure, consolidating existing enterprises and carryingout the technical transformation of key enterprises.

If we can eliminate existing defects in the economyand establish proper ratios between its various branchesduring the curent plan, we shall have laid a solid founda-tion for future development. The momentum thuscreated will lead to more rapid development during theSeventh Five-Year Plan (1986-1990), and still more rapiddevelopment in the following decade. It is hoped that inthe last decade of this century we shall enter a newperiod of economic renewal. Our objective is to quadmple

the gross annual value of industrial and agricultural pro-

duct]on during the two decades between 1981 and the end

of this century. We will then be able to achieve a rela-

tively comforiable standard of living for our people, and

our economy will be in a position to take off from a new

starting point, from which it will be able to advance more

swiftly- and catch up with the economically more ad-

u"r"ui countries' In this way, China's contribution tohumanity and the world at large will be much greater

than is now Possible.

May 1982

AUTTIOR'S PREFACE

Chapto I

A STBATEGIC SHIF]I IN CHINA'SSOCIALIST ECONOIVIIC

CONSTBUCTION

l. The Strategic Shtft Following the Third Plenumof the Eleventh Party Central Committee

China is in the midst of an extensive economic read-justment and reform. Started three years ago after thehistoric Third Plenum of the Eleventh Central Committeeof the Chinese Communist Party, the current readjust-ment and reform aims not only to overcome the seriousimbalances in the economy but also to blaze a new trail inChina's economic construction, which will ensure a fairlysteady tempo of advance and better economic results,yielding more substantial benefits to the people. Theintroduction of such readjustment and reform representsa major shift in the development strategy of China'seconomy - a strategic shift based on the experiences andlessons gained during the years since the founding of thePeople's Republic in 1949, and especially since the basiccompletion of socialist transformation in 1956.

In September 1956, the Chinese Communist Party heldits Eighth National Congress and mapped out the pathfor the country's development in the context of the greatchanges that had been effected in the relations of pro-duction. By that time, agriculture and handicrafts underindividual ownership had for the most part been trans-

10 NEW STRATEGY r.OR CIIINA'S ECONOMY

formed into the collectively-owned economy, and capital-ist industry and commerce had in the main become a partof the state-owned economy. The Congress declaredthat the socialist system had been basically establishedand that the principal contradiction within the countrywas no longer the contradiction between the workingclass and the bourgeoisie, but rather that between thepeople's demand for rapid economic and cultural develop-ment and the existing state of the economy and culturewhich fell short of the people's needs. The chief taskconfronting the whole rrition was, therefore, to concen-trate all efforts on developing the productive forces, in-dustrializing the country, and gradually meeting the peo-ple's constantly growing material and cultural needs.

Based on the correct line laid down by the Eighth Na-tional Congress, the Party led the entire people in shift-ing the focus of work to large-scale economic construe-tion, and conspicuous successes were achieved. But dueto lack of experience and inadequate understanding ofboth the general laws of economic development and alsoof the basic economic situation in China, as well as im-patience for quick results, the "Great Leap Forward" andthe movement for the establishment of rural people'scommunes were rashly initiated in 1958. As a result,"Teft" errors, characterized by excessively high targets,the issuing of arbitrary directions, boastfulness and thestirring up of a "communist wind",* spread uncheckedthroughout the country. It was due to these errors,together with a succession of natural calamities and thescrapping of contracts by the Soviet Government, thatthe national economy encountered serious difficulties be-tween 1959 and 1961. In the winter of 1960, the CentralCommittee of the Party decided on the policy of "read-justment, consolidation, filling out and raising standards"

. This referred to the tendency towards extreme egalitarian-ism prevalent at that time.

A STRATEGIC SIIIFT 11

for the whole economy. The national economy recoveredand developed fairly smoothly between 1962 and 1966.However, "Left" errors were not only not thoroughly rec-tified in the guidance of economic work, but actuallygrew in the spheres of politics, ideology and culture.These increasingly serious "Left" deviations eventuallyculminated in the ten years of the "Cultural Revolution,"which spread havoc throughout the country.

With the overthrow of the Jiang Qing counter-revolu-tionary clique in 1976, the national economy began to im-prove, but the "Left" influence in the guidance of eco-nomic work still persisted. The Third Plenum of theEleventh Central Committee of the Chinese CommunistParty in December 1978 marked a crucial turning pointin the situation. It firmly discarded the slogan "Takeclass struggle as the key link", which had become unsuit-able in a socialist society, and made the strategic deci-sion to shift the focus of work to socialist moderniza-tion. At the same time, it stressed the urgent need forovercoming serious imbalances in the economy andadopted resolutions on the acceleration of agriculturaldevelopment.

In order to carry out the spirit of the Third Plenum,the Party Central Committee held a work c0nference inApril 1979 and formulated the policy of "readjusting,restructuring, consolidating and improving" the economyas a whole, and stressed that economic construction mustbe carried out step by step within the limits of our ownresources and with emphasis on practieal results, so thatthe development of production will be closely linked withthe improvement of the people's livelihood. In addition,active efforts must be made to promote economic andtechnical cooperation with other countries on the basis ofindependence and seif-reliance. Thus, with the shift inthe focus of work, a new strategy for China's socialisteconomic development was put forward.

L2 NEW STBATEGY FON CIIINA'S ECONOMY

In order to gain a deeper understanding of the newstrategy, it is necessary to recall the history of China,ssocialist construction and to review the achievements aswell as the shortcomings, mistakes, and main problemswhich still exist.

2. The Achievements of China's Socialist ,

Economic Construction

Socialist construction in China has passed through fourperiods.

The first period was from the founding of the People'sRepublic in 1949 to the basic completion of the socialisttransformation of the private ownership of the means ofproduction in 1956. During those seven years, economicconstruetion in China was integrated with socialist trans-formation, and economic development was fairly rapid.The relations between the different branches of the na-tional economy were relatively well-coordinated. Withmarkets flourshing and prices stable, the people's liveli-hood improved remarkably.

The second period covered the ten years from the basiccompletion of socialist transformation in 1956 to the eveof the 'oCultural Revolution". This period marked thebeginning of all-round socialist construction, and majorsuccesses were attained despite some serious setbacks.Industrial fixed assets grew by 300 per cent, and a morerational geographical distribution of industry was achiev-ed. New industries such as electronics and petro-chemicals were developed, and the output of major in-dustrial products increaseil considerably. China also at-tained complete self-sufficiency in oil during this period.In agriculture, large-scale capital construction was ini-tiated, and its results gradually became evident.

The third period coyered the ten years of the "CulturalRevolution", when the national economy suffered enor-

A STAATEGTC SHrrT 13

mous losses. However, as a result of the concerted effortsof the masses of workers, peasants and intellectuals, theeconomy still made some progress. Grain output in-creased relatively steadily. Significant achievementswere scored in industry, communications, capital con-struction, science and technology. New railways werebuilt and the Changjiang (Yangtze) River Bridge at Nan-jing was completed. A number of large enterprises usingadvanced technology went into operation. During thesame period China's first hydrogen bomb tests were suc-cessfully undertaken and man-made satellites were alsolaunched and retrieved. Needless to say, none of thesesuccesses can be attributed ln any way to the "CulturalRevolution", without whlch we would have made fargreater achievemento.

The fourth perlod began wlth the overthrow of theJtang Qtng counter-revolutlonary clique in October 1976,whlch enabled our country to enter a new historicalperlod ol development. In the two years from October1070 to December 1978 when the Third Plenum of theEleventh Party Central Committee was convened, theentire people enthusiastically devoted themselves to thetask of construction. Industrial and agricultural produc-tion was fairly swiftly restored.

Achievements have been even more remarkable sincethe Third Plenum. In agriculture, various forms of theproduction responsibility system have been introduced inwhich remuneration is tied more directly to output.Many other measures have been taken to further enhancethe peasants' enthusiasm. Family plots have been re-stored and appropriately extended, country trade fairshave been revived, and various sorts of sideline occupa-tions have been developed. Furthermore, the purchaseprices paid by the state for grain and sideline productswere raised, thus contributing to a substantial rise inpeasants' income. Grain output in 1979 and 1980 reach-ed an all-time high, and at the same time industrial crops

L4 NEW STRATEGY TOR CHINA'S ECONOMY

and other farm and sideline products also registered a bigincrease. The development of light industiy has acceierated as well, and the structure of industry has becomemore rational and better coordinated. Reforms in thesystem of economic management, including extension ofthe- decision-making powers of enterprises, have gradual-ly been carried out in conjunction with economic read-justment. Thanks to the development of agriculture andthe economy as a whole, the living standards of the peo-ple have improved markedly.

In short, China has effected a fundamental ehange inits socio-economic system since the founding of the peo-ple's Republic as a result of the arduous efforts of theChinese people. It has been transformed from an oldsemi-feudal and semi-colonial country into a new socialistone. Great achievements have also been made in eco-nomic construction, and the social productive forces havebeen developed significanily.

During the years since 1g4g, there has been a remark-able change in the conditions prevailing in agriculturalproduction. The number of water conservancy facilitiesand farm machinery has risen considerably. The quantityof chemical fertilizer and pesticide applied, as well asthe amount of electricity tonsumed in-the countryside,have greatly increased. By the end of 1gg0, there-werea total of 86,000 reservoirs and 2.0g million wells withelectric motors throughout the country, while the amountof land under irrigation had grown from 20 million hec-tares in 1952 to 44.67 million hectares. Flooding by themajor rivers has been brought under initial control- Bythe end of 1981, the nurnber of large and medium-sizedtractors reached 792,000, a 60b-fold increase over 1gb2,while the number of small-sized and .,walking,, tractorstotalled 2,037,000. Irrigation and drainage equipment inagriculture had a total capacity of ?4.g8 milUon horse-power, and there were also 1?8,000 1orries available foragricultural use. Ttre quantity of chemical fertilizer ap-

A STBATEGIC SHIFT 15

plied in 1981 was 13.35 million tons, an average of 134kilograms per hectare; the amount of electricity consum-ed in the rural areas was 37,000 million kilowatt-hours.In 1980, the total area ploughed by tractors was 40.091million hectares, or 41.3 per cent of the total cultivatedarea.

The progress made in the development of industry hasbeen even more rapid. On the eve of the founding ofthe People's Republic in 1949, industrial fixed assets onlyamounted to 12,800 million yuan, the result of almost acentury of accumulation in old China. In 1980 industrialfixed assets exceeded 410,000 million yuan, .32 timesgreater than there had been before 1949 and more than26 times greater than in 1952 when economie rehabiiita-tion was cornrpleted. Since 1949, the steel, power, petro-leum, coal, chemical, engineering, textile and light in-dustries ln China have all made significant advances.Many new industries, such as the petrochemical, elec-tronlcs, atomic energy, and space aeronautical industries,have developed elther entirely from scratch or from verysmall to very large. In the vast expanse of China's in-terior regions and in the areas of minority nationalitieswhere there was virtually no industry before 1949, newindustrial bases have now been set up.

Rapid progress has also been achieved in transport,post and telecommunications and other fields.

In brief, since the founding of the Peop1e's Republic,we have built an independent and fairly comprehensiveindustrial and economic system on the foundations of thepoverty and backwardness of old China. This has laiddown a relatively solid material base for accomplishingthe cause of socialist modernization.

Over the past 32 yearq agricultural output has increas-ed by 300 per cent, an average annual growth rate of 4.4per cent, while industrial output has risen by 47 times,an average annual growth of 12.9 per cent. There was a15.8-Jold increase in the total output value of industry

16 NEW STBA,IEGY ron CrrrNA'S ECONOMY

and agriculture, an average annual irrcrease of 9.2 percent. National income grew 8.1 times, thus averagingan annual increase of 7.1 per cent.

Compared to the situation before 1949, the people'slivelihood improved considerably on the basis of thedevelopment of production. The average real wages ofworkers and staff members* in units owned by the wholepeople** rose from 446 yuan per year in 1952 to 514yuan in 1978, an increase of 15.2 per cent. The averagereal wages further increased by 7.6 per cent in 1979 andby 6 per cent in 1980. The improvement in workers'and staff members' livelihood can also be shown in thegrowth in government-provided funds for labor insuranceand welfare benefits and different kinds of subsidies. In1952 the labor insurance and welfare funds for workersand staff members in units owned by the whole people,not including subsidies of various formg amounted to 952million yuan, which was equivalent to 14 per cent oftotal wages. These funds increased to 6,691 million yuanin 1978, an amount equivalent to 14.3 per cent of the totalwages. Based on the estirnates of the relevant govern-ment organs, each worker and staff member in state-owned enterprises derived an average of 526.70 yuan-from the labor insurance and welfare funds and fromthe various kinds of subsidies; this amount was equiva-lent to 81.71 per cent of the average wages for the sameyear.

Ttre living standards of the peasants have also im-proved remarkably. Average per capita incomes derivedby commune members from the collective have risen overthe years: from 40.50 yuan per year in 1957, the average

t The distinction between worker and staff member in Chi-na could be roughly compared to that between blue collar andwhite collar or worker and office staff in Western terrni,nology.

** "Ownership by the whole people" in China means state-owned, as distinct from collectively-owned and prlvately-owned.

A STRATEGIC SHIflT L7

rose to 73.90 yuan in 1978 and further increased to 85.90yuan in 1980. The commune members' incomes fromprivate household sideline production have grown evenfaster in recent years.

Although the rapid development in production and con-struction and the marked improvement in the people'slivelihood represent merely a beginning, they neverthe-less undeniably demonstrate the superiority of China'ssocialist system.

The attainment of China's present level of industriatdevelopment would be very difficult to imagine underthe conditions existing in the pr+1949 China. One goodway to measure the achievements attained so far is tocompare pre-1949 production totals with the 1981 totalsin corresponding categories of industrial activity.

The first mechanized coal mine was built at the endof the 19th century. For the period up to 1949 the aver-oge annual output of coal only reached 32.43 million tons,with the highest annual output not exceeding 61.88million tons. The total for 1981, on the other hand, was622 million tons.

The first power plant was set up by foreign businessinterests in Shanghai in the year 1882. Up until 1949,the average annual output of electrical power amountedto 4,310 million kiiowatt-hours, with the highest one-yeartotal reaching 5,960 miilion. In 1981, eleetric power out-put totalled 309,300 miliion kilowatt-hours.

China's steel industry was started at the end of thel9th century. The average annual output of steel forthe 50 years preceding 1949 came to 158,000 tons.During this period, the highest annual output was 923,000tons. In 1981, conversely, 35.60 miliion tons of steelwere produced.

The machine-building industry was first established in1850, also by foreign interests. By 1949 annual produc-tion of machine tools averaged only 1,582 sets, with the

1B NEW STRA',TEGY F.On CHINA'S ECONOMY

highest annual output of 5,390 sets. Ttre 1981 total was103,000 sets.

Another worthwhile way of judging new China's eco-nomic achievements is by holding up for comparison theRepublic of India, which is also a developing country witha very large population. In 1950, China's output of cer-tain major industrial products in comparison to India'swere as follows: crude oil, 115.4 per cent; coal, 134.6 percent; electric power, 51.5 per cent; steel, 37.2 per cent;cement-52 per cent; chemical fertiiizer, 90 per cent; andcotton cloth, 66.3 per cent.

From 1950 to 1979, India's crude oil production in-creased 45.1-fold, whereas China's increased 352.8 times.In coal production, the same comparison amounted to a2.7-f.old increase for India but a 13.7-fold increase forChina. The story is similar for the other products: elec-trical power, for India, a 7-fold rise, for China, a 64.2-fold increase; cement production, 7.2-fo1d for India,52.1-fold for China; chemical fertilizer, 112-fold for In-dia, 675.4-fold for China; and cotton cloth, 1.4-fold forIndia, 3.8-fotd for China.

Thus, by 1979, China's output of these industrial prod-ucts compared to India were as follows: crude oil, 884.5per cent; coal, 529.1 per cent; electric power, 268.5 percent; steel, 431 per cent; cement, 336 per cent; chemi-cal fertilizer, 335.1 per cent and cotton cloth, 121.5 percent.* China has caught up and even surpassed Indiain the production of various industrial products in whichChina was behind, while in the case of products in whichChina was originally ahead, China's lead over India hasgrown even bigger.

China and India, both of which won national independ-ence or liberation at approximately the same time (1947for India), are distinguished first of all by the lact that

r Guangming Daily (Guangming Rl,bao) March 3, 1981, p. 3.

A STRATEGIC SIIIFT 19

one is socialist and the other capitalist. With China,sobviously greater achievements in its post-liberationperiod, we can clearly see the superiority of the socialistsystem.

The rate of industrial growth in new China has alsosurpassed the rates in the economically-developed coun-tries. The output value of China,s industry grew at anaverage annual rate of 12.9 per cent from 1g49 to 1g8l,while that of Japan increased at a rate of. 12.4 per centfrom 1950 to 1977. The corresponding figures for WestGermany, the United States, and the Soviet Union are6.9 per cent, 4.5 per cent, and 9.? per cent, respectively.*But we must be careful in comparing China with thedeveloped countries, because their Ievels of production,technology, science, education and management are verymuch higher than ours, and these are direct factors inmodern production which play a tremendous role in in-dustrial growth. Thus it is sometimes difficult to tellwhlch soclal system is better with this kind of compari-son. Although China,s industrial development is stillvery backward in many respects compared to the de-veloped countries, its rate of development has surpassedthe rates of these countries. Moreover, China,s achieve-ments in socialist construction were attained despiteseveral setbacks. Otherwise, we could have made muchgreater achievements, and the superiority of the socialistsystem could have been more clearly demonstrated.

3. The Major Problems in China,sEconomic Development

Whether compared to other developing countries or toany country in the world, the growth rate of China,s

* Social Sciences in Chi.na (Zhongguo Shehui Kecae), No. 4,1980, p. 4.

20 NEw STnATEGY F.OR CHrNA'S ECONOMY

economy cannot be considered to be low; in fact it isquite high. However, China's economic developmenthas been very unstable, with sudden ups and downs andmajor swings in direction. Economic results have beenrelatively poor and have had a tendency to decline. Thus,the growth in national strength has been fairly slow andthe people have not derived much in terms of materialbenefits. These are the major problems in our eeonomicdevelopment since the founding of the People's Republic.

Although the growth rates of China's industrial andagrieultural production have on the whole been fairiyhigh, these rates have not been maintained in a sustainedmanner. The annual growth rate in agricultural outputvalue was 14.1 per cent during the period of nationaleconomic recovery from 1949 to 1952, 4.5 per cent duringthe First Five-Year Plan (1953-57), and then it droppedby a big margin to -4.3 per cent during the Second Five-Year Plan (1958-1962). The growth rate was 11.1 percent on the average from 1963 to 1965 (this of course in-corporated the recovery from the previous period), 3.9per cent during the Third Five-Year Plan (1966-1970),and 4 per cent during the Fourth Five-Year Plan (1971-75). The annual growth rates in the industrial outputvalue during the same periods were as follows: 34.8 percent, 18 per cent, 3.8 per cent, 17.9 per cent, 11.7 per centand 9.1 per cent.

Although production and construction have developedsince the period of the Second Five-Year Plan, there has,however, been a marked decline in economic results. Inindustrial production, the amount of profits realized perhundred yuan of fixed assets in industrial enterprisesunder the ownership of the whole people has declined by48.8 per cent, from 23.6 yuan in 1957 to L2.l yuan in1976. The amount of profits and taxes realized per hun-dred yuan of funds has also declined by 45 per cent from34.7 yuan in 1957 to 19.3 yuan in 1976. The costs ofconstruction projects have increased by several times

since the rirst rive-iffi;"ffi and the ,i*" pu"iilfor completing construction projects has also becomemuch longer. The rate at which investments turned intofixed assets was 83.7 per cent during the First Five-YearPlan period, 71..4 per cent during the Second Five-YearPlan period, 59.5 per cent during the Third Five-YearPlan period, and 61.4 per cent during the Fourth Five-Year Plan period. If the rate during the First Five-YearPlan period had been maintained, an additional 100,000million yuan of fixed assets could have been created from1958 to 1978.

The investment needed to increase national income byone yuan was 1.68 yuan durhng the First Five-Year Planperiod but 3.?6 yuan durlng the Fourth Five-Year Planperiod, an lncrease of more than 100 per cent. If the in-vestment coefflclent during the First Five-Year Planperlod had been maintained, the national income duringthe Fourth Flve-Year Plan period could have been in-creased by more than 300,000 million yuan.

The growth of the national income is a comprehensiveindex of the growth in national strength. Due to the upsand downs in industrial and agricultural production andthe decline in economic results, it is inevitable that thegrowth rate of the national income will also have a ten-dency to decline. The average annual rate of increasein China's national income was 8.9 per cent during theFirst Five-Year Plan period, -31 per cent during theSecond Five-Year Plan period, 14.5 per cent from 1963to 1965, 8.4 per cent during the Third Five-Year Planperiod, and 5.6 per cent during the Fourth Five-YearPlan period. If we compare the growth rate of the na-tional income with the growth rates of the industr-ial andagricultural production, we can clearly see that the rateof increase in national strength was not fast at all. From1950 to 1981, the average annual growth rate of the grossoutput value of agriculture and industry was 9.2 per cent,while the average annual growth rate of the national in-

22 NEW STBATEGY FON CHINA'S ECONOMY

come was only 7.1 per cent, significantly lower than theformer.

?hese figures show that the people,s livelihood in Chinadid not improve at the sarne rate as the rate of growthin production for much of the time, and at timei evendeclined. Aside from the First Five-year plan periodwhen the average wages of workers and staff me*bersin units owned by the whole people increased quiterapidly from 446 yuan in 1gb2 to 68Z yuan in 19b?, theaverage money wages for workers and staff membershave increased very little since the Second Five-yearPlan period. The average wages of workers and staffmembers rose from 637 yuan in lgb? to 644 yuan in 1g?8,an increase of only 1.1 per cent over the 21-year period.However, since the cost of living index for workers andstaff members rose by 14.8 per cent during the sameperiod, real wages declined as a result. The averagereal wages of workers and staff members dropped from581 yuan in 1957 to 514 yuan in 19?8, a decline of 11.5per cent.

The peasants' livelihood was even more difficult. Ac-cording to statistics, there were 770,200 basic accountingunits,* making up 16.5 per cent of the total, in whichthe average yearly per capita income derived by com-mune members from the collective was 40 yuan in 19T8.In the case of 463,000 basic accounting units, comprising10.6 per cent of the total number, the average amount ofgrain distributed from the collective was less than 800jin** per capita. There were 82.g4 million agriculturalhouseholds whose expenditures exceeded their incomes,making up 19.5 per cent of the total number of house-holds participating in the communes, income and graindistribution.

* The term "basic accounting unit,' refers to the rural col_lective unit usually the production tearr\ at which level the col_Iective income is distributed.

** L jin equals % kg.

A STBATEGIC SHIFT 23

What are the reasons behind these problems in China'seconomic development?

Insofar as objective conditions are concerned, the pro-ionged blockade and provocations by imperialism and thesabotage and threats by the Soviet Union compelled usto strengthen the national defense in order to guardagainst foreign aggression. In addition, there was theaid given to the Korean and Vietnamese people duringtheir wars of resistance against U.S. aggression. As aresult, a considerable amount of material wealth couldnot be directly used to develop the economy and improvethe people's livelihood. This certainly was an importantreason.

Insofar as subjective conditions are concerned, we com-mltted the "Left" error in our guiding ideology of beingimpatlent for quick results. As a result, we made a num-ber ol scrious mistakes in selecting the strategy and goalsof our economlc development and the methods to achievethese goale. If we had not committed these errors, wewould certainly have made greater achievements in oureconomic construction.

Our principal error in the selection of our economiedevelopment strategy and goals was that for a long periodof time we did not have an adequate understanding ofthe basic economic law of socialism.* Although we oftenspoke of the aim of socialist production as being the satis-faction of the people's needs, in reality we did not carrythis out in our economic work due to the influence of"Left" errors. There was instead. a certain tendency tocarry out production for the sake of production and animpatience for quick results, so ihat we often neglected

* This refers to the law which was defined by Stalin as "thesecuring of the maximum satisfaction of the constantly risingmaterial and cultural requirements of the vrhole society throughthe eontinuous expansion and perfection of socialist productionon the basis of advanced techniques.'o

24 NEW STBATEGY rOR CIIINA'S ECONOMY

economic and natural laws and proceeded to do certainthings which were objectively impossible to do.

What have been the mistakes in our methods to achieveour economic development strategy and goals? Thesemay be summarized in the following points:

First, we one-sidedly sought high targets in produc-tion and construction and neglected economic results.Take for example the 20-year period from lgbg to 1g?8.The gross value of industrial and agricultural output in-creased annually by 7.6 per cent, with industry growingby 9.7 per cent. Such growth rates are actually not aiall iow. However, compared to lgb?, the total outputvalue produced per hundred yuan of industrial fixed as-sets declined 25.4 per cent by 1g?8, while the profits andtaxes turned over per hundred yuan of funds fell by B0.Bper cent. With more input and Iess output, the economicresults clearly declined.

Second, we placed undue emphasis on the developmentof heavy industry at the expense of agriculture and lightindustry. During the First Five-year plan period, in-vestments in heavy industry made up 88.? per cent oftotal investments, a proportion which was already exces-sive. But then the investment share of heavy industrycontinued to increase from lgbS to 1gTB, to E2.B per centof the total. This phenomenon could noi but adverselyaffect agriculture and light industry. During this period,agricultural production developed slowly, with very litfleincrease in the per capita output of agricultural products;there was even a decline in the case of some proilucts.The average output of grain per capita in China was 806kilograms in 1957 and 318 kilograms in lgTB; in the caseof cotton, it was 2.57 kilograms in 1g5? and 2.26 kilogramsin 1978. In the case of oil-bearing crops, it was 6.bB kilo-grams in 1957 and 5.45 kilograms in 19?8. Light in-dustrial production also fell far short of meeting demand.

Third, we only depended on new capital constructionprojects for expanded reproduction and neglected.to give

A STRATEGIC SHIFT 25

full play to the role of already existing enterprises. Wealso failed to emphasize the importance of technicaltransformation of these enterprises. The general prac-tice abroad is to use about ?0 per cent of their invest-ments for technical innovation and transformation ofexisting enterprises. It was the opposite case in China:we used 70 per cent of our investments for new construc-tion projects.

Fourth, we overemphasized the output of primary andintermediate products in such industries as iron and steeland neglected the production of final consumer goods.In recent years, the unsold lnventory of eteel productsexceeded 20 million tons, whlch ls almost equivalent tothe annual output of steel products, while the unsold in-ventory ol mcchanlcal and electrlcal products amountedto over 60,000 mllllon yuan, equlvalent to the output ofauch productl for half a year. In the case of consumergoodr badly neoded by the people, including durable con-sumer ltemr, tho rupply ls far short of demand.

Fllth, we placed a one-slded emphasls on high accumu-lation at the expense of the people'B necessary consump-tion. The accumulation rate exceeded B0 per cent duringthe 1958-1960 period as well as during the 1g?0s, whileduring the First Five-Year Plan period it was only slight-ly over 20 per cent. Due to the excessivety high rate ofaccumulation, people's consumption levels relatively de-clined.

Sixth, we failed to control population growth as a resultof our undue emphasis that with more people, thingswould be easier to handle. We are now bearing the dis-advantages of this kind of thinking.

Seventh, we closed the country to international con-tacts due to our narrow interpretation of the theory ofself-reliance, resulting in waste rvhich could have beenavoided.

Eighth, we became too impatient in carrying out thetransformation of the relations of production and un-

26 NEW STBATEGY FOR CrrrNA'S ECONOMY

realistically stepped up the pace of transfer to publicownership. For example, we rashly transformed collec-tive ownership into ownership by the whole people, andhastily negated the role of the individual economy incities and towns. In 1952 there were 8.83 miilion self-employed laborers in cities and towns; this number de-clined to 1.04 million in 1957 and by 1975 only 240,ffA0self-employed laborers were left. An overcentralizedsystem of economic management was also carried outwithin the sector owned by the whole people.

As a result of these mistakes, an unsound economiccycle of "high speed, high accumulation, Iow efficiencyand low consumption" was formed to some extent.

4. The Significance of Formulatinga New Economic Strategy

The Third Plenum of the Eleventh Party Central Com-mittee, held in t.Le winter of 1978, corrected the "Left"errors which had existed for a long time. It firmly andclearly pointed out that the focus of work of the nationshould be shifted to socialist modernization.

To implement the resolution of the Third Plenum andsave the economy from the brink of collapse as well asto blaze a new trail in developing China's economy, theParty Central Committee further laid down the policy of"readjusting, restructuring, consolidating and improving"the economy.

This marks a great strategic shift in China's socialisteconomic development which is of major theoretical andpractical significance. This shift is two-fold: first, ashift in the strategic goals of economic development, andsecond, a shift in the methods for attaining such goals.

When we speak of such a shift, it means that the fun-damental aim of socialist economic construction shouidbe the satisfaction of the people's needs. As a socialist

A STRATEGIC SHIFT 27

country engaged in economic construction and in realiz-ing the four modernizations,* we are not after construc-tion for the sake of construction, nor are we after modern-ization for the sake of modernization alone. We aredoing so in order to enable the whole people to satisfy asmuch as possible the material and cultural needs of thepeople by means of developing the economy. Our currentpolicy of readjustment and reform seeks to thoroughlycorrect the tendency which existed in the past of engag-ing in production for the sake of production, so as toshift the economic work as a whole to the path of satis-fying the material and cultural needs of the people.

This shift means that we will no longer aim only forhigh targets of output value without paying attention tothe economic results. That is to say, we can only attainthe aim of satisfying the people's needs if we attach im-portancc to the improvement of economic results.

Tho strateglc ehift signifies that we will change theformer undue emphasls on heavy industry, which ad-versely affected agriculture and light industry. That isto say, we will etrive to set up an economic structuresuited to our national conditions in which agriculture,light industry, and other industries such as energy, rawmaterials, machine building, construction, communica-tions and transportation, as well as commerce, servicetrades, science, education and public health can developin a coordinated way.

When we speak of such a shift, it means that we willno longer overemphasize the production of primary andlntermedlate products in such industries as iron and steelat the expense of quality, variety and the production offinal consumer goods needed by society. We should baseour production plans on the needs of the consumers and

'The four modernizations consist of modernizing agriculturgindustry, national defense and science and technology.

2g NEW STRATEGY ron CHINA'S ECONOMY

the market as well as the needs of the state, includingthe needs of national defense.

This shift means that future increases in productionwill no longer depend prineipally on undue expansionof the scale of capital construction, but instead wiII relymainly on tapping the potential of existing enterprises.We will actively promote the technical transformation ofthe national economy on the basis of the consolidationand reorganization of existing enterprises in order to in-crease the productive capacity. In the meantime, wewill no longer adopt the wrong method of one-sidedlyaiming for high accumulation by reducing the consump-tion levels of the people; instead, we will rationally ar-range the relationship between accumulation and con-sumption. Only in this way can we attain rapid econom-ic growth with more accumulation and good results, atthe same time better satisfying the people's needs.

Another important aspect of the strategic shift is thatwe will no longer isolate ourselves from internationalcontacts; rather we will actively promote economic co-operation and technological exchanges with foreign coun-tries on the basis of self-reliance and maintaining in-dependence and initiative.

This shift also means that we will practise family plan-ning and wiil no longer allow the country's population togrow at its former uncontrolled rate.

In addition, we will gradually reform the irrationalsystem of economic management and set up a rationalmanagement system which brings into full play the initia-tive of enterprises and their workers, promotes the devel-opment of the productive forces, and ensures the satis-faction of the people's reasonable needs. At the sametime, the relations of production will have to correspondto the nature and level of the productive forces, and, withpublic ownership occupying an absolutely dominant posi-tion as a prerequisite, different economic components anddifferent modes of management may coexist. We will

A srB,ArEGIc SHIFT 29

carry out economic planning on the basis of public owner-ship and at the same time bring the supplementary roleof market regulation into full play.

To sum up, by implementing the policy of readjust-ment and reform, China's economy will gradually con-form to the model described by leading members of theState Council, in which the economy develops in a coor-dinated manner with a stabie growth rate and a soundcycle, and in which the superiority of the socialist systemcan be brought into full play, so that the people canderive greater material benefits.

The shift in China's economic strategy not only hasmajor theoretical and practical significance, but also hashistorical significance. After all, problems of strategyare not new to us. The term "strategy" refers to funda-mental and far-reaching decisions which have a bearingon the whotre situation. Mao Zedong wrote Problems otStrategg in Chi,na's Reuolutionarg War and other weII-known works which had tremendous significance in thevictory of China's revolutionary war. As everyoneknows, the revolutionary war in China suffered serioussetbacks but victory was achieved in the end. A funda-mental reason for this victory was the shift from a wrongstrategy to a correct strategy. Without a correct strat-egy, it is impossible to win a revolutionary war. Withouta correct strategy, it is likewise impossible for socialisteconomic construction to become successful.

By viewing economic problems from a strategic per-spective, we can realize just how important is the currentreadjustment period which China's economy is under-golng. The Communist Party underwent several strate-gic shlfts with major historical significance during therevolutlonary war period: once was during the ZunyiMeeting in 1935, another was on the eve of the War ofResistance Against Japan (1937-1945), and the third wasafter the victory of the War of Resistance Against Japan.We are all very well aware of the success of these strate-

30 NEW STBATEGY FOR CI{INA'S ESONOMY

gic shifts. In a very real sense the current shift in eco-nomie development strategy has a historical significancecorresponding to that of these earlier shifts during therevolutionary war period, and it will just as certainlyachieve victory.

Leading members of the State Council have stated thatwe should gradually bring about, by means of readjust-ment and reform and on the basis of stable economicdevelopment, the rationalization of the economic struc-ture, the system of economic management and the or-ganizational setup of enterprises. This aims to blaze anew trail in developing China's socialist economy to becharacterized by a fairly steady tempo of advance, bettereconomic results and more substantial benefits to the peo-ple. Realizing the rationalization of these three aspectsis closely related to the new strategy for China's econom-ic development and the methods for attaining the goalsof this new strategy. In the following chapters, we shalldeal with some questions related to the rationalizationof the economic structure, the system of economic man-agement and the organizational setup of enterprises.

Chapter II

TOWARDS A RATIONAL ECONOMICSTRUCTUR,E

Fundamentally speaking, the readjustment of China,seconomy is aimed at readjusting the economic structureand changing step by step the serious irnbalances in themajor proportions of the national economy, thus enablingthe economy to develop in a planned and proportionatemanner with the ultimate objective of satisfying the peo-ple's needs.

I. The Present Economic Structure andIts Major Problems

We should analyze China's present economic structureand its major problems in order to explain the necessityfor its readjustment.

China's eeonomic structure has undergone fundamentalchanges since the founding of the Peop1e,s Republic in1040. Old China was a semi-feudal and semi-colonial so-clety with an extremely irrational economic structure andstagnant productive forces. After 1g4g, we did a greatdcal of work and attained considerable achievements intransforming the economic structure of old China.

First, we have established an independent and fairlycomprehensive industrial and economic system. Before1949, agriculture and handicraft industry occupled a dom-

31

32 NEW STRATEGY I.OR CHINA'S ECONOMY

inant position in China, with modern industry havingonly a very small proportion, and the national economywas dependent on foreign imperialist powers. After 1949,

we carried out large-scale industrialization, gradually es-tablishing the various branches of industry and con-tinuously raising their leve1 of modernization. China hasalready been transformed from an agricultural countryinto an agro-industrial country.

Second, socialist agriculture in China has alreadybeen established and consolidated. After the land reform,in the early post-1949 period, the peasantry took the roadof collectivization. Over the past 32 years, we have car-ried out large-scale construction of irrigation and waterconservancy projects, and the conditions for agriculturalproduction have improved remarkably. lfrere have beenfairly big increases in the levels of agricultural produc-tion. Before 1949, agriculture in China depended almostentirely on manual labor, but since then there have beendefinite gains in agricultural mechanization. Particular-ly after the Third Plenum of the Eleventh Party CentralCommittee, the productive forces in agriculture werefurther developed as a result of the introduction of thedifferent forms of the production responsibility system.

Third, big gains have been made in the area of com-munications and transportation. The transportation net-work left over from pre-1949 China was very limited andirrationally distributed. Such a state of affairs has nowbeen changed. Aside from Tibet, all the provinces, munic-ipalities and autonomous regions are now linked byrailroad; except for Motuo County in Tibet and DerongCounty in Sichuan, aII counties in the country are nowconnected by roads. In 1979, the civil aviation routeswithin the country tota"lled 160,000 kilometers, and therewere already 15 international air routes to over 10 coun-

tries. China has already set up an oceangoing fleet whichtravels to more than 100 countries and regions.

ONAL ECONOMIC STRUCT\,NE 33

Fourth, domestic and foreign trade has developedrapidly. The vast countryside in old China was basicallya self-sufficient natural economy,r but now the situationhas changed significanily. Ttre total domestic sales ofcommodities amounted to 1?,060 million yuan in 1gb0and 235,000 million yuan in 1g91, a l3.g-fold increase. Inforeign trade, the total value of exports and imports wasU.S.$1,130 million in 1950, U.S.$14,800 million in t9??,U.S.$20,640 million in 19?8, and U.S.$29,880 million in1979. The volume in foreign trade has also increasedrapidly during the past two years, and the compositionof exports and imports has also changed. By promotingforeign tradg we can accumulate funds for modernizaltion and the import of advanced technology and equip-ment.

Fifth, the technological makeup has also improved re-markably. Aside from large quantities of mechanizedequipment, there are also facilities for automation in in_dustry. A large amount of agricultural machinery andnew technology have also been employed in agriculture.Whereas before 1g4g mainly manual labor was relied on,now the technological makeup of China,s economy con-sists of a mixture of automation, semi-automation, mech-anization, semi-mechanization and manual labor.

Compared to the situation before 1g4g, the people,slivelihood has also improved greatly on the Uasis of thegrowth in production.

The fundamental reason for these changes in China'seconomic structure lies in China,s establishment of thesocialist system, which provided the conditions for the

'Natural Economy is an economic form opposite to that otcommodlty economy. production under suc[- economy ii noilor the purpose of exchange; rather there is self_suffi;ie;;y ;ithe producer or economic unit (a clan or a feudal *ano{ fo"lnstance). It was the predominant economic form i. prf-itfrt,slave and feudal societies. With the development of

-the prolductlve forces and the social division of labor, however, n"tirrafeconomy was gradually replaced by commodity economy.

34 NEW STAATEGY rOR CHINA'S ECONOMY

rapid development of production and the reform of theeconomic structure. By contrasting the economic struc-ture before and after 1949, we can see many positivefactors in the present structure, as we have just demon-strated above. The foundations for modernization havebeen laid down.

There is tremendous potential in China's agriculture.The country is also rich in mineral resources as well asin water resources. If properly utilized, our large laborforce can also become a favorable faetor for developingproduction. As long as we make full use of the superi-ority of socialism and the favorable factors mentionedabove, we can surely set up a rational and moderrr eco-nomic structure which is suitable to our national condi-tions.

However, our present economic structure is irrationalin many respects, which entails grave consequences. Dueto its irrationality and the serious imbalances in the na-tional economy, reproduction cannot be carried outsmoothly. Many factories are operating below capacitydue to power shortages. It is estimated that the annualshortfall in electricity amounts to 40,000 million-b0,0OOmillion kilowatt-hours. Because of this, the value of in-dustrial output was reduced by over ?8,000 million yuan.In capital construction, many projects had to be discon-tinued due to the shortage of power, while those whichwere continued could not be completed and put into oper-ation for a prolonged period of time. This led to the wasteof a lot of electricity, materials and other resources.Indeed the irrationality of the economic structurehas led to a serious problem with wasted energy con-sumption in many branches of the economy. In terms ofnational income produced per ton of coal consumed,China's rate is less than on*fourth that of Japan,s.

Other problems include a very low utilization rate ofvarious types of equipment and large numbers of peopleawaiting employment. The irrational economic structure

A R,A?IONAL ECONOMIC STRUCT'[,NE 35

has also resulted in a decline in economic results. Forexample, our utilization of fixed assets and the turnoverin circulating funds are only one-third of those in thedeveloped countries. Ttre irrational economic structurehas also affected the improvement in the people's livingstandards and hampered the reform of the economic man-agement system. We must sufficiently recognize that theexisting problems in present economic structure areserious obstacles to the achievement of the four modern-izations.

What are the major problems existing in our presenteconomic structure?

1. Agricultural development cannot keep up with theneeds of national economic development, and this hasbecome an important factor limiting the rapid develop-ment of the national economy. Since the founding of thePeople's Republic, the proportion of agriculture in thegross output value of agriculture and industry has gonedown sharply from 70 per cent in 1949 to 29.7 per centin 1979. Agricuiture is becoming increasingly backwardin comparison to industry, and there is a danger that in-dustry will continue to develop one-sidedly at the ex-pense of agriculture. The productivity of agriculturallabor is low. Although the agricultural population com-prised B3.B per cent of the total population, and the agri-cultural labor force made up 84.9 per cent of the combin-ed industrial and agrieultural labor force, the supply ofagricultural products still cannot meet the needs of thedeveloping economy.

The structure of China's agriculture is also very irra-tlonal. Because of the undue emphasis on the policyknown as "taking grain as the key link" in the past, theforests and grasslands were damaged; natural resourcescould not be utilized fully, and the ecological balancewas upset. The rate of increase in grain output waseven lower than the rate of population grorrth for a cer-tain period of time. Since the Second Five-Year Plan

36 NEW STRATEGY l.OR CHINA'S ECONOMY

(1958-1962), China has had to import several thousandmillion jin ot grain annualiy. If there is a crop failure orif state purchases are too high, severe food shortages willoccur in some areas. This situation is inappropriate fora big agriculturai country.

Since the Third Plenum of the Eleventh Central Com-mittee, the Chinese Communist Party has adopted a newagricultural policy. The decision-making powers of theproduction teams have been expanded, remuneration isnow linked more directly to output, and different formsof the system of production responsibility have been setup. In addition to grain production, more diversifiedfarming activities have rapidly developed. Thus, favora-ble conditions for transforming the backwardness of agri-cultural development have been created.

2. Light industry is also backward and cannot meetthe increasing needs of the people in both rural and urbanareas. Light industry in China has never been given thestanding it deserves, and its investment share in the totalcapital construction investments has been too low. Itstood at only 5.9 per cent during the First Five-yearPlan period; subsequently its share of total investmentsactually declined. On a per capita basis, China,s produc-tion of major light industrial products is very much lowerthan that of the world's advanced countries. In fact, thesupply of some products cannot even meet the minimalneeds of the people's livelihood. ?tre production technol-ogy in China's light industry generally belongs to thelevel of the 1940s and 1g50s abroad, with some even dat-ing back to the 1920s and 1g30s. As a result, labor pro-ductivity is very low.

The ratios within light industry are also badly coordi-nated. The composition of raw materials in light industryis very irrational. The proportion of agrieultural rawmaterials is too large while that of industrial raw mate-rials is too small, a situation which hampers seriously

ONAL ECONOMIC STRUCTT.,RE 3?

the development of iight industry. The backwardness oflight industry has resulted in a shortage of light indus-trial goods on the market, with the market gap in thesupply and demand of commodities amounting to severalthousand million 1'uan in recent years.

3. Heavy industry developed in a lopsided manner atthe expense of agriculture and light industry. Heavyindustry in China is not very developed and should stillbe further developed, but viewed in the context of thecurrent economic situation, its scale and rate of growthhave exceeded the material and financial capability ofthe national economy. Thus, it has crowded out agricul-ture and light industry and hindered its own develop-ment.

There are also serious imbalances in the internal com-position of heavy industry. First, the energy industry isbackward. While China's industrial output value grewannually by an average of 11.1 per cent from 1gb3 to1980, energy production only increased by 9.6 per centon the average annually. The shortage in energy hasalready become a serious problem in the national econ-omy at present. Second, the raw materials and process-ing industries are not well-coordinated. The processingcapacity of China's existing machine tools is B to 4 timesbigger than the capacity to supply steel products, and theproportion of machine tools for roughing is much big-ger than the proportion of machine tools for precisionwork. The efficiency of our machine tootrs is also verylow compared to other countrieso and the machine-build-lng industry falls far short of meeting the needs of thetechnical transformation of the national economy. Third,lhe building materials industry is also lagging behind.From 1953 to 1980, the building materials industry grewat an average annual rate of 11.5 per cent, which is lowerthan the 13 per cent average annual growth rate of heavyindustry. Except during the First Five-year plan perioi

3g NEW STRATEGY rOR CIIINA'S ECONOMY

and the economic readjustment period of the early 1960s,the major output of building materials increased at arate lower than the industrial growth rate for the sameperiod. The proportions within the different branchesof heavy industry are also out of balance; for example,within the oil and coal industries, there is an imbalancebetween excavation and extraction, while within the ironand steel industry, an imbalance exists between ironmining and steel smelting, as well as between steel smelt-ing and steel rolling. Because of all these circumstances,heavy industry has not been able to fully play its leadingrole with respect to agriculture, light industry and the na-tional economy as a whole.

4. The development of communications and transpor-tation is also lagging far behind the rate of economicgrowth. The total length of our railroad network is lessthan one-sixth that of the United States and less thanone-half that of the Soviet Union. It is also less thanthat of India. China's highway and water transport sys-tem also cannot meet the requirements for developingagricuitural and industrial production. The handlingcapacity of our coastal harbors is highly inadequate andadversely affects the development of foreign trade.China's postal and telecommunications system is also aweak link in the national economy.

5. Commerce and service trades have not kept upwith national economic development. From 1957 to 1978,China's population increased by 48 per cent, the totalnumber of workers and staff members grew by over 200per cent, and the total volume of commodity sales roseby over 200 per cent, but there was very little increase inthe number of personnel engaged in commerce and ser-vice trades. During the same period, the number of peo-ple served per person employed in these trades rose asfollows: retail trade, from 114 to 213 people; cateringtrade, from 563 to 912 people; and service trades, from

)NAL ECONOMIC STRUCTI,NE 39

1,056 to 1,699 people. As a result, workers and staffmembers have to spend a lot of time queuing up everyday, thus adding to the inconvenience in people,s lives.Although the situation has improved since lg?g, the prob-lem is still a very serious one.

6. tr'oreign trade cannot cope up with the demands ofaccelerated modernization. The total volume of worldtrade in 1978 was U.S.$2,621,200 million, of whichChina's share stood at 0.8 per cent. The proportion ofChina's export commodities (calculated on the basis ofthe domestic purchase price of these export commodities)to the total value of the country,s industrial and agricul-tural production is very small - B.g per cent in 1g?? and1978. Ttre slow growth in exports limited our ability toimport technology and equipment, and the compositionof exports and imports was also very irrational. Com-plete sets of equipment were imported in large quantities,and the problem of duplication in imports was extreme-ly grave.

7, The scale of capital construction was excessive.During the First Five-Year Plan period, the expendituresfor capital construction made up B? per cent of the totalfinancial expenditures. At present, this is generally con-sidered to be an appropriate proportion. During the Sec-ond Five.Year Plan period, the percentage rose to 46,2per cent, which went very much beyond the country,scapability and had adverse effects on production. It was40.2 per cent on the average during the Fourth Five-Year PIan (1971-75) and 40.? per cent in 19?9. The ex-cessive scale of capital construction seriously affeetedinvestment results and likewise affected normal produc-tion as well as the people's normal consumption levels.Definite results have been achieved in the reduction ofcapital construction in recent years, but it is still €xc€s-sive in scale. Ttre task of readjusting it remains a veryformidable one.

4A NEW STBATEGY FOR CIIINA'S ECONOMY

8. lhe proportion between productive and non-pro-ductive investments is not in balance. During the FirstFive-Year Plan period, productive investments made up71.? per cent of the total investments in capital construc-tion while non-productive investments made up 28.3per cent. This ratio basically suited the requirements ofnational economic development at that time, and produc-tion and construction rapidly developed while the peo-ple's livelihood improved correspondingly. During theSecond Five-Year Plan period, the share of productive in-vestments rose to 86.8 per cent while that of non-pro-ductive investments deelined to 13.2 per cent. From 196?to 1976, the share of productive investments increasedfurther to 87.3 per eent while that of non-productive in-vestments decreased somewhat to 72.7 per cent, resultingin an acute imbalance in the proportion between them.Because of insufficient non-productive investment, theaverage floor space per person in Chinese cities was only3.6 square meters in 1977, smaller by 0.g square metersthan the average of 4.5 square meters in 19b2. Therewere 6.26 miliion families without adequate housing,comprising 37 per cent of the total households in thecities.

The problems enumerated above are by no means com-prehensive, and there are other problems which shouldgradually be solved in the course of readjusting the eco-nomic structure. These other problems include the fol-lowing: an irrational price structure, the lack of coordi-nation between industries for national defense and indus-tries for civilian usg serious industrial pollution, theslow development of collectively-owned enterprises intowns and cities, the gap between science and educationand the requirements of modernization, the low technicallevel of workers and staff members, the low level ofmanagement, and the iarge number of people awaitingemployment.

A RATIONAL ECONOMIC STRU TURE 41

Among these problems, the most crucial is the im-balance in the proportions between agriculturg light in-dustry and heavy industry. This relationship is, in es-sence, the relationship between the means of productionand the means of consumption. The fundamental prob-lem in our present economic structure is that the pro-duction of the means of consumption cannot keep upwith the production of the means of production. Solvingthe contradictions in this relationship should be our pointof departure in solving the series of problems relating tothe economic structure.

There are a number of reasons behind the irrationaleconomic structure, and we have already discussed someof these. Here I would like to make an additional ex-planation regarding some of the more important reasons.

First of all, the narrow pursuit of high targets of out-put value disrupted the overall balance. Ttre primarytask in economic planning is to attain an overall balance.Starting from 1958, we one-sidedly aimed for high tar-gets in terms of output value and ran counter to the re-quirements of developing the national economy propor-tionately. There used to be a prevalent formulationwhich held that proportion should be subordinated tospeed and that unrealistically high targets were ,,Marx-ist," while realistic targets were denounced as .,rightopportunist" or "revisionist." Those who adhered to thismistaken formulation also criticized the attainment of anoverall balance, calling it "passive balance,,, and evenadvocated the disruption of an overall economic balanceas "active balance." Practice has already shown that thisformulation is completely wrong.

On the question of socialist construction, a kind ofthinking which could be called "the theory of quick suc-cess" existed over a long period of time. It viewed eco-nomic construction as a very simple and easy matterwhich could be completed overnight. With this kind ofthinking, we unavoidably adopted a subjective ap-

42 NEW STBATIGY EOR CHINA'S ECONOMY

proaeh and set unrealistically high targets in narrow pur-suit of a high growth rate. To require that all provincesto become industrial provinces with their respective in-dependent and comprehensive industrial systems is alsoa manifestation of this impractical kind of thinking. Inthe future, we should oppose this obsession with quicksuccess in economic construction, while at the same timepreventing and overcoming any feelings of passivity.

Second, we gave too much emphasis to the preferentialdevelopment of heavy industry at the expense of agricul-ture and light industry. Mao Zedong repeatedly pointedout that the relationship between agriculture, light in-dustry and heavy industry in the course of socialist con-struction should be eorrectly handled. But in practice weoften neglected agriculture and light industry and over-emphasized the preferential development of heavy in-dustry. In particular, we carried out the policy of "tak-ing steel as the key link" for a long time, which led to aserious imbalance even within heavy industry. Thereused to be a widely held theory which considered it thecapitalist road to start industrialization with light in-dustry, and the socialist road to start industrializationwith heavy industry. Practice proves that this theoryhas no scientific basis. Actually, the transition from anagricultural to an industrial country usually begins withthe development of light industry and only after a certainstage in the development of light industry and agriculturecan the priority be given to the development of heavy in-dustry. Ihis can be considered a law. When we carriedout large-scale socialist industriaiization in 1953, we con-sidered it necessary to implement the policy of givingpriority to heavy industrial development, because lightindustry accounted for a fairly big proportion of the coun-try's industrial production and it had a certain latentcapacity which would allow for speedy development ofthe extremely backward heavy,industry. This emphasison heavy industrial development was also related to the

A RATTONAL ECONOMTC STnUCT'URE 43

international situation at that time. We scored greatsuccess with this policy during the First Five-Year PIan(1953-57). But the preferential development of heavy in-dustry cannot be isolated from the development of agri-culture and light industry, and it does not necessarilymean that the rate of heavy industrial growth should befaster than that of tight industry at all times. Problemslater arose when we failed to develop heavy industry onthe basis of agriculture and light industry, but rather putundue emphasis on heavy industrial development.

Third, we aimed for an excessively high accumulationrate. During the First Five-Year Plan period, the accu-mulation rate in China was basically stable at 23 percent to 25 per cent, which was quite suitable to the situa-tion at that time. The accumulation rate has beentoo high ever since the Second Five-Year Plan, and thishas been an important cause of the irrational economicstructure. We formerly thought that the national econ-omy would develop faster with a higher accumulationrate. In fact, this was not the case, Practice has shownthat an excessively high accumulation rate invariablyleads to an imbalanced economy and a serious decline ininvestment returns and production results. If the ac-cumulation rate is too high and the proportion of produc-tive investments is too big, these will not only be incom-patible with the increase in the means of production, butwill also inevitably result in decreasing consumption toabnormally low levels and dampening the workers' en-thuclasm, thus adversely affecting production.

In the fourth place, certain "Left" practices during theprocerr of organlzlng the people's communes dampenedthe lnlttatlve ol the peasants. The problem with China'scconomlc structure, fundamentally speaking, is that agri-culture ls too backward. With agriculture and light in-dustry lagging behind, it is difficult for heavy industry torapidly develop. There are many reasons for the baek-wardness of agriculture, but an important one is the

"Left" policy which was carried out over a long period oftime. The movement to organize agricultural coopera-tives in China in the 1g50s made great achievements, butthere were also shortcomings in some areas where theagricultural cooperative movement was carried out hasti-ly. Particularly during the movement to organize peo-ple's communes in 19b8, the peasants got discouraged

"sa result of the stirring up of a ,,communist wind.,', exces-sively high quotas for state purchases of agriculturalproducts, and the issuing of arbitrary directions. Lateron, Lin Biao and the ,,Gang of Four,, time and again call-ed for the so-called "cutting off the tail of private owner-ship", abolished private plots and country trade fairs, andadvocated a higher form of public ownership despite apoor development of productive forces. AII these tenden-cies prevented a number of correct policies from beingconsistently implemented.

Finally, the system of economic management has se-rious defects. It is overcentralized, with enterprises lack-ing the decision-making powers they should have and themarket unable to correctly play a regulatory role. Wehave not paid serious attention to, nor have we broughtinto full play, the role of collectively-owned enterprises,whether in industry, communications and transportation,or in commerce. In addition, there is no clear distinctionbetween government administration and enterprise man-agement, and we stressed the use of administrative ratherthan economic methods of management. In a socialistplanned economy, social production lacks an effectiveregulatory mechanism which can promptly discover andsolve problems as they emerge in the national economy.Problems related to this aspect will be discussed in moredetail in Chapter III.

What type of economic structure does China have atpresent? Various kinds of interpretation have been pro-posed in answer to this question. Many people thinkthat our economic structure is a lopsided one in which

NEW STRATEGY FON CHINA'S ECONOMY A RATIONAL ECONOMIC STNUCTTIRE 45

steel production was overemphasized in industry, whilegrain production was given too much stress in agriculturefor a fairly long period of time. There is an element oftruth in this view. In my opinion, the economic struc-ture in China can be summarized in the following way:due to the influence of "Left', errors in our economicwork over a long period of time, we unduly stressed thedevelopment of heavy industry at the expense of agricul-ture and light industry. We increased the total value ofboth production and revenues and provided employmentfor the labor force, mainly by allocating a 1arge amountof funds and energy for capital construction and buildingnew factories. However, industry was not linked withagriculture to form an integrated production system, norwas heavy industry linked with 1ight industry. Heavyindustrial development in particular, which placed toomuch emphasis on "taking steel as the key link,,, consum-ed a large amount of energy and used the bulk of thecountry's transport capacity. Moreover, an enormousamount of investments was made in heavy industry atthe expense of agriculture and light industry; this alsoadversely affected the energy, communications and trans-portation industries. Consequently, heavy industry de-veloped in an unbalanced way, with energy, communica-tions and transportation becoming the weak links in thenational economy. Neither did the iron and steel industryitself develop in a proper way. Thus, in the course oftime a lopsided economic structure gradually formed inwhich certain branches of heavy industries were overlydeveloped while agriculture, light industry,

"rru"gy, "orn--munications, transportation, construction, commerce andgervlce trades remained fairly backward. Different re-glons also set up their separate and self-sufficient eco_nomic systems, while various departments and enter-prises, regardless of size, likewise had their own completeproduction systems. Thus, China's economic structure hadcome to be characterized by imbalanced proportions,

46 NDW STBATEGY I.ON CHINA'S ECONOMY

looseness in organization, low efficiency and seriouswaste.

Were we to allow such an economic structure to per-sist, the relations between the different branches of theeconomy would never be coordinated. The structure link-ing the various branches, sectors (by types of ownership),organizations and regions as well as linking the variousaspects of reproduction in the national economy would in-evitably be rather loose, since they lack closely-connect-ed internal relations. Specialization, division of labor andcooperation would be hindered, and commodity circula-tion could not proceed smoothly. The planning mech-anism and the market mechanism would not functionproperly, and the contradictions between production andmarketing, as well as between production and circula-tion, could not be solved promptly. The role of the mar-ket in providing feedback for economic planning couldnot be brought into play. AIt these would inevitablyresult in excessive investments, serious wastage, exces-sive consumption of resources, low economic results, fewmaterial benefits for the people and an unsound economiccycle.

From the preceding discussion, we should recognize theseriousness of the problems in the present economicstructure as well as its positive elements. Only by doingso can we have an all-round understanding and a correctestimate of these problems, and thus find the correctmethod to solve them.

2. Fundamental Requirements and Methods torReadjusting the National Economy

One aspect of the superiority of the socialist relationsof production lies in the fact that it enables the nationaleconomy to develop in a planned way. If there are mis-takes in macroeconomic policies which put the propor-

A RATIONAL ECONOMIC STRUCT'URE 47

tionate relations of the national economy out of balance,it is possible for the proper balance to be restored bymeans of planned readjustment.

Economie readjustment is aimed precisely at readjust-ing the irrational economic structure with its lopsided de-velopment and poor coordination between the differentbranches, and setting up a rational economic structure.Such a rational economic structure requlres that the guid-ing policy should redirect its objective from the develop-ment of heavy industry to the production of final consum-er goods. This means that the production of final con-sumer goods will be determined on the basis of the needsof the people and society, while the production of inter-mediate products and primary products such as raw ma-terials will in turn be determined on the basis of the needsof the production of final consumer goods. In otherwords, an economic structure will be established in whichindustry and agriculture can develop harmoniously forthe production of final consumer goods. After this kindof economic structure has been established, the indus-tries producing raw materials and processing interme-diate products will be geared to the production of finatconsumer goods, and a1l trades and enterprises will havea clear notion of whom they intend to serve and whatgoals to strive for. In this way, their products will be-come necessary cornponents in the process of reproduc-tion, and the supply of products will be linked in a muchbetter way to social needs. Thus can maximum economicrcsults be attained from the labor force and the materialond financial resources invested by society. The con-tlnually increasing material and cultural needs of thepcople can thereby be better satisfied. With such ancconomic structure, our country's human, material andnatural resources can be utilized more fully, while thevarious branches of the national economy and the dif-ferent links in social production can develop harmonious-ly and a sound cycle can be realized. Ttrese are the fun-

48 NEW STRATEGY r.OR CIIINA'S ECONOMY

damental requirements of readjusting the national €cor-omy.

In exploring ways to readjust our current economicstructure, we must have a grasp of the basic characteris-tics of our economy and, proceeding from actual condi-tions, give fuII play to our strong points while overcom-ing our weaknesses. China,s economy has a number ofbasic eharacteristics. First of all, China has a populationof 1,000 million people, with peasants numbering 800million. This is fundamental. Secondly, we havei biglabor force and abundant natural resources but are shoriof funds. Thirdly, although our socialist constructionhas scored major achievements, our economie foundationsare still very weak, and our technological and manage_ment levels are still very low. And last of all, the so-cialist economic system has already been established, butthe economic structure and system of management stillhave many imperfections.

Taking the basic characteristics of our economy andthe problems existing in our economic structure as thepoint of departure, there are several principles whichshould be borne in mind in formulating policies for re-adjusting the economic structure. First, our socialist sys-tem requires that our economic structure be geared tothe satisfaction of the people,s basic needs such- as food,shelter and clothing. Second, the, development of agri_culture and light industry should be taken as the prim-aryproblem to be solved, while special attention shouia atlf qiven to energy, communications and transportation.Within the next ten years, there should be morelmphasison developing labor-intensive and energy-saving indus_tries in order to solve the employment and energy prob_lems. Third, we should adhere to the policy oi,"if_r"-liance. This involves giving ful1 play to existing enter-p-rTes by devoting ourselves to tapping their full poten-tial and carrying out the technical transformation of theseenterprises. Fourth, we should expand exports, import

A EATIONAI/ ECONOMIC STRUCTIURE 49

technology and utilize foreign funds to strengthen theweak links in our country. Fifth, military and civil in-dustries should be integrated for the benefit of the peo-ple. Sixth, the development of science and educationshould be given importance, and efforts should be madeto do a good job in the fields of population planning, €n-vironmental protection, improvement of working condi-tions, urban construction, and health care and sanitation.In brief, the main aim in improving China's economicstructure should be to suit social production to the con-sumption needs of the people.

Based on these principles, we shall now discuss thespecific methods for the readjustment of the nationaleconomy.

1. We must first develop agriculture in a comprehen-sive way to lay a solid foundation for national economicdevelopment. The problem of grain production has notbeen solved; this constitutes a major obstaele to the com-prehensive development of agriculture, which includescrop farming, forestry, animal husbandry, sideline occu-pations and fisheries. However, historical experience inChina and abroad has shown that the grain problem canonly be solved in the course of an all-round developmentof agriculture; rather than concentrating on grain alone,the production of industrial crops should also be develop-ed. What's more, we cannot promote grain productionby resorting to the destruction of forest areas, grasslandsand areas for industrial crops. Otherwise, we will notonly fail to solve the grain problem, but a"lso will damagethe rural economy and the ecological balance. Ttris ofcourse would entail serious consequences.

In order to develop agriculture in an all-round way,the series of important principles and polieies adoptedby the Party since the Third Plenary Session of the Elev-enth Central Committee should be conscientiously im-plemented. The major ones are as follows:

50 NEW STRATEGY F.OR CHINA'S ECONOMY

(1) Uphold the colleetive ownership of productionteams and respect their decision-making powers. Dif-ferent kinds of responsibility systems tint<ing productiondirectly to remuneration and other management systemswhich are effective and conform to the level of develop-m-ent of the productive forces should be implemented.There should be a stable long-term poticy on privatepiots and family sideline occupations of commun. *"-_bers.

(2) Formulate scientific plans for agriculture on a re_gional basis. There should be a guaranteed supply ofgrain rations for peasants and herdsmen in foresi-areas,pasturelands and other areas where industrial crops aregrown. Various regions should be allowed to strengthencooperation so as to help in supplying each other,s needsand to bring their respective natural and economicadvantages into ful1 p1ay. We should strive for a fasterdevelopment of forestry, animal husbandry, sideline oc-cupations, fisheries and different kinds of industrialcrops. Various regions should promote diversified farm-ing which makes full use of local conditions and attainsthe best results.

(3) Formulate a policy for agricultural mechanizationwhich is suitable to the conditions in China, rather thanindiscriminately copying from abroad the practice ofcarrying out total mechanization of agricuiture. Weshould utilize fully the big rural labor foice to carry outscientific farming and increase the yield per unit area.With the exception of northeast and northwest Chinawhich have vast but sparsely populated areas, other re-gions should first of all utilize agricultural machinery forrural transport, storage and rush seasonal tasks. Witfrinthe foreseeable future, measures should also be adoptedto encourage the use and development of draught animals.At present, the total quantity of chemical fertilizer ap.plied is not too great and the amounts of nitrogen, phos_phorus and potassium applied are not in proportion. In

)NAL ECONOMTC STnUCTTTRE 31

the future, we should fill up the gaps in chemical ferti-lizer production and attain a balanced development. Weshould likewise increase the amount of organic fertilizer.In developed capitalist countries, it is already a universalphenomenon for the organic composition of agriculture*to greatly exceed that of industry, with agriculture hav-ing a high ratio of fixed assets and circulating funds perunit of agricultural output and an excessive energy con-sumption. We should pay close attention to thisphenomenon.

(4) Stress actual results in agricultural constructionprojects. The scale of agricultural capital constructionbuilt over the years through state investments and thelabor of production team members has been fairly big,and it has played a significant role in agricultural produc'-tion. However, the actual results of a considerablenumber of these projects have been very poor, and somehave even damaged the environment and disrupted theecological balance. In the future, we should alter ourprevious practice of concentrating o'n1y on constructionmeasures in building irrigation works; we should com-bine the building of such projects with necessary affores-tation work so as to guarantee the sources of water. Weshould pay attention to the addition of accessories to theprojects already built and give full play to investmentreturns.

(5) Readjust the price parities between industrial andagricultural products in a planned way, and graduallynarrow the "scissors" gap between the prices of industrialand agricultural products.

2. We must aceelerate the development of Ught in-dustry. Ttre growth rate of light industry should be morerapid than that of heavy industry for a certain period oftime.

I This refers mainly to the proportion of investment ln ma-chinery.

52 NEW STBATEGY rOR CHrNA'S ECONOMY

In order to accelerate light industrial development,there are a number of changes which must be made, aslisted below:

(1) Gradually change the composition of raw mate-rials for light industry. In view of modern industry,strend of development, the growth of China,s heavy in-dustry (particularly the metallurgical, petrochemical andcoal industries) and the market demand, our idea is tofirst strive to change the proportional composition of in-dustrial and agricultural raw materials in light industrialproducts. Whereas the current ratio is B:?, we wouldhope by 1985 or soon thereafter to have achieved a ratioof 4:6, or even 1:1. Then we will aim for 1:1 or 6:4 byapproximately 1990.

(2) Gradualiy change the product mix of light indus-try. Based on past experience in China and abroad, asthe people's living standards rise, the proportions be-tween three types of goods - food, ciothing and variousconsumer items - will change. The proportion of cloth-ing and that of consumer items will particularly increase.The proportions of durable consumer items, and mediumand high-grade goods purchased will also increase. Cor-responding changes should be made in the product mixof light industry. In addition, traditional handicraftsshould be preserved and developed to gain more foreignexchange.

(3) Readjust the structure of ownership in light in-dustry. For a long time to comg handicraft productionmust not be neglected, and collectively-owned industriesshould be further developed. Collectively-owned indus-tri,es should account for a bigger proportion of the lightindustrial output value compared to industries under theownership of the whole people. In addition, individualhandieraftsmen should be allowed to develop productionand operate with several assistants and apprentices.

)NAL ECONOMTC STRUqTURE 53

(4) Firmly implement the policy of "six priorities"*for developing light industry. The number of scientificand technical personnel in light industry should be in-creased.

(5) Ttre various branches of heavy industry shouldmake efforts to produce consumer goods, particularlydurable consumer goods, which are suited to the people'sneeds.

3. We must readjust the internal structure of heavyindustry and give full play to the role of the engineeringindustry in technical transformation. Heavy industryplays a leading role in the national economy. It suppliesenergy, raw materials and equipment to the differentbranches of the national economy. It also supplies durableconsumer goods to the people and exports products aswell. Production and construction in heavy industryshould be closely linked to the above-mentioned aspectsif heavy industry is to effectively promote the rapiddevelopment of the national economy. Thus, the propor-tion of heavy industrial products which directly serveagriculture and light industry should be increased. Inorder to improve the structure of the national economy,the service orientation and product mix of heavy industryneeds to be appropriately readjusted, and its rate of de-velopment as well as its proportion in the total industrialoutput value should also be correspondingly readjusted.

To realize the four modernizations, technical transfor-mation must be carried out in the different branches ofthe national economy. The engineering industry shouldshoulder this task and realistically readjust its serviceorientation and product mix. Its orientation should be

r That is, priority in the supply of raw materials, fuel andelectrieity; priority ln measures regarding the tapping of poten-tial, technical innovation and technical transformation; priorityln capital constructionl priority in bank loans; priority tn foreignexchange and the imports of technology; and priorlty ln com-munlcations and transportatlon.

54 NEW STB,ATEGY r.On CIIINA,S EeoNOr/ry

shifted trom mainly serving the capital construction ofnew factories to serving the technical transformation ofold factories. It should also contribute more in servingagrirulture, light industry and urban construction, pa"lticularly residential construction; in the area of the peo-ple's livel.ihood, particularly in the production of auratteconsumer goods, there is also much need for the skills off3e gnSineering industry. Instead of concentr"tirrg o,the domestic market only, it should gradually increai itsoutput of products for export.

In order to effect the changes described above there area number of problems which must be sorved as enumer-ated below:

(1) Accelerate the technical transformation and up_lating of equipme{ i" " ptanned way. The equipmeitin the majority of China,s enterprises is already of.ofete,and we should strive to replace it within the next 10 to15 years. In this way, we can increase the sources ofscra-p iron and promote the development of the iron andsteel industry. The utilization rati of equipment in theengineering industry can also be increased, ihus alleviat-ing the problem of under-utilization. Technical transfor-mation is also advantageous for improving the technol,og_ical-levels of enterprises and increising the rate of rablrproductivity. Furthe-rmore, energy -consumption

andwaste in raw materials can be reduied.Technical transformation should be put forward as astrategic task in the ten-year plan. The updatid-o;

equipment is an important aspect of technical transfor-mation; in the process

-of updating equipment, frowevu",

the surplus in China,s 1abor powei sirouta be taken intoconsideration and automation strould not be unduly em_phasized. Instead, the aim should be to impro"u qr"fiiy,incygase variety, reduce the consumption of

"aw *"-terials, economize on energy, prevent environmental pol_

lution, raise the technical arrd ".o.ro-ic indices of prod_

ucts, and expand the productive capacity. fne aim of

A RATIoNAIJ EcoNoMIc STRUCTTJR.E 55

course is to make advanced products that are also inter_nationally competitive. Ttre level of automation shouldbe increased based on the actual needs of production.Whenever it becomes more expensive to repair equip-ment than to buy new equipment, or when tL vatue otwasted energy exceeds the value of buying new equip_ment, we should buy new equipment.

-Ttri excesrirr"iy

low _r-ate of depreciation currenfly being implementei

should be raised gradually so that technical trinsforma-tion will have a stabre source of funds and will be includ-ed in the state plan.

lZl Utili".e fully the productive capacity of enter-prises in military-related industry. The specialized pro_duction of the military industry and the civil

"ngine""-ing industry must be integrated according to thJ typesand characteristics of their production lines and *"orf".-turing technology. A considerable number of the coun-try's machine tools,_particularly large_sized, high_preci_sion and numerically-controlled *r"hirru took] are inenterprises of the military industry, and these are hardlybeing fully utilized at present. Tiierefore, in organizin!the production of the

-engineering industry, the ai.riairriline between national defense industry and civilian indusltry should be broken down. Specialized corporationsshould be organized according to lroduet tines requiringsimilar technology, and the production of similar prod"-ucts should be integrated. When enterprises in the mil-itary industry produce goods for civilian use, someequipment may have to be added, but it is not advisabreto expand capital construction without contrors. It isalso not advisable to blindly increase the number of pro-duction li,nes; a production 1ine should be utilized to pro-duce goods both for military and civilian use.(3) Improve the quality, reduce production costs andenhance the competitiveness of heavy industrial produetson the international market. China L

"rrrorrg the world,s

leading producers of machine tools, but its machine tools

58 NEW STRATEGY F.ON CHINA'S ECONOMY

are characterized by poor technical performance, shortservice-life, poor reliability and high production costs.Only by improving quaiity and reducing production costscan we do a better job of equipping the various branchesof the national economy and entering the internationalmarkets. Machinery products should gradually consti-tute the major portion of China's exports, and the ex-ports of complete sets of equipment should be increased.This should be the strategic thinking for developing theengineering industry.

Ttre iron and steel industry is an important branch ofheavy industry. Its development should take into fuIIconsideration the requirements of the different branchesof the national economy, particularly the engineering in-dustry, in regard to the quality, variety, specificationsand quantity of steel produets. In order to change theoveremphasis on the iron and steel industry, the metal-lurgical sector should shift the stress in iron and steelproduction to increasing the variety and improving thequality of steel products. It should also strive to reducethe consumption of energ"y and other materials, therebyimproving overall economic results. The developmentof iron and steel production involves an enormousamount of investments and energy; the question of ex-actly how much iron and steel are needed fu: the differentstages of the mareh towards modennization needs to becarefully studied.

Japan at present has an annual steel production of 100million tons, of which 30 million tons are exported. Ttreproducts of the shipbuilding and car manufacturing in-dustries, which are the biggest consumers of steel prod-ucts, are also mainly exported. The exports of the othermachine-building industries, which likewise utilize a por-tion of the domestic steel output, are also considerable.West Germany only produces 50 million tons of steel peryear and in the case of Britain, less than 30 million tons,but these are sufficient to meet the needs of their domes-

A RATIONAL ECONOMIC STRUCT\,NE 67

tic manufacturing industries. There should be a realisticestimate of exactly how mueh steel we need.

The internal structure of the iron and steel industryshould also be readjusted: the current ratio of iron tosteel in China is 1.09 to 1, compared to the internationalaverage ratio of 0.7 to 1. If we can reduce the ratio to 0.gto 1, over 9 million tons of coal can be saved every year.To accomplish this, there should be more recycling ofscrap iron. Thus steel output can be increased withoutincreasing energy consumption. Furthermore, we shouldstrive to produce more steel products of satisfactoryquality with the same gross steel output, thus increasingboth use-value and exchange-value.

China's petrochemical and coal-chemical industries arestill very backward and fall far short of meeting theneeds of light industry and other branches of the nationaleconomy. Within the next ten years, we should strive toachieve a more rapid development of these industrieswithin the limits of available raw materials and funds,so that they can supply light industry and other branchesof the national economy with more raw materials as wellas other supplies. In this way they contribute moretowards the modernization of agriculture.

4. We must set a long-term and stable energy policyas soon as possible and establish a rational energy struc-ture. Energy is an important factor restricting the scaleand rate of industrial development. Average per capitaenergy consumption is a general yardstick of a society,sproductive capacity and standard of living. There is anacute energy shortage in China at present. If the energyproblem is not solved, it will be impossible for the na-tional economy to develop smoothly or for the people,slivelihood to continuously improve.

Energy resources in China are not very abundant com-pared to the requirements of reaiizing the four modern-lzations. According to current estimates of recoverablereserves, the per capita average of energy resources in

NEW STRATEGY FOR CIUNA'S ECONOMY

China is only one-ha1f of the world's average, one-tenthof the United States, and one-seventh of the Soviet Union.Therefore, we must formulate a far-sighted and scientif-ically-based energy policy.

(1) As dictated by the situation of our country,senergy resources, coal will remain the principal sourceof energy for a fairly iong period of time. The proportionof coal in the composition of energy consumption shouldbe maintained at the current level of over ?0 per cent.There should be major efforts to exploit coal resources,particularly those in Shanxi, Inner Mongolia, Guizhou,Anhui, Henan and Shandong, and large bases for coalproduction should be set up in a planned way. At pres-ent, we should first concentrate our efforts to developthe coal resources of Shanxi, which has the richest re-serves, the best conditions for exploitation and excellenteconomic results. In this way we can best meet theneeds of coal-deficient regions within the country and in-crease exports. Extraction should be carried out ra_tionally, and the percentage of recovery should be in-creased. Working conditions should be improved and safe-ty in production should be ensured. The gasificationand liquefaction of coal should be carried out in a plan-ned way in the next ten years. However, since no ma-jor developments can be expected in these fields in theimmediate future, the main method of consumption willcontinue to be the direct burning of the coal. Thus, thetechnology in this aspect should be correspondingly im-proved to increase heating efficiency, while measures forenvironmental protection must also be adopted.

(2) Geological prospecting for oil must be intensified,and oil should be rationally extracted and utilized. Inthe future, we will move towards the use of petroleummainly for the production of industrial chemicals: theportion directly utilized as fuel will be greatly reduced.

(3) Hydroelectric power is a cheap, clean and renew-able form of energy. China has fairly abundant hydro-

. A RATIONAL ECONOMIC STRUCTURE 59

power resources. If 1,000,000 million kilowatt-hours ofelectricity could be generated, this would be equivalentto 600-700 million tons of coal. At present, however, only3 per cent of the total resources have been developed.Seventy per cent of the country's potential hydroelec-tric resources is located in the southwestern border areas,and the question of how these resources can be rationallyexploited and utilized needs further research. In termsof investments and the time period needed for construc-tion, the development of hydroelectric resources is notat all inferior to the development of thermal power if thecoal mines and transportation network necessary forthermal power generation are taken into account. Ttrere-fore, we should pay speciai attention to the developmentof hydroelectric resources in the future.

(4) Ttre energy problem in the countryside must besolved. Methane gas, small-scale hydroelectric stations,and firewood resources should be developed to solve theenergy problem in the countryside and mountainousareErs. In the allocation of investments and materials inthe future, we must create conditions for the develop-ment of different forms of energy in the countryside.

(5) We must vigorously economize on energy. Ourcountry has very great potential in energy savings. Iheenergy consumption coeffieient in the past was about 1.2(that is, energy consumption increases by 1.2 per centfor every 1 per cent increase in output value). Since webegan to stress the need to economize on energy in 1979,the coefficient has declined by 0.12, which shows thatthere are bright prospects for further economies. Themain energy-saving measures will include a resolute re-duction in the production of goods which consume a lotof energy but are not needed by society, and the develop-ment of energy-saving industries. Furthermore, energy-saving measures must be adopted in the course of techni-cal transformation. We should be resolute in stoppingthe operation of those small-scale industries which have

60 NEW STRATEGY T'OR CHINA'S ECONOMY

consumed energy excessively and incurred big deficitsover the years.

5. We will have to develop the building materialsand construction industries in a planned way.

The housing shortage is the most conspicuous problemfacing urban residents in China today. The housing prob-Iem in the countryside is also very serious. We shouldtherefore pay special attention to the development of theconstruction industry and especialty the building mate-rials industry. If we neglect the latter it will be akinto "cooking a meal without rice," and the constructionindustry will be unable to develop according to plan. Weshould implement the following measures:

(1) Strengthen urban planning in order to carry outconstruction in a planned way. This is necessary toovercome the current state of anarchy in construction.Construction in the countryside should also be carried outaccording to plans which are in accord with local condi-tions. The indiscriminate occupation of farmland for thepurpose of building houses must be stopped.

(2) Speed up the production of such building materialsas cement, glass, bricks and tiles. We should also de-velop new types of building materials. Local collectively-owned building materials industries should be furtherdeveloped. Non-metallic mining bases should also be se-lectively developed in order to provide the national econ-omy and national defense with sophisticated non-metallicmaterials.

(3) Ensure balance and coordination between the con-struction industry and related branches of the nationaleconomy.

(4) Gradually divert construction productsrealm of commodity circulation so that theybought and sold.

(5) Introduce a savings scheme for housing and a sys-tem of payment by installments, to encourage individualsto buy or build houses. There should also be correspond-

A RATIONAL ECONOMIC STRUCTUN,E 61

ing improvements in the method of allotting and usinghousing space and of collecting rent.

6. Another important aspect of our efforts to readjustthe national economy is a two-pronged approach involv-ing both an appropriate reduction of the accumulationrate and a rational readjustment of the investment struc-ture.

(1) Many problems have arisen as a result of the veryhigh accumulation rate which we have maintained inChina over a long period of time. Based on historicalexperience in China and abroad and the current level ofour national economy, it is quite appropriate to maintainthe accumulation rate at about 25 per cent.

(2) Capital construction should be carried out on anappropriate scale, and in line with our country's condi-tions and capability. There are limits to be observed.First, the people's living standards cannot be lowered.Second, budget deficits cannot be allowed to occur, andthird, the materials required by construction plans can-not exceed the available supply. The present scale of cap-ital construction therefore should be effectively reduc-ed; consequently a number of big heavy industrial con-struction projects must be resolutely stopped or postpon-ed.

(3) In accordance with the principle of first payingattention to production before engaging in new capitalconstruction, the requirements for the technical trans-formation of existing enterprises should first be ensur-ed. Acceleration of technical transformation of existingenterprises is the basic way to realize the four moderni-zations. Instead of allocating investments principailyfor the construction of new projects, investments shouldnow be allocated mainly for the replacement and trans-formation of equipment. In the future, the proportionof funds allocated for technical transformation of exist-ing enterprises compared to the total amount of capitalconstruction investments by the central and local authori-

into thecan be

NEW STRATEGY TOR CHINA'S ECONOMY

ties should gradually increase from 30 per cent in lgTB to70 per cent. Imports of technology and equipment fromabroad must be used first of ail for the technical transfor-mation of existing enterprises. Imports should notalways be devoted to the construction of new projects.Al1 this represents an important change in the principleof investment allocation.

(4) Investment priorities should be rationally deter-mined in line with the need to readjust the structure ofagriculture, light industry and heavy industry. Necessaryinvestments for light industry should be guaranteed first.This can help alleyiate the tight market situationand increase the accumulation fund much faster.At the same time, investments for agriculture should alsobe appropriately increased. The previous method of in-vestment allocation which favored industry at the ex-pense of agriculture, and which stressed heavy industryat the expense of light industry, should be changed. In-vestments for heavy industry itself should also be distri-buted properly. Investments for the development of theener"gy industry should come first; investments in themetallurgical industry should be mainly used for increas-ing the variety and specifications and improving thequality of products needed by society. The constructionof necessary mines must also not be neglected.

(5) Investments in service trades should be increasedappropriately to speed up their development. This is animportant aspect of the setting up of a rational economicstructure.

(6) Investments in education and science must be in-creased so as to accelerate further development in theseareas. The backward state of education and science inChina has become a major obstacle to the four moderni-zations. In the allocation of investments, therefore, anextremely important problem to be eonsidered is how toincrease as much and as fast as possible investments forscientific research and education.

A RATIoNAL EcoNoMIc STRU TURE 63

(7) Top priority must be given to the economic returnsof investments. The various departments should fix areasonable time limit for recovering investments, as wellas minimum standards for rational investments. projectswhich do not meet these standards should not be given ago-ahead. Enterprises which continue to incur businesslosses should not be allowed to operate in the future.

7. The successful readjustment of the national econ-omy will require the readjustment of the compositionof imports and exports.

This will help to promote the coordinated developmentof agriculture, light industry and heavy industry. Neces-sary components of a new policy towards imports andexports include the following points:

(1) Technology and equipment which are crucial toChina's modernization should be imported from abroad,as well as materials which cannot be produced withinthe country either due to a shortage of needed resourcesor because of a lack of advantageous economic conditions.Imports of complete sets of equipment should be strictlycontrolled. We must strengthen our ability both to repro-duce imported equipment and to manufacture new typesof equipment as needed. Certain types of equipment,which could be manufactured domestically or whichcould be made if only some additional technology wereimported, should not be imported. Furthermore, all du-plication in imports must be eliminated. A policy ofprotection suited to our country's conditions should beformulated.

(2) In regard to exports, an overall estimate of domes-tic resources and the needs of the dornestic marketshould be made. Based on the capacity of domestic pro-duction and international market demand, China shouldgradually undergo a transition from exporting mainlyagricultural and primary products to exporting mostlyheavy and light industrial products, particularly machin-ery and high-grade processed products. While the ex-

64 NEW STRATEGY EOIi CHINA'S ECONOMY

port of individual industrial machines could be increased,we must make greater efforts to export complete sets ofequipment. Labor-intensive products should be activelydeveloped for export, particularly handicraft articles inwhich Chinese skills are well-known. Commodities whichare big foreign exchange earners should be exported inbigger quantities.

(3) In readjusting the composition of imports and ex-ports, particular attention should be paid to the use ofeconomic methods and the formulation of different kindsof policies and measures which restrict imports and en-courage exports, such as setting up a reasonable systemfor settling accounts in foreign exchange, tax policy, andprice policy.

B. Another way of promoting the readjustment of thenational economy is to map out regional economic zonesand to establish a rational regional economic structure togive full play to the relative advantages of different re-gions.

A rational economic structure requires that, on thebasis of overall planning, the superior natural and eco-nomic conditions of different regions should be broughtinto full play. A commodity economy should be develop'ed in these regions so that they are able to supply eachother's needs. Towards this end, a number of steps shouldbe taken:

(1) Based on the distribution of natural resources, thelevel of industrial and agricultural production, the con-dition of communications and transportation, and the na-ture of historical economic linkages, several economiczones should be differentiated throughout the country.Initially these zones need not conform to existing admin-istrative boundaries, but in the future the latter oughtto be appropriately readjusted.

(2) Different regions should set up their respectiveeconomic structure which can take advantage of theirsuperior conditions, including natural conditions (climate,

A RATIONAT ECONOMIC STRUCT'(IRE 65

soil, resources, etc.) and economic conditions (productivecapacity, technical force, management experience, etc.).

The economic structures of the individual regions willnot be cut from a single pattern. On the contrary, theywill have different characteristics and different areas ofemphasis. The various regions should put their man-power and resources, both material and financial, intothose spheres of production which will ensure high eco-nomic results and produce goods with the lowest produc-tion costs. It is only on the basis of optimal regional eco-nomic structures that we can establish a national econom-ic structure which will promote coordinated develop-ment of agriculturg light industry and heavy industry,thus achieving the best economic results.

(3) To set up regional economic structures which canfully express their individual strength, a number of cor-responding conditions need to be created. For example,the transport of necessary materials in and out of theregions should be ensured, and prices in the inter-re-gional exchange of materials should be based on mutualbenefit. Regions which ship out certain commoditiesmust be able to receive on time the specified varietiesand quantities of commodities they need. In addition,the interests of both the raw material-producing regionsand the processing regions should be taken into consi-deration.

(4) We should overcome the kind of thinking whichcalls for the establishment of a comprehensive economicstructure in each region. Because of differences in na-tural conditions and the unevenness of economic develop-ment in various regions, it is unrealistic to require thatall regions develop in an all-round way. Even in thoseregions where conditions exist for the all-round develop-ment of agriculture, light industry and heavy industry,we should still concentrate our forces appropriately inorder to develop the more beneficial departments. Only

66 NEW STRATEGY r.OR CIIINA'S ECONOMY

by so doing can the whole society attain relatively higheconomic results.

9. An important pre-condition for rationalizing eco-nomic structure is the prior development of transporta-tion. As the socialization of production (the movementtowards largescale production) develops, there are in-creasingly closer links between the various branches ofthe national economy, between production and consump-tion, and between the different regions. This phenome-non, as it develops, will exert far greater demands on thetransportation, postal and telecommunications systems.China's economic development and the readjustment ofits economic structure will require a major developmentin these areas, as described below:

(1) In order to lessen the excessive burden borne byrailroad transport, we must arrive at a rational divisionof work among the various means of transport. Therailroads should be used mainly for transporting 1argequantities of goods and materials over 1ong distances.Water transport should in the future be used whereverpcssible. Active efforts will be made to develop coastalshipping routes between south, east, and north China.Highways should handle as much shortdistance trans-port as possible. The role of domestic air transport inthe movement of passengers and goods over 1ong dis-tances should be increased. Transshipment of goods amongthe various means of transport must be well organized.Coordinated transport by railroad, water and highway,as well as along the coasts and inland rivers should begradually popularized.

(2) Modernization in all its aspects entails the rapidtransmission of information. With the growing impor-tance of the postal and telecommunications systems, weneed more thorough planning so as to accelerate theirrate of development. Aside from the military service andthe railroad administration, which require independentsystems, various economic departments wilI have to in-

A RATIONAL ECONOMIC STRUCTURE

stitute unified planning, construction and managementin communications. The expansion of postal and telecom-munications networks in large and medium-sized citiesmust be included in urban construction plans.

(3) fhe different production departments shouldlocate their production units in a rational way so that theproduets can be distributed in a rational direction. Inthis way we can reduce the incidence of circuitous trans-portation routes. The capacity to wash the productsfrom coal and phosphorous mines must also be improv-ed so that huge amounts of waste rock and ash will nolonger be included in the transported products.

10. In the course of economic readjustment, we mustreform the system of economic management to promotethe rationalization of the economic structure. Experienceshows that without a thorough reform of the economicmanagement system it is impossible to set up a rationaleconomic structure in which agriculture, Iight industryand heavy industry can develop in a coordinated way.For a long period in the past, the system of economicmanagement relied mainly on administrative methodswith government administration replacing enterprisemanagement. Under this system, heavy industry wasmostly controlled by the central ministries, while agricul-ture and most of light industry were under the controlof the localities. Sueh a state of affairs hampered thecoordinated development of agriculture, light industryand heavy industry.

Using purely administrative methods to manage theeconomy was one of the major factors which hamperedthe development of commodity production and circula-tion. Ttris in turn promoted the misguided attempts toset up comprehensive economic structures at the locallevel.

The rationalization of the economic structure and theharmonious development of the economy can thus onlybe promoted by reforming the system of economic man-

NEW STRATEGY FOR CHINA'S ECONOIIrY

agement in accordance with objective economic laws. Anexpansion of the decision-making powers of enterprises,while still conforming to the state's unified plan, will helpto bring the supplementary regulatory role of the marketinto play.

3. The Achievements in Economic Readjustmentover the Past Three Years

Remarkable gains have been made over the past threeyears in readjusting the two basic disproportions in theChinese economy, namely the imbalance between agricul-ture, light industry, and heavy industry, and the excessiveaccumulation rate compared to the consumption rate.

To begin with, there has been a certain degree ofimprovement in the former. The Party Central Committeehas adopted a series of effective policies and measures fordeveloping agriculture, including the upholding of pro-duction teams' ownership rights and decision-makingpowers, the implemention of the principle of distributionaccording to work done, the protection of private plots,sideline family occupations and country trade fairs, andparticularly the implementation in recent years of dif-ferent forms of the responsibility systems. Other impor-tant changes have included the significant increase inthe prices paid by the state for agricultural productg re-duction or remission of some agricultural taxes, an in-crease in the state's financial aid to agriculturg and thesetting up of a special development fund for helpingagriculture in underdeveloped regions.

Ail these policies and measures have greatly arousedthe enthusiasm of the peasantry, and the slow pace ofagricultural growth has begun to change for the better.In 1980, the value of total agricultural output amountedto 162,700 million Jruan, an increase of 11.5 per cent overthat of 1978. TLre proportion of agriculture in the total

A RATIONAL ECONOMIC STRUqruRE 69

value of industrial and agricultural output increased to30 per cent, up frorn 27.8 per cent in 1978. In 1979, grainproduction grew by 9 per cent over the previous year'sbumper harvest and totalled 332.12 million tons; cottonoutput amounted to 2.207 million tons, an increase of 1.8

per cent, and oil-bearing crope reached 6.435 million tons,an increase of 23.3 per cent.

Although the country was hit by serious naturaldisasters in 1980 - floods in the south and drought in thenorth - which were among the worst in decades, agricul-tural production stifl registered a fairly good harvest.Grain output in 1980 was 320.56 million tons, a decreaseof 3.5 per cent compared to the previous year, but it was

stiil bigger than the harvest of 1978 by 15.79 million tonsand was the second largest harvest (after 1979's) sincethe founding of the People's Republic. Cotton productionin 1980 grew by 22J per cent, totalling 2.1 million tons,the highest production total ever. The output of oil-bear-ing crops increased by 19.5 per eent over the previousyear's bumper harvest, amounting to 7.691 million tons.

In 1981, the value of total agricultural output amountedto 172,000 million yuan. Grain production that year was

325.02 million tons, an increase of 1.4 per cent over 1980;

cotton output amounted to 2,968,000 tons, an increase of9.6 per cent, and oil-bearing crops reached 10,205,000

tons, up by 32.7 per cent.The relatively rapid growth of agriculture has provid-

ed more favorable conditions in terms of increased outputof grain, farm by-products and agricultural raw materialsfor the speedy development of industry, particularly lightindustry. In 19?9 the total volume of purchases ofagricultural products made by commereial departmentswas 58,680 million yuan, 27.6 per cent more than the yearbefore. It further increased by 15.4 per cent in 1980,

amounting to 67,700 million yuan. The quantity of cottonpurchased in 1980 reached 2.6 miliion tons, 25.8 per cent

70 NEW STRATEGY F.OR CHINA'S ECONOMY

bigger than the previous year and the biggest amount ofpurchases ever recorded.

After the Third Plenum of the Eleventh Party CentralCommittee in December of 1978, the Party Central Com-mittee and the State Council stipulated that during thereadjustment period, the growth rate of light industryshould equal or exceed the growth rate of heavy industry.In order to give priority to the development of light in-dustry, the State Council mandated special treatment tolight industrial units in the provision of fuel, power, rawmaterials, funds and foreign exchange. The State Councilfurther decided in 1980 to implement the policy of givingpriority to light industry in six aspects.* Furthermore,the Central Committee stressed that greater efforts shouldbe made to develop collectively-owned industries, whichmake up a very big proportion of the country's light in-dustry.

These important factors have enabled light industry todevelop rapidly. The output value of light industry grewby 7.7 per cent in 1979 and by 18.4 per cent in 1980. Heavyindustry, on the other hand, grew by only 1.4 per c€nt in1980. In 1981, the output value of light industry increas-ed by another 14.1 per cent while that of heavy industrydecreased by 4.7 per cent. During the past three yearsnthe proportion of light industry in the gross industrialoutput value increased from 43.1 per cent in lg7g to 46.9per cent in 1980 and 51.4 per cent in 1981, white the pro-portion of heavy industry declined from b6.g per cent in1979 to 53.1 per cent in 1980 and 48.6 per cent in 1981.

In spite of the slowdown in the growth rate of heavy in-dustry, however, there has been an increase in the avail-able varieties of heavy industrial products and an im-provement in the quality of products. New progress hasalso been made in heavy industry's service to agriculture,

A RATTONAL ECONOMIC STRUCTI]RE

light industry and both domestic and foreign markets. Forexample, encouraging steps have been taken to transformthe production structure of industrial enterprises und.erthe former First Ministry of Machine-Building.* First,the orientation was changed from primarily serving heavyindustry to serving llght industry and agriculture as well.In 1980, the Ministry decreased the production of largemachinery for heavy industry and increased the outputof equipment for use in agriculture and light industry.Based on incomplete statistics from b03 enterprises un-der machinery bureaus in 28 provinces, municipalities andautonomous regions, 174,000 pieces of special-purposemachinery worth 220 million yuan were supplied to lightindustry (excluding the textile industry) in 1980 alone.

Second, the orientation has also begun to change frornmainly serving the needs of capital construction and newfactory building to serving the technical transformation ofexisting enterprises. For example, the machinery b,ureauin the city of Anshan, Liaoning Province, sr,rpplied 411sets of special equipment for the technical transforma-tion of light and textile industries, installed two produc-tion lines, and newly organized ten enterprises withstrong technicai capacity to assist in the technical trans-formation of ten light industrial and textile enterprises.

Third, the orientation of enterprises under the formerFirst Ministry of Machine-Building has also begun tochange from mainly serving industrial production andconstruction to directly serving the people's daily needsas well. A large quantity of electric fans, washing ma-chines, refrigerators, and other items was produced forthe market in 1980 by these enterprises. Based on incom-plete statistics, they produced 70 more types of light in-

* The First Ministry of Machine-Building was merged ln May1982 with the Ministry of Agricultural Machinery and two otherunits to form the Machine-Building Ministry.* See the footnote on p. b3.

72 NEW STRATEGY FOR CHINA'S ECONOMY

dustrial products in 1980 than in the previous year andincreased their output value by about 200 per cent.

Fourth, there has been an increased emphasis on serv-ing the needs of international markets by expanding theexports of electrical and mechanical products. Enter-prises under the former First Ministry of Machine-Build-ing increased their exports in 1980 by 57 per cent, sellingmore than 100 kinds of products to over 120 countries andregions.

There has also been a change for the better in theserious disproportion between the rates of accumulationand consumption. The prolonged imbalance between thetwo has been manifested in a number of ways. The overallaccumulation rate was too high, and the proportion of pro-ductive versus non-productive accumulation in the ac*cumulation fund was too big. The heavy industrial por-tion of productive accumulation was too large, while theamount for agriculture and light industry was too small.This irrational situation began to change somevrhat in1979. The accumulation rate was readjusted from 36.5per cent in 1978 to 34.6 per cent in 1979, 31,6 per cent in1980, and 28.3 per cent in 1981.

There are two important ways of anaiysing the nation'stotal amount of investments in capital construction. Oneis in terms of funds for productive versus non-productiveconstruction; another is in terms of construction fundsallocated for heavy or light industry, or for agriculture.

In the former category, there was formerly an over-emphasis on productive construction, with non-productiveconstruction (serving the material and cultural needs ofthe people) being neglected. As a result of the readjust-ment of our economy during last three years, the per-centage of total investments in capital construction devot-ed to non-productive construction rose from 17.4 per centin 1978 to 27 per cent in 1979, to 33.7 per cent in 1980and to 41.1 per cent in 1981. The proportion of funds in

A BATTONAL ECONOMIC STRUCT'I'RE ?3

the non-productive construction category devoted to res-idential construction during this three-year period roserapidly, going from 7.8 per cent in 19?8 to 14.8 per centin 1979, to 20 per cent in 1980 and to 2b.b per cent in 1991.The total residential floor space built in 1gT9 equalled62.56 miilion square meters, an increase of 66 per centover the previous year; in 1980 the total went up another18.8 per cent to 78.21 million square meters. The 1980figures represented the greatest investment in residentialconstruction in both absolute and proportional terms andthe largest amount of cornpleted floor space since thefounding of the People's Republic. Naturally, such a largeincrease in non-productive investments as this was to acertain degree necessary to make up for previous neglect.

China's mannei of allocation of funds for heavy in-dustrial, light industrial and agricultural construction isalso changing significantly during the period of readjust-ment. The percentage of total investment in capital con-struction devoted to all industrial construction declinedfrom 57 per cent in tr978 to 51.4 per cent in 1g7g and bO.Bper cent in 1980. Light industry's share of the total in-vestments in industrial capital construction, however,increased from 6.1 per cent in 1978 to 6.4 per cent in 19?g,to 9.1 per cent in 1980 and to 10 per cent in 1981. Heavyindustry's share thus declined from 50.g per cent in lgZBto 45 per cent in 1979 and to 4L.7 per cent in 1g80. Theproportion of investments for agricultural capital con-struction increased from 11.1 per cent in 1978 to 11.6 percent in 1979.

In conclusion, we have seen that the readjustment dur-ing the past three years has resulted in the fairly rapiddevelopment of agriculture and light industry throughthe greatly increased supply of funds and materials. Thisin turn has led to a significant improvement in the peo-ple's standard of living, both in terms of income andavailability of consumer goods.

NEW STRATEGY FOR' CIIINA'S ECONOMY

4. The Reasons for Further Economic Readjustment

The current economic situation is excellent, but theunderlying dangers have not been completely eliminated.There were two consecutive budget deficits in 19Tg and1980, resulting in the over-expansion of the money suppiyand the rise in the prices of many commodities. If strongmeasures had not been adopted, there would still havebeen a huge deficit in 1981,r necessitating the issuance ofa iarge amount of banknotes. This woutd have resultedin even more price increases and adversely affected ourpresent stable situation.

Fundamentally speaking, we are now faced with prob-lems in three areas which have accumulated over theyears: the serious imbalance in the proportions of thenational economy, defects in the system of economicmanagement and poor enterprise management. It is dif-ficult to completely solve these problems within a shortperiod of time. However, these problern are also directlyrelated to ineffective implementation of the readjustmentpolicy. When the Party Central Committee put forwardthe policy of readjusting, restructuring, consolidating andimproving the national economy after the Third plenum,it should have been a clear-cut turning-point in China,seconomic development. But since some officials at variouslevels did not sufficiently recognize the seriousness of thedispr"oportions in the national economy and the necessityof readjustment, they did not exert great enough effortstowards implementing the policy.

A glaring manifestation of this was the failure to reducethe total investrnents for capital construction in lg7g and1980. On the contrary, the total amount invested through-out the country by state-owned units continued to in-crease in these two years. Despite the decline in heavy

* In l98L China succeeded in achieving a basic balance betweenrevenues and expenditures,

)NAL ECONOMTC STRUCTI,nE 7i

industry's share of capital construction funds in relationto light industry and agriculture since 1979, the overallscale of capital construction remained far too high, great-ly exceeding the actual capability of our economy. As a

result, investment returns were low, and the economicresults of production were adversely affected due to theexcessive use of fuei and raw materials in capital oonstruc-tion. ?his situation began to improve only in 1981, whenthe number of construction projects was greatly reduced,and the total arnount invested in capital construction bystate-owned units decreased by 20.6 per cent as compar-ed with 1980.

Serious duplication in construction projects is anotherprobtrem in capital construction. Following the imple-mentation of the financial responsibility system and theexpansion in the power of enterprises, the funds underthe control of localities and enterprises increased. Due tothe failure of economic planning work to keep abreast ofthe situation, localities and enterprises carried out a con-siderable number of duplicative construction projects,for which neither raw materials nor markets could beensured.

A good example of this type of problem can be seen inChina's engineering industry which has long been charac-terized by a surplus of processing capacity. Many enter-prises otrrerate below capaeity and a number have even hadto stop operations due to the Iack of materials. The utiliza-tion rate of machine tools in 1979 was only 52.1 per cent.Despite this situation, however, according to incompletestatistical data, another 2,018 industrial enterprises werenewly built in the engineering industry during the firstten months of 1980.

The duplication in construction occurred not only inheavy industry but in light industry as well. For ex-ample, the productive capacity of cotton mills in Chinahas exeeeded for many years the domestic supply of rawmaterials, but the number of spindles was sti1l increased

NEW STRATEGY F,OE CIIINA'S ECONOMY

by 1.02 million in 1979, and by 800,000 in 1980, withanother 2.46 million spindles currently under construetion. When everything is completed, the total cotton spin-ning capacity wiII amount to 20 million spindles, and atthat time the supply of domestic raw materials for cottonspinning (including chemical fibers) will fall short by120,000 tons.

The buitding of unnecessary and uneconomicalmanufacturing units is a very serious problem in manyar€as. The total number of industrial enterprises increas-ed by 6,566 in 1979, and by ?,331 more during the finstten months of 1980. Among the enterprises newly-builtin 1980, 69 per cent belonged to textiles and light in-dustries using agricultural raw materials. Most of thesewere small enterprises whose production duplicated thatof existing enterprises. As a result of the shortage ofagricultural and sideline products as raw materials, it wasfairly common. for these small enterprises with backwardtechnology to deprive the big enterprises with advancedtechnology of raw materials and other supplies. Theduplication in construction and production not only re-sulted in appalling waste, but also further aggravatedshortages in the supply of fueI, power and raw materials.Thus the imbalance in the economic proportions has be-come wonse in certain respects.

Another important problem in the readjustment of in-dustrial production is the failure to reduce the productionof items in excess supply, particularly those which requirehigh energy consumption in their manufacture'(inctudingproducts made by small and medium-sized enterpriseswhich generally consume more energ"y). For example,there is clearly an over-supply of steel products. Yet, in1979 steel output still amounted to 34.48 million tons, an8.5 per cent increase over 1978. It had originally beenplanned in 1980 to reduce steel output by 1.48 million tonsin order to improve the quality of steel products, increasetheir variety, economize on energy, and bring down as

A R,ATIONAL ECONOMIC STRUCT'I'RE 77

much as possible excess inventories. The result, however,was that steel production increased by an additionai ?.?per cent in 1980, reaching 37.12 million tons. More thanone-fifth of the 4 million tons in excess of the 1gB0 plan,squota was produced by small and medium-sized enter-prises, which as we have said are particularly wasteful ofenergy. Although gross output increased, there was veryiittle increase in the amount of useful steel products turn-ed out; there was neither a significant rise in the numberof varieties nor a great improvement of quality standards.Consequently, total excess steel supplies were even great-er than in the past. Thanks to firmer steps taken to read-just industrial production, steel output declined to 85.6million tons in 1981, a decrease of 4.1 per cent. The eon-tinued growth in the output of products in excess supplyresulted not only in serious overstocking, but also in theconsumption of energy and raw materials badly neededfor the production of many types of goods in short suppiy,further aggravating the contradictions in the nationaleconomy,

Thus, as a result of our failure to control the phenomenadescribed above, we had enormous budget deficits for twoconsecutive years, an over-expansion in the money supply,and substantial price increases in many commodities. Thedeficit amounted to 17,060 million yuan in 1g?g and lZ,750million yuan in 1980. There was an excess in the issuanceof banknotes in both 1979 and 1980. The national retailprice index for eommodities in December 1g?g was b.8per cent more than the corresponding period the yearbefore. The average annual retail price index in 1gB0 in-creased by about 6 per cent as compared to the previousyear, with non-staple food prices rising by 1B.B per cent.This situation was also due to excessive administrativeexpenditures and an over-expansion of the consumptionfund. The social purchasing power increased annually byan average of 9,200 million yuan from 1gZ0 to 1g?8, butin 1980 alone it grew by 20,000 million yuan. It was

NEW STAATEGY FON CHINA'S ECONOMY

entirely necessary to increase appropriately the sizethe oonsumption fund by a relatively large amountorder to readjust the serious imbalance between the ac-cumulation and consumption. However, an excessiveincrease is also beyond the country's capability. The majorportion of the increase in the fund for individual con-sumption has been arrangd by the state in a plannedway (for exarnple, through increases in the procurementprices of agricultural products and in the wages ofworkers and staff members), but a portion has also result-ed from the reckless issuance of bonuses and subsidies. Alack of strict controls and imperfections in the system ofmanagement were responsible for allowing this to occur.

The continuing low level of economic results in certaincategories points to the absolute necessity for furthereconomic readjustment. Looking at the figures for profitsrealized per hundred yuan of output value by the state-run industrial enterprises, the average amount fon 1gB0was 16.70 yuan, up from the 1976 figure of 18.80, but abare 0.10 yuan better than in 1979. In 1957, however, weachieved a profit rate of 24.70 yuaa. There could havebeen additional revenues of 20,000 million yuan in 1gB0if profit levels had reached relatively high historical levels.

The amount of circulating funds used per hundred yuanof output value was 31.20 yuan in 1980, ?.30 yuan betterthan in 1976, but only 0.80 yuan less than in 1929. lVecan see that the 1957 record of.27.40 yuan was substantial-ly better. If the expenditure of circulating funds had beenreduced to fairly low historical levels, then this again, incombination with the potentially increased profits and taxrevenues mentioned above, could have not only eliminatedthe 1980 budget deficit of 12,750 milfion yuan, but evenproduced a sizable surplus.

Therefore, the current financial and economic difficul-ties can be seen as a manifestation of the irrational eco-nomic structure as well as the irrational system of eco-nomic management. We can also see that the policy put

A RATIONAL ECONOMIC STBUCTT'NE 79

forward by the Party Central Committee at the end of1980 of further readjusting the economy conforms fully tothe actual situation of China's economy.

5. Readjustment of the Economic Structure:Objectives and Necessary Measures

The question of the objectives of readjusting the eco-nomic structure and measures to be taken towards achiev-ing it is an important theoretical and practical questionwhich has arisen in the counse of our economic readjust-ment and needs to be urgently solved, The ResearchInstitute on Industriai Economics under the ChineseAcademy of Social Sciences and the Sichuan provincialAcademy of Social Sciences jointly sponsored a ,,Sympo-sium on Theoretical and Practical Problems in Reformingthe System of Economic Management,, in April of 1g81,which concentrated on this question. A number of ideasput forward by participants in the symposium are sum-marized below.

In general terms, the objective of economic readjust-ment is to establish an economic structure which aims toincrease the production of final consumer goods neededby the people and which has a sound cycle with coordinat-ed proportions and fairly good economic results. Itsprincipal characteristics are as follows. First, the relationsbetween the different branches of the national economy,within each branch and between the various iinks in theprocess of social reproduetion are by and large coordinat-ed. Second, the manpower, material and financial re-sourees of society are rationally utilized. Third, thedevelopment of production and construction and the im-provement of the people's livelihood are closely connectedand promote each other. By setting up such an economicstructure, we can achieve better economic results and, onthe basis of the continuous growth of the national income,

ofin

NEW STRATEGY FOR CHINA'S ECONOMY

ensure as much and as stable as possible an improvementin the people's material and cultural life, within thelimits of our country's capability.

In order to achieve this overall objective, economicreadjustment can b.e considered in terms of three stages.The first is the stage of stabilizing the economy. Its maintasks are to achieve a basic balance between revenues andexpenditures and between credit receipts and payments,maintain the basic stabitity of commodity prices, readjustthe economic structure, promote the production of con-sumer goods, expand commerce and service trades, de-velop the collective and individual economXr and arrangejobs for people awaiting employment. In this way, thepeople's livelihood can continue to improve sornewhateven while current income levels are maintained. Abouttwo years more or less are needed for this stage.

The second stage is that of the initial rationalization ofthe economie structure. Its main task is to further readjustthe economic structure and gradually rationalize the pro-duction structure, the product mix, and the organizationalstructure of enterprises, and to basicaly coordinate therelationship between the two major departments of socialproduction,* thus ensuring the continuous improvementin the livelihood of both urban and rural people. Thisstage will take about three years.

As economic readjustment enters its third stage, theproblem of backward infrastructure in the areas ofenergy, transportation, post and telecommunications andpublie utilities must be tackled. Ttrere should be greatercoordination among the different branches of the nationaleconomy so that economie results will increase greatly,national income will grow rapidly and the people,s live-lihood will improve considerably. Naturally, it will re-

A BATTONAL ECONOMIC STRUCTI'BE 81

quire a longer period of time to accomplish the tasks ofthis stage.

Obviously, these are only some general ideas; furtherresearch has to be carried out to substantiate, revise andperfect the5n.

The fir:st two of these three stages could be consideredthe readjustment period. When the goals of the secondstage have been attained, the most basic proportion inthe national economy - that between agriculture, lightindustry and heavy industry - will be essentially har-monious, and thus the period in which readjustment is thecentral task will come to an end. The tasks of the thirdstage can be acoomplished in the process of normal eco-nomic development in the future.

6. Some Theoretical Questions Concerning thoEconomic Readjustment

To achieve the readjustment of the national economy inaccordance with the requirements mentioned above, thereare several theoretical questions which must be explored.Aside from the necessity of correctly understanding theaim of socialist production and criticizing the erroneotrritendency of "production for the sake of production," thereare a number of theoretical questions which deservemore discussion.

For a long period of time, we considered the prior de-velopment of heavy industry to be the general law of so-cialist construction and the road to socialist industrializa-tion. Ttre prolonged overemphasis on developing heavyindustry which we have experienced is closely related tosuch an ideological guideline. We must reevaluate thiskind of thinking if we want to readjust the national econ-omy and set up a rational economic structqre whose goalwill change from building heavy industry to increasing

* The two major departments of social production refer to theproduction of the means of production and the productionof the means of consumption.

82 NEW STRATEGY r.OR CHINA'S ECONOMY

the production of final consumer goods badly needed bythe people.

The experience of many economically-developed coun-tries in the world has shown that heavy industry developson a foundation of prior agricultural and light industrialdevelopment. Its development must comespond to theneeds of agriculture, light industry and other spheres ofproduction.

_ Some people say that this is the road of capitalist in_

dustrialization. Viewing the question in this way doesnot necessarily conform to reality. The crux of the prob-lem lies in the fact that the objective course of such eco_nomic development is not connected with the particularrelations of production under capitalism, but rather is arequirement of the general law of development ofmodern industrial production. As Marx said, ,,Withoutconsumption there is no production, since productionwould then be purposeless.,,* Ttre ultimate purpose ofproduction in any society is for the sake of consumption.This is the general connection between production andconsumption and is also the general law of social produc_tion. Furthermore, this signifies that the production ofthe means of production ultimately serves the productionof the means of consumption. As applied to modern indus-trial production, this general law would mean that heavyindustry, which mainly produces the means of production,ultimately serves agriculture and light industry, whichmainly produce the means of consumption, as well ascommunications, transportation, commerce and servicetrades. Of course, in order to perform such a function,heavy industry itself requires a corresponding degree ofdevelopment.

It should be pointed out here that in Book I of Capi,tal,Marx made a detailed analysis of the expression of thi"

- * Karl lVlarx, Preface to ,.A Critique of political Economy,,,

Selecteil, Works o! Maru. and Engels, Chinese ed., Vol. U, p. -g+.

A nATTONAL ECONOMTC STRUSTURE. 83

general law in terms of the development of the machine-building industry. In the past, however, people only re-garded the development from light to heavy industry dur-ing the industrial revolution under capitalism - as

analyzed by Marx - to have been the result of the func-tioning of the law of surplus-value, but they neglectedhis analysis of the general law of modern industrial pro-duction. When Marx was explaining the development ofthe machine-building industry in his era, he indeed said:"It (machinery) is a means for producing surplus'value."*He also spoke of the "dearness"** of machines producedby handicraft when he was discussing how the develop-ment of modern industry (including iight industry) required the manufacture of modern machinery. But hereMarx primarily expounded the following idea: "At a

certain stage of its development, modern industry became

technologically incompatible with the basis furnished forit by handicraft and manufacture."*** "Modern industryhad therefore itself to take in hand the machine, itscharacteristic instrument of production, and to constructmachines by machines. It was not til-l it did this, that itbuilt up for itself a fitting technical foundation, and stoodon its own feet."r'***

This teils us that when modern light industry has de-veloped to a certain stage, it requires the development ofthe modern machine-building industry, which is the mostimportant branch of heavy industry. In other words, thedevelopment of the machine-building industry takes lightindustry as its basis and further develops in line withlight industry's needs.

* Karl Marx, Capital, ForeignMoscow, 1957, Vol. I, p. 3?1,

** Ibid., p. 382.**r lbid., p. 383.**** Ibid., p. 384.

Languages Publishing }Iouse,

NEW STRATEGY FOR CHINA'S ECONOMY

Marx's theoretical analysis completely talied with thehistorical course of development of modern industry inBritain. If the discovery and application of the sieamengine is taken as the beginning of Britain,s industrialrevolution, then the development of modern light industryin Britain started in the 1?60s. But according to MarxLinterpretation, it was only when the produciion of ma-chinery developed in the first decades of tte lgth eenturythat machinery actually mastered the manufacture o1tool-making machines. And it was only in the followingdecades that the huge machines to be employed in th6building of prime movers were produced as a result ofthe construction of railways and ocean steamers on astupendous scale.r

In Book II, Part III of Capitol, Marx again made a com_prehensive analysis of the expression of the general lawof modern industriai production from the viewpoint of thereproduction and circulation of social capital as a whole.Marx made the following generalization of his analysisin Book III of Capital:,,As we have seen (Book II, iartIII), continuous circulation takes place between constantcapital and constant capital (even regardress of accererat-ed accumulation). It is at first independent of individualeonsumption because it never enters the latter. But thisconsumption definitely limits it nevertheless, sinceconstant capital is never produced for its own sake butsolely because more of it is needed in spheres of produc_tion whose products go into individual consumption.,,**

If "the production of the means of production,, is usedin place of "the production of constant capital,, as re-ferred to by Marx, then this principle is not onlyapplicable to but particularly valid for socialism, becauslthe direct aim of sociaiist production is to meet the needsof the people's livelihood.

r lbid,, pp. 384-385.*r lbid., Vol. III, pp. 299-800.

A RATIONAL ECONOMIC STNUSTI'RE 85

It is thus clear from the history of the development ofmodern industry, as well as from the general process ofsocial reproduction, that the production of the means ofproduction ultimately serves the production of consumergoods; therefore, heavy industry develops on the basisof the development of agriculture, light industry, com-munications and transportation, and in line with theirdemands for the means of production. Ttris is a requke-ment of the general law of development of modern in-dustrial production that does not differ according towhether the social system is capitalist or socialist.

It is thus evident that readjusting the economy andestablishing a rational economic structure, which aims toincrease the production of final consumer goods to satisfythe people's needs, rather than to build heavy industry,conform not only to the requirements of the basic ecc-nomic law of socialism but also to the requirements of thegeneral law of development of modern industrial produc-tion.

Some people have also said that the Soviet Unionadhered to the principle of giving priority to the develop-ment of heavy industry for a certain period of time andthat the Soviet Union's experience shows that givingpriority to heavy industry is the road to socialist in-dustrialization. The Soviet Union did indeed act in sucha way, but it should be remembered that the Soviet Unionwas once the only socialist country in the world and wasat that time encircled and threatened by imperialism. Infact, the Soviet Union adopted such a course under thepressure of specific historical conditions; this was not areflection of the general law of socialist industrialization.Moreover, since the Soviet Union one-sidedly stressed thedevelopment of heavy industry over a iong period of timein violatation of the requirements of the general law ofdevelopment of modern industrial production, it inevitablygot bogged down in an extremely irrational economicstructure, although the emphasis on heavy industry did

g6 NEW STRATEGY FOR CIIrNA'S ECONOMY

play an important role in the Soviet Union's industrialdevelopment, particularly in strengthening its militarystrength for the purpose of resisting Hitler's fascistaggression. Here it should be emphatically pointed outthat the policy of giving priority to the development ofheavy industry, which during the time of Stalin servedthe purpose of strengthening the Soviet Union,s economicindependence and defense capability, has become a majorpillar in the Soviet Union's present hegemonist policy ofmilitary expansionism. These two entirely different so-cial contexts should be clearly distinguished. By insistingon this kind of policy, the Soviet Union has met withserious economic imbalances, as they themselves admit.

Isn't the law of the prior growth of the means of pro-duction being negated in this way? Isn,t taking theincrease in the production of final consumer goods to meetthe people's needs as the objective of economic develop-ment contradictory to the law of the prior growth of themeans of production? It should not be understood in sucha way for the following reasons: First, what is the priorgrowth of the means of production? According to Lenin'sinterpretation, "the production of the means of produc-tion grows faster than the production of the means of con-sumption."* "Ttre production of the means of productionwhich manufacture the means of production has the fast-est growth, followed by the production of the means ofproduction which manufacture the means of consumption,while the production of the means of consumption is theslowest."** In taking the increase of final consumergoods to meet the people's needs as the objective of eco-nomic development, it is one thing to require the produc-tion of primary and intermediate products to serve the

*Lenin, "On the So-Called Market Problem", Collecteit Works,Chinese ed., Vol. I, p. 72.

** Ibid,, Vol. I, p, ?1.

A RATIoNAL acoNoMlc STRUCTURE 87

production of final consumer goods and another thingto require the production of heavy industry, which main-ly supplies the means of production, to serve agriculture,light industry, communications and transportation, whichmainiy supply consumer goods. Even with the prerequi-site that the increase in the production of consumer goodsshould be considered the objective of economic develop-ment, the prior growth of the means of production canstill be aehieved. The problem lies in whether heavy in-dustrial development should only be self-serving in orien-tation or should mainly serve agriculture and light in-dustry, as well as the production of consumer goods.

Second, why should the means of production be givenpriority in deveiopment? Under given conditions oftechnological progresg the demand for more means ofproduction grows faster than the demand for more laborpower (and thus for more means of consumption) when asociety is engaged in expanded reproduction. As Leninvery clearly explained, "The so-called fastest growth ofthe production of the means of production is simplyanother interpretation of the law of the faster increase inconstant capital compared to variable capital, as appliedto social production as a whole."r However, it was pre-cisely under given conditions of technological progressthat the fairly rapid growth in the production of themeans of production which manufacture the means ofconsumption was brought about by the expanded repro-duction of those departments engaged in the productionof the means of consumption. Lenin put it well when hesaid: "It is self-evident that, in the final analysis, produc-tion and consumption are related to individual consump-tion."** We can see then that the prior growth of themeans of production is not incompatible with taking the

* lbid., p. 71.t* Lenin, "The Development of Capitalism ln Russia", Coltected

Wtks, Chinese ed., Vol. UI, p. il,

88 NEW STRATEGY r.OR CHINA'S ECONOMY

increase of production of final consumer goods to meet thepeople's needs as the objective of economic developrnent.

It should be further pointed out that for a long timesome people understood the law of the prior growth of themeans of production in an absolute sense, as if thedevelopment of modern social production requires theprior growth of the mean6 of production under any con-ditions. The prolonged overernphasis on heavy industrialdevelopment in China was not unrelated to this kind ofthinking. Such thinking does not view the question in acomprehensive way and fails to take into consideration anumber of factors.

First, aecording to Marxist-Leninist theory, the priorgrowth of the means of production is called for only whenexpanded reproduction is carried out under given condi-tions of technological progress. Without these conditions,the prior growth of the means of production is not calledfor when expanded reproduction is carried out. In BookI of. Capital, Marx analyzed the process of capital ac-cumulation, first when the organic composition of capitalis constant, and then when the organic composition ofcapital is increased. This theoretical analysis made byMarx reflected the historical development of capitalism.

Second, the history of technological progress in modernsocial production has shown that there is a kind oftechnological progress, such as the one in agriculture re-lated to biological measures, which does not involve theprior growth of the means of production. There is anotherkind of technological progress, such as the replacement ofhandicrafts by large machinery, which does require theprior growth of the means of production. Thus we shouldnot consider that expanded reproduction under conditionsof technological progress necessariLy requires the priorgrowth of the means of production.

Third, even if the progress in production technology re-quires the prior growth of the means of production,

A R,ATIONAL ECONOMIC STBUCTUnE 80

whether or not there is such prior growth depends onother conditions. Technological progress in iight industryduring the early stage of capitalist industrialization wasvery fast, and production also rapidly developed. How-ever, the machilery used in light industry at that timewere suppiied by handicraft workshops, and the growthof the production of the means of production was not veryfast. Apart from other reasons, an important factor wasthe lack of funds needed to develop heavy industry.

Insofar as China's industrial development is concerned,it was necessary to give priority to the development ofheavy industry for a eertain period of time after thefounding of the People's Republic in 1949. tr'urthermore,conditions also existed for such a course of action. Therewas a certain level of development in light industry in oldsemi-colonial and semi-feudal China, but heavy industrywas very weak. Following the nationwide socialist trans-formation of the private ownership of the means of pro-duction in the 1950s, the potential for increasing agricul-tural and light industrial production was very great.Under these circumstances, it was appropriate to developheavy industry at a fairly rapid rate, and good economicresults were attained in doing so. But after heavy indr:stryhad already been developed to a considerable degree, therewould surely occur a serious imbalance in the economiestructure if we still continued to one-sidedly emphasizeheavy industrial development and neglect agricultural andlight industrial development over a long period of time.It is thus evident that taking the increase of production offinal consumer goods to meet the people's needs as theobjective of economic development is not in contradictionto the principle of giving priority to the development ofthe means of production. The important policy in ecs-nomic development of giving priority to the developmentof light industry for a certain period of time is also notincompatible with the principle of giving priority to the

g0 NEW STnATEGY FOR CIIINA'S ECONOMY

development of the production of the means of produc*tion.

There is also another viewpoint which considers thework of economic readjustment to be directed at graduallyreadjusting the current irrational ,,heavy structure,, of theeconomy, in which the proportion of heavy industry is toobig, to a so-called "light strrrcture,,. people who hold thisview conceive of the ,,light structure,, as one in whichagrieulture and light industry rnake up over 60 per centof the total value of the gross output of indtrctry andagriculture, while heavy industry,s share is less than 40per cent. In the case of the ,,heavy structure,,, heavy in-dustry contributes over 40 per cent of the total grossout-put value of industry and agriculture, while the share ofagriculture and light industry is less than 60 per cent. ?hepoint of departure for such a differentiation is the needto change the serious imbalance between agriculture, lightindustry and heavy industry. This view has a certain de-gree of value as a reference point for transforming theexisting structure in which the share of heavy industryis too large while that of light industry is too small andagriculture is lagging behind. However, according to thisview, the conclusion one reaches can only be a denial ofthe necessity for continuing to give priority to the devel-opment of light industry, because agriculture and lightindustry's share of the total value of industrial and agri-cultural gross output was already nearly 60 per cent in1980 and exceeded 60 per cent in 1981. An inappropriateaspect of this method of differentiation is in the omissionof branches which occupy an important position in modernproduction, such as communications and transportation,post and telecommunications, commerce, service trades,science and education. This method has two main weak-nesses. First, there can be no fixed ratio for the relativeproportions of agriculture, light industry and heavy in-dustry which would show that their relations are harmo-nious. This depends on the development of the social

A RATIONAL ECONOMIC STRUqTT'RE 91

productive forces, phanges in the structure of the econo-my, population growth and other complicated factors.Even in terms of the specific situation in China at pres-ent, the designation "Iight structure" cannot be consider-ed to fully conform to the actual situation. The currentshare of agriculture and light industry in the total valueof China's gross industrial and agricultural output is aI-ready close to this standard, but the serious imbalance inthe proportions between agriculture, light industry andheavy industry has not yet been completely overcome.

Second, this method of differentiating the productionstructure purely on the basis of quantitative proportionscannot show the qualitative aspect of the structure andtherefore cannot demonstrate whether or not the structureis harmonious. Ttreoretically speaking, we can conceiveof two possibilities: under a given leve1 of development ofthe social productive forces, even if the share of heavy in-dustry in the total value of gross agriculturai and in-dustrial output is over 40 per cent, the relations betweenagriculture, light industry and heavy industry can still beharmonious if heavy industrial development is based onand serves agricultural and light industrial development.Given similar conditions of the productive forces, therewould be an imbaLance in the relations between agri-culture, light industry and heavy industry if the share ofheavy industry were over 40 per cent but its orientationself-serving. The proporti,on of heavy indu.stry in Chinaat present is 40 per cent, but its self-serving orientationhas not yet been significantly changed. Thus the propor-tions between agriculture, light industry and heavy in-dustry are still out of balance.

In saying this, of course, the achievements of the pastthree years in readjusting the national economy are not tobe denied. During the past three years, the growth rateof light industry has exceeded that of heavy industry.There has been a remarkable change in the previous slowrate of agricultural development. Progress has also been

92 NEW STBATEGY I'OR CHINA'S ECONOMY

made in the service orientation of heavy industrial preduction. However, it is difficutt within two or three yearsto fundamentally put an end to the serious imbalance inproportions formed over a long period of time. In addition,certain departmentrs did not effectively implement thereadjustment policy for a period of time, and this ha.sslowed down our progress somewhat.

To sum up, in readjusting the present productionstructure, agriculture must be strengthened and thepriority must still be given to the development of lightindustry. Furthermore, the service orientation and prod-uct mix of heavy industry must be readjusted to changethe one-sided and irrational self-serving orientation ofheavy industry and graduaily bring about a rationalstructure of production.

Chapter III

TOWARDS A EATIONAL SYSTEM OFECONOIWC MANAGEMENT

China's current economic reform is aimed at changingstep by step the irrational system of economic manage-ment and setting up a rational one which can promotethe development of the productive forces and suit theneeds of socialist modernization. Such a system of eco-nomic management must be a,ble to mobilize theenthusiasm of the various economic units and facilitatethe effective leadership of the central and local authori-ties in economic affairs. What follows is a discussion ofthe necessity for rationalizing the system of economicmanagement and the proper orientation in implementingthe reform.

1. Beasons for Reforming the EconomicManagement System

The present system of economic management inChina is a highly-centralized one which relies primarilyon administrative methods of management. It wasbasically copied from the Soviet Union during the latterperiod of Stalin's leadership. China's experience overthe past 32 years has revealed many defects in this model.These can be summed up in four separate aspects: First,enterprises have become mere appendages of administra-

94 NEW STBATEGY FOR CHINA'S ECONOMY

tive organs at different levels, and their relative inde-pendence has been negated. These enterprises laek initia-tive and are treated almost as beads on an abacus whichcan be moved to and fro by the central ministries andby the administrative organs of the localities. It is notthat the enterprism do not wish to have initiative, butrather that the system restricts their initiative. Second,by managing the economy through administrative systemsand divisions, the intrinsic relations within the economyhave been cut off. For example, our enterprises are ad-ministered by the responsible government organs at thecentral or local levels, resulting mainly in vertical rela-tionships and lacking in horizontal relationships. Thishas been the cause of many irrational phenomena. Third,there are too many targets in the economic plan whichare rigidly set by the higher authorities and handed downin the form of directives; producers and consumers can-not contact each other directly. Production is not co-ordinated with marketing and is divorced from the con-sumer:s' needs. As a result, there is overstocking ofmany products which cannot be sold, while many otherproducts which are in great demand are always in shortsupply. Fourth, enterprises have to turn over all revenuesto the state, and losses are subsidized by the state. Thusthey do not feel any economic responsibility and do notpay attention to economic results. As a result, egalitarian-ism is prevalent within enterprises and among their work-ers and staff members since they are assured of theirt'iron rice bowls" and can "eat from the same pot". Dueto these defects, this type of economic structure is cer-tainly disadvantageous for mobiiizing the enthusiasm andcreativity of enterprises' workers and staff members, forthe exercise of effective management of economic affairsby the state, and for achieving modernization.

This kind of economic structure does not accord withthe objective law of socialist economic development. Itdoes not suit the requirements of vigorously developing

A nATIoNAL SYSTEM or. MANAGEMEMT 95

cornmodity production and commodity exchange, nor doesit meet the constantly growing and constantly changingneeds of the people. Under such a system, practicallyeverything is included in the economic plan, with thestate having a monopoly on the purchase and marketingof commodities. Ttre state is also responsible for arrang-ing jobs for the labor force. In addition, the state is incharge of all revenues and expenditures. All these inevi-tably require a highly centralized method of managementwhich relies principally on administrative means, insteadof economic onqs. With such an economic structure andmanagerial methods, socialist commodity production can-not develop rapidly. The sluggishness of the economyand the poor economic results are very much related tothe defects in the present economic structure.

The reason we have practised this kind of manage-ment for such a long period of time has been due to ourincorrect understanding of the nature of the socialisteconomy. In particular, we failed to consider the socialisteconomy as a planned economy in which there exist com-modity production and circulation; we viewed it insteadas a semi-natural economy.* In our current efforts toreform the economic management systern, we should havea correct understanding of the nature of our socialist econ-omy. This is the prerequisite for correctly choosing theorientation, policies and methods to be used in this reform.

As to how to view our socialist economy, I personallyhold that it is a planned economy in which socialist com-modity production and exchange should be actively de-veloped. A planned economy on the basis of publicownership of the meansi of production is an essential char-acteristic of the socialist economy, but the supplementaryregulatory role of the market must be brought into playin order to actively develop commodity production and

+ See the footnote on p. 33.

96 NEW STRATEGY FOA CI{INA'S ECONOMY

exchange. In working out state plans, the law of valuemust be utilized. While strengthening unified leadershipover economic activities of overall importance to thenational economy and the people's livelihood, the statemust give different enterprises different degrees of de-cision-making power in their economic activities. The solereliance on administrative measures in running the econo-my must be replaced by a combination of both economicand administrative measures.

The nature of our socialist commodity production andexchange is certainly different from that of the commodityeconomy under capitalism. Established on the basis ofprivate ownership, capitalist commodity economy is un-planned; moreover, labor power is also considered to bea commodity, which leads to the existence of exploitativerelations of production. A socialist economy, on the otherhand, is established on the basis of public ownership ofthe means of production; commodity production and ex-change are planned. Labor power is no longer a com-modity, and exploitation has been abolished.

To view the socialist economy in such a manner is agreat leap in theory. As we know, the question of com-modity production under socialism has been a major sub-ject of discussion for over a century and also a topic ofdebate among Marxists. ln The Critique of the GothaProgramrne, written in 1875, Marx referred to socialismas the initial stage of communism with vestiges of theold society still remaining. By the phrase "vestiges ofthe old society", he was mainly referring to the systemof distribution of income according to work done. Marxat that time conceived of socialism as having no commod-ity or monetary relations because it would be establishedon the basis of a highly-developed capitalist economy.Marx did not then forese,e that countries with a moderatedegree of capitalist development, or even a country suchas ours in which capitalism was only in its initial phaseof development and the natural economy was still pre-

A RATIONAL SYSTEM OF MANAGEMENT 9?

dominant, could also successfully carry out socialist rev-olution and build socialism. Socialist construction in aneconomically underdeveloped country such as ours re-quires that commodities and money be fully utilized. Inother words, our socialist economy is a planned one whichshould actively develop commodity production and ex-change.

In his book ?he State and Retsoluti.on, written beforethe 1917 October Revolution, Lenin quoted Marx's wordsand elaborated on his viewpoint expressed in The Cri-tique of the Gotha Programme. Lenin also advocated theabolition of commodities and money in a socialist society.After the victory of the October Revolution, the economicsystem known as war communism was adopted in theSoviet Union principaliy due to the intervention of theimperialist powers and the civil war then in progress.However, it was also related to the guiding theory ofabolishing commodities and money. The attempt toabolish commodities and money during the period ofwar communism failed, and Lenin summed up the Iessonsof this experience. He put forward the New EconomicPolicy based on the fact that the Soviet Union's economyat that time was made up of five economic components,predominant among which was thesmall commodity econ-omy and small-scale production. The New EconomicPolicy was aimed at utilizing commodity and monetaryrelations to develop commerce and promote the rehabili-tation and development of the socialist economy. Unfor-tunately, Lenin passed away soon after without witness-ing the completion of the socialist transformation. Afterthe socialist transformation was cornpleted under theleadership of Stalin, only the socialist economic com-ponent remained. Under such a situation, should therestill be commodity production and exchange? After thecompletion of the agricultural collectivization, Stalinpointed out that two kinds of public ownership existedside by side, that is, ownership by the whole people and

98 NEW STtATEGY r'OR CIIINA'S ECONOMY

collective ownership, and there existed two classes - theworkers and peasants, hence the need for exchange. Butfor a very long time after the completion of agriculturalcollectivization, Stalin did not clearly explain or provewhether the exchange between these two kinds of fublicownership was commodity exchange or not, or whetheror not the Iaw of value played any role. As a result, thesequestions were debated throughout this period in the So.viet Union. It was not until his later years that Stalinrecognized in his book ?he Economic problems of Social-ism in the Souiet (Jnion, written in lgb2, that relationsof commodity production and exchange existed betweenthese two kinds of public ownership; he also held thatthe law of value should be utilized. The Soviet Unionreached this conclusion only after more than two decadesof debate. During the period of debate, commodity andmonetary relations and the law of value were not utilizedvery well in handling the relations between these twokinds of public ownership.

Although Sta1in recognized that commodity andmonetary relations existed between the two kinds ofp-ublic ownership, he maintained in his book, however,that the means of production are not commodities underthe socialist system. He also emphasized time and againthat commodity production and the role of the law ofvalue should be restricted. We can say, therefore, thatStalin never considered the socialist econ'omy to be a plan-ned economy in which socialist commodity productionand exchange should be aetively developed, but viewedit rather as a semi-natural economy. In view of such atheory and understanding, the system of economicmanagement put into practice during his time was notdesigned to meet the requirements of the planned develop_ment of commodity production and exchange, but ratherthe requirements of a semi-natural economy. The eco_nomic management system of the Soviet Union at thattime did not treat products as commodities, nor was the

A RAITONAL SYSTEM O:r MANAGEMENT 99

principle of exchange at equal value implemented. Whatwas implemented instead was solely a system of man-datory planning which completely excluded the regula-tory role of the market, and a highly-centralized systemof management which principally relied on administra-tive methods. This system of planning by decree treatedthe whole national economy as if it were one big factory.Lenin advocated a similar approach. But as things standnow, this is a very complicated matter. We have foundthat viewing the whole national economy as one bigfactory gives rise to a mult'itude of problems. Our highly-centralized system of economic management has negatedthe relative independence of enterprises.

The theory and practice of Stalin had a tremendousimpact on China's socialist construction. The system ofeconomic management that has been implemented inChina up to the present time has basically been patternedafter Stalin's rnodel, though there have, of course, beensome changes. A number of aspects we have previouslymentioned, such as a virtually all-inclusive state economicplan, the state monopoly in the purchase and marketingof commodities, state responsibility for assigning jobs, thestate's responsibility over all revenues and expenditures,and the practice of "eating from the same pot,, - all theseare basically a part of Stalin's model. If we are to changethis model, we must first of all break with its theoreticalbase; that is to say, we should break through the tram-mels of erroneous or outmoded ideas. Otherwise, we willnot be able to create a new model which will promoteeconomic development. We have already achieved atheoretical breakthrough, and this should be considereda very significant achievement in emancipating our minds.Without it, we would not have our current ideas as tohow to go about reforming the system. We have alreadyrecognized that not only are the means of livelihood com-modities under socialism, but also a large portion of themeans of production. And we know that not only is ex-

100 NEw STaATEGY rOR ClrrNA'S ECONOMy

change between state-owned enterprises and colleetively-owned ones a type of commodity exchange, but also com-modity exchange within the state-owned sector as well.

2. The Orientation in Reforming theEconomic Management System

Based on the theory that our economy is a planned onein which commodity production and exchange should beactively developed, the orientation of reform can be en-visaged as follows: The unitary system of planning andcontrol should be changed, and the principle of the lead-ing role of the planned eeonomy and the supplementaryrole of market regulation should be implemented. PIan-ning should take different forms in different circum-stances. Mandatory planning must still be enforced inthe production and distribution of the means of produc-tion and livelihood in the state-owned sector which arevital to the national economy and the people's livelihood,and especially in key enterprises vital to the whole econ-omy. In the collectively-owned sector, mandatory targetsshould also be assigned where necessary, as in state pur-chases of grain and other major agricultural and sidelineproducts based on fixed quotas. In addition, however,guidance plans, whose implementation is ensured mainlyby means of economic levers, should be used in regard tomany products and enterprises. In both forms of planning,it is necessary to constantly study changes in market sup-ply and demand, make conscious use of the law of valueand such economic levers as pricing, taxation and creditsto guide enterprises in fulfilling state plans, and give en-terprises varying degrees of power to make decisions asthey see fit. As for a number of small commoditieswhich are low in output value, great in variety and oftenproduced and supplied seasonally and locally, enterprisesshould be allowed to arrange production in accordance

rAL SYSTEM oF MANAGEMEI{T 101

with changes in market supply and demand. The stateshould then exercise control through policies, decreesand administration by industrial and commercial depart-ments. The egalitarian practices of ,,eating from thesame pot" and the "holding the iron rice bowl,, shouldbe changed and a strict system of economic responsibilityset up with enterprises held responsible for fuifilling statetargets. The principle of "from each according to hisability, to each according to his work,, should be imple-mented among workers and staff members.

Deriving from the general orientation of reform, a num-ber of steps can be taken. The functions of the party,government and enterprises should gradually becomeseparate from each other, with more powers delegated tothe lower levels, and the decision-making powers of enter-prises as well as the workers, and staff members, powersof democratic management should be expanded. Differentforms of economic integration should be developed, andorganizations should be established along industrial linesin order to organize enterprises in a rational way. Wemust change the present closed system of commodity cir-culation with few channels but too many levels of manage-ment. Instead, we should set up an open market for com-modity circulation with many channels but with as fewlevels as possible. Different kinds of economic centersbased on large and medium-sized cities ought to be form-ed, and rational economic networks should be organized.In coordination with these steps, a further series of re-forms should also be carried out in planning, finance, taxa-tion, pricing, banking, commerce, distribution of materialsand supplies, foreign trade, labor and wages. It seemsclear that these reforms suit the requirements for theplanned development of socialist commodity productionand exchange and socialized mass production.

During the past three years, gratifying achievementshave been made in the work of reforming China,s systemof economic management. We have expanded the deci-

102 NEW STRATEGY ron CHrNA'S TCONOMY

sion-making powers of enterprises and brought into playthe supplementary role of regulation through the marketunder the guidance of the state plan. With the imple-mentation of the policy of giving futl play to superiorconditions, protecting competition and promoting inte-gration, various forms of economic integration and coop-eration between the urban and rural areas and amongdifferent regions, industries and enterprises have beendeveloped. The use ofbank loans instead of state alloca-tions has been adopted on an experimental basis in invest-rnents for capital construction, as well as for tapping thepotentials of enterprises and carrying out technical in-novations and transformation. We have introduced in-tegration between industry and trade to promote for-eign trade exports. With the sociaiist sector based on thepublic ownership of the means of production occupyingthe dominant position, other sectors of the economy andvarious forms of management have been allowed tooperate. Reforms in the system of industrial manage-ment at the county level have also been experimentedwith at selected points. A small number of enterprisesare now experimenting with a system in which they areresponsible for their profits or losses; they pay taxes in-stead of handing all their profits over to the state. Atthe same time, reforms have been carried out in theleadership structure within these enterprises. Practicehas proven that the past three years of reform has playeda positive role in reinvigorating the economy and im-proving economic results.

Further explanation is given in the following para-graphs on five aspects of the economic management re-form: the expansion of the enterprises' decision-makingpowers, the establishment of the economic responsibilitysystem, the implementation of regulation through themarket under the guidance of the state plan, the experi-mental management reforms carried out in selected units

A RATIONAL SYSTEM OF MANAGEMENT 103

at the county level, and the development of the collective-Iy-owned economy.

First, the work of expanding the decision-makingpowers of enterprises has already developed to a con-siderable degree. More than 6,000 state-owned industrialenterprises had already been covered by the experimentin 1980. These enterprises, which were located in a[the provinces, municipalities and autonomous regions withthe exception of Tibet, comprised 1b per cent of thetotal 42,000 industrial enterprises which were includedin the state budget, and accounted for 60 per cent ofthe total output value of these 42,000 enterprises and T0per cent of their profits. These enterprises experimentedwith varying degrees of decision-making powers in r+,taining part of their profits, planning their production,marketing their products, manufacturing new productson a trial basis, utilizing funds, instituting a system ofincentives, restructuring their organizational setups andassigning personnel. In addition, a small number of enter-prises have been selected in some areas to carry out ex-perimental reforms involving the practice of independentbusiness accounting and the assumption of fult respon-sibility for their profits or losses under the guidance ofthe state plan. Instead of turning over all their profitsto the state, they simply pay taxes. Based on incompletestatistics as of the end of 1g80, this kind of experimentwas being conducted in one city (Liuzhou, GuangxiZhuang Autonomous Region), one corporation (ShanghaiLight Machinery Corporation) and more than B0 errtu"_prises.

Enterprises with expanded powers have made remark-able achievements. The economic powers of these enter-prises have been integrated to a certain extent with theireconomic responsibilities and inter,ests so that their owninterests are more closely linked to the results of theirefforts. In this way the interests of the state and enter-prises are ,better linked. These enterprises now have an

104 NEw STB,ATEGY FOn CTIINA'S ECONOMY

internal motive force which complements external pres-sure in the form of increasing competition from otherunits. This has given them a certain vitality that waspreviously lacking. These expanded powers have enabledenterprises to have funds for their own use, thus pro-viding financial and material conditions for their technicaltransformation. Another advantage is that enterprisesnow have the material basis for doing a good job in dem-ocratic management; workers and staff members havebeen spurred on to better exercise their right to runtheir own affairs. Thus, the initiative of enterprises andtheir workers and staff members has been mobilized, andmost of these enterprises with expanded powers have in-creased their production and income.' According to preliminary statistics covering 5,777 in-dustrial enterprises experimenting with the system of ex-panded powers (not including those few enterprises ex-perimenting with assuming full responsibility for theirown profits or losses), the value of their industrial out-put amounted to 165,350 million yuan in 1980, an increaseof 6.8 per cent compared to the previous year and 0.6 percent higher than the 6.2 per cent growth rate in thevalue of industrial output of state-owned enterprises as

a whole. They realized profits worth 33,360 million yuan,an increase of 11.8 per cent, while profits turned overto the state amounted to 29,000 million yuan, an increaseof 7.4 per cent. These growth rates exceeded those ofenterprises not covered by the experimental reforms. Theintegration of the state's and enterprises' interests can beseen very clearly in the increase in production and prof-its. Out of the 33.360 million yuan in profits realized,87 per cent was handed over to the state while 10 percent was retained by the enterprises; the remaining 3per cent was used to repay loans and finance subsidiesin line with state policies. Compared to the enterprisesnot covered by the experiment which use the usualmethod of drawing fixed amounts from the enterprise

A RATIONAL SYSTEI\I OI. MANAGEMETirI 105

funds, the enterprises with expanded powers aetuallygained an additional 1,240 million yuan, equivalent to35.2 per cent of the 3,520 million yuan increase in prof-its realized. It is thus clear that, whether in terms ofthe realized profits or the increase in profits, the greaterportion went to the state, but the enterprises benefitedas well.

The expansion of the enterprises'decision-making pow-ers has not only given an impetus to increasing produc-tion and income, but has also accelerated the readjust-ment of the national eeonomy. \[ith certain newly ac-quired powers in operations, enterprises can to some ex-tent produce according to market demand, increasing theoutputof products inshort supply. Enterprises now havefunds of their own for carrying out technical transforma-tion and building dormitories for workers and staff mem-bers, thus strengthening the weak links in production andmeeting the pressing needs of the workers and staff rnem-bers. The expansion of enterprise powers can promoteintegration and reorganization, expediting the closure,suspension, amalgamation or shifting into other produc-tion of some redundant enterprises.

The second of the five aspects of the economie man-agement reform to be discussed here is the introductionof the system of economic responsibility. Althoughthe expansion of the enterprises'decision-making powershas attained distinct economic results, there are still threeproblems which have not been solved well in the methodof profit retention practised by those enterprises enjoy-ing expanded powers. First, under the current method,which takes the profits of the previous year as the base,the base may increase year by year, and it becornes moredifficult to maintain or increase the proportion of profitsretained by the enterprises. Second, the method of profitretention is only applicable to very profitable enterprisesand not to those which have only small or no profits atall. Thus, it still cannot solve the problem of ,'eating

108 CIIINA'S ECONOMY

from the same pot" in the industry as a whole. Third,the distribution of bonuses has failed to link the incomesof workers and staff members to the results of their work.The "iron rice bowl" has not yet been broken. Practicehas shown that the effective way to solve these problemsis the establishment of the economic responsibility system.

To set up a system of economic responsibility, two linksshould be grasped.

One link is to handle well the economic relationshipbetween the state and the enterprises, to make the enter-prises responsible for definite quotas of profits or losses,and to tie the distribution of the enterprises' profits tothe results of their management, thus mobilizing theinitiative of the enterprises. Shandong Province has takenthe lead in this respect. A system of assigning respon-sibility for definite quotas of profits or losses has develop-ed across the province from individual enterprises toentire industries. It has also spread from top to bottom,from the provincial level down to the prefectures, coun-ties and enterprises, with each level assigned responsibil-ity for definite quotas by the next higher level. Basedon statistics from 13 prefectures and municipalities, 73.1per cent, or 1,352 out of 1,850 stat*owned enterprises atthe county level and above have already been assignedresponsibility for definite quotas of profits or losses. Allof the 364 enterprises with small profits have been givenfixed quotas, while 93.2 per cent, or 410 out of 440 enter-prises operating at a loss have been assigned responsibilityfor definite quotas.

The city of Jinan, the provincial capital, instituted as

a measure to implement its 1981 production plan a five-level, top-to-bottom system of assigning responsibilityfor fixed quotas, that is, from city to bureau, bureau tofactory, factory to workshop, workshop to group, andgroup to individuai. A system for ensuring the fulfill-ment of these quotas was practised in turn at the samefive levels but from bottom to top. These two systems

A RATIONAL SYSTEM O]r MANAGEMENT 107

were made binding in the form of contracts. Rasults wereencouraging. Profits turned over to the state increasedby 10 per cent during the first half of 1981 compared tothe same period the year before. The results were alsovery good by category of industry. For example, the coalindustry in Shandong Province anticipated a total deficitof 13.57 million yuan in its 1981 economic plan. Thewhole industry carried out the fixed-quota responsibilitysystem in late March, and by April the situation changedfrom incurring deficits to making profits; profits amount-ed to 570,000 yuan. Another 9.02 million yuan in profitswere made in May and June.

In implementing the system of assigning responsibilityfor fixed quotas of profits or l,osses, we must pay atten-tion to a number of points. First, the base figure has tobe rationally fixed and should not be changed for severalyears. Second, the ratio to be used in apportioning theprofits which exceed the assigned quotas are to be fixedon the basis of the degree of difficulty in realizing theprofits. fhird, there should be reasonable stipulationsfor allocating the retained profits of enterprises into fundsfor developing production, for collective welfare and forbonuses.

The other link which must be well handled in estab-lishing the responsibility system involves tying the dis-tribution of wages and bonu.ses within enterprises to out-put. Enterprises may implement a piece-rate wagesystern if possible; if not, then they may adopt a systemof recording points for awarding bonuses. When thesystern of time wages plus bonuses was carried out in thepast, bonuses were often divided equally among workersand staff members. The principle of distribution accord-ing to work was not foliowed. OnIy by implementingthe general piece-rate wage system, or alternatively,piec+rate wages for output which exceeds the quota canwe really adhere to the principle of more income for more

108 NEW STRATEGY r.OR CHINA'S ECONOMY

work, less income for less work and no income for nowork.

For examplg each worker in the Yantai (Shandong)Shoe Factory earned an average of 14.74 yuan per monthduring the period from January to May 1981 in piece.rate wages, in addition to their basic pay, for outputexceeding the quota. Among these workers, the highesttotal of such piece-rate wages amounted to 60 yuan permonth, while the smallest was only 0.03 yuan. In a fewcases in which workers failed to fulfill their quotas, apart was deducted from their basic wages.

Carrying out a piece-rate wage system requires the ful-fillment of certain necessary conditions. The enterpriseneeds a strong leading group. I'he management systemshoutrd be sound, and in partieular there should be rela-tively accurate production targets for working hours andguotas for raw material consumption. A strict systemof quality control must be implemented, and the supplyof both raw materials and electricity should be guaran-teed. There has to be a market for the products. It shouldbe possible to make an accounting of output on a percapita, per machine or p€r group basis. A further con-sideration is that the quota stipulated must be attainableby a majority of the workers if they work hard. Output,quality, consumption of raw materials and electricity aswell as safety in production should be constantly monitor-ed in order to prevent the lopsided pursuit of quantityat the expense of quality and other phenomena such asoverworking the workers and the equipment or wastingraw materials and electricity. The relationships betweenyoung and old workers, between front-line workers andsupporting personnel and between administrative per-sonnel and workers must be handled weII. The fact thatall have their income determined by quantity and qualityof work enables them to coordinate more closely amongthemselves. Piece-rate wages are not bonuses and shouldtherefore be included in the costs of production. A fund

A NATIONAJ. SYSTEM O]F MANAGEMETiIT 109

for bonuses should no longer be set aside if the systemof piece-rate wages is implemented.

Ideologieal work must be strengthened when the re-sponsibility systerr is carried out. OnIy by means ofvigorous ideological work which is related to the actualthinking of the workers and staff members can their so-cialist consciousness be continuously raised. Thus, theycan struggle against such unhealthy trends as seizingevery chance to seek private gain at the expense of thecollective.

The third aspect of the economic management reformthat has been carried out in the past three years involvesthe utilization of market forces while remaining underthe guidance of the state plan. Reforms have been car-ried out in the system of planning, distribution of ma-terials and supplies, and commerce. Enterprises are nowpermitted, after fulfilling their quotas under the stateplan, to work out plans for increasing production basedon market demand and their own capacity. Ttrey canalso buy and sell independently that portion of the meansof production and consumption whieh exceeds their quo-tas, as the monopoly of certain govenunent organs overcommerce and distribution of materials and supplies andthe systems of state unified allocation of the means ofproduction and of state unified purchase and marketingof the mearui of consumption have been revised to someextent. Products which are currently manufactured ac-cording to market demand constitute about 15 per centof the gross value of industrial output. In the case ofenterprises under the former First Ministry of Machine-Building, almost one-half of its production is regulated bythe market. Regulation through the rnarket has playeda positive role in spurring enterprises to develop produc-tlon, draw on each other's strength to offset weaknesses,readjust the product mix, change the production stmcture,readjust the relationship between supply and demand, andstimulate the economy. It has also actively helpe{ enter-

110 NEW STnATEGY FOR CrrrNA'S ECONOMY

prises improve operations and management, raise thequality of their products, promote new generations ofproducts, increase the variety of designs, reduce the costsof production and increase the productivity of labor.

Furthermore, regulation through the market has alsocontributed to closer links between purchases and salesand helped bring about a flourishing market. The totalvolume of retail sales of commodities in 1980 was 214,000million yuan, an increase of 18.9 per cent over the pre-vious year; if the factor of price increases is deducted, theincrease was 12.2 per cent. This is our highest rate ofincrease ever. In 1981, the volume of retail sales reached235,000 million yuan, which represents a further increaseof 9.8 per cent, or 7.2 per cent, if the factor of price in-creases is deducted. In addition, business is relativelybrisk in rural and urban trade fairs which supply manykinds of agricultural and iocal products; there the volumeof transactions has increased by a large margin. Allthese are inseparable from the regulatory role of themarket. But if the guidance provided by state planningcannot keep pace, expanding the regulatory role of themarket will certainly result in iosing control of certaindeveloprnents. In fact, some things have already gottenout of control, and these problems should be studied andsolved.

The fourth aspect of the current reforrn is the experi-mental reform of county-level industrial management.According to incomplete statistics, 125 counties and citiesin 25 provinces and municipalities are engaged in suchexperimental reform. Qingyuan County in GuangdongProvince was one of the first counties to join the experi-ment, and it has become relatively experienced. In thepast, there were 17 state-owned enterprises in this countywith 6,000 workers and staff mernbers, and besides theeounty econornic commission, there were eight bureausset up to divide the responsibility of managing these 1?enterprises. This management seriously hampered the

,AL SYSTEM O;E MANAGEMENT 111

initiative of the enterprises in question. In 1g?g, eing-yuan County adopted a number of measures for reform.The eight bureaus were simply abolished, with the countyeconomic commission directly managing the enterprises'manpower, financial and material resources, as well asproduction, supply and marketing. \Mhen departments athigher levels assigned tasks to the enterprises, these weretransmitted through the county economic commission.The commission in turn delegated certain powers to theenterprises themselves. Enterprises now have the powerto retain some profits, manage their fixed assets, engagein production outside the state plan, sell surplus products,set up their own system of bonuses and rewards, recruitworkers and mete out penalties to those who have violatedrules and regulations. They can also alter their internalorganization and assign personnel in accordance with theirneeds. Although these reforms are still tentative, theyhave so far yielded good results. profits realized bythese enterprises amounted to b.424 million yuan in 1g80,an increase oL 26.7 per cent over the previous year. Forevery one hundred yuan of industrial output throughoutthe county in 1979, the amount of profits was g.B yuan,170 per cent more than in 1978. It further increased by19.? per cent in 1980, reaching 11.14 yuan. In this respeci,the city of Tongliao in Liaoning province has also gainedsome positive experiences and achieved good economicresults.

The fifth aspect of the economic management reforminvolves the need to further the development of collec-tively-owned industry. The collective economy is notonly the principal economic form in the countryside, butalso has broad prospects for development in the cities.After the Third Plenum of the Eleventh party CentralCommittee, earlier tendencies towards prematurely trans-forming eollectively-owned industries into ownership bythe whole people were rectified, and major achievementswere scored in restoring and devetroping collectively-

IL2 NEII/ STBATEGY FOR CHINA'S TCONOMY

owned industry. The number of workers and staff mem-bers employed by collectively-owned enterprises reached24,250,000 in 1980, an increase of 6.7 per centor l,b18,000compared to 1979. In 1981, the total rose again to25,680,000, a further increase of 1,430,000 people.

The development of the collective economy played animportant role in accelerating China's industrial develop-ment. The value of China's gross industrial output in1980 was 49,920 million Jruan, 40,100 million )ruan morethan the year before. State.owned industry accountedfor 60 per cent of the increase, while 40 per cent camefrom collectively-owned industry. It should also be point-ed out that collectively-owned industry at present consti-tutqs over 90 per c.ent of the output value of China,shandicraft industry, which in turn made up more than50 per cent of China's light industrial output value. Thedevelopment of collectively-owned industry has par-ticularly important significance in the growth of China'slight industrial production.

3. Two Views to Be Considered in Begard tothe Proper Orientation for Eeforming the

Economic Management System

Different viewpoints exist on the question of expand-ing the decision-making powers of enterprises. One pointof view holds that it is suitable to carry out the systemof full responsibility for one's own profits or losses inthe case of state<wned enterprises which mainly relyon manual labor and have a low organic composition.According to this view, however, it is not suitable to dothe same in the cage of state-owned enterprises whichhave a fairly high level of productive forces and a rel-atively high organic composition; instead, the state shouldbe responsible for their profits or losses. This opinionmerits further discrxsion.

A NATIONAI, SYSTEM OF MANAGEMENT 113

Small state-owned enterprises which mainly rely onmanual labor and have a low organic composition should,of course, be responsible for their own profits or losses.In such cases, the responsibility of running such enter-prises can be turned over to the workers and staff mem-bers so that they can assume complete responsibility fortheir own profits or losses. However, the view that otherstate-owned enterprises should not adopt the system ofresponsibility for their own profits or losses is not tenable.The essence of the problem lies in whether state-ownedenterprises are actually relatively independent socialisteconomic units or not. If this point is affirmed, then thisis an admission in principle that all state-owned enter-prises must assume sole responsibility for their profitsor losses, because this is a comparatively good system ofeconornic management which allows enterprises to becomerelatively independent economic units. On the otherhand, if this point is negated, then it actually amountsto denying the relatively independent economic status ofenterprises and makes it impossibie to effectively carryout a system of economic accounting. This is because theeconomic status of enterprises is manifested in real eco-nomic life by their sole responsibility for their profitsor losses. This point is already quite clear after our ex-planation that the socialist economy is a planned economyin which commodity production and exchange should begreatly developed, and there is no need here to furtherelaborate on this.

This does not of cour:se mean that qll enterprises ownedby the whole people can immediately assume sole respon-sibility for their profits or losses. Economic work at pres-ent is centered on readjustment, and reforms should besubordinate to readjustment. Refor:ms to be carried outshould promote and be beneficial to readjustrnent. Inimptrementing the system of sole responsibility for profitsor losses, certain eonditions in the enterlrrises themselves,as well as in the national economy as a whole, should first

111 Ngw STB.ATEGY E.On' CIITNA'S ECONOMY

be fulfilled, and a certain amount of experience shouldbe accumulated. Thus, aside from small enterpriseswhich can assume sole responsibility for profits or lossesahead of the others, a similar system can only be cariedout on an experimental basis at selected enterprises.

There is another viewpoint which also deserves detaileddiscussion.

As described above, there are very many defects in thepresent system of econornic management that call for im-mediate reform. This refers to the reform of the state-owned sector's practical form of management, or, in otherwords, the reform of the existing economic managementsystem. But it does not in the least mean the negationof the system of socialist state ownership itself. Thereis nevertheless a viewpoint tending to attribute all defectsin economic life to an alleged failure of the productiveforces in the country to reach the level required for theimplementation of the system of state ownership. Itclaims that the way out is to be found in a retrogressionto the system of collective ownership.

Obviously, this point of view neither conforms to theMarxist thmis of socialist nationalization nor to the exist-ing situation in the country.

What then is the theoretical basis for the Marxist thesisof socialist nationalization? It was originally put forwardin order to solve the basic contradiction of capitalism -the contradiction between the socialization of capitalistproduction and the private ownership of the means ofproduction. This thesis was originally expounded in theCommuni,st Mani,festo, which signified the birth of scien-tific socialism. Later, it was further elaborated upon byEngels in his work Arrti-Duhring,

The question now is whether or not this principle ofMarxism is applicable to China. The extent of capitalistdeveloprnent in semi-colonial and semi-feudal old Chinawas far below that of Western capitalist countries. yetas Mao Zedong said about that period, ,'China,s modern

A RATIONAL SYSIEM Or. MANAGEMENT

industry, though the value of its output amounts to onlyabout 10 per cent of the total value of output of the na-tional economy, is extremely concentrated; the largest andmost important part of the capital is concentrated in thehands of the imperialists and their lackeys, the Chinesebureaucrat-capitalists."* Here, the basic contradiction ofcapitalism alsoexisted mostconspicuously. Undoubtediy,after the founding of the state of the proletarian dictator-ship, such capitalist enterprises should be nationalizedalong socialist line by means of confiscation. Althoughthe socialization of production in that sector of the capi-talist economy controlled by the national bourgeoisie wason a somewhat lower level, the basic contradiction ofcapitalism existed there as well. The state of the pro-letarian dictatorship also had to transform this sector, stepby step, to create a sociaiist state ownership system byrneans of peaceful transformation. In a word, we can saythat the Marxist thesis of socialist nationalization is ap-plicable to China in principle. Of course, as capitalismin old China was very much under-developed, the scopeof socialist nationalization was smaller than it wouldhave been in the developed capitalist countries if the pro-letariat there had acquired political power. This, how-ever, is only a question of the scope of nationalizationbut is not a question of the feasibility of implementingthe socialist nationalization in China.

It must also be pointed out that China's econornic ds.velopment since the founding of the People's Republichas suffered serious setbacks due to the influence of"Left" errors and the disruptive activities of Lin Biao,Jiang Qing and their followers. Nevertheless, socialistindustry in China has registered great progress, while thedegree of socialization of production as a whole has been

'Mao Zedong, "Report to the Second Plenary Session of theSeventh Central Committee of the Communist Party of China",Selecteil Works, Foreign Languages Press, 1975, Vol, IV, p. 367.

115

116 NEW SIBAIBGY r.OR CHINA'S ECONOMY

greatly enhanced. Under these circumstances, whyshould the system of state ownership be brought back tothe level of the collective ownership system, in contra-vention of the requirements for the socialization of pro-duction? Due to the influence of "Left" errors, there didoccur the phenomenon of the se.calied "tran5ition despitepoverty" involving the hasty transfer of the collectiveownership system to the socialist state ownership system.As a result,'a large number of collectively-owned in-dustrial enterprises in cities and towns were transformedinto quasi-state-owned enterprises. These enterpriseseven included those small enterprises which operated es-sentially with manual labour and were only appropriatefor the collective system. Now those enterprises whichshould come under the systern of collective ownershiphave been returned to collective ownership. Ostensiblythis might seem to be a "retrogression", but in fact it ismerely the correction of an €rror. In other words, it doesnot imply that socialist nationalization shotild not havebeen introduced at all, nor does it represent a step back-ward to be applied to all state-owned enterprises. It onlyaffects those enterprises which should not have beentransformed into state-owned ones.

The question to be considered, then, is how can weensure the planned development of the whole nationaleconomy, and how can we avoid a state of anarchy if,as suggested by some people, the system of socialist stateownership were to be changed into the system of collec-tive ownership? In the absence of the system of socialiststate ownership, can the collective system be consolidatedand developed, and can the state of proletarian dictator-ship exist for a long period on the economic base of asystem of collective ownership? These are questions thatshould be treated with all seriousness.

Clupter IV

TOWARDS A RATIONAL OBGANIZATIONALSETUP OF THE ECONOMY

An important task of the current economic readjust-ment and reform is the consolidation of enterprises andtheir reorganization and integration according to theprinciples of specialization and cooperation, thus aimingto bring about a rational organizational setup of enter-prises. At the same time, associations should be establish-ed along industrial lines to strengthen the economic linkswithin the various industries. Economic centers shouldbe set up to promote the economic links within regions,as well as among different regions, thereby bringingabout a rational organizational setup of the economy asa whole.

l. Consolidation of Enterprises and fmprovementof Enterprise Management

Improving the management of enterprises is a neces-sary precondition for smoothly carrying out modern,large-seaIe socialist production and an extremely impor-tant factor in the effort to bring about greater economicresults.

We should recognize that the original level of enter-prise management in China was not high, and it wasfurther impaired during the "Cultural Revolution,,, re-sulting in a chaotic state of management in many enter-

1li

118 NEItr STRATEGY FOR CHINA'S ECONOMY

prises. Under these circumstances, devoting major ef-forts to the consolidation of enterprises and the improve-ment of management has become an extremely im-portant factor in developing the national economy. Weshould also realize that it is difficult to run enterpriseseffectively under a highly-centralized system of econom-ic management which relies mainly on administrativemethods. With the expansion of the enterprises' decision-making powers and the unfolding of the market's regu-latory role under the guidance of the state plan, however,favorable conditions have been created for the enter-prises' operations.

We have achieved definite results in this respect dur-ing the past few years, as described below.

First, the leading groups in enterprises have been re-constituted and strengthened, cadres who are ideological-ly qualified, professionally and technically competent,experienced in managerial work and are in the primeof their life have been selected to take leading posts inenterprises, and the overall composition of cadres has in-itially improved. According to incomplete statistics fromBeijing, Tianjin, Shanghai, Liaoning, Sichuan and Hubei,technically-competent experts who are familiar withmanagement comprise about one-ha1f of the membershipin leading groups in key enterprises, while the averageage has declined somewhat to about 53 years. Further-more, cadres who have received university or technicalschool education now make up around one-third of themembers in leading groups.

Second, a strict system of responsibility is being in-troduced. The factory director is fully responsible fordirecting production, as well as for managing the enter-prise. The chief engineer is responsible for the technicalaspects of production, while the chief accountant is incharge of all financial work. There are clearcut respon-sibilities for different levels, jobs and work processes.In the past we overemphasized collective leadership and

A RATIONAL ORGANIZATIONA! SET'UP 119

slighted individual responsibility; the result was thateveryone was nominally responsible but no one actuallyassumed responsibility. This has now begun to change.

Third, 4,000 enterprises are now carrying out completequality control work, that is, from design to trial produc-tion, to actual production and to servicing the productsafter they have been sold. Enterprises have also strength-ened their accounting methods, with some employinga system of comprehensive accounting covering the wholefactory (alt the departments involved in management),the entire process of production and all personnel. Eco-nomic results have greatly improved, particularly in thecase of enterprises carrying out the system of responsibil-ity for fixed quotas of profits or losses.

Fourth, personnel training in enterprises has beenstepped up. Altogether 328,000 leading cadres in enter-prises at the county level and above have already un-dergone training in rotation; 50 per cent of large and me-dium-sized enterprises run their own schools, and about20 per cent of the workers and staff members in theseenterprises have already undergone different types ofspecialized training.

Fifth, many enterprises, particularly those with ex-panded decision-making powers, have made greater ef-forts to improve operations and management. Accordingto their experience, the following points will requirecontinued attention: (1) Strengthen the marketing setupand approach marketing as an important link in runningthe enterprise. The production plan should be integratedwith the marketing plan so that production will be basedon sales, while sales in turn will promotd production. (2)Conduct market research and market forecasts so thatnew changes and trends in the domestic and interna-tional markets can be known in time. Output of commod-ities which are saleable and meet the consumers' needsshould be increased so that both production and saleswill grow. (3) Strengthen the capability for conducting

NEW STNATEGY T'OR CIIINA'S ICONOMY

scientific research, design and the trial-production ofproducts. Fully utilize market information to improveproduct design and quality and develop new products.Adopt new technology to reduce production costs andraise quality and increase variety. (4) Do a good job inpublicizing products and aetively initiate new lines ofservices for customers, particularly technical services. (b)Fulfill contracts on time and in accordance with thestipDlated quality and quantity in order to safeguard theenterprise's reputation. (6) Most important is the roleof the factory director. He must personally attend torunning the enterprise, which includes formulating abusiness policy in accordance with the state plan and theneeds of the market, as well as gradually setting up asuitable system of operations and managernent. Heshould promote the integration of production and market-ing and also keep abreast of new information. He mustbe decisive in making business decisions.

Sixth, the democratic management of enterprises hasbeen strengthened somewhat Based on incomplete sta-tistics, 36,200 enterprises throughout the country at pres-ent have already set up workers, congresses. Woikersand staff members have begun to exercise their demo-cratic rights as masfers of their own affairs.

The seventh and final area of progress in the last fewyears, which is also the most important, is that ideologicalwork in enterprises has been strengthened. In the courseof consolidation, many enterprises have paid close atten-tion to the ideological education of their workers andstaff members, and have integrated this type of workwith concern for the living conditions and concrete prob-lems of workers and staff members.

In the process of all-round consolidation, enterprisesshould gradually set up a democratic and centralized sys-tem of management. This involves the strengthening ofthe system under which the factory director assumes fullresponsibility but still remains under both the leadership

A RAflONAL ORGANIZATIONAI, SET"T'P T2I

of the Party committee and the supervisio,n and controlof the workers' congress. Enterprises should alsogradually cultivate workers and staff members who areboth socialist-minded and professionally competent. Incombination with the above points, the establishment ofa scientific system of management will enable our enter-prises to achieve good economic results.

When enterprises have been consolidated, there willbe more favorable eonditions for their reorganization andintegration based on the principle of combining speciali-zation and cooperation and for the further rationaliza-tion of their organizational setup.

2. The Establishment of Different Forms of CombinedEconomic Organizations and the Integration

of Enterprises

Industrial enterprises in China are managed by theirrespective departments or regions; this has created anirrational situation in which departments proliferate, re-gions are cut apart from each other, and there is multipleleadership and a dispersal of management responsibility.Moreover, the enterprises themselves, whether big orsmall, tend to be all-inclusive and self-sufficient inalmost everything. Thus, enterprises are unable to co-operate with each other to form a greater productivecapacity; instead, they operate in isolation from eachother, resulting in a tremendous waste of manpower,material and financial resources. This also has seriouslyhindered technological progress and increases in laborproductivity and greatly reduced economic results.I'herefore, an urgent task in our current economic workis to transform the organizational setup of productioninto one not limited by department, region or type ofownership, but one combining the principles of speciali-zation and cooperation.

I22 NEW SIBATEGY rO8 CIIINA,S ECONOMY

Ttre fundamental link in rationalizing the organization-al setup of the economy is the integraiion of enterprises.This involves the reorganization of industry accordingto the principles of specialization, cooperation and eco-nomic rationality and the establishment of differentforms of combined economic organizations.

Ttre integration of enterprises is first of all an objectiverequirement of the development of modern social p"oar.-tive forces. Basing his analysis on the experience of thedevelopment_of capitalist production, Lenln pointed outat the end of the lgth century: .,Technical piogress has]ed -to

the specialization and socialization oi productionin diJferent spheres.,'* With the progress in contem-porary production technology, majon advances have beenmade in the specialization of products, spare parts andcomponents, technological processes, as well as the pro.duction of raw materials and auxiliary production.

- Ttris is one aspect of the situation. The other is that,because social production is an organic whole, interde-Plldence among departments and enterprises has grownwjth the development of specialization in production.This requires the development of integration on an ex-tensive scale to meet the needs of specialization and co_operation. As Lenin said, ,,A very important feature ofcapitalism in its highest stage of deveropment is so-ca[edcombinatiora of production, that is to say, the groupingin a single enterprise of different branches of industry.,,nlTtris development is, on the one hand, the product oi ttredevelopment of rnodern capitalist relations-of productionand, on the other hand, the product of the deielopmentof modern social productive forces. The Latter h.,

"+ Lenin, "on the so-called Market problem,,, coil,eeteit works,Chinese ed., Vol. I, p. gb.

^ l+ Le1ig, "Imperialism, the {igtery -Stage of Capitalism,,,Selected Works, FLPH, Ailoscow, fS-bZ, Voflljpart a p. 445,

A NATIONAI ORGANIZATIONAI, SETT'P 123

general significance which is also applicable to socialistsociety.

After more than three decades of socialist constructionin China, the technology of industrial produetion hasdeveloped greatly compared to that of semi-colonial andsemi-feudal China, and this requires the development ofspecialization and cooperation on an extensive scale.However, the level of specialization and cooperation isstill very low in China's current setup of industrial pro-duction, and it is fairly common for enterprises, whetherbig or small, to try to be complete in almost everything.According to a survey carried out by the former FirstMinistry of Machine-Building in 1978, out of 6,057engineering factories, there were only 162 speciaiizingin iron casting, and their output made up only 18 percent of total cast iron production. Only 52 factories spe-cialized in forging, with their output comprising a mere9 per cent of the total. In present-day Japan, factoriesspecializing in iron casting produce over 60 per cent ofthe total cast iron output, while the output of factoriesspecializing in forging make up 84 per cent of total pro-duction in this category. In the United States' engineer-ing industry, more than 70 per cent of output calculatedaccording to the sales volume come from specializedfactories, while only 1.2 per cent of the factories producetheir own casting and forging, and only 4.46 per cent ofthe factories carry out heat treatment on their own. Manylarge engineering factories produce only critical com-ponents. The production of other items - from raw ma-terials and semi-finished products to spare parts - isdone through economic "combination" by establishing anextensive network of cooperation. The level of China'sproductive forees is still fairly low at present, and it isimpossible for us to attain right away the same degree ofspecialization in production as that of the United Statesand Japan. Nevertheless this problem must be addressed.In order to accelerate the modernization of China,s in-

724 NEW STRATEGY r.OR CHINA'S ECONOItrY

dustry, we clearly need an industrial reorganization basedon the principles of specialization and cooperation, aswell as integration of enterprises.

The realization of industrial reorganization and en-terprise integration is also called for by the readjustmentof the national economy. Our national economy at pres-ent is still not totally free from imbalances. Somebranches and enterprises have a surplus of productivecapacity while others have a shortfall. Experience ,hasshown that the integration of enterprises is of tremen-dous benefit in reducing the production of goods in excesssupply and expanding the output of goods which are inbig demand. In this sense, integration means readjust-ment. Readjustment not only calls for bringing aboutthe integration of enterprises but also for their consotrida-tion. Closing some factories and shifting the productionoJ others will provide favorable conditions for realizingthe integration of enterprises, raising their level oimanagement and improving economic results.

Industrial reorganization and the integration of en-terprises is also needed for reforming the curent systemof eeonomic management, which is characterized bya highly-centralized leadership and an over-reliance onadministrative methods. Ttre highly-eentralized leader-ship is actually the leadership by central, provincial andmunicipal economic departments. This kind of manag*rnent system cuts off economic links between differententerprises and regions and fails to conform to the re_quirements of the development of commodity productionand exchange, whereas the integration of enterprises,particularly across departments and regions, will con_tribute to a change for the better in these areas. In-tegration has been promoted by enterprises, expandedpowers of operations, the growing regulatory role of themarket and the increasing competition among enterprises.

In short, it is necessary to bring about industrialreorganization and the integration of enterprises in or_

A NATTONAL ONGANIZATIONAL SE"IUP I25

der to carry out the policy of "readjusting, restructuring,consolidating and improving the economy" and to de-velop China's socialist economy.

Whether in a capitalist or a socialist society, the devel-opment of modern productive forces will result in a tend-ency for enterprises to combine. However, the result-ing integration.will be fundamentally different sociallyand eeonomically. First, the integration of capitalist en-terprises and the formation of monopolies transpire onthe basis of the capitaiist ownership of the mearrs of pro-duction. Thus free competition will be restricted but noteliminated. In faet, the competition among monopolisticenterprises, and partieularly between monopolistic en-terprisee on the one hand and ordinary enterprises onthe other, will become more acute. Lenin expressed it inthe following way: "Here we no longer have competitionbetween small and large, technically developed and back-ward enterprises. We see here the monopolists throttlingthose which do not submit to them, to their yoke, to theirdictation."*

Ttre integration of socialist enterprises is carried outon the basis of the public ownership of the means of pro-duction. Ttre relations between different integrated en-terprises, as well as between integrated enterprises onthe one hand and ordinary enterprises on the other, arerelations between soeialist enterprises. There is com-petition between them, but it is based on a fundamentalldentity of interests. The situation in the capitalist worldln whlch monopolistic enterprises oppress ordinary onesdoor not exist under socialism.

Socond, the integration of capitalist enterprises andthe formEtlon of monopolies are the result of the spon-taneout role of capitalist economic laws and cannotellmlnate the anarchic nature of social production. After

-.-Lenln, "Impcrlallam, the Highest Stage of Capitalism',, Setect-cil'Worke, trLPHr MoEcow, 19b2, VoI. I, part 2, p. 4bS.

126 NgW STRATEGY r'OR CIIINA'S EC9NOMY

the Second Wortd War, the capitalist countries steppedup the integration of enterprises and strengthened pro-duction planning. Howeveq this cannot fundamentallyalter capitalist spontaneity, and as a result economiccrises have continuously arisen. The integration of so-cialist enterprises is the result of the role of socialisteconomic laws and is carried out under the guidance ofthe state plan to meet the requirements of developingthe national economy in a planned and proportionateway.

- Third, the integration of capitalist enterprises onlydiscards capitalist ownership in form and conf,orms to acertain degree to the requirements of the socialization ofproduction; in essence, however, it causes €ul enonnousamount of capital to be more and more concentrated inthe hands of a few capitalists, and increasingly sharpensthe basic contradictions of capitalism. In a socialistsystem, the development of integration among enter-prises is both a requirement of and a means for promot-ing the socialization of production, which is consistentwith the nature of socialist public ownership and lays thematerial basis for consolidating and strengthening the so-cialist system.

- Remarkable progress has been achieved over the pastthree years in industrial reorganization and the integra-tion of enterprises. According to recent nationwide sta-tisticg 1,973 specialized corporations and general factoriesof different kinds (including 216 experimental businesscorporations) have already been set up according to theprinciples of specialization and cooperation, and theycomprise 19,173 enterprises, accounting for 5.BB per centof the total number of enterprises. In the case of the threemunicipalities of Beijing, Tianjin and Shanghai, 2ZB cor-porations and plants were established with 4,b48 partici-pating enterprises, or 31 per cent of the total number ofenterprises in these three cities. Centers for technologicalcooperation have also been set up in various places. Re-

A NATIONAT ORGANIZAfiONAL SETUP INgional and departmental divisions, as well as restrictionsstemming from different types of industries and owner-ship systems, have been broken down in a number oflocalities. Many enterprises have cooperated to establishcombined economic organizations in the form of jointproduction undertakings, joint ventures or the domesticvariety of "compensatory trade."

The reorganization and integration of industrial en-terprises have begun to attain excellent economic results.The all-inclusive setup of industrial production has startedto change, and there has been a breakthrough in solvingthe problem of multiple leadership and dispersed man-agement, thus promoting the development of specializa-tion and cooperation and strengthening the economic linksbetween different departments and regions. This hasplayed a beneficial role in utitizing to full effect the su-perior conditions of various regions, departments andenterprises, developing the strong points and overcomingdisadvantages and tapping the potentialities of economicunits. Reorganization and integration have also helpedto promote the use of new technology and highly-efficientspecial purpose equipment, improve the quality of prod-ucts, facilitate the replacement of new products for old,raise labor productivity and reduce production costs. Ad-ditional results of the reorganization and integrationprocess still in progress have been a cut-back in the pro-duction of items in excess supply with a correspondinglncrease in the production of items which are in demand,and I readjustment of the product mix and industrialrotup.

In 1052 Shanghai had a total of Z5,B7B factories withln lvorage annual labor productivity of 6,288 yuan perworkor end an average annual contribution to the state of1,200 yuan ln profits and taxes trrer worker. Since then,Shanghal hae built a number of new backbone industrialenterprlses and carried out the reorganization of enter-prises four tlmes. At the end of 1g80, factories in Shang-

128 NEW STRATEGY FOR CHINA'S ECONOMY

hai were merged and reorganized into a total of 6,770,78per cent less than in 19b2; labor productivity grew by370 per cent and the average contribution to the state inprofits and taxes per worker increased by 6b0 per cent.Ttre economic results of the combined economic organiza-tions established in Shashi, Hubei province, were alsoquite good.

The problem at present is how to promote the reorgani-zation and integration of enterprises.

Historical experience demonstrates that it is difficultto achieve success in integrating enterprises if onlyadministrative methods are used; even if some enterprisesare integrated for a certain period of time, it is hard toconsolidate and develop them. We already had such alesson when we experimented with running ,.trusts,, ona national scope during the early 1g60s. By issuingadministrative decrees from the higher levelg 12 nationalindustrial corporations were set up in 1g64. Althoughdistinct economic results were attained when productiLwas reorganized according to the principles of specializa-tion and cooperation, there were, however, quite a num-ber of shortcomings in that some practices went beyondttre degree permitted by objective economic conditions.For example, the corporations exercised a high degree ofmonopoly and wanted to absorb all enterprises in theirparticular line of industry, but they did not sufficientlyconsider the interests of the localities. All powers wereconcentrated in the corporations, while factories underthe corporations did not have necessary decision-makingpowers, thus dampening the enthusiasm of the localitiesand enterprises.

In the process of industrial reorganization and integra-tion over the past three years, similar problems have oc-curred again since we did not sum up past experiencevery well. During the initiat period of the current in-dustrial reorganization, most regions and departmentsutilized administrative methods to accelerate the process

A II.ATIONAL ORGANIZATIONAL SE"rlUP LzS

of industrial reorganization, and enterprises were reor-ganized from top to bottom. Management was carriedout along industrial lines and specialized corporations orintegrated corporations were organized. Some gains weremade with this method, but there were also a number ofproblems. For example, without considering the objectiveeconomic conditions and the level of management, someregions and departments rashly set up corporations witha high degree of control over manpower, financial andmaterial resources, as well as production, supply andmarketing. As a matter of fact, due to the lack of man-agerial experience and the necessary material conditions,many corporations practically monopolized all powerand even deprived the enterprises under them of some oftheir newly-acquired decision-making powers, thus giv-ing rise to many contradictions and dampening the in-itiative of these enterprises. Practice shows that althoughthe subjective desire for integration may be good, integra-tion will eventually fail if it does not accord with objec-tive economic l,aws. A further problem was that someregions and departments only considered their own in-terests, and in order to protect the enterprises underthem from being integrated with those of other depart-ments, they organized corporations by combining totallyunrelated enterprises. Ttrese enterprises gain noadvantage other than having an additional '.'mother-in-law looking over their shoulders"; as a result, they areseemingly in harmony but actually at variance with eachother. There are many similar examples because, in car-rying out integration by administrative methods, it isoften very easy to treat enterprises .as mere appendagesof the adrninistrative organs, resulting in all kinds ofarbitrary and impracticable directives. Out of habit manycadres feel that using the o1d ways to manage the econo-my is more convenient, while using economic methodsinvolves a great amount of effort because one has tostudy anew and feel one's way. Industrial reorganization

130 NDtrI STRATE,GY FOR CHINA'S EClONOllrY

and economic integration represent fo,r us a completelynew task, and if we continue to utilize the old *"tfroa.,we will find that our efforts are running counter to ob-jective economic laws.

It is not true, however, that integration can be easilyrealized by simply allowing enterpriJes to combine freely.without necessary adminiitrativJ intervention, initiati'iecan beeome nothing more than blindness in action.

During the first half of 19g0, the party Central Com_mittee put forward the policy of ,,developing the superior"..p9:t!,

protecting competition ana promoting iniegra-tion"; it also emphasized that differeni forms Jt irrt"ft"-tion based on voluntary participation, mutual benefit andthe needs of production shouid Le developed, which wouldhelp break down regional and departmental barriers, aswell-as ownership limitations. For a period of time after_wards, the different regions and departments slackenedadministrative intervention and reft it to the enterprisesto freely combine among themselves. At the beginning,this helped break the old habit of imposing orre"lf-s"re"Zlimitations on enterprises, activiti"r,'""rd ii prornlted thevigorous growth of different forms of economic integra-tion. It also resulted, however, in certain uncontrofledside effects such as serious duplication in construction.Y"ry small enterprises were Uuitt wfrictr competed withlarger, established factories for raw materials, therebyadding new difficulties to the readjustment of the nation_al economy. The State Council promptly issued the ,,pro-visional Regulations on promoting Uconomic Integration,,in_ July, 1980, which stressed the use of ,ri"urr"ryadministrative intervention. Based on these regulationJ,administrative intervention in the process of e-nterpriseintegration was strengthened in many regions arrd du-pa.rtments. For example, government organs in charge ofplanning have paid attention to the or"""U planningiandbalancing of economic integration, while those orga"ns incharge of industrial and commercial administration have

A RATIONAL ORGANIZATTONAI, SETUP 1'1

strengthened the management of enterprises; Practicehas shown that the one-sided emphasis on letting enter-prises freely combine among themselves easily gives riseto such phenomena as uncontrolled growth and duplica-tion in construction with the interests of small enterprisesconflicting with those of the large ones. It is, therefore,necessary to closely combine economic methods withnecessary administrative intervention in carrying outindustrial reorganization and economic integration.

Ttre key to coordinating the use of economic andadministrative methods lies in abiding by objective eco-nomic laws. Administrative powers should be utilized toovercome obstacles and promote integration while eco-nomic methods should be utilized to set up corporationsor general factories and to organize enterprises. Admin-istrative intervention should suit the requirements of theeconomic laws. The internal economic motive force forcarrying out integration lies in the urgent need to promoteproduction in various regions, departments and enter-prises. Using economic methods to carry out integrationinvolves taking as a starting point the need to developproductio,n in accordance with the inherent links amongexisting enterprises. Given the limitations of objectiveconditions, production will then be organized accordingto the principles of economic rationality, specializationand cooperation in order to achieve the goals of reducingproduction costg lowering consumption of raw materials,improving efficiency and attaining optimal economicresults. Integration is not carried out according toadministrative needs. For examp e, the degree of con-venience in administrative work should not be the solecriterion for choosing the form of integration; rather,the starting point should be the needs of production incombination with the enterprises' objective conditions.

How should administrative means be utilized so as topromote industrial reorganization and integration in away that conforms to objective economic laws? Based on

I32 NEW STB,ATEGY FOR CHINA'S ECONOMY

past experience, attention should primarily be eoncen-trated on five areas of work as described below:

First, "departmental ownership,, and ,,regional owner-ship" should be broken down in order to pave the wayfor the development of economic integration. The prob-lem of the readjustment, reorganization and integrationof those enterprises whieh have been closed down, sus-pended, merged or shifted to other lines of productionshould be solved first of all. Any idle production factorsmust be fully utilized to develop the production of itemswhich are highly competitive and in big demand in orderto meet the needs of the people,s consumption, economicconstruction and foreign trade. party organizations andadministrative departments at various levels should ac-tively conduct thorough ideological work directed againstthe different kinds of erroneous thinking which can af*fect economic integration. Some cadres, for example,are afraid that they might lose their positions, and someenterprises are apprehensive that they may be placed ina financially disadvantageous position; large factoriesare fear{ul that they may bear a heavier burden, whilesmall factories worry about being totally absorbed. Theresult is endless squabbles over conflicting interests,which makes integration impossible to realize. The leader-ship at various levels should first of all conduct ideo-logical work among the members of the leading bodiesand then extend their work to cadres and the misses atthe grassroots level. The objectives should specificallybe to overcome the characteristic narrow outlook of smailproducers, to cultivate the sense of taking into accountthe interests of the whole and the outlook of large-scalesocialized production so that reorganization and integra-tion can be carried out smoothly. The responsible gorerrr-ment organs at different levels, proceeding from the prin-ciples of overall planning, overall balance and economicrationality, can play the role of ,,match-maker,, to facili-tate the integration of suitable enterprises. T'he proper

A R,ATTONAL ONGANIZATIONAL SgruP 133

combination of economic methods, ideological work, andnecessary administrative measures can bring about thesuccessful fruition of the task of integration.

Second, integration should proceed from the actualsituation, not from anyone's subjective wishes, and itshould develop gradually. Generally speaking, integra-tion should initially be carried out on a small scale, pro-gressing to a bigger scale later on. Ttre contents of in-tegration should be fairly simple at first, becoming moreeomplex with time. Ttre setup of integration should beloose at the outset and more closeknit later on. Nearbyareas should be covered before distant ones. There areof course exceptions. For example, it is both necessaryand possible for some enterprises with a fairly high levelof socialized production and with comparatively rich ex-perience in management and operations to set up relative-Iy large, closely-linked combined economie organizationson a national or regional basis which run production andmarketing on a unified basis. This approach ought to beactively encouraged rather than restricted.

Third, serious investigation is required in order tocalculate economic results and to do a good job in overallplanning, taking all the necessary factors into considera-tion. The quality of economic results is the most impor-tant indicator of the success of the industrial reorganiza-tion and integlation. Judging from past experience, en-terprises often tended to give too much consideration tothe development of their own production and their owneconomic interests; it was difficult for them to give suf-ficient weight to the big picture. For example, some prod-ucts are in short supply within a given locaiity but arein excess supply in terms of the whole country. Someunits actively engaged in the production of such productsin pursuit of their own economic interests, thus adverselyaffecting optimum utilization of the productive forces onthe national level. Therefore, the guidance of the stateplan ought to be strengthened so that enterprises in diJ-

184 NEW STRATEGY ron cIIrNA's EcoNoMy

ferent departments and regions can develop harmonious-ly. In the meantime, administrative methods can besubsumed in more economic legislation, such as the en-actment of corporation, factory, contract, labor and pricelaw. In this way the business activities of enterprises canbe coordinated, and the implementation of different kindsof economic measures can be ensured, thus integratingpartial interests with overall interests.

Fourth, the principle of mutual benefit should be ad-hered to, and at the very least there should not be anyinfringement on the economic interests of any party. Ifreadjustment and reorganization cause temporary lossesto one party, then the other party should set aside a por-tion of its gains derived therefrom to appropriately com-pensate the affected party. Only on the basis of equalityand mutual benefit can both parties integrate voluntariiyand their initiative be effectively brought into play.

There are three types of funds which should each behandled differently according to the principle of mutualbenefit. Bonus funds should mostly be turned over tothe control of the production enterprises. A corporationmay reserve a small portion of the welfare fund and dis-tribute it within the corporation. The production fundshould be reserved primarily for use by corporations,general factories or other combined economie organiza-tions, but a portion should be handed over to the enter-prises for their own use. An appropriate co,ncentrationof the production fund in the corporations or generalfactories is beneficial to the maintenance of the enter-prises' harmonious development. It can be used mainly toovercome weak links in the production process and topromote the technical transformation of backward fac-tories or workshops within the integrated enterprises inorder to raise overall production capability.

Fifth, the distribution and concentration of powersshould be appropriately carried out. The key to organiz-ing, consolidating and developing integration lies in the

A SATIONAL ONGANIZATIONAL SETUP 135

proper handling of economic rights and interests of theparties concerned. Doing a good job in reorganizationand integration requires not only that the division ofpowers between the corporations and factories be han-dled correctly, but also that the division of powers be-lweerr the responsible government organs on the onehand, and the corporations and factorieJ on the other, betaken care of just as satisfactorily. The responsible gov-ernment organs will be gradually streamlined and mlrg-ed as much as possible to become comprehensive organsfor industrial administration. They wili have the ,"*ior-sibility for unified planning, paying particular attentionto maintaining overall balance, and examining and ap-proving the formation of new combined e"oro-ic organi-zations. They will formulate policy, promptly solve-anynew problems that emerge, and coordinate-with bankinj,finance, tax collection and judicial departments in thecourse of supervisory work. Responsible government or-gans can gradually delegate the powers of operation andmanagement to the corporations, depending on the situa-tion of course, with the corporations directly performingn1*ry functions previously handled at the friglr"" IevelJThe corpo,rations, role is to solve those problems whichcannot be solved in the factories, such as questions relat-ing to the reorganization of enterprises, large_scaletechnieal transformation within enterprises, scientificresearch and sales promotion. The corporations are thento draw up the overall plans for the enterprises underthem and to coordinate, supervise and serve these enter_prlses. Grassroots production enterprises should certain-ly have their own deeision-making powers. Both loose-ly and closely-linked combined Jconomic organizations.must conscientiously assign appropriate managerialpowers to the lower level. This is an important prerequi_site to givtng full play to the enthusiasm, initiative and,creativity of enterprises. Though in the past we w€re ac*customed to the use of purely administrative methods in

136 NBW STRATEGY r,OR CHINA'S ECONOMY

management, we must now rely on consultation as muchas possible in handling major problems relating to pro-duction, management and economic interests. Corpora-tions cannot simply resort to administrative decrees evenin the case of certain rights and funds which should beconcentrated in corporations. Factories must be fullyconsulted in order to avoid dampening their initiative.

To sum up, the correct method for effecting industrialreorganization and integration is to act according to ob'jective economic laws, and also to combine top-to-bottomconsultations with the necessary degree of administrativeintervention, all the while adhering to the principles ofvoluntary participation and mutual benefit. When inap-propriate regional and departmental divisions seriouslyimpede industrial reorganization and integration, it be-comes necessary for the state to use its administrativepowers to eliminate these barriers. This does not meanthat the administrative powers of departments and re-gions are to be negated. Actually, since the current sys-tem of economic management has not yet been funda-mentally reformed, we must still depend on the depart-ments and localities to conduct the reorganization and in-tegration of industry. It is only when inter-departmentaland inter-regional integration encounters resistance fromdepartments and regions that it becomes necessary forthe state to utilize its administrative powers to eliminatesuch resistance.

With regard to industrial reorganization and integra-tion, a problem worth noting is that the majority of cor-porations in China at present have an administrative, in-stead of a business, character. Shanghai was the firstcity in China to organize corporations, and good resultswere achieved in the process. According to data from the'city, following several reorganizations and mergers sincethe basic completion of socialist transformation in 1956,there are altogether 72 industrial corporations. Apartfrom 29 of these which have expanded powers and bear

A RATIONAL ONGANIZATIONAL SETT'P 13?

a definite business character, the majority of the othershave an administrative character. Administrative cor-porations are different from business corporations in thatthe former exercise leadership by means of administra-tive methods, neither engaging in economic accountingnor bearing any financial responsibility, while the latterare actual economic entities with independent accountingresponsibiiities. Generally speaking, a business corpora-tion has four characteristics. First, it carries out inde-pendent economic accounting, possesses independentmanagerial powers, bears economic responsibility andobtains economic benefit according to its economic re-sults. Second, it formulates and executes plans. Third,it caries out unified management of manpower andfinancial and material reso:rrces. production and market-ing activities of its subsidiary factories will also comeunder its control. This, of course, does not mean thateverything is concentrated in the corporation. A systemcombining the leadership of the corporation with two.level accounting can be put into practice. Fourth, it haslegal existence.

Among these four characteristics, the most basic is theindependent economic accounting. To implement a sys-tem of independent accounting or responsibility for one,sown profits or losses, four aspects - economic powers,responsibility, interests and results-should be eloselylinked. First of all, a corporation should have decision-making powers in operations and management so as toenable it to organize its economic activities effectivelyaccording to the needs of society, the conditions of pro_duction and its own interests. Second, a co"po"ationshould bear a corresponding economic responsibility,since it cannot assume power without bearing the corre-sponding responsibility. Third, there must be a directlink between the results of a corporation,s operations andthe immediate interests of the enterprises and theirworkers and staff members, for only in this way can their

138 NEW STBATEGY F.OR CHINA'S ECONOMY

initiative and enthusiasm become the internal motiveforce for promoting the development of the whole cor-poration. Furthermore, a corporation should have thecapability to develop on its own as an economic entity.It should be capable of organizing its production andoperations independently and on its own initiative. Itmust be able to realize both simple and expanded repro-duction under the guidance of the state plan.

Ttre organization of corporations should be based onthe differing conditions obtaining in various regions andindustries; different forms will be adopted, with someloosely and others tightly linked. Business corporationscan be organized according to regions or according to in-dustrial lines which may cut across administrative divi-sions. Big industrial cities such as Shanghai, Tianiin,Shenyang and Chongqing have already set up specializedindustrial corporations along industrial lines on an ex-perimental basis. Ttre level of specialization and coolFeration among corporations should be further raised, theirorganizational structure become more rational and theireconomic results further improved. Corporations withan administrative character must be gradually transform-ed into corporations with a business character. In anumber of regions where there were no industrial cor-porations in the past, business corporations and generalfactories with quite good economic results have been es-tablished in recent years. These should be further con-solidated and improved in the course of readjustment.Corporations with an administrative character must besubjected to concrete analysis. Those which can stillpromote the growth of production but lack the conditionsfor being immediately transformed into business corpora-tions may temporarily retain their form, but active ef-forts should be exerted to create the conditions for trans-forming them.

Neither will the accounting system of all business cor-porations be uniform. Some corporations may put into

A N.A,TIONAL ORGANIZATTONAT SETUP 139

practice accounting at only one level - at the corporatelevel - while others may carry out accounting at twolevels-at the corporate and factory levels. Factorieshave been the independent accounting units for a longtime. If the system were immediately changed into cor-porate-level accounting, economic accounting in factorieswould probably not only be weakened, but it would alsoencourage the tendency to "eat from the same pot,,.Based on the experience of Shanghai and Tianjin, the im-plementation of a two-level system of accounting is advi-sable.

3. The Significance of Establishing AssociationsAlong Industrial Lines and Developing theEconomic Links lMithin Various Industries

Establishing assoeiations along industuial lines and de-veloping the economic links within various industries areimportant components of our efforts towards rationaliz-ing the organizational setup of the economy.

The present system of enterprise management in Chinais carried out principally by the industrial administrativeorgans under the State Council and the local governmentat different levels, which divide their responsibilities ac-cording to major industries. As the social division oflabor has become more and more developed, this system ofmanaging according to major industrial lines is becomingless and less suitable to the requirements of developingmodern industry. Another problem is that the industrialadministrative organs at the central government level areconeerned only with enterprises direetly under them; theyhave nothing to do with enterprises belonging to other de-partments and regions. Furthermore, they are responsibleonly for the production of particular products but not forthe comprehensive utilization of resources. In actual eco-nomic life, however, all industries and products are inter-

140 NEW STBATEGY FOR CHINA'S ECONOMY

related. Thus, the defect of the current management sys-tem couid be described in the following way: that whichneed not be managed is being managed, while that whichought to be managed is not well managed.

Besides delegating certain policy-making powers toenterprises under the guidance of the state and carryingout the integration of enterprises, it is also necessary toestablish associations along industrial lines and to developthe economic links within various industries.

An industrial association can be conceived as an organof democratic management voluntarily formed by enter-prises in a particular line of industry to coordinate the de-velopment of the industry concerned. It could be consid-ered a kind of integration along industrial lines, withmanagement earried out by the board of directors demo-cratically elected by the enterprises participating in theassociation. An industrial association can make regulationson the rights and duties of participating enterprises. Oneof its characteristics is that it is not a state administrativeorgan, but is rather an organization under state guidancewhich is part-official and part-civilian, as well as part-administrative and part-economic. It is not an administra-tive organ of the government, but it has certain adminis-trative powers; it is not a combined economic organi-zation, but it has certain economic functions. It plays therole of a bridge not only between the state and enterprisesbut also between different enterprises. It speaks on behalfoI an industry before the government; it represents thegovernment in conducting democratic consultations withenterprises.

The functions ofsame as those of

an industrial association are not thea government organ responsible for

administrative work or of a corporation with eitheradministrative or business character. Its main task is toundertake activities which an enterprise or a corporationwould be unable to accomplish on its own, including liai-son and consulting services for enterprises within the in-

A NATIONAX ORGANIZATTONAL SETTJP L4L

dustry. It will have the following principal functions:First, it will draw up long and medium-term developmentplans, as well as annual plans, for the industry in aecord-ance with the government's policies and economic plan,and on the basis of market forecasts and production re-search. Second, it will draw up plans for the technicaltransformation and development of the industry, and for-mulate policy on technical equipment. Third, it will laydown industrial standards, both for enterprises and theirproducts. Fourth, it will organize and coordinate cooper-ation within the industry. Fifth, it will organize theexport of the industry's products and help to develop in-ternational markets for them in a unified way. Sixth, itwill cooperate with the trade union in organizing inter-factory emulation drives and conducting self-appraisalswithin the industry. Seventh, it will handle liaison workamong enterprises within the industry. Eighth, it will or-ganize national and international exchange of technicaland economic information. Ninth, it will assist enterprisesin training professional personnel. Tenth, it will reportto the government on the industry's production and man-agement activities and put forward related demands andsuggestions.

Establishing industrial associations and developing theeconomic links within various industries are advantageousfor the implementation of state policies and plans, therealization of the requirements for readjusting the na-tional economy, and other goals which have already beendiscussed at length. Ttrese include the readjustment ofthe production of goods in excess supply and goods inshort supply, the rational organization of production, andthe avoidance of duplication in construction and produc-tion. Industrial associations also aid in the reorganizationof industry according to the principles of specializationand cooperation, the promotion of enterprise integration,.the raising ol the technical and managerial leveI, andthe improvement of economic results. In addition, they

L42 NEW STRATEGY FOR CHrNA'S ECONOMY

help provide greater access to foreign markets, thus facil-itating the expansion of exports. The establishment ofassociations is conducive to the elimination of barriersbetween different departments and regions. In certainrespects they can function on behalf of the state in man-aging the economy. Thus, we can see that the settingup of industrial associations and the development ofeconornic links within various industries are an impor-tant way of realizing the readjustment and reform of thenational economy, and a significant measure in rationaliz-ing the organizational setup of the economy and acceler-ating socialist modernization.

There can be both national and regional industrial as-sociations. The former would logically be established inChina's major industrial centers: for example, the nationalsewing machine manufacturers' association could be es-tablished in Shanghai, and the national machine-buildingassociation could be set up in Shenyang, Liaoning prov-ince. Furthermore, the national industrial associationscould rely on the facilities of large enterprises in majorindustrial cities and the industry's scientific researchcenter.

In feudal society, industrial associations in the form ofguilds emerged when the commodity economy attaineda certain stage of development. In the contemporary eraindustrial associations have developed more extensivelyamong the developed capitalist countries. The industrialassociations which will be developed in China, however,are fundamentally different in nature from fhese twotypes of associations. Guilds in feudal society were basedon simple commodity production and were economic or-ganizations with a feudal character whose activities weremainly aimed at serving the interests of the guildsmasters.Industrial associations in capitalist society are basedon capitalist commodity production and are aimed at har-monizing the contradictions among capitalists'in order toincrease their exploitation of the proletariat and gain more

A RATIoNAL oRGANIZATToNAL sETl,P 143

profits. Industrial associations in socialist society aresocialist organizations which are based on socialist com-modity production and are aimed at developing socialistproduction and improving the material and cultural lifeof the people.

1, The Establishment of Economic Centers andthe Development of Economic Links

Within and Among Eegions

The establishment of economic centers and the develop-ment of economic links within regions as well as amongregions have an important role to play in bringing aboutthe rationalization of the organizational setup of theeconomy.

An economic center is a place inwhich social and econom-ic activities, such as industry, commerce, transport, postand telecommunications, credit and finance, educa-tion and science, are coneentrated. It is a manifestationof a certain stage in the development of commodity econo-my and is based on a city of a given size. With the develop.ment of commodity economy in slave and feudal societiesand the emergence and growth of cities, economic centersalso appeared. But the formation of large-scale and inparticular nationwide econornic centers followed the de-velopment of capitalist commodity production. It is veryevident that the formation of nationwide economic cen-ters and that of unified national markets are interrelated,and the latter was the result of the development of cap-italist comrnodity production. It can be said that thedevelopment of economic centers in the modern sense isthe result of the development of modern capitalist com-modity production, an outcome o the development ofmodern large-scale industry and modern science andtechnology.

144 NEW STRATEGY TOR CHINA'S ECONOMY

A socialist economic center is also based on a eity ofa given size and is likewise an outcome of the develop-ment of commodity production and exchange. However,its social and economie nature is fundamentally differ-ent from that of past economic centers. That is to say,it is not based on a commodity economy characterizedby private ownership of the means of iroduction, butrather on a publicly-owned, planned economy whichactively develops socialist commodity production andexchange. Thus, its formation and prociss of develop-ment is different from those earlier economic centerssince it is realized under the leadership of the state planand not as an outcome of the spontaneous developmentof commodity economy. fn contrast to conditions underthe private ownership of the means of production, thereis no conflict of interests between an economic centerand the regions having links with it; there is identity offundamental interests, with only a disparity in partialor local interests.

An economic center in China may be envisaged asthe integration of economic regions based on a city of agiven size.

It is not a combined economic organization nor is itcompletely similar to the so-called ,,coordinated regions,'formed in the past according to administrative divisions.It is instead a grouping in which different kinds of or-ganizations participating in the activities of the econom_ic center (such as enterprises, various forms of combin-ed economic organizations and industrial associations)voluntarily come together to coordinate certain kinds ofeconomic activities, all under the guidance of state poli-cies and plans. It is not at aIl an administrative organof the state, but it can act on behalf of the state in per-forming some of the functions involved in managingtheeconomy.

An economic center under sociaiist conditions is there-fore an important link in the structure of the socialist

A RA?IONAL OEGANIZATIONAT SET\,P 145

economic system as a whole and an important factor inpromoting the planned development of different typesof economic activities. The establishment of economiccenters at present will provide added impetus to the re.adjustment of the national economy and will contributeto the elimination of departmental and regional barriers.Thuq it is also an important ingredient in the readjust-ment and restructuring of the economy.

At present China has both nationwide and local eco-nomic centers. A county would have as its econorniccenter the county seat, for example. Generally speaking,a city is an economic center. rffhen we speak of keycities, we are referring to the relatively big economiccenters in certain parts of the country. Economic cen-ters which are based on key cities will be interrelatedwith other key cities and economic regions nearby, thusforming an organic whole, a network for nationwide eco-nomic activities. In this way they play a decisive role inthe development of the national economy.

In the past, we often equated the concept of economicregions with that of administrative divisions. Actuallythey are very different. The economic center of HebelProvince, for example, is not the provincial capital,Shijiazhuang, but Tianjin (Tientsin). Similarly, Cheng-du is the provincial capital of Sichuan, but the economiccenter is Chongqing (Chungking); Chongqing in fact isnot only the economic center of Sichuan Province, butalso the center of China's southwestern region. We hadsix so-called economically coordinated regions in thepast. They were actually administrative regions, ratherthan economically coordinated regions. The former eco-nomically coordinated region of central-south China, forexample, extended in the north from Xinxiang and An-yang, Henan Province, to Guangzhou in the south, so howcould such a huge, diverse area possibly become a close-knit economically coordinated region? Setting up econom*ic centers is therefore not a simple matter of dividing

L46 NEW STBATEGY T'OR CHINA'S ECONOMY

the country into administrative areas. Ttre scope in-fluenced by each economic center varies, and it is not pos-sible to draw clear-cut boundaries since one usually over-laps with another. The economic activities of these cen-ters depend not on the strength of administrative decrees,but rather on actual economic links which ean extend farbeyond the scope of administrative management. Theeconomic activities of Dalian in Liaoning province, forexample, can extend to Inner Mongolia, Jilin, Heilong-jiang and other areas within the country; they can evenextend abroad to Japan and other countries, plaees whichare far beyond the scope of administrative management.

We have not done well in giving full play to the roleof econornic centers over the years, often relying onadministrative areas instead of economic regions basedon key cities. Administrative areas and economic regionsare identical in some aspects and contradictory in others.When economic activities conflicted with the administra-tive divisions, we often subordinated the former to thelatter instead of allowing the latter to serve the purposesof economic development. This violated the 1aw of eco-nomic activities. In the final analysis, this is a question ofwhether or not the superstructure should serve the eco-nomic base. Socialist commodity production and ex-change in China are not yet very developed, and thereare still remnants of feudalism in the economic sphere.The capitalist countries shqttered the fetters of feudalismduring the period of the bourgeois revolution, enablingcapitalism to develop rapidly. Since we have a socialistplanned economy based on public ownership, we cannotof course imitate capitalism. However, in order to developthe socialist economy, it is necessary to emancipate itfrom all fetters hindering economic development and toact in accordance with objective economic laws. Other-wise, we cannot stimulate the economy and achieve goodeconomic results.

.A RATIONAJ, ONGANIZATTONAL SETI,P 1,4I

Ttre crux of the problem therefore 1ies in b.reakingdown all kinds of departmental and regional barriers sothat key cities can futfilt their function as economic cen-ters. Key cities must first of all expand the production ofconsumer goods, particularly the production of importantgoods with famous brands. They can also help to con-solidate enterprises and organize them rationally, expe-dite reorganization and integration along industrial lines,and restore or start different kinds of rational commodityproduction and circulation. FinaIIy, they must give fullplay to the role of finance and credit, economic forecast-ing, scientific research and the popularization of newtechnology.

Stressing the role of economic centers does not meanthat administrative management and guidance are nolonger needed; the question lies rather in what kind ofmanagement and guidance are called for. Administrativemanagement should be combined with economic manage-ment, and economie levers such as pricing, taxation andcredit should be utilized in accordance with state guide-lines in order to promote economic development. The taskof an economic center is not so much to manage as toserve. It must serve production, circulation, distributionand consumption. It must improve facilities for transport,post and telecommunications, and provide better hotelservices and eommercial consulting services. When some-body goes to a particular city for business purposes, heshould be able to get the information he needs about thelocal situation; if he has any problemq he should be ableto get a satisfactory soltrtion as soon as possible. The bet-ter euch services are handled, the greater the role a keyclty can play as EUl economic center which continuouslyattracts the economic activities of the surrounding re-giona. Dalian in Liaoning Province, for example, is a portcity and an important center for import and export trade.Generally speaking, the commodity exports and importsof the three provinces in northeast China and the easte"n

148 NEW STRATEGY r.ON CI{INA'S ECONOMY

part of Inner Mongolia pass through Dalian. Can Da1ianimprove its services and attract the export products of thewhole of Inner Mongolia and other regions as well? Thisdepends entirely on the quality of services offered. Ifservices are not efficient, then people will probably gonot to Dalian but to Tianjin. In this sense, striving toprovide better services is also a form of competition. Ifall key cities pay special attention to this question, theneconomic activities in China will certainly develop insuch a way as to better promote the prosperity of thewhole economy. A11 key cities have their own specialcharacteristics. Every key city must determine its de-veiopment plan in the light of its own geography, history,natural resources and actual economic conditions. Therecannot be only one stereotyped pattern for all key cities.

In order to give full play to the role of economic cen-ters, several large cities with a relatively developed in-dustry and commerce should be constituted as economiccenters. Around each of these large economic centersthere can be several medium and small-sized economiecenters which are connected in turn to the small townsand surrounding rural areas. An economic center shouldnot be restricted by administrative divisions and shouldundertake economic activities based on objective econom-ic links to attain the best results. The activities of eco-nomic centers throughout the country can be intercon-nected to form a flexible and organic network.

Ttre key cities' power to organize and coordinate dif-ferent kinds of economic activities should also be appro-priately expanded. At the same time, medium and small-sized cities and towns ought to be developed in a plannedway to form medium and small-sized economic centers.If this is not done the large economic centers will existin isolation and be unable to play their proper role. It isalso difficult for the commodity economy in the country-side to develop rapidly without the small cities andtowns; in fact, the economic development of small cities

A N.ATIONAL ORGANIZATIONAL SSPUP 149

and towns will promote the vigorous development of adiversified economy in the countryside. This is of majorimportance in our efforts to build a prosperous economy.

There is yet another significance in developing theeconomies of small cities and towns. In present-dayChina, 20 per cent of the population live in the citieswhile B0 per cent are in the countryside. With the furtherdevelopment of the national economy by the end of thiscentury, the proportion of urban to rural population inChina will probably change to either a ratio of 30 to 70 percent or 40 to 60 per cent. If the former turns out to beso, then over 100 million people will leave the countrysideduring the next two decades. Where will they go? Mostof them will no doubt settle in the srnall cities and townsand there help to promote economic prosperity. Weshould have the foresight to be prepared for this.

Aside from the experience we already have in estab-lishing different forms of combined economie organiza-tions and in accomplishing the integration of enterprises,we have just started to set up associations along industriallines and economic centers, and thus our practical ex-perience is still very limited.

5. The Signs of a Rational Organizational Setupof the Economy

Based on the above analysis, the signs pointing to a

rntional organizational setup of the economy may bedescribed in the following way.

Flrst, certain policy-making powers are gradually del-egated to the enterprises, enabling them to become rel-atively lndependent socialist economic units.

Second, different forms of combined economic organi-zations are established according to the principles ofspecialization, cooperation and economic rationality.

150 NEW STBATEGY FOR CHINA'S ECONOMY

Third, industrial associations are established as an im-portant link between the state and enterprises.

Fourttr, several economic centers based on large citieswith relativeiy developed industry and commerce areestablished to develop national and regional economiclinks and perform certain management functions.

Fifth, the leadership and control of the state over thenational economy as a whole is strengthened in the courseof reforming the present system of administrative man-agement characterized by too many departments andlayers of leadership and by a lack of coordination betweendifferent departments and regions.

With the accomplishment of all this, commodity pro-duction and exchange in China,s socialist planned econo-my will be better organized. Meanwhile, under theguidance of the state plan the various functions of man-agement currently being performed by administrativeorgans of the state will be transferred to economic or-ganizations.

Chapter V

CONCLUDING REMARKS

To sum up, China will gradually realize the rationaliza-tion of the economic structure, the economic managementsystem and the organizational setup of the economythrough the current economic readjustment and reform.With corresponding advances in culture, education andscience, we will continue to make new progress in devel-oping production, improving technology, raising manage-ment levels, increasing economic results and bringingabout a higher standard of living for the whole people.

China's new strategy for economic development, asembodied in the policy of readjustment and reform, isfull of promise. Three years of practice have alreadygiven us an excellent beginning. From 19?9 to 1981, totalindustrial and agricultural output value (calculated atconstant prices of 1970) grew at an average annual rateof 6.? per cent; the total value of agricultural output roseby an average of 5.6 per cent; the total value of industrialoutput rose by an average of 7.1 per cent, which brokedown to a 14 per cent increase for light industry and 1.3pr,r ccnt for heavy industry. The growth rates of agri-culturc and light industry were clearly much faster thanln the past, and the rate of heavy industrial growth wasintentlonally slowed down. Progress has been made inreadjusting the internal structure of industry. The pro-portion of light industry in the gross industrial outputvalue increased from 42.7 per cent in lgZg to b1.b per centin 1981. The scale of capital construction has been reduc-

151

T52 NEW STRATEGY FOR CHINA'S .ECONOMY

ed and the investment structure improved. Ttrere hasalso been a change for the better in the prolonged im-balance between the rates of accumulation and consumption. The accumulation rate was lowered from 36.5 percent to 28.3 per cent in 1981. A basic balance between staterevenues and expenditures has been achieved. As a re-sult of these changes, there has been a marked improve-ment in the living standard of the people. In 1g81, theaverage annual per-capita income of peasants increased by66.4 per cent compared to 19?8, while the average wagesof workers and staff members in state-owned units roseby 25.? per cent, or 11.9 per cent if the factor of priceincreases is deducted. A total of 26,230,000 people weregiven jobs during the three.year period, 1gZ9-81. Thetotal volume of retail sales grew by 27 per cent from lgZBto 1980 (with the price increase factor aiready deducted),and 1981 registered another 7.2 per cent increase over theprevious year.

From the above we can see that with the implementa-tion of the new economic development strategy, soeialistconstruction in China has embarked on a path of sounddevelopment. This wiil ensure a fairly steady tempo ofadvance, attain better economic results and bring moresubstantial benefits to the people. We beiieve that bymaking a sustained effort for several decades we can buildour couatry into a powerful, highly democratic and cul-turally advanced socialist country with modern agricul-ture, industry, national defense and science and tech-nology.

Append,it,

fable 1.

MAJOR FIGURES OF CHINA'S NATIONAL ECONOMY, 1949.81(Selected Yonil)

Item Unit 1949 1952 195? 106! 1975 19?8 1979 19811980

Population

Social laborersTotal industrial and agri-

cultural output valueOf which:

Total agriculturaloutput value

Total industrialoutput value

Of which:Light industryHeavy industry

National income

Revenue

E>rpenditure

Total investment Incapital construction

Volume of freighttransport

Total volurne of retailsales

Total volurne of importand export

Of which:Total volurne of importTotal volume of export

54L,670 574,820

207,290

46,600 82,700

32,600 48,400

14,000 34,300

10,300 22,100

3,700 t2,200

35,800 58,900

6,5201 18,370

6,810* 17,600

1,130* 4,356

25,640 76,200

14,050 27,680

4,160* 6,460

2,130* 3,750

2,0'zv 2,7L0

?l!,880 919,700

18c,700 381,680

198,{00 45O,4Oo

ie,00o 12B,5oo

tE9,a00 321,900

?0,800 139,300

c0,100 182,600

lE8,?00 25o,5oo

{7,E80 01,560

10,080 82,090

17,089 39,190

tlc,800 728,5go

t?,oro 127,110

11,810 29,040

c,t80 L4,140

6,810 14,300

958,090 970,920

398,560 450,900

569,000 617,500

145,900 158,400

423,100 459,100

180,600 198,000

242,500 261,100

301,000 335,000

112,100 110,330

111,100 12?,390

47,955 49,990

s80,600 1,089,770

155,860

35,510

L8,740

L6,770

180,000

45,560

24,390

2L,L70

982,550 996,220

432,800

661,900 691,900

162,700 1?2,000

499,200 519,900

234,4,00 267,500

264,800 252,400

366,?00 389,000

108,520 106,430

12L,270 108,970

53,900 42,789

1,202,600 1,214,300

214,000 235,000

56,300 73,530

29,100 36,7?0

27,200 36,760

thousand

t,

millionruan

milliontonAilo-meters

millionyuan

,,

646,530

237,710

124,100

53,70O

70,400

37,400

33,000

90,800

31,020

30,420

13,829

181,000

47,420

10,450

5,000

5,450

NOTES (1) Total industrial and agricultural output value of 1949 unrl telS are calculated at constant prices of 1952; that of 195? and

1965, at constant prices of 195?; and that of 19?5 and 10711.81, et constant prices of 1970. Figures of the other years are

calculated at the prices of the respective years,

National income refers to net output value of the flve mutcrhl production departments-agriculture, industry, buildlng tn-dustry, transport and comrEunications, and commerce.

"r'r indicates 1950 figures.

(2;)

(3)

Table 2.

OUTPUT OF MAJOR INDUSTRIAL AND AGRICULTURAL PRODUCTS, 1949-81(Selected Years)

I

Product Unit hsrz 1965 1975 19781949 t952 1980 1981

Output of maJor ln-dusirial products

cotton yarn

cotton cloth

machine-made paperand cardboard

sugarbicyclessewing machineswristwatchesT\I setscoal

crude ollelectrlcity

steel

timber

cement

chemical fertillzersOutput of malor agrl-

cultural proiluotsgraincottonoil-bearlng eropssugar canebeet rootsjute and bluish dogbaneteapork, beef and muttonpigs sold to the market

large livestockaquatic products

milllontons

mtlllonmetersmllllon

tons

,t

rnllllon,,

,,,)

mllllontons

t)mtlllonkwh

mtlltontons

mlllloncublcmetersmillion

tons

tt

l,

,)

,,

,,

millionhead

milliontons

0.327

1,890

0.11

0.20

0.014

0.656

3,830

0.3?

0.45

0.08

0.066

2.108

9,400

2.382

11,030

4.39

2.27

8.540

4.865

13.511

0.517

618

104.05

256,600

31.78

51.62

65.24

8.693

304.77

2.L67

5.218

21.1 16

2.7021.OBB

0.268

8.563

161.10

93.89

4.66

2.635

12,150

4.932.50

10.095

5.868

17.070

1.329

635

106.1t

282,000

34.48

54.39

73.90

10.654

332.L2

2.207

6.435

21.508

3.106

1.089

o.27710.624

1B?.68

94.59

4.31

0.91 1.73 3.410.86 1,46 r.740.806 1.838 6.2320.278 1.238 3.56?0.0004 1.008 7.822

0.0043 0.17?8

lp1 232 482t, 1.46 11.31 77.06

[9,300 67,600 195,800

0.844 1.30

5,050 6,280

2.926 3.1?

L3,470 14,270

5.35 5.402.57 3.L7

13.024 L7.5437.678 10.391

22.L55 28.724

2.192 5.394

620 622

105.9t 101.22

300,600 309,300

97.12 35.60

53.59 49.42

79.86 82.90

L2.32L 12.390

820.56 325.02

2.707 2.968

7.691 10.20522.807 29.668

6.305 6.361.098 L.26

0.304 0.343,L2.054 12.609

198.61 194.95

95.25 s7.A4

4.50 4.6r

32

o.l2

4,300

0.158

5.67

0.66

0.006

I 13.18

0.444

2.5642.6420.191

0.03?0.041

66

0.44

7,300

1.35

12.33

2.86

0.039

,163.92

1.304

4.193

?.116

0.4790.306

0.082

3.385

65.45

76.45

1.6?

5.35

)27.87

t2.23

39.78

23.90

47.03

60.02

0.45

6.86 16.34 46.26

0.151 t.726 5.247

195.05 194.53 284.50

1.640 2.098 2.381

4.196 3.625 4.621

i10.392 13.391 16.66?1.501 1.984 2.477

0.301 0.279 0.70

0.1,12 0.101 0.211

3.985 5.510 7.970

71.31 121.67 162.30

83.82 84.2L 96.86

3.12 2.98 4.4L

Table 3.

NATIONAL INCOME, CONSUMPTION AND ACCUMULATION, 1952-81

(Selected Years)

1952 195? 1965 1975 1979 1981

National income (100 million yuan)

Index (with 1952 as 100)

Per-capita national income

National income spent (100 million yuan)

Consumption (100 million yuan)

Accumulation (100 million Yuan)

Rate of accumulation (%)

589 908

100 153.0

104 L4A

607 935

477 702

130 233

2L.4 24.9

1,387 2,503 3,350

19?.5 384.7 484.9

194 274 347

1,347 2,451 3,356

982 1,621 2,191

365 830 1,161

27-t 33.9 34.6

3,66? 3,887

510.1 525.4

375 393

3,684 3,849

2,5L9 2,759

1;165 1,090

31.6 28.3

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accumulation: stable rate of,,1953-5? 43; one-sided em-phasis on 25, 28) excessivelyhigh rate of 25, 43i excessive-ly high proportion of produc-tive versus non-Productive72; readjustment of the rateot 72, 152; approPriate rateof 61

agricultural mechanization:policy for 50

agricultural output: averageannual growth rate of 15, 20,151; total value of, 1978, 1980,1981 68-69

agricultural products: per cap-ita output of 24

agriculture: establishment andconsolidation of socialist 32;increase in water conser-vancy since 1.949 14; increasein farm machinery sinee 194914-15; growth rate of 15, 20;potential in China's 34; back-wardness in the develoPmentof 35; irrational structure of35; undue emPhasis on grainproduction in 35, 45; reasonsfor the backwardness of 43-44: adoption of a new PolicYfor 38; policies and measuresfor developing 13, 49-51, 68;the decision-making Powerof the production teams in36, 68; system of Productionresponsibillty in 13, 32, 36,68;plans for diversified farming50; policy for mechanizationof 50; stressing actual resultsin capital construction in 51;investment priority for 62;

INDEX

increased investments forcapital construction in ?3;relatively rapid growth of,since 1979 13-14, 68-69, 151

Anshan (city): machinerybureau of 71

Anti-Duhri,ng (V.I. Lenin) 114

Beijing: specialized corpora-tions in 126

Britain: steel Production of 56;historical course of industrialdevelopment in 84

budget deficits: in 1979,198074, 77, 78; basic eliminationof 152

building material industry: in-crease in the growth rate of,1953-1980 37

capital: Marx's analysis of theprocess of accumulation of8B

Capitol (K. Marx) 82, 84, 88

capital construction: neglect ofeconomic results in 24; solereliance on new 24-25) aP'propriate scale of 39; exces-sive scale of 39, ?5; reduetionof 39, 61, 151; readjustmentof investments in Productiveversus non-Productive 72-73;increased investments for lightindustrial and agricultural 73

capitalism: historical develoP-ment of 88; basic contradic-tion of 114, 115, 126; extentof develoPment of in oldChina '114

157

158 NEW STN,ATECY l.OR CHINA'S ECONOI\IY

Chinese Communist Party:major strategic shifts effect-ed by, during the revolu-tionary war period 29;Eighth National Congress of9-10; Third Plenum of theEleventh Central Committeeof 9, 11, 26, 32, 36, 49,70,74,111

Chengdu (city) 145Chongqing (city): specialized

corporations in 138; as aneconomic center L4b

circulation funds: high level ofexpenditure of 78

civil aviation routes 32coal: output in 1949, 1.981 1?;

increase in the output of,1950-1979 18; as the principalsource of energy 58; gasifica-tion and liquefaction of 58;rich reserves in Shanxi 58

coal-chemical industry 5?collective ownership: agricul-

ture and handicrafts changedto 10; stressing the need ofdeveloping industries under70, 111; number of employeesof enterprises under ll2-hasty transformation intostate ownership 111, 116

combined economic organiza-tions: integration of enter-prises to establish variousforms of 122; on a national orregional basis 133; adherenceto the principle of mutualbenefit 134; concentration offund for technical transfor-mation in 134; assigning man-agerial powers to the lowerlevel 135. See also integra-tion of enterprises

commodity production and ex-ehange: need for developingsocialist 95-96; capitalist com-modity economy versussocialist 96-97; Lenin andStalin's theory and practice

on g7-99; economic manage-ment reform and 101, 109;socialist economic center andthe development of L43-L44

communications and transpor-tation: development of, since1949 32; as a weak link inthe economy 38; need forprior development of 66;policy for the development oI66-67

Communist Manltesto (K. Marxand F. Engels) 114

"communist wind" 10, 44consumer goods: production of

final 25, 47,79, 82, 86, 87, 88consumptionl high accumula-

tion at the expense of thepeople's 25, 43; rationalizingrelationship between accumu-lation and 28, 72; over-expan-sion of the fund of.77-78

corporations: integration ofenterprises and the formationoI specialized 126, 136, 138;business corporations as dis-tinet from administrative 137;four characteristics of busi-ness 137; independent ac-counting for business 137-139pd,ssirn

cotton: output, 1979-1981 69Crl,ti,que of the Gotha Prog-

?otnrne (K, Morc), The 96"Cultural Revolution', 11, \2,

117

Dalian (city) 146, L47, 148domestic sales of commodities

33

"eat from the same pot": egal-itarianism and 94,99,101, 105-106

economic center: socialist, com-pared to feudal and capitalistL43-L44; functions of a social-ist 144-147; nationwide andlocal 145; breaking depart-mental and regional barriers

rNDEx 159

146; offering services 147-L48; production and exchange 97-developing medium and 99 passim; characteristics ofsmall-sized 148-149 current system of L24i ra'

economic circle: unsound 26 tionalization of economiceconomic cooperation with structure and the reform ot

foreign countries 28 67-68; a symposium on the re-economic constnrction: four form of the system of ?9;

periods of China's socialist orientation of the retorm of12-14; "theory of quick suc- 100-101, L[2-LL7; steps in re-cess" in 41-42; achievements forming 101; five aspects ofin, compared to old China 14- 102-1'12; achievements in re-1?; China's achievements in, forming 101; extension of thecompared to India 18; China's powers of enterprises and theachievements in, compared to reform of 14, 103-105; econom-developed countries 19; fun- ic responsibility system anddamental aim of 26; a new the reform of 109; utilizationtrail in 9, 30 of market forces and the re-

economlc development: major form of '109-110; industrialproblems in China's 20-22; integration and the reform ofprincipal error in select- L24ing the strategy and goals of Econornic Problems of Socioli,sm23, 30; mistakes in the meth- in the Sooiet union (J. Stallnr,ods of 24-26; policy of re- The 98adjustment and a new economic readjustment: in thestrategy for !.1, 151; signifi- early 1960s 38; current policycance of strategic shift in 9, of 11, 26, 681 aim of 31, 47;26-30; turning point in 14i methods for 49-68 pd.ssint,)planned and proportionate 31, two-pronged approach to 61;4L,126 achievements in 68-73; rea-

economic integration: economic sons for further 74-79management reform and dif- economic readjustment and re-ferent forms of 101, 102, 130; form: aim of current 9, 151;State Council's Provisional task of 11?; results of newRegulations on Promoting development strategy as1301 combining economic and embodied in 151-{52administrative measures economie reform: aim of cur-(methods) in 96, 131; five rent 93areas of work in promoting economic regions 145132-136 economie responsibility system

economic law of socialism: 101. 105-102 passitnbasic 23, 85 economic structure: achieve-

economic legislation 134 ments in transforming oldeconomic levers 100, 141-

^,,^- ahi;;,, --is_s+;

major prob.economic management: an over ,-"..'-: '

centralized system "t-i-G,

Sil lems.of p.resent 35-41; reasons

defects of piesent systerir oi for irrational 4L-44; charac-

44, 93-95; over-relianae on ad- teristics of present 44-46;ministraiivemethods in44,67, grave consequences entailed93,94,101, L24,l3B; impactof by irrational 34-35, 46, 95;Stalin's theory on commodity requirements of a rational 47;

160 NEW STRATEGY I.OR C}IINA'S ECONOlWY

prineiples in readjusting 48- Etrgels, F.: on the thesis of so-49; main aim in improving cialist nationalization 1'1449; objectives of readjusting engineering industry: technical79-80; strategic shift and a transformation and the rolerational 27; pre-condition for of 53; readjustlng the servicerationalizing 66; rationaliza- orientation of 53-54; problemtion of 30, 6?, 80; establish- of under-utllization of equipment of a rational regional ment in 54; strategic thinking64-65 for developing 50. See also

economic zones 64 machine-building industryeconomy: old China as a nat- enterprises: significance of con-

ural 33; basic characteristics solidation and reorganizationof China's ,48; technological of existing 28; over-reliancemakeup of China's 33; weak on administrative methods inlinks in 45; development the management of 44,67; de-strategy of China's 9; new fects of current managementtrail in developing China's 26, system of 1391140; extension30; achievements in readiust- of the decision-making powering the two basic dispropor- of 14, 101, 102, 1031105, 111,tions in 68; structure of 90; 118; setting up economic re-"heavy structure" of 90; sponsibility system in 101,[.02,n'light structure" of 9Q 91; 105, 106, 109; [.18-119; practis-natural 33, 96; serni-natural ingthemethodofprofitreten-95,98; nature of socialist 95; tion in ,105; implementing theessential characteristics oI so- system of responsibility forcialist 95; signs of a rational fixed quotas of profits ororganizational setup of 149- losses 106-107; different150 views on the system of sole

egalitarian practices 94, 101 responsibility for profits orelectrieity: output, 1949, 1981 losses in LLZ-ll4; implement-

17; annual shortfall in 34 ing piece-rate wage systemenergy: average annual growth 107-109; planning production

rate of output of 37; shortage according to market demandof 37, 57; need for estab- 109; management improve-lishing a rational structure of ment and the consolidation of57; China's per eapita average ll7-l2l; improvement in theresources of, compared to composition of cadres of 118;U.S, and U.S.S,R.; a long-term experiences in improving thepolicy of 57, 58-59; proportion management of 119J120; dem-of eoal in the composition of ocratic management in 120-the eonsumption of 58; coal 121 ; ideological work in 109,remaining the principal 120; employees in collectively-source of 58; rational extrac- owned, in 1979,1980, 1981 112;tion and utilization of oil 58; all-inclusive and self-suf-tapping abundant hydro- ficient tendency of 121. Seepower resources 59; solving otrso integration of enterprisesrural problem of 59; lowering exports: total value of importsthe coefficient of consump- and, in 1950,'1977-1979 33;tion of 59 proportion of industrial and

INDEX 161

agricultural output value for phasis on the policy of "tak-39; new policy towards im- ing grain as the key link"ports and 63-64; readjustment 35, 45; imports of 36; outputof the composition of imports of, 1979-1981 69; solution toand 63; more heavy and light the problem of 49industrial products for 63; "Great Leap Forward" 10producing more labor-inten-sive products for 64; of elec- handicraft industry: importancetrical and mechanical prod- of b2; collectively-owned in-ucts 72 dustry's share of the output

factory director: role of 120 n.:?1,T#lrl#: playins leadingfamily planning 28 - role in the economy bB; suc-First Five-Year Plan: agricul-- cesses with the policy of pref-

tural and indrllstrial growth erential deveioprnent -

of,rates during 20; investment durinE First Five-year plancoefficient 21; rate of national 4Z-$: g9; overemphasis onincome increase during 21; the 'preierential

develop-average wage increase- of ment of 42; Mao Zedong onworkers and staff members the relationship betweenin state-owned units--22;. ac- agriculture, light industry andcumulation rate 25,43.; share 4I; theoretical analyses relat-of capital construction.. in ing to the development of 82-total financial expenditure A+] 3O-AZ: the Soviet Union,s39; share of heavy industrial experience in preferentialinvestments 24; share of light deielopment of gE-86; con-industrial investments 39; seqrurri"r of undue emphasisshare of productive invest- on 24, 45; excessive invest-ments 40 .. ment share of.24,45i lopsided

fixed assets: China's utilization development of 87; i-mbal-rate of, compared to develop- ances in the internal com-ed countries 35 - position of B?-3S; slowing

foreign trade: total value of ^ex- i.-"-tt" growth iate of Eiports and imports- in 1950, iO, gr;readiustingtheinternaitg77-t979 fi]; rapid.il:"gHg .i*"t"r. ot sS; readjustingin the volume of, 1980-1981 it" ."i"i"u orientation of bB,38; China's r-t_rl" o_f t?l"j I?l_ ls_72- eisstm, 92; proportionume of world trade, 39; new oi,

'i" -trt"f igricutturil anapolicy towards 63:94 i;A;;iri"t outpur value 91Fourth Five-Year PlT: __1gI; t o"ri"ei """te ihortage of 40,

lill$[f,t,"t#to.i'l"iHTil ",tli-*$"tage

or househords

vestment coefficient z'r;' ,.t" lacking -

adequate 40; per

of national income i;i";;; capita floor space in 1952,

during 21; excessive scale of L977 40i increased invest-capitJl construction 3g ments in residential construc-

tion, 1979-1981, 73; total res-,,Gang of Eour,' 44 idential floor space built ingrain: per capita output of, 19?9,.1980 73; planning urban

195?, 1978, 24; ondue em- construction 60

162 NEW STRATEGY FOR C}IINA'S ECONOMY

imports: total value of exportsand, 1950, 1977-1979 33; newpolicy towards exports and63-64; of comPlete sets ofequipment under strict con-trol 63; duplications in 39, 63

income: cofiImune members'average per capita, 1957,1978,1980 16-17

India: economic achievementscompared to China's, see eco-nomic construction

individual economy: hasty ne-gation . of the role of 26;operation of individual handi-craftsmen 52

industrial and agricultural out-put value: average annualgrowth rate of, 1958-1978 24;proportion of agriculture inthe total, 1949, 1975 35; pro-portion of agriculture in thetotal, 1978, 1980 68-69; averageannual growth rate of,1979-1981 151

industrial association: nature of'140; functions of 140-141 ; asdistinct from feudal and cap-italist 142

industrial fixed assets: totaloutput value produced perhundred yuan of, lg57,Lg7&24

industrial management: ex-perimental reforms on coun-ty-level 102, 110. See olsoeconomic management

industrial output: average an-nual growth rate of 15, 20, 151

industrial reorganization: asnecessitated by economic re-adjustment 124; progress in126; problems in 129; comectmethod for effecting 136

industrialization: after 1949 32;heavy industrial developmentand 42-43; capitalist 82, 89;road to socialist 81; generallaw of socialist 85

industry: fixed assets of, 1949,'1980 15; rational geographical

distribution of 12; bases of, ininterior regions 15; develop-ment of new !.5; structure of14; present level of, comparedto old China 1?; growth rateof, compared to developedcountries 10; progress in re-adjusting internal structureof 151; need.for integratingmilitary and civil 49, 55

integration of enterprises: asthe fundamental link in ra-tionalizing the setup of theeconorny 122; principles ofspecialization and cooperationand 1'.7, L22, l24i economicmanagement reform and 124;socialist versus capitalist 125-126; economie results of re-organization and L27-l2B;pure reliance on administra-tive methods in 128, 129; ad-ministrative intervention nec-essary for 130, 131; combin-ing economie and administra-tive methods in promoting 131

investment: imbalanees be-tween productive and non-productive 40; readjustmentof the structure of 61; priori-ties 62; stressing economicreturns of 63; increased pro-portion of, for non-productiveconstruction ?2-?3; increasedproportion of, for light indus-try and agriculture 73; im-provement of ttre structure ofL52

"iron riee bowl": egalitarianismand 94, 101, 106

Japan: industrial growth rateof t19; steel output of 56; levelof industrial specialization ofL23

Jiang Qing 11, 13, 115Jinan (city): implementing five-

level system of assigning re-sponsibility for flxed quotas106-10?

INDEX 163

labor insurance andl welfare basis for developing 83. See

benefits: for workers and also engineering industrystaff members in state-owned Mao Zedong 29, 42, LLAunits in 1952, 19?8 16 market: supplementary legul1-

land reform 32 tory role of 29, 95, 100' 102'

law of value 96, 98 L09, 110

"Left" errors (practices) 10, [1, Marx, K. 82, 83, 84, 88, 96

43, 45, ,116 means of production: plannedLenin, V. I.86,8?,97,99,L22,L25 economy based on the publiclight industry: industrialization ownership of 95; production

and the development of 42; it of means of consumption ver-relation to machine-building sus production of 82, 84-85,

industry 83; falling short of 86-88 possirn, 89 law of prio-rmeetini people's needs 36; growth of 86, 88; as commod-low investment share of 36; ity under socialist systembackward technology of 36; 98, 99. see @lso heavy indus-irrational comPosition of raw Wmaterials in 36, 52; steps to modernization: shifting of focusaccelerate the development of of work to socialist Ll, 26;52-53; increasing the propor- material base (foundation)-fortion bf industrial raw ma- socialist 15, 34; aim of fourterials for 52; changing the modernizations 27; technicalproduct mix of 52; readjust- transformation and four mod-ing the ownership structure ernizations 53; energy re-in 52; implementing the solrrces for four moderniza-policy of "six priorities" for tions 5?; foreign trade and 39;if, ZO; investrnent priorities imports of technology andfoi 62iincrease in the growth equipmeni for 63; abstaclesrate oi output value of, 1979- to 35; economic management1981 ?0, 151; proportion in reform and socialist 93

the gross industrial outputvalue of, 19?9, 1980, 1981.70; national income: growth of 16;duplication in construction average annual growth ratein 75 of 2l

Lln Biao 44, lti non-productive construction:

machine_building: output of see capital construction

machine tools in 1949, 1981 oil: self-sufficiency in 12; in-17-18; low quality and poor --.;";;; i' tt" o.riprrt of, i950-performance of the products 19?g 18: rational extractionof 3?, 56; changing production and utilization of 58structure and service orienta- oil-bearing crops: per capitation of enterprises under the output of, 195?, 19?B 24; out-former First Ministry of.7l-72 put of, t9?9-1981 69passim; survey of sPecializa-tion in production conducted peasants: per capita income of,by the former First Ministry 1978 22; average amount ofof 123; Marx on the develop- grain distributed per capita,ment of 83; light industry as in 19?8 22; higher purchase

III

164 NEW STRATEGY l.OR, CHINA'S ECONOlWY

prices and the rise in the in-come of 13; increase in theaverage annual per-capitaincome of, 1978-1981 152

people's communes: rashness inthe establishment of 10;"Left" practices in organizing43, 44

petrochemical industry 52, 57planning: periods of correct and

incorrect 20-22; orL the basisof public ownership 29; pri-mary task in economic 41;pursuit of excessively hightargets in 4l-42;' overrem-phasis on the development ofsteel in 42; proper functioningof market mechanism andeconomic 46; supplementaryregulatory role of the marketunder unified state 29, 68, ,100,

104 109; differeat forms of100; mandatory 99, 100; guid-ance 100; defects of all-in-clusive state economic gS, gg;reforms in the system of 109;guidance of state 126, 133, 138

population: growth of 2b, BS;planning 49; proportion ofurban to rural 14g

price: increase in the state pur-chase prices for farm prod-uce 13, 68; increase in retail,1979, 1980 7?primary and intermediatep.roducts: produetion of. 2i, 27,47,86

processing industries: lack ofcoordination between rawmaterials and B?

Problems o! Strategq, in Chtna'sReaolutionarg Wor (Mao Ze-done) 29

product mix 52, 53,92, L09, 127production structure 80, 90-91,

92, L@production teams: see agricul-

tureproductive construction: $ee

capital construction

profit: state-owned industrlalenterprises' rate of, 1957,1976, 1979, 1980 78; methodof retention of 105

profits and taxes: realized bystate-owned industrial enter-prises per hundred yuan, 1957,r1.976 20

Provisional Reglulation on Pro-moting Economic Integration:see economic integration

purchasing power: average an-nual increase of social, 1970-'1978, 1980 77

Qingyuan county: experimentalreform of county-levelindustrial management in110-111

railroad network: China's totallength of, compared to U.S.,Soviet Union and India 38

residential construction: seehousing

retail sales: inerease in the na-tional price index of, 1979,1980 77; volume of L980, 1981110; growth rate of, 1980, 1981U0; growth rate of, 1978-1980,1981 152

Second Five-Year Plan: sharpfall in agricultural outputduring 20; falling rate of in-dustrial growth during 20;excessive scale of capital con-struction 39; excessively highaccumulation rate 43; exces-sively high proportion of pro-ductive versus non-productiveinvestment 4A; decline .ineconomic results in produc-tion and construction 20-21;rate at v/hich investmentsturned into fixed assets 21;sharp fall in national income2L

self-employed laborers: numberof, in 1952, 1957, 1975 26

TNDE:<

service trades: number of Peo-ple served Per Person em-ployed in 38-39; increasinginvestments for 62

Shandong (Province): imPle-menting the system of assign-ing responsibilitY for definitequotas of profits or losses 106;coal i.ndustry making quickgains with the fixed-quotaresponsibility system 107

Shanghai: speciaUzed corpora-tions in 126,136,138; re-organization of enterprises inL27,136; results of industrialreorganization in 127-128; in-crease of industrial labor Pro'ductivity irr, 1952-1980; in-crease of average annual con-tribution to the state Perworker in, 1952-1980 127-l2B

Shashi (city): combined econom-ic organizations in 128

Shenyang (city): sPecialized in-dustrial corporations in 138

social production: two majordepartments of 80

social reProduction: generalprocess of 85

socialist construction: seeeconomic construction

socialist nationalization: Marx-ist thesis of 115, 116

socialist production: aim of 23,

81, 84socialist system: establishment

of 10, 33; superiority of 19' 29;economic structure requiredby 48; in relation to the in-tegration of enterPrises 126

socialist transformation: Periodof economic construction in-tegrated with 12; Potentialfor developing Production and89; basic comPletion of 9-10,136; rashness in 25-26; hastytransfer of collectivelY-ownedindustries into state owner-ship 1111' 116

Bocialization of Production 66,

115, 116, L22, L26Soviet Union 19, 23, 58, 85, 93,

97, 98specialization and cooperation:

China's Ievel of, compared toJapan and U.S. 123; indus-trial reorganization and theprinciples of 122,L24, L2B,l4L,149; corPorations and generalfactories set uP according tothe principles of 126. See alsointegration of enterprises

Stalin, J. 93, 9?-99State and Reoolution (V. I.

Lenin), The 97State Council 30, 70, 130' 139

state ownership: ereation of thesystem of 115; in relation tocollective ownershiP 114' 1'16

steel: output, 1949, 1981 17; out-put, 19i8-1981 76'tt7; unsoldinventorY (over suPPlY) of 25'7?; required amount of, need-ed for modernization 56-57

Symposium on Theoretical andPractical Problems in Re-forming the System ofEconomic Management 79

technical transformation: fourmodernizations and 53, 01; ofexisting enterprises versusconstruction of new Proiects25, 28,61; of existing enter-prises in relation to the PolicYof self-reliance 48; of exist-ing enterprises and Provisionof various aids 61-62, Iliupdating of equipment and54; energy saving measuresand 59; economic manage-ment reform and 104

technological exchanges withforeign countries 28

technological makeup : improve-ment in China's 33

Third Five.Year Plan: agricul-tural and industrial growthrates during 20; investmentcoefficients 21; rate of na-

165

166

tional income increase during2L

Third Plenum: see ChineseCommunist Party

Tianjin: speeialized corpora-tions in 126; 138; as aneconomic center 145

Tongliao (city): industrial man-agement reform in 111

trade fairs: abolition of country44; revival of country 13;brisk business in rural andurban 1,10

transportation: developmentsince 1949 32; as a weak linkin the economy 38; need forprior development of 66; pol-icy on the development of 66

United States: industrial growthrate of 19; per capita averageof enerry resources of 5B;level of specialization in theengineering industry of 123

NEW STRATEGY FOR CHINA'S ECONOMY

urban planning 60

q/ages: increase in workers andstaff members', 1952-1978 16;increase in workers and staffmembers', 1957-1978 22; in-crease in workers and staffmernbers'; from 19TB to 1981152, implementation of piece-rate system of [07-109

War of Resistance Against Ja-pan 29

welfare benefits: see labor in-surance and welfare benefits

West Germanyr industrialgrowth rate of 19; steel out-put of 56

workers' congresses 120

Yantai (city): piece-rate wagesat shoe factory in 108

Zunyi: Meeting 29

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Other Titles from

CTIINA STUDIES SERIES

China's Population: Prob-lems and Frospects

By Liu Zheng, Song Jianand others

This booh olfers forcignreaders the first detailed ex-amination of China's popula-tion problem. It traces thecourse of population growthand the development of po-pulation policy and theorY,and describes the initial suc-cesses of family planningprogramme introduced inthe early 1970s. trt also dis-cusses major population is-sues in China today. Casestudies of urban and ruralfamily planning providestatistical information onpast developments and pro-ject future trends.

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By Xu Dixin and others

This collection of essaysby China's leading econ-omists presents a compre-hensive summary of thecoursc oI China's economicdevelopment since the found-ing of the People's Republicin 1949. The authors seek toanalyse the successes andIailures of past economicconstruction and to draw thelessons needed to guide cur-ren.t economic poiicies. 'Iheiranalyses are illustrated bynmple statistics.

Subjects covered includethe I'unction of economicplanning, the balance be-tween industry anfl agricul-ture, the relationship be-tween accumulation andconsumption, the distribu-tion of income, tn"

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