(SOEs). The main flow in China’s SOEs’ reform is giving more autonomy to enterprises. $ ^{65} $

SOEs’ reform started at the beginning of economic reform as a trial of giving more autonomy to SOEs. $ ^{66} $ Its achievements are clear to some extent, but there is currently a large gap between advanced enterprises and backward enterprises. In China’s SOEs’ reform, advanced enterprises $ ^{67} $ which had been “trial companies” received relatively modern management systems. But most SOEs keep the old management style. This gap is now causing many problems. For example, only 1/3 of SOEs are said to be profitable. $ ^{68} $ In China, a lot of “enterprise groups” had been established to rationalize and improve the management of SOEs. $ ^{69} $

Issues in SOEs reforms are mainly in the following fields: improvement of the management system, separation between administration and enterprise (which is basically ownership and management issues), adoption of a new labor system, separation between enterprise activities and social welfare, etc.

## 2 -3-1 Management Reform

## 2 -3-1-1 Trial of Granting Autonomy:1979-83

In the old system (before reform), most enterprise activities were conducted under controls and commands from the government. Many economic activities stayed inefficient during that time. $ ^{70} $

Based on the decisions at the Third Plenum of the 11th Party Congress, partial reform trials in urban areas were also adopted at the Central Working Conference in April 1979. The trial focused on adding more incentives to SOEs by increasing their autonomy, installing new accounting systems and changing distribution principles to be based on the workers' actual output.

SOEs’ reform trial started in Sichuan province in October 1978. Affected by the rural reform (which was the real starting point), six SOEs were given a little autonomy in their management. $ ^{[71]} $ This small trial showed a little improvement in SOEs and the trial program was enlarged to more enterprises in January 1979 in the provinces. In the program, enterprises were allowed to produce more products in excess of the plan, proceed with entrusted materials and keep some part of their profit $ ^{[72]} $ by themselves if they achieved their planned production targets.

In May 1979, this program was adopted by the central government. The central government chose eight enterprises as trial enterprises. In July 1979, five decisions like “Some decisions on the enhancement of SOEs’ management autonomy” were declared. These measures and decisions accelerated the management reform of SOEs. Many enterprises gained some autonomy and could improve their management. $ ^{73} $ In December 1980, the Central Working Conference decided to adjust the economy, and enhancement of the trial program was halted.

In October 1981, with regard to “Opinions on Performing Industrial Product Responsibility System,” China decided to introduce a responsibility system. In this system, responsibilities between the nation and enterprise, as well as enterprise and employee are defined by contract. For example, enterprises contract the amount of the profit transfer or the amount of deficit with the nation. If an enterprise can earn more profit than contracted, the profit can