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WEEKLY NEWSLETTER
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China
Index
The period of readjustment produced promising results,
increasing incomes substantially; raising the availability of food,
housing, and other consumer goods; and generating strong rates of
growth in all sectors except heavy industry, which was
intentionally restrained. On the strength of these initial
successes, the reform program was broadened, and the leadership
under Deng Xiaoping frequently remarked that China's basic policy
was "reform and opening," that is, reform of the economic system
and opening to foreign trade.
In agriculture the contract responsibility system was adopted
as the organizational norm for the entire country, and the commune
structure was largely dismantled. By the end of 1984, approximately
98 percent of all farm households were under the responsibility
system, and all but a handful of communes had been dissolved. The
communes' administrative responsibilities were turned over to
township and town governments, and their economic roles were
assigned to townships and villages. The role of free markets for
farm produce was further expanded and, with increased marketing
possibilities and rising productivity, farm incomes rose rapidly
(see Post-Mao Policies
, ch. 6).
In industry the complexity and interrelation of production
activities prevented a single, simple policy from bringing about
the kind of dramatic improvement that the responsibility system
achieved in agriculture. Nonetheless, a cluster of policies based
on greater flexibility, autonomy, and market involvement
significantly improved the opportunities available to most
enterprises, generated high rates of growth, and increased
efficiency. Enterprise managers gradually gained greater control
over their units, including the right to hire and fire, although
the process required endless struggles with bureaucrats and party
cadres. The practice of remitting taxes on profits and retaining
the balance became universal by 1985, increasing the incentive for
enterprises to maximize profits and substantially adding to their
autonomy. A change of potentially equal importance was a shift in
the source of investment funds from government budget allocations,
which carried no interest and did not have to be repaid, to
interest-bearing bank loans. As of 1987 the interest rate charged
on such loans was still too low to serve as a check on unproductive
investments, but the mechanism was in place.
The role of foreign trade under the economic reforms increased
far beyond its importance in any previous period. Before the reform
period, the combined value of imports and exports had seldom
exceeded 10 percent of national income. In 1980 it was 15 percent,
in 1984 it was 21 percent, and in 1986 it reached 35 percent.
Unlike earlier periods, when China was committed to trying to
achieve self-sufficiency, under Deng Xiaoping foreign trade was
regarded as an important source of investment funds and modern
technology. As a result, restrictions on trade were loosened
further in the mid-1980s, and foreign investment was legalized. The
most common foreign investments were joint ventures between foreign
firms and Chinese units. Sole ownership by foreign investors also
became legal, but the feasibility of such undertakings remained
questionable.
The most conspicuous symbols of the new status of foreign trade
were the four coastal
special economic zones
(see Glossary), which
were created in 1979 as enclaves where foreign investment could
receive special treatment. Three of the four zones--the cities of
Shenzhen, Zhuhai, and Shantou--were located in Guangdong Province,
close to Hong Kong. The fourth, Xiamen, in Fujian Province, was
directly across the strait from Taiwan. More significant for
China's economic development was the designation in April 1984 of
economic development zones in the fourteen largest coastal cities-
-including Dalian, Tianjin, Shanghai, and Guangzhou--all of which
were major commercial and industrial centers. These zones were to
create productive exchanges between foreign firms with advanced
technology and major Chinese economic networks.
Domestic commerce also was stimulated by the reform policies,
which explicitly endeavored to enliven the economy by shifting the
primary burden of the allocation of goods and services from the
government plan to the market. Private entrepreneurship and freemarket activities were legalized and encouraged in the 1980s,
although the central authorities continuously had to fight the
efforts of local government agencies to impose excessive taxes on
independent merchants. By 1987 the state-owned system of commercial
agencies and retail outlets coexisted with a rapidly growing
private and collectively owned system that competed with it
vigorously, providing a wider range of consumption choices for
Chinese citizens than at any previous time.
Although the reform program achieved impressive successes, it
also gave rise to several serious problems. One problem was the
challenge to party authority presented by the principles of freemarket activity and professional managerial autonomy. Another
difficulty was a wave of crime, corruption, and--in the minds of
many older people--moral deterioration caused by the looser
economic and political climate. The most fundamental tensions were
those created by the widening income disparities between the people
who were "getting rich" and those who were not and by the pervasive
threat of inflation. These concerns played a role in the political
struggle that culminated in party general secretary Hu Yaobang's
forced resignation in 1987
(see Resistance and the Campaign Against Bourgeois Liberalization
, ch. 11). Following Hu's resignation, the
leadership engaged in an intense debate over the future course of
the reforms and how to balance the need for efficiency and market
incentives with the need for government guidance and control. The
commitment to further reform was affirmed, but its pace, and the
emphasis to be placed on macroeconomic and microeconomic levers,
remained objects of caution.
Data as of July 1987
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