Silviase/jgov_v1.4_full_ann huggingface dataset:
after the “disorder” in Beijing. China declared its intention to stay with economic reform, but apparently, the emphasis was put on a tight-belt policy to overcome inflation.

For three years from 1989, China’s economy had to go through adjustments. They succeeded in pulling down the inflation rate, but had to face very stagnant production.

The situation was changed by Deng Xiaoping's spring tour in 1992. During the tour, Deng talked about re-accelerating the reforms. Since then, the reform as well as economic activities have been accelerated.

In October 1992, at the time of the Ninth Plenum of the 13th Party Congress and the 14th party Congress, China introduced the concept of the “socialist market economy.” This was the end of a long series of controversies about the relationship between “plan” and “market.” It was confirmed that while China keeps its socialist social framework, the market system operates most economic activities, including distribution. The function of government, which equals plan, is now macro control. $ ^{24} $ The government aims to control the economy through indirect and non-administrative sophisticated measures although they are still faced with the inheritance of traditional regimes.

The Chinese government presumably did not intend to move to a market economy in the early stages of reform. In other words, China’s reform started as a reform within a traditional system of command economy. As we mentioned, the market was defined as nothing but an extra factor in those days. The results of first stage were considered to be successful, and the success itself made it possible for China to accelerate reform and to shift to the transition to a market economy.

Gradually, it began to be recognized that market mechanisms are more efficient than the command system in resource allocation and the promotion of production activities. This recognition finally led to the announcement of the introduction of the socialist market economy.

## 2 Reform in Each Sector

In this section, situations of main reform areas will be mentioned by sector. $ ^{25} $

## 2 -1 Rural Reform

Rural reform is practically identical to agricultural reform in the first stage. Agriculture is the first and the most important key area in which China began its reforms. Until now, China had a big agricultural economy. Rural reform keeps its importance even now, though TVEs succeeded in developing at high rates.

As rural reform in the first stage could show a clear effect in production, $ ^{26} $ measures used in rural reform, especially the “contract system,” $ ^{27} $ like urban reform, $ ^{28} $ became the main strategy in every reform. In that sense, Rural reform is the foundation of China’s Reform. $ ^{29} $

## 2 -1-1 Initial Condition : Pre-Reform Period

The People’s Republic of China was established 1949. The basic organization in rural areas had been “people’s commune” $ ^{30} $ since 1950. The people’s commune -- with collective ownership -- was introduced from 1958 to 1959. In this system, there were many problems like egalitarianism in distribution and low incentives in production. The Communes also had
be distributed within the enterprise. Virtually the same system existed between the enterprise and employees. This system required enterprises to pay more attention to their own management.

## 2 -3-1-2 Trial of Granting Autonomy:1984-88

In May 1984, the “Provisional decisions about more advancement in enhancement of SOEs’ management autonomy” was announced. In this decision, enterprises were given autonomy in ten management fields. $ ^{74} $ In the government report of May 1984, advancement in urban reform, a solution between the nation and enterprises, the transition from profit transfer system to the taxation system and promoting more enterprise autonomy were stressed. In October 1984, the Third Plenum of the 12th Party Congress was held and the “Decision on Reform of the Economic Structures” was adopted. Activating enterprises, separating administrative system and enterprise management, permitting variations in management systems, and distributing based on labor were clarified and authorized.

An enterprise income tax system was attempted from 1983, (the trial was expanded in 1984), but the tax seemed to clarify the bad performances of SOEs. $ ^{75} $ The trial stopped in about 1987 and most companies moved to the “Contract Responsibility System.” From 1988, a new trial, “divide tax from profit,” began.

Though the responsibility system can do a lot in improving the efficiencies of SOEs, enterprises can be granted autonomy only for a short term in this system. For establishing better management systems, to give enterprises a long-term managed perspective, the necessity for ownership reform was recognized. In the third stage, ownership reform started.

From 1984 to 1988, the most important theme in SOEs was granting more power of autonomy. Based on the experiences of these four years, an “Enterprise Law” $ ^{76} $ adopted in 1988 to enforce the autonomy of SOEs.

## 2 -3-1-3 Accelerating Autonomy: 1989-Present

Based on the enterprise law, enterprise reform advanced step by step. Most enterprises operated under the Contract Responsibility system. Separation between tax and profits also widened. An ownership system is also under experiment. In 1992, the legal framework for "joint-stock" companies was established on a trial basis.

The main issues in SOEs reform are “management autonomy” and “equilibrium in the balance sheet.” Even now, only 1/3 of SOEs are said to achieve fiscal balance.

Though enterprise reform has continued for a long time, it has been rather difficult to improve the situation. The lack of enterprise autonomy is not the only reason: the background of their bad budgetary situation is complicated and difficult to solve. For example, welfare for workers and retirees is now a big burden to SOEs when compared with developing TVEs, which have more modest welfare burdens. With improvements in management systems, SOEs need more reform in many fields to assure their autonomy and efficient operation.

## 2 -3-2 Employment System Reform

In the old system, all employment was centrally controlled and distributed to each sector
much revenue in the contract system -- are said to have resisted the new system. $ ^{92} $ The budgetary system reform in China is now at a turning point.

## 2 -6 Banking System Reform

Under the old system, the main function of the bank was collecting deposits and distributing funds to build important projects. Banking was operated under a central plan, and was expected almost no function of central banking as in a market system. At the period, the People's Bank had not been in charge of “macro management function.”

## 2 -6-1 Commercial Banking System

China built a mono banking system in 1949. All banking functions including central and commercial banking, concentrated on the People's Bank of China.

After the Third Plenum of the 11th Party Congress, the banking system became more important to activate the economy than during the old regime. Since 1979, specialized banks were established and many non-bank financial companies like “China International Trust and Investment Co.” were permitted. In September 1983, separation of commercial banking from People's Bank was decided. Since 1986, cooperation between many commercial banks has taken place. From the outlook, China finished building the framework of a market-compatible commercial banking system. The next step is separating policy lending function from commercial banks. In April 1994, one bank was established for policy lending.

## 2 -6-2 Central Banking System and Monetary Control

From the beginning of 1984, the People's Bank became the central bank. From 1985, transactions between the People's Bank and other banks transferred to a normal "lending and borrowing" relationship from the former "money distribution" system. As the central banking system was introduced and the relationship between banks was clarified, monetary control measures began to function.

The People’s Bank belongs directly to the cabinet. At the Third Plenum of the 14th Party Congress, banking system reforms were taken up. There, it was decided to strengthen the function of the People’s Bank. The deeper the transition to a market system, the more macro economic control measures and central banking function gain precedence over administrative control measures. Today, China’s banking system reforms are still being carried out.

## 2 -6-3 Exchange System

The exchange system is also currently conducted by the People's Bank. At the beginning of the reforms, foreign exchange was controlled by a special agency in the State Council.

Before 1980, exchange rates were decided at the official rate according to the type of transaction. Each foreign trade company and exporter had retention quotas issued by the agency. Since then, the exchange system has been simplified. In 1984, exchange rates were unified to one official rate.

In 1986, the foreign exchange adjustment center (FEACs) system introduced the trading of retention quotas between approved enterprises. In the beginning of this system, only a limited number of companies could participate in the market, but the limitation weakened
system which can improve the economy is appropriately called a socialist system. $ ^{100} $ China seemed to have chosen the market system not because it is peculiar to the developed countries but because it can manage and control the economy much better or efficiently than the old command system, which characterized the old socialist and communist economy.

In the near future, China’s socialist system might change its apparent characteristics to so-called “developing dictatorship” which had been adopted in other East Asian countries like Korea and Taiwan. $ ^{[101]} $ “Socialist” means some kind of “public ownership” through future share holding network between former state-owned enterprises and TVEs.

Though China defined the “socialist market economy” at the Third Plenum of the 14th Party Congress, a concrete image of the new system is not clear even now. One hint to imagine the future China’s system is to find to which economy China pays much attention as a reference case. From some interviews, we can find that China regards East Asian developed countries as references.

## 3 -3 Conclusion

## 3 -1 Evaluation to the Economic Reform

Since the end of 1978, China has continued the economic reform based on a pragmatism. China has kept its good macroeconomic performances and achieved a steady structural reform for these years. Though there remains many problems like inflation, budgetary deficit and SOEs' reform, improvements of income standard per capita and steady economic growth can be evaluated as the result of the unification of the China's economy to the world economy based on the open policy and activation of its domestic economy by restructuring the central planning system to the decentralized market system.

## 3 -2 Change the Characteristics in the Role of State and Planning

With the permeation of a market system to the economy, the role of State also has greatly changed. Under a central planning system, State fixed the production plan of each product, but now the distribution of resources are becoming to be managed by a market mechanism and indirect measures. $ ^{102} $

Economic planning has also been changing its characteristics from direct commands of production to a blueprint of showing directions in economic management, correct market failures, control bottleneck sectors and play a limited role in the government sector. $ ^{103} $

## 3 -3 Trends in Macro-Economy

Since at the beginning of 1994, prices began to increase. The inflation rate has been keeping more than 20 percent (converted to per year) since March 1994. It is reported that average inflation rate from January to July is 22.4 percent (compared to the same period of previous year).

In China, there has been a issue in economic management of repeating overheat-tightening cycle, so called “GO-STOP cycle.” These few years, this cycle is becoming just like a constitution of China’s economy.

Undeveloped situation of indirect macro control measures and lack of management know-how like in fiscal and financial fields, existence of bottleneck sectors and surplus
financial sources because of high saving rate have been said to be the cause of these situations. $ ^{[104]} $ These issues has been treated as a theme which should be improved, but the movements are slow.

Newspapers $ ^{105} $ and magazines reported that, in Chinese Government, there exist two opinions. One opinion stresses on the relief of State Owned Enterprises and permits inflation to save the SOEs. Another opinion focuses on controlling the inflation. The latest problem is how to coordinate the economic growth and SOEs' bad fiscal issues.

## 3 -4 Issues in the State Owned Enterprises

In the planned economy system, SOEs played a main role in economic activities in society. With the more and more installation of market system, clear division between growing sectors (mainly non-State Owned) and stagnant or sinking sectors (State Owned) is now proceeding. Two thirds of SOEs are said to be loss making though there are some exceptions.

The welfare system of workers in State Owned Enterprises is the background of SOEs' issues. Even now, most of welfare services are supplied from each enterprise which the workers belong to. Lately, reflecting the multiplication of enterprise style, some reforms in social safety-net like establishing welfare funds to socialize the welfare system under the leadership of the government are proceeded. Even though the socialization of welfare system has been proceeded, if the unit which the workers and retired employees disappears, they could only get the limited amount of welfare services, because the social welfare system only manages the basic part of the services and payments. This situation is now becoming a big obstacle to SOEs' reform and the reform has been proceeded slowly and steadily to soften the shock by the reform.

The burden of welfare payments is also pulling down the achievements and results of SOEs. Under a welfare system which mainly operated by each enterprise, history and the structure of workers largely influence the burden to the enterprises. In that sense, State Owned Enterprises which has long histories clearly burden heavier when compared with the newly established joint enterprises and township and village enterprises. In the future, if China could reduce the portion of state-owned enterprises' activities in its economy, the shock which would be caused by the bankrupt of state-owned sector would be able to be lighter.

## 3 -5 Future Scope in the Budgetary Reform

Since 1994, new tax division system replaced the old budgetary contract system. The response to the new tax system by the local governments are reported to be not so good. $ ^{106} $ Instead of these bad responses to the new system, which aims to solve problems like the income gap between coastal areas and inland areas and to reconstruct the function and budgetary situation of the central government, improvement of the revenue of the central budget is one of the most important issues. The new tax system and the management of the system should be paid much attention to forecast the future of reforms.
3-6 Long-Term Perspectives of China's Reform

It is more than fifteen years since the starting point of China’s reform. China presented an idea of the “socialist market economy” and succeeded in showing some definition of the idea to some extent.

In reforms, there remains much difference in achievements in every reform field. For example, in opening to the outside world, and in agriculture, reforms go ahead smoothly. Instead, just like in state-owned enterprises reform and budgetary system reform, China is facing difficulties in some fields.

There is much difference between each sector and field in achievement in China’s reform, but the present shape is the result of fifteen years’ reform. In China’s reform, the part which had been put aside until now, like SOEs’ reform and budgetary reform, become much more important to identify the future of China’s economy.

(Tsuchikawa)
## FOOTNOTES

1/ From 1966 to 1976.

2/ BELL et al, [1993, p.1]

3/ Transition to a market economy.

4/ Agriculture, industry, national defense, and technology. This idea was first raised by Zhou Enlai in 1964.

5/ Heavy industry produces production goods, and materials industry (mining, machinery, light industry) produces consumer goods like textiles and durable consumer goods.

: State Planning Commission of PRC, [1984, p. 69]

6/ China began to introduce SNA system in 1978.

7/ Average growth rate in National Income was 9.5 percent (SYB, table 2-13).

8/ See 2-2 of this text.

9/ Bad performance in agriculture forced the reform. The average growth rate from 1976 to 1978 was only 1.7 percent in national income. As soon as China began the rural reforms, agriculture responded to the new policies and achieved 14.4 percent average growth in national income from 1979 to 1983(SYB, table 2-13).

10/ Rural and urban are the two pillar concepts in China’s economy.

11/ In 1983, accumulated total number of FDI was 1,392. In 1988, it grew to 15,997 projects (SYB table 15-9).

12/ Published at the 13th Party Congress in November 1987 as the government report.

13/ Zhao Ziyang announced in November 1987.

14/ The average growth rate from 1984 to 1988 was 20.0 percent in National Income (SYB, table 2-13).

15/ See SYB table 2-18, 7-1.

16/YABUKI,[1992,p.112],GAO,[1993,p.66],GAO,[October 1993,p.472]

17/ See SYB table 7-3.

18/ Average growth rate of National Income was only 12.2 percent.

19/ World Bank, [June 19, 1992, p. 39]

20/ World Bank, [June 19, 1992, p. 37]

21/ World Bank, [June 19, 1992, p. 43]

22/ By 1989, even in the administrative system, separation between the Communist Party and the government was also proceeded to disperse the power, but then, the Party and the government reunified again.

23/ Besides on March 1979, Chen Yun discussed “Strengthening and improving the Economic Plan,” January 25, 1982.

24/ Report at the 14th Party Congress.

25/ In this part, two Chinese documents, GAO, [1993] and GAO [October 1993] were fully referenced.

26/ From 1972 to 1977, production of crops increased 1.2 times, 42 million tons. From 1977 to 1982, it increased 1.3 times, 71 million tons (SYB table 9-30).

27/ There were many kinds of “Contract System” in the first stage. China tried to choose the most suitable contract style for each field from the experiences.
28/ China generalizes reforms in the cities as “Urban Reform”. This concept clarifies the economic structural difference between Rural area and Urban area.

29/ “Decision on the Reform of the Economic Structures,” 1984.

30/ “People’s Commune” system is a typical collective system. It was a unit both in economic activities and in administrative management. Its hierarchy was composed of “Commune-Battalion-Group” like military system.

31/ Those problems were referred in “Decision on accelerating the agricultural development,” 1974.

32/ These systems characterize the “Capitalist Economy” in their old theory.

33/ In the rural market, commodities that the government permitted are traded freely. No control to trading quantities if peasants already done their duties to the government. Prices are decided on the basis of each discussion within price guidelines in this stage.

34/ “HRS” is one of the type of “Product Responsibility System.”

35/ “Some problems on Enforcing and Perfecting the Agricultural Product Responsibility System.”

36/ See SYB table 10-17.

37/ As the advancement in rural reform especially by the spread of HRS, old collective system became non-functioning framework. In October 1983, China abolished the People's commune system and newly established rural government. In this decision, administrative structure and economic structure were separated.

38/ For example, income gap because of the place and a collapse of collective working system are the problems (China : Basic Research for Making Decision on ODA, [1994]).

40/ SYB table 9-30. Production of crops stayed stagnant for these 5 years.

41/ In 1985, price and trade regulations to crops were decreased. Only state purchasing amounts were regulated by the state planned prices. Rest amount were left to the market both in prices and trading quantities.

42/ SYB table 9-26. In 1978, it was only 9.6 percent of the area. In 1992, it reached 16.3 percent.

43/ SYB table 9-4.

44/ IMAI, OHKUBO, KOBAYASHI and NAKAJIMA, [1993, p.109]

45/ GAO, [1993, p.64] Besides natural disasters and adjustment of industrial structure, inadequate price policy decrease the relative agricultural income and decreasing the State investment to agriculture cause the bad productive conditions and decreased the incentives of peasants.

46/ ISHIHARA, KOJIMA, TAJIMA, UCHIDA, KIZAKI, KIKUCHI, DU, NAKAO, SHINYA, IMAI and HATTORI, [1993, p.45]

47/ ISHIHARA, KOJIMA, TAJIMA, UCHIDA, KIZAKI, KIKUCHI, DU, NAKAO, SHINYA, IMAI and HATTORI, [1993, p.256]

48/ SYB table 9-4. In 1980, 68.86 percent of the Rural total output value of society was originated from the agriculture. In 1992, only 35.8 percent is from the agriculture and 50.1 percent is from the industrial sector. TVEs are now becoming more important than before as a source of rural employment and cash income.
49/ Originally belonged to People’s Communes in the old rural system. In 1984, people’s communes were dismantled and grew up to TVEs.

50/ “Some issues on the development of Commune factories (Trial)” in July 1979.

51/ “Some issues on the Rural Economic Policy” in January 1983.

52/ “Notice on the Rural policy in 1984.”

53/ SYB table 9-54, 9-55.

54/ April, 1984.

55/ January, 1985.

56/ GAO, [1993, p.88]

57/ China entered these organizations from 1979 to 1980. China entered ADB in 1986.

58/ MA, [1992, p.2]

59/ “Issues on establishing more Special Economic Zones and Open cities” Speech by Deng Xiaoping, February 1984. Here, Deng Xiaoping pointed out that the role of SEZ is just like windows to outside.

60/ “Keep the leadership by the Communist Party,” “Keep the socialism,” “Keep the dictatorship by people,” “Keep Marxism-Leninism and Maoism.”

61/ MA, [1992, p.16] In this section, this document is fully referenced.

62/ The main purpose of Special Economic Zone is to produce export goods, but Zhao Ziyang pointed out some problems in November 1984. Also Yao Yilin criticized the situation of SEZ unofficially in January 1985.

63/ General Agreement on Tariff and Trade.

64/ China tries to enter GATT during 1994. But some news reported that it would be impossible.

65/ In SOEs' reform, GAO, [1993, p.959] separate periods from 1978 into 5 periods. Only for our reference, show the sections.

1. 1979-1980

Trials for giving more autonomy in management and profit distribution.

2. 1981-1982

Product Responsibility system.

3. 1983-1986

Introducing income tax system instead of profit transfer system to enterprises.

4. 1987-1990

Contract Responsibility System.

5. 1991-Present

Management and ownership system reform.

66/ Influenced by agricultural Household Responsibility System. GAO, [October 1993, p. 1572]

67/ Capital Steal Company is famous as one of the most advanced enterprise groups.

68/ China : Basic Research for Making Decision on ODA, [1994, p.126]

69/ Zuixin Jingji Yonngyu Cidian, [1990, p.7]

70/ Chugoku Shakaishugi Keizai Ryakushi (Brief History of Chinese Socialist Economy, Japanese edition), [1986, p.340]

71/ GAO, [1993, p.36]