PRS-CAR-91-052

'3 SEPTEMBER 1991

*FW I oft-E

A N N IV E R S A R Y

1941 - 1991

-'PRS Report'--

Apjproved ior putbe reiel

China

19980203 078 T

REPRODUCED BY

U.S. DEPARTMENT OF COMMERCE

NATIONAL TECHNICAL

INFORMATION SERVICE

SPRINGFIELD, VA 22161
China

JPRS-CAR-91-052 CONTENTS 23 September 1991

POLITICAL

Understand Capitalism, Strengthen Faith in Socialism [XUEXI YU YANJIU No 5] ................................ 1

Ideological Situation Viewed [Hong Kong CHAO LIU No 51] ................................................................... 5

Evidence of Reemergence of 'Mao Zedong Fever' [Hong Kong KUANG CHIAO CHING No 224] ......... 6

Application of Dialectical, Two-Way Thought Urged [QIUSHI No 10] .................................................... 8

First Private Publisher Described [Hong Kong CHING PAO No 6] ........................................................... 11

Veteran Writer Discusses Current Literary Tasks [WENYI BAO 29 Jun] ................................................ 12

Malpractice-Rectifying Group Visits Guangdong [Guangzhou Radio] ..................................................... 13

ECONOMIC

NATIONAL AFFAIRS, POLICY

Beijing Seminar on Share-holding System, Stock Market [GAIGE No 3] ....................................... 15

Economic Policies Encourage Regional Blockades [ZHONGGUO JINGJI WENTI No 3] .............. 18

Provinces, Cities Try To Improve Large, Medium-Sized Enterprises [TIGAI XINXI No 10] ......... 23

Tian Jiyun Discusses Easing Retail Controls [TIGAI XINXI No 10] .............................................. 29

Analysis of Capital Steel's Reform Experience .................................................................................. 29

Lessons for State Enterprise Sector [JINGJI GUANLI No 6] ................................................ 29

Li Yining's Comments [TIGAI XINXI No 9] ......................................................................... 31

Three Stages of Combining Planned, Market Economy [CAIMAO JINGJI No 6] ......................... 32

Separation of Taxes, Profits .................................................................................................................. 36

Transform Contract Management [JINGJI CANKAO BAO 3 Jul] ......................................... 36

Chongqing Achieves Good Results [JINGJI CANKAO BAO 9 Jul] ....................................... 38

Shareholding System [Hong Kong CHING-CHI TAO-PAO No 25] ...................................... 38

PROVINCIAL

Discussion of Capital Sources for Pudong Development

[Hong Kong KUANG-CHIAO CHING No 7] ................................................................................... 39

Fujian Governor Optimistic About Future Development

[Hong Kong CHING-CHI TAO-PAO No 29] ................................................................................... 41

FINANCE, BANKING

Current Status, Problems With Shanghai Stock Market [GAIGE No 3] ......................................... 43

Problems Collecting Personal Regulatory Taxes [Hong Kong CHING-CHI TAO-PAO No 30] ....... 45

Report on Tax Collection First 6 Months [ZHONGGUO SHUIWU BAO 8 Aug] ......................... 47

Tokyo Bank Branch Set Up in Shanghai [XINHUA] ....................................................................... 48

People's Insurance Company To Increase Foreign Business [CHINA DAILY 5 Sep] .................... 48

INDUSTRY

KEJI RIBAO Commentator's Article on High-Tech Development [XINHUA] .............................. 48

Government To Cut Quantity in Textiles [XINHUA] ..................................................................... 49

Industrial Labor Productivity, Jan-Jun 91 [CEI Database] ............................................................ 49

Decrease Ratio of Industrial Product Cost by Area [CEI Database] .............................................. 49

Production of Machinery, Electronics Increases [XINHUA] ........................................................... 50

New Electric-Motor Automobile Developed [XINHUA] ................................................................ 50

Double-Digit Industrial Growth First 7 Months [CHINA DAILY 9 Sep] ....................................... 50

Technical, Economic Indexes of Enterprises in June [CEI Database] ........................................... 51
JPRS-CAR-91-052

23 September 1991 2

SMALL-SCALE ENTERPRISES

Number of Private Businessmen Continues To Climb [XINHUA] ................................................ 51

Entrepreneurs To Compete on World Market [XINHUA] .............................................................. 52

COMMERCE

MOFERT Official Discusses MFN, U.S. Trade Relations [GUOJI SHANGBAO 30 Jut] ............... 52

FOREIGN TRADE, INVESTMENT

Foreign Investment in Fujian, Special Policies [Hong Kong CHING-CHI TAO-PAO No 22] ......... 54

Light Industrial Products Imports, First Half 1991 [CEI Database] ............................................. 56

Chemical, Machinery Products Imports, First Half 1991 [CEI Database] .................................... 56

Metals, Minerals Imports, First Half 1991 [CEI Database] ........................................................... 56

POPULATION

Population Control, Social, Economic Development

[ZHONGGUO TONGJI XINXI BAO 15 Jul] .................................................................................. 56

TRANSPORTATION

Second-Phase Railway Electrification Project To Begin [HEBEI RIBAO 17 Jul] .......................... 61

Container Berths Open at Shekou Port [XINHUA] ......................................................................... 61

New Commerce Office To Specialize in Shipping [CHINA DAILY 24 Aug] .................................. 62

CHINA DAILY Reports New Ship-Building Organization [XINHUA] ......................................... 62

Diversified Economy in Rail Construction Developed [XINHUA] ................................................ 62

AGRICULTURE

Liu Zhongyi Views Farm Mechanization [NONGYE JIXIE No 5] ................................................ 63

Journal Examines Agricultural Funding [JINGJI YANJIU No 6] .................................................. 66

Grain Price Reform in Hainan [ZHONGGUO TONGJI XINXI BAO 4 Jul] .................................. 74

Ministry Says Timber Imports Increase [Hong Kong TA KUNG PAO 13 Aug] .............................. 77

Qinghai Strengthens Grasslands Construction [XINHUA] .............................................................. 78

Agricultural Research Projects Underway [Beijing Radio] .............................................................. 78

SOCIAL

Labor Official Urges Social Security Reform [JINGJI CANKAO BAO 8 Jul] ......................................... 79

MILITARY, PUBLIC SECURITY

Profit Policy Goal Gives 'Impetus' To Arms Sales [Hong Kong CHIUSHIH NIENTAI No 256] ............. 81

Computer System Designer Profiled [Beijing Radio] ................................................................................ 83

TAIWAN

Abuses in Taiwan Military Procurement [Hong Kong CHIU-SHIH NIEN-TAI No 256] ........................ 84

Professors Withdraw From KMT 'en Masse' [HSIN HSIN WEN No 216] .............................................. 86

Analysis of Investment on Mainland [GUOJI MAOYI No 5] ................................................................... 88

'Taiwanization' of College Student Associations [HSIN HSIN WEN No 221] ....................................... 92

Analysis of Foreign Trade Structure [CHING-CHI JIH-PAO I Jul] .......................................................... 95

Editorial Discusses Prospects for GATT Membership [CHING-CHI JIH-PAO 22 Jul] .......................... 96

Editorial Views PRC Trade, Assistance for Businessmen [CHUNG- YANG JIH-PAO 24 Jul] ................ 97

Columnist Analyzes Trade Opportunities, Problems [CHING-CHI JIH-PAO 29 Jul] ............................. 99

Editorial Discusses BCCI Fraud [CHING-CHI JIH-PAO 31 Jul] ............................................................... 100

Export-Processing Zones Show Growth [CHINA POST 7Aug] ................................................................. 101
JPRS-CAR-91-052

23 September 1991 POLITICAL 1

Understand Capitalism, Strengthen Faith in Changchun, the population of Changchun would be only

Socialism 20 percent Chinese because, by 1945, 60 percent of the

91CM0444A Beijing XUEXI YU YANJIU [STUDY citizens of Changchun City already were Japanese. The

AND RESEARCH] in Chinese No 5, 5 May 91 pp 6-11 Japanese would certainly not build anything for the

Chinese. When the Japanese were in occupation of

Changchun, the Kuantung Army headquarters and the

[Article by Yu Xinyan (0151 1800 6056): "Understand- gendarmerie headquarters were extremely well built

ing International Monopoly Capitalism, Strengthen buildings, but the palace of the puppet emperor of

Faith in Socialism"] Manchukuo was in a broken-down, two-storied, small,

[Excerpts] Institutions of higher learning are shouldering foreign-style house which had never been repaired. Even

the important task of educating and training talents for that kind of an exterior they did not care to refurbish.

the next century. The quality of our students, the degree What kind of houses could the Chinese still aspire to

of their consciousness, their moral maturity, their cri- occupy? There are many more similar questions. Thus

teria for action, and particularly their capability of seeing ask yourself, could China also attain prosperty and

through all hostile plots and intrigues at home and strength by going down the capitalist road.

abroad and of protecting the interests of the Chinese

people. All these are matters which have a bearing on the Everybody acknowledges that we have already embarked

all-important concern for the future prospects and the on the socialist road, but there are people asking whether

fate of our nation. It is for this reason that it is absolutely that was a fortuitous decision and whether it would have

necessary to give highest priority to moral education at been possible not to go down that road. An accurate

our universities and colleges. [passage omitted] understanding of this question may be gained by

approaching it from a variety of angles. For instance,

historically, during the 109 years from the Opium War of

Recognize Clearly the Working System of Monopoly 1840 to the founding of New China in 1949, we have to

Capitalism, Resolve the Innermost Ideology Problem say, China entered bit by bit into the capitalist system of

Among comrades engaged in ideological-political work, the world. During this process, from the Opium War to

a much discussed topic is now how to resolve the the later Taiping Heavenly Kingdom movement, the

innermost ideology problem. Many comrades have Reform Movement of 1989, and the Revolution of 1911,

written articles approaching their research from a variety the road that China chose was the capitalist road, but it

of angles, and have devoted much energy to this ques- was a road that led China astray. Comrade Mao Zedong

tion. I, too, am exploring this problem. What, then, is said, imperialism will not allow it, by which he meant,

this innermost problem? One view has it that the inner- imperialism will not allow China to develop along the

most problem is the concept of democracy and freedom, capitalist road into a developed capitalist country, and

This is the conceptional approach. However, concep- that does not preclude China being allowed to become a

tional matter is after all still derived from the realities of colony within the capitalist system. In all the 109 years

the situation, and, moreover, as far as our youths are since 1840, when China began to have some modem

concerned, their concepts frequently change very quickly industry, and including all development until 1949,

and widely, and are rather unstable. What, then, is the China's total industrial fixed assets were only the equivmost fundamental problem? In my opinion it is still alent of 12.8 billion post-liberation yuan RMB [renprimarily the question of whether China shall steadfastly minbi]; it was that pitiful. On the other hand, our present

continue along the socialist road. Expressed from an industrial fixed assets are somewhat over 1,300 billion

opposite direction, it is the question of whether China yuan. This is the achievement brought about in the 40

could achieve prosperity and strength if subjected to years since the founding of the PRC, and this is the

"peaceful evolution" and taking the capitalist road. conclusion that we derive from an historical comparison.

Many people cannot find an answer to this question. If

this question cannot be resolved, there is no true resolu- Judging by the present world situation, imperialism still

tion for the whole series of other ideological questions. does not allow so large a developing country as China to

We in the end will have to risk a solution in one form or become a developed country. During the five years from

the other. I heard that some students in Jilin Province 1985 to 1990, the developed countries were nominally

said that if we still had the Japanese in Changchun, granting aid and loans to the developing countries.

construction work would definitely be better than now. Actually, from the developing countries, the developed

They based this assertion on the fact that the buildings of countries gained interests and trade balances from

the provincial government had been those of the former exchanges at unequal value. As far as the state of the

Japanese gendarmerie headquarters; the buildings of the currencies are concerned, the currency taken away nulJilin provincial party committee, built by the Japanese, lified the loans nominally given every year by the develhad housed the former headquarters of the Kuantung oped countries. In this way they took over $50 billion

Army; and the Changchun railway station had been built every year from the developing countries. The actual

50 years ago by the Japanese. Although we have built result of the currency operations was an inverted flow.

factories, schools, residential houses, no important The entire global North-South disparity is now broadbuilding has been constructed since what the Japanese ening and not narrowing. Of course, in the process of

made. If we still had the Japanese in occupation of broadening the disparity, there might also have been
JPRS-CAR-91-052

2 POLITICAL 23 September 1991

some individual instances of support for the develop- on that day when the good front cannot be maintained

ment of certain small places. Even though this is so, a full any longer, alas, the whole edifice will topple, and

accounting shows that as a whole the North-South dis- everything will be finished. If the United States will at

parity is still growing larger and larger. This question any time cease to be the world's hegemon, and if the U.S.

cannot be considered simply as a question of morality dollar will no more be world currency, people will stop

and justice, it also cannot be blamed on the character of collecting U.S. dollars, and rather collect marks and

certain individuals. It is not a problem that can be solved Japanese yen. At that time, all the U.S. dollars that had

by exchanging some leader and putting forth some new lain as dead sediment will return to the United States,

proposal, it is rather the result of the working system of and even if only part of it returns and demands goods in

monopoly capital; it is the demand of monopoly capital return, the U.S. economy, and its political and social

development. The so-called capitalist is nothing else but structure will collapse. To prevent this collapse, the

the embodiment of capital. The politicians of the capi- United States must remain world hegemon, and it

talist class are also embodiments of capital, and to cannot help but engage in acts of hegemonism and in

understand their behavior, it is of course necessary to actions for which there is no true justification.

analyze what pronouncements they make today, what

treaties they sign, and what policies they decide upon. When the imperialist powers used their gunboats to blast

However, to understand what is really hidden behind all open the gates of China, 150 years ago, did they bring

these pronouncements, treaties, and policies, there is civilization to China? Did they hope China would also

only one way, namely to follow the working system of the become a developed country? Of course not. In 1840 the

capitalist movement and to heed the demands of capital "Communist Manifesto" had not yet appeared. At that

itself. In this way it is easy to understand that the United time the imperialist powers divided up the world; they

States cannot but pursue hegemonism, that there is no scrambled for markets. Whatever country seized a

other way for them than to pursue hegemonism, because market, thereby increased its profits. Of course, they did

as far as U.S. capital is concerned, it is a question of life not want China to also become a developed country, as

and death for them. There is not the slightest justifica- they would otherwise add a competitor and eliminate a

tion from the standpoint of morality or justice for the target for plunder. They wanted China to remain forever

U.S. military action in Panama, but internally within the their slave. Today, the old colonialism has become out of

United States it raised Bush's popularity rating. As to the date. Politically, it is impossible for them to convert

U.S. economy, there is a country of over 200 million another country completely into a slave country, but the

people owing a national debt of over $1 trillion so that economic exploitation has not changed at all. The

per capita each person owes over $10,000. Public finance monopoly capitalist class has its grip on the world's

is in the red to over $500 billion, and inflation, we must marketing network and can compel undeveloped counsay, is an unmanageable disaster. However, the United tries to accept exchanges at unequal value. African coffee

States is still getting along quite passably. What is the is sold to Europe at $1.00 per kilo, but in an ordinary

mystery in that? A most important point is that the coffee shop in Europe, one cup of coffee is sold at $2.00.

United States is the world's hegemon, and the U.S. dollar The African countries are completely helpless. The

is the world currency. Banknotes issued by U.S.banks are *United States attracts skilled professionals from Third

brought to you here to buy things; the Americans get World countries, thereby saving for the United States the

their purchases, and you get to keep their banknotes, need to spend on their education. In this respect alone,

Because the U.S. dollar is not only circulating in the the United States exploits other countries to the value of

world market and is also the tool of circulation, it has $ 5 billion a year. As to China, there is a strategic research

also become a worldwide means of hoarding. There are organization in the United States which has compiled a

some people in China, e.g. some teachers at universities, research report on U.S. strategy during the 1990's and

who hold U.S. dollars, keeping them at home locked up during the early years of the 21st century, in which the

in drawers. That money is like sediment, withdrawn opinion is expressed that China presently does not

from the flow of circulation. How much money of this constitute a real threat for the United States, but that

kind is there in the world? Some economists estimate it China is a large country and will accomplish its modernto be no less than $500 billion. These $500 billion have ization in the next century and will then possibly become

been issued by U.S. banks, but are not returning, and as a real threat to the United States. The American counfar as the United States is concerned, it thus got $500 termeasure is to adopt a policy of soft blockade against

billion worth of goods for nothing. That allows the China. A hard blockade will not do; it has proven

United States to maintain itself, and there is also no ineffectual in the past. However, they again will not

currency inflation visible in its domestic market. But allow China to develop very rapidly, as this would be

there is one condition, and that is that the United States detrimental to the United States' interests, and they will

be world hegemon. Nothing will happen as long as it is continuously cause China much trouble and create

hegemon. Just like the Ning Guo Fu in the "Dream of obstacles to China's modernization. Japan's monopoly

the Red Chamber," it did not matter how much money capital class is probably thinking along the same lines. A was owed, as long as nobody came to confiscate the Japanese engaged in strategy research said, present world

family property, or as long as money is owed and nobody trend is for each single region and each single city to try

dares to ask for its repayment, or as long as a good front to link up independently with the world economy, and

is maintained; then nothing untoward will happen. But that China will have to do the same. This is the era of
JPRS-CAR-91-052

23 September 1991 POLITICAL 3

cosmopolitanism, and patriotism is an outdated concept. become someone's vassals, and a country of eternal civil

Someone countered by pointing out three events: First, wars and disintegration. In whatever manner they would

the United States recently enacted a flag law, to promote want to restrict us in one of these ways, we would then

patriotism; second, on the occasion of the ascension of have no strength to retaliate, but would for a long period

the emperor to the throne, Japan indulged in unbridled of time have to remain only a China in utter darkness.

patriotic propaganda; third, Germany took the occasion This is not an imaginary hypothesis, but the inevitable

of German reunification to also indulge in unbridled conclusion of the historical development. Of course, as

propaganda for German national consciousness. All we say this, there will be people who ask about Hong

three events contradict the mentioned assertion of the Kong which has been a colony and has achieved prosJapanese. When asked for an explanation, the Japanese perity and strength. Is not Taiwan also prosperous and

strategist said, the world needs someone at the extreme strong? With just a little historical retrospect, it is easy to

top, and we, the Japanese, Americans, and Germans, are reply to these questions. That Hong Kong flourished for

justified in our talk of patriotism because we are at the a time after it became a colony in 1840 and developed

top of the world. Your position, i.e. China's position, is from a fishing village into a trading port was mainly due

not up to it yet, and you should not really talk of to its reliance on the opium trade. When the opium trade

patriotism. In their pursuit of hegemonism, not only will was banned at the beginning of this century, and, furthey not want a large socialist country like China to thermore, other ports were opened up along the coast,

become prosperous and strong, but even in the case of a Hong Kong lost its usefulness, and was not prospering

country like India, they are afraid it might become any further. Even into the 1930's, it was no equal to

prosperous and strong. If a country with a population of Tianjin, Shanghai, or Guangzhou. On the outbreak of

800 million would achieve an average per capita national the War of Resistance Against Japan, Japan occupied

output value of $4,000 to $5,000, i.e. one-quarter of Tianjin, Shanghai, and Guangzhou, and the West could

America's average per capita national output value, its only trade with the interior of China through Hong

aggregate national strength could effectively contend Kong, which again brought prosperity to Hong Kong. In

with the United States in the world. By then, prices for 1941 the Pacific war broke out, and Hong Kong ["frathe world's primary products and technical products grant" port] fell into the hands of the Japanese. Although

would undergo changes, and the United States would still a colony, it rather became "stinky port" and "dead

find it difficult to get along. Its crafty method of port." We cannot therefore say that being a colony brings

exchanges at unequal value would then no more be able prosperity. The next period of prosperity for Hong Kong

to do the trick. came in 1949, after liberation of the mainland. China's

industry developed, and within 40 years China's fixed

The working system of monopoly capitalism cannot be assets increased from somewhat over 12 billion yuan to

understood in concepts of people who have only $3,000 over a trillion yuan, i.e. more than 100 times. When the

or $4,000 savings in their pockets. A monopolistic con- West imposed a blockade, this large country of China

sortium has $10 billion of assets, not in cash, but in its oil had to direct its trade abroad through this little territory

fields, banks, factories, and such installations. If its of Hong Kong. Hong Kong was certainly successful in

banks should get into financial trouble and have to close accumulating wealth thanks to its location on the sea. If

down, the consortium might lose as much as $5 billion at China had not been socialist, Hong Kong could not have

one stroke. As long as the capital is properly circulating, prospered. We should, therefore, say that Hong Kong's

its manager is the big boss, but once a hitch occurs in the prosperity is a manifestation of the superiority of

circulation, all could be lost and go to ruin, and the said socialism, and not a manifestation of the superiority of

person will become a beggar. It is therefore necessary for capitalism. Since Hong Kong will revert to China in

them to maintain a certain momentum in their capital 1997, somebody finally came up with the idea of finding

operations. Considering the situation solely from the another island to set up another Hong Kong. There are

standpoint of the class interests of international many islands in the world that are better endowed by

monopoly capital, it would certainly be best, either, as nature than Hong Kong--one could easily find 10 such

Liu Xiaobo [0491 2556 3134] said, to have China islands-but although an island may be easy to find and

remain a colony for 300 years, or, as Fang Lizhi [2455 money might be easily found, a capitalist will immedi0536 0037] said, to split China into parts. Theirs is not ately ask, whom is one to trade with from there? Once

merely casual talk, but said to suit the needs of imperi- you ask that question, everybody will be quiet about

alism. None of the imperialist countries can swallow up finding another island. In brief, it remains a fact that

China in one gulp so each now seeks out its own set of Hong Kong could only prosper because of its reliance on

traitors and its own set of running dogs to get China to the superiority of socialism. It is the same with Taiwan.

disintegrate and fight civil wars. That would naturally With a population of 12 million people, it had been the

make it impossible for China to achieve its moderniza- recipient of two investments, one was the 3 million

tion. As we firmly insist on the socialist road, we are ounces of gold which the KMT brought over from the

actually insisting on independence and autonomy in our mainland, and the other the $2.6 billion of American

own affairs. Even if imperialism would cause distur- aid. These two amounts together put into a territory

bances, we can overcome all difficulties and gradually inhabited by somewhat over 10 million people, made the

and in arduous effort advance toward prosperity and per capita fixed assets immediately shoot up. If the

strength. If we were to abandon this road, we would mainland had not been liberated, these two large sums of
JPRS-CAR-91-052

4 POLITICAL 23 September 1991

money would never have reached Taiwan. The Amer- therefore, only when required by the interests of the

ican investment in Taiwan was directed against main- monopoly capitalists that they wield the big stick of

land China. If the mainland would have gone the way human rights.

Taiwan went, it would have needed billions and billions

of U.S. dollars in foreign investments. First of all, there They approach issues from the standpoint of interests of

would be nobody willing to spend that much money, the monopoly capital class, while we approach issues

and, second, also nobody in the world is capable of from the standpoint of the interests of the Chinese

raising that much money. There was, therefore, abso- people. That shows the fundamental contrast. Moreover,

lutely no possibility that these two conditions could have we are placing particular emphasis on the consideration

been fulfilled. Would it then have been possible for the of the realities of a situation. This point is of special

mainland to follow the road that Taiwan followed? importance for our young intellectuals. The way people

who espouse bourgeois liberalization speak of us is

Some say, Eastern Europe is now suffering "labor completely absurd. They say the disparity between

pains," but will soon be much better. How long will these China and the world is increasingly widening, and the

"labor pains" last? Could they last for 10, 20 or 40 years, longer things go on in China, the worse things become.

possibly without any improvement at all? Nobody has However, the common people do not feel like that, and

the answer. Some countries which have all along been on actual conditions are also certainly not like that. How

the capitalist system are today still in a backward condi- can you say the disparity is widening when after 40 years

tion after several decades; the conclusion that capitalism of effort, production volume of many Chinese products is better than socialism cannot possibly be drawn. leapt from tenth, 20th or lower world rank to first, second, third, and fourth place in the world, and some

products have achieved advanced world levels and are

I have cited the above examples with the special inten- still improving? However, people who are for bourgeois

tion of proving that in order to solve the innermost liberalization attack us because of the fact that the

ideological problem, it is most important to gain a clear exchange rate for the RMB was adjusted downward.

picture of the current working system of capitalism. Only What was the reason for the Japanese per capita national

by clarity on this point can we gain the firm conviction income all of a sudden moving up from the former

that there is simply no other road for China but the $11,000 to over $16,000? The reason was that the value

socialist road. Only socialism can save China, only of the Japanese yen had appreciated. Several years ago,

socialism can develop China. Advancing on any of the the rate of exchange for $1.00 was 240 Japanese yen, now other roads cannot save China and cannot develop it is 140 or 150 yen. If output value is computed

China. To arrive at this understanding requires the according to U.S. currency, it appears as if there had

support of much factual knowledge, because mere words been a rapid development in Japan, but actually the

will not convince people. At present there are 41 of the increase of production was insignificant. On the other

poorest countries in the world with per capita national hand, the exchange rate for China's RMB has all through

output values below $200. With the exception of Laos, the years been adjusted downward. Originally, the

all the other 40 are capitalist. If you say capitalism leads exchange rate was 1.45 RMB per $1.00, later 3.70 and

to prosperity, why did it not bring prosperity to these 4.70 yuan per $1.00, and now it has become 5.20 yuan

countries. The United States often proclaims loudly that per $1.00. In this way, although commodity production

it values humanitarian interests above everything else. In has doubled and trebled, it does not show when com- Africa 50,000 people are starving every day, while Amer- puted in U.S. currency. Does that mean that there has

ican grain cannot be sold; can you not give some grain! been no economic development? Not at all, there has

That could be done, but they don't do it. On the indeed been development. There is more steel, more contrary, the U.S. Government issued an order to pay coal, more iron, more cotton, and more food consumpsubsidies to stop cultivating of such-and-such pieces of tion. That is the truth. These are not false claims. There

land, for fear of overproduction that would depress grain are now many economists in the world who believe that

prices. Here subsidies are paid to stop agricultural pro- it is not scientific to compute a country's economic

duction and there people die of starvation. This utmost strength using the exchange rate of the U.S. dollar.

esteem of humanitarian interests and human rights is all International economic organizations now have a new false. What humanitarianism, what democracy, and method of computation, namely to compute according

what freedom of the press are there? Their picking up the to actual purchasing power. If a tea cup has a $3.00 value

big stick of human rights to attack us is really not to in the United States and is worth 2 yuan RMB in China,

protect their kind of human rights. During the Cultural the 2 yuan RMB must be taken as equal to $3.00 in

Revolution, when human rights were so severely vio- value. Computed in this way, China's national output

lated, when no respect at all was paid to the constitution, value is most likely $1,000 to $1,600 per capita.

and when a state president was "rectified" to death, did Recently, a Chinese student in the United States by the

the United States consider imposing sanctions? Not at name of Wen Di [5113 6611] and an official of the

all! The United States did not impose sanctions on Chinese organization for teaching materials by the name China. At that time the Soviet Union was their main of Wu Jisong [0702 2817 2646] carried out computaadversary, so they only rebuked the Soviet Union and tions, the former in the United States and the latter in

closed their eyes to "human rights" in China. It is, Paris. They used the prices of several hundred items that
JPRS-CAR-91-052

23 September 1991 POLITICAL 5

are daily necessities, such as clothes, food, shelter, and He Jingzhi's Criticism of Hu Yaobang and Zhao

transportation, for a statistical computation of how Ziyang

much an items costs in RMB in China, how much in

dollars in the United Frane. States, n teircomptatonsthe and how arrvedat much in francs he on- in Peng "extreme Zhen, Left" Wang emphasize Zhen,that and at other the present oldsters stage of the th

France. In their computations they arrived at the con- dangers of "class struggle" and "peaceful evolution" clusion that the purchasing power of N yuan RMB was exist. Cadres in charge of "ideology" work are also equal to that of $1 and of 5 francs. Now that I yuan following them and are making great efforts in advoRMB is equal to $1, where have the other 4.20 yuan cating "opposition against the 'Right.'

RMB gone? That is where the exchange at unequal value

comes into the picture. The undeveloped countries of the Information from Beijing intellectuals has it that the

world, when trading with the developed countries, have Secretariat and the Propaganda Department of the CPC

no other way than to tolerate this exchange at unequal Central Committee recently handed down a set of "study

value. Because they, the developed countries, have high- materials," which contained articles or speeches by He

tech products, we are compelled to buy from them. If the Jingzhi, Xu Weicheng, Lin Mohan, Wu Lengxi [0702

developing countries can truly take off in their economic 0397 6007], and Yang Baibing. He Jingzhi's long article

development, their currencies will appreciate in value, entitled "Some Views on the Building of Socialist Culand output value calculated according to the U.S. dollar ture With Chinese Characteristics" (hereafter "He's artiwill quickly rise. Just like in Japan now, where the output cle") is regarded as the outline that is to guide future

value for a certain year as computed according to the cultural work. Before its issue as "study material," it was

U.S. dollar rose 40 percent, while in actual fact it had reviewed by Hu Qiaomu and Deng Liqun, and its final

risen by not even 10 percent. If these just principles are form was passed at an official work meeting of the

clearly explained on the basis of true facts, people will Propaganda Department.

have no difficulties in arriving at accurate assessments.

[passage omitted] The basic tone of He's article is criticism of Hu

Yaobang's and Zhao Ziyang's connivance with "bourgeois liberalization," and the article emphasizes the

Ideological Situation Viewed present necessity to stress the "anti-Right" direction in

91CM0477A Hong Kong CHAO LIU [TIDE] the cultural field.

in Chinese No 51, 15 May 91 pp 13-14 He Jingzhi elaborates on the spread of bourgeois liberalization ideas since the end of the 1970's and mentions

[Article by Lin Yang (2651 2799): "He Jingzhi and Yang Deng Xiaoping's order in the spring and summer of 1981

Baibing Loudly Proclaim Their 'Antagonism to Peaceful to criticize "Ku Lian [Unrequited Love]" (a stageplay by

Evolution"'" Bai Hua [4101 2901]), but that because of the influence

of a small group of people in the ideological field, "who

[Text] Deng Xiaoping's "double-handed strategy" has had begun to part company with the correct guidance of

presently created a peculiar situation on the mainland, the party," it had become impossible to bring down the

As regards economic strategy and theory, the economic adverse trend by criticism.

reform faction has vigorously attacked the views of the

hardliners, and has gradually gained the upper hand in At the Second Plenum of the 12th CPC Central Cointhe power play. Quite different from the "anti-Leftists" mittee in November of 1983, Deng Xiaoping proposed

in the economic field are again the aspirations and to "eradicate the spiritual pollution" at the ideological

interests of those who still maintain the "anti-Right" front, but "a particular person in a leading position in

ideology. Apart from Li Ruihuan, leading cadres in the the Central Committee assumed a negative attitude" and

ideological field, such as Wang Renzhi [3769 1804 thereby caused the movement for "eradication of spiri0037], Xu Weicheng [ 1776 1919 6134], He Jingzhi [6320 tual pollution" to die an untimely death. In 1984 some

2417 0037], Lin Mohan [2651 7817 3211], Liu Baiyu people proposed "silence in both respects," that is to

[0491 4101 5038], and backstage powers, such as Hu keep mum about opposition to liberalization and to keep

Qiaomu and Deng Liqun, are all men of the extreme mum about "eradication of spiritual pollution." In 1987,

Left. Zhao Ziyang assumed an indifferent attitude toward

opposition to liberalization, and even, on the contrary, A friend among Beijing's intellectuals told me that these protected, connived with, and supported those who

are still the doings of Deng Xiaoping, a result of the pursued liberalization. "lessons" learned from the 1986 student unrest and the

1989 democracy movement. He wants to uphold "rais- Zhou Yang [0719 22541, Xia Yan [1115 58881, Yu

ing high the 'Left' hand in politics," of effectively con- Guangynan [0060 0342 66781 Reprimanded for

trolling the intellectuals and ideology, and calling on the Opposition Against the Extreme Left

"Leftist oldsters" to guard the political ramparts. However, in the economic field, he finds use for men like Zhu With the term "particular person in leading position,"

Rongji, that is, cadres in high places who are fully He Jingzhi referred to Hu Yaobang, who at that time had

devoted to the spirit of economic reform. That is his been secretary general of the CPC. With the term "those

other hand: the "Right" hand of economics. who parted company with the correct guidance of the
JPRS-CAR-91-052

6 POLITICAL 23 September 1991

party," he referred, according to my friend, the Beijing between "peaceful evolution" and opposition to "peaceintellectual, to Zhou Yang, Xia Yan, Huang Zhen [7806 ful evolution," as well as between infiltration and anti6966], Yu Guangyuan, and Hu Jiwei. At that time, Zhou infiltration, and between subversion and antiYang had been deputy director of the CPC Central subversion.

Committee's Propaganda Department, vice president of

the Academy of Social Sciences, and chairman of the Yang Baibing's speeches for strengthening ideologicalFederation of Literature and Art Circles. Xia Yan had political work are also included in the present "study

been advisor to the Ministry of Culture, vice chairman of material" for cadres. Yang is secretary in the CPC

the Federation of Literature and Art Circles, and con- Central Committee's Secretariat, secretary general of the

currently chairman of the Film Artists' Association. Military Commission, and director of the General PolitHuang Zhen had been deputy director of the Propaganda ical Department. He is a cousin of Yang Shangkun, and

Department and concurrently Minister of Culture. Yu he was the man in actual command in the suppression of

Guangyuan had been vice president of the Academy of the masses during the 4 June incident.

Social Sciences, in charge of research in Marxism- In his speeches he repeatedly calls on the cadres to be on

Leninism. Hu Jiwei had been chief editor of the guard against "peaceful evolution" and exhorts them

RENMIN RIBAO. They had all been opposed to the forcefully to "effectively grasp" ideological work in such

extended attacks on "Ku Lian" and the criticism of areas as news reporting, publishing, television, the theliberalization. Zhou Yang and Xia Yan had suffered ater, etc. He said, in the fight against "peaceful evoluparticularly severely in the cultural revolution, and that tion," ideology is the main battle ground, and the area of

had made them particularly strong opponents of the literature and art is the "forward position" which must

attacks against literature and art. be "effectively grasped."

Zhou Yang had been He Jingzhi's teacher at the Lu Xun

Art Institute in Yanan. Before the cultural revolution, Criticizing the Liu Zaifu Phenomenon and

Zhou Yang had been deputy director of the Propaganda Remembrance of Huang Zunxian

Department, in charge of literature and art. Under Mao

Zedong's paternalistic dictatorship he had led Lin As instigated by Wang Renzhi, He Jingzhi, Xu

Mohan, Liu Baiyu, and He Jingzhi in purges of many Weicheng, and Yang Baibing, several of the extremely

literary and art figures, but after suffering the "catastro- Leftist magazines published articles in condemnation of

phe of the cultural revolution," he experienced a thor- writers. They criticized, for instance, the "Liu Zaifu

ough awakening and became a firm pillar of the "anti- phenomenon." However, apart from the response from a

Left" faction, while the latter-mentioned persons, small number of extreme Left elements, literature and

however, became the "extreme Left" faction of the "new art circles displayed indifference toward this kind of

era." political criticism. What is worth pondering, however, is that not long ago Beijing's literary and art circles conIn 1983, Zhou Yang published a long article in which he vened a meeting in remembrance of Huang Zunxian

criticized the "Alienation of Socialism," and thereby (1848-1905), a meeting that was attended by many

brought on himself attacks by Hu Qiaomu and Deng well-known personalities. Their respect and admiration

Liqun who at that time had been in charge of "ideology." for this political reformist of the later years of the Qing

On the basis of accusations by these two men, Deng Dynasty is of the nature of a "sensitivity to the current

Xiaoping ordered Zhou Yang to write an "internal times combined with concern for the fate of the counself-examination." But then Zhou Yang fell seriously ill try." It expresses a longing for reform and a kind of

and only "vegetated" for a few more years in the roundabout protest against the criticism and attacks of

hospital. the extreme Leftist faction.

He and Yang Emphasize the Need To "Grasp" Ideology Evidence of Reemergence of 'Mao Zedong Fever'

In the said article, He Jingzhi turned up the "He Shang" 91CMO475A Hong Kong KUANG CHIAO CHING

[River Elegy] and the "Alienation of Socialism" as topics [WIDE ANGLE] in Chinese No 224, 16 May 91

of condemnation. In the latter effort he particularly pp 14-16

aimed at Wang Roshui, Zhou Yang, and Xue Dezhen.

He's article remarks that some people believe that the [Article by Hsiao Chien (4682 0494): "Tape, Picture

main contradiction in the field of culture during the Publishers Take Opportunity To Get Rich From Nostalprimary stage of socialism is the one between enlighten- gia-Reemergence of 'Mao Zedong Fever"']

ment and ignorance. He emphasizes the even greater

importance, therefore, of the ideological struggle [Text] "Mao Zedong Fever" Reemerges on Chinese

between socialist ideology and the ideologies of capi- Mainland

talism and feudalism. Mao Zedong was once a name that was the focus of

He's article indulges in unbridled propaganda for the world attention. Now Mao Zedong has been dead for 15

theory of class struggle. It proclaims that there is an years, but he is not forgotten by the people in China; on

ongoing struggle in the ideological and cultural fields the contrary, many people are now making Mao Zedong
JPRS-CAR-91-052

23 September 1991 POLITICAL 7

an image for spiritual sustenance and ideological pursuit, was also a man who was headstrong, conceited, impetand some are even "deifying" him in another form. uous, and even weak. However, even if he had weak- nesses and shortcomings and made mistakes, in the

In recent years Mao Zedong's works have quietly reap- minds of the great majority of people on the mainland,

peared on the shelves of mainland bookstores. Stalls Mao Zedong was a great figure in China's history. The

displaying Mao Zedong portraits and commemorative author of the book Mao Zedong Taken From His Pedbadges for sale can be seen everywhere, both in cities and estal is Li Yinqiao [2621 6892 2890] who for a long time

towns and in the countryside. Wafting in the air at street was the chief of Mao Zedong's bodyguard. Mr Li worked

corners and the end of lanes are the songs extolling Mao for a long time at Mao Zedong's side; he was extremely

Zedong that were so frequently heard by middle-aged familiar with the circumstances of Mao Zedong's life. He

people when they were younger that they can recite their was also the go-between who helped to bring together Li

words verbatim. On the mainland some scholars have Nai [2621 4780] (the daughter of Mao Zedong and Jiang

begun to restudy and rethink Mao Zedong's thought, Qing) and her second husband, Wang Jingqing [3769

works, and life, and especially among teachers and 2529 3237]. His work is called the "first flesh-and-blood

students of institutions of higher learning there has biography of Mao Zedong," and after publication it sold

appeared a "Mao Zedong fever." extremely well and had a great impact.

Mao Zedong Rewrote Love Letter for Bodyguard

Two Different Tendencies Toward Mao Zedong: Taking

Him Off His Pedestal; Loving and Worshipping Him Another treatise on Mao Zedong, Mao Zedong and His

Secretary Tian Jiaying, was likewise warmly welcomed

In this upsurge what is noteworthy is that there have by readers. The author, Pang Xianzhi [6614 0341 4249],

appeared two completely different tendencies. One ten- originally worked in the political secretary's office of the

dency is that in the minds of certain people Mao Zedong Secretariat in the CPC Central Committee. In 1950 he

has been taken off his pedestal, and they revert to the was transferred to work at Mao Zedong's side, and from

aspect of his life as a common man. However, the view of then until 1966 he was responsible for looking after Mao

others is that Mao Zedong has been transformed from Zedong's books. In recent years Pang Xianzhi has been

the former great leader, for whom "there were cries of the deputy director of the Party Literature Research

'Long Live,"' to a present-day deity before whom they Center in the Central Committee. Someone once asked

prostrate and present offerings, him, "How do you view Mao Zedong's mistakes?" Pang

Xianzhi replied: "No man is perfect. During the Yan'an

Mao Zedong's entire life is covered in a veil of mystery. Rectification Movement Mao Zedong made some misUp to the mid-seventies Mao Zedong was always held up takes, for which he later apologized to everybody. Before

as a leader whom the masses of people on the mainland the Cultural Revolution Mao Zedong was on the whole

revered. No matter whether it was the spontaneous correct on the fundamental issues and made only a few

psychology of worship in people's minds, or the blind mistakes. But the Cultural Revolution was a fundabehavior of ultra-Left fanaticism, which was the "trend mental mistake." Pang Xianzhi summarized Mao

of the times" during the Great Cultural Revolution when Zedong's temperament in four points: First, Mao cared

Mao Zedong was always regarded as the emodiment of about people. He cared very much about people at his

perfection. side, and he once even rewrote a love letter for a

bodyguard. Second, he had a rebellious temperament After reform began on the mainland, many true facts and could not tolerate oppression. He liked the descripabout China's history came to light, and there was a new tion in Water Margin of the overthrow of an unjust

evaluation of Mao Zedong's achievements and mistakes. society. Third, Mao was a man who pursued openness

Mao Zedong's image in the minds of his countrymen is and justice. When alive he would not read True Features

no longer that of a sacred person who was perfect and of Officialdom because he thought it was too "dark." He

without faults, but is that of a flesh-and-blood person liked to read Dream of the Red Chamber because he

who had human emotions and desires, a person who just thought that in it hope could be seen. Fourth, Mao had

had a unique historical flair, the temperament of a revolutionary, a stratgegist, and a

poet. He was both realistic and romantic, and he had a In recent years some biographers and historians on the wide range of emotions.

mainland have written works that shed a fresh light on

Mao Zedong's life, revealing Mao Zedong's inner world Looking for Source of Mao Zedong Fever

of joy and anger, sorrow and happiness, and his emotional life. The greater part of these books have become Mao Zedong's grandson Mao Xinyu [3029 2450 1342] is

best-sellers. They include Mao Zedong Taken From His now studying history at the China People's University,

Pedestal, The Leader's Tears, Mao Zedong and His called the "CCP's Second Party School." It was here that

Secretary Tian Jiaying [3944 1367 5391], and I Was "Mao Zedong fever" first appeared among China's uniMao Zedong's Bodyguard. The material in these books versity students in recent years. It spread to all Beijing

all came from people who once worked at Mao Zedong's campuses and then to all higher schools in China. As a

side. In these books the reader can see that Mao Zedong direct descendant of Mao Zedong's, Mao Xinyu is often was a great man who changed China's society, but that he confronted with "aggressive" questions. For example,
JPRS-CAR-91-052

8 POLITICAL 23 September 1991

someone once asked him: When evaluating Mao they ask the local people about them they get different

Zedong's achievements and mistakes, some say there answers. Some say that Mao Zedong's "forehead is full were 80 percent achievements and 20 percent mistakes; and his chin both square and round"-the visage of an

others say 70 percent achievements and 30 percent emperor. Others say that Mao Zedong's prestige is still

mistakes or 60 percent achievements and 40 percent high and that during his time, although China's economy

mistakes. As a student of history who is also Mao was not very developed, prices were stable and public

Zedong's grandson, what do you think the evaluation order was fairly good. Some people think that Mao

should be? Mao Xinyu's answer was: "As Mao Zedong's Zedong did many good things for the common people

grandson I think that grandfather worked all his life for and that he should be respected. Some drivers frankly

his country and his people, and that 80 percent achieve- admit that the reason they put up Mao Zedong's picture

ments and 20 percent mistakes would be fairly appro- is "to refute heresy." In fact, in the folk society of

priate. But as a student of history I agree with the Guangdong and Hunan, the custom of hanging up Mao

evaluation made by the great majority of the people, Zedong's picture for luck and peace is prevalent. In the

namely, 70 percent achievements and 30 percent mis- rural areas some people even set up incense burners and

takes." make offerings to Mao Zedong's picture. On the mainland, in the nineties, just as in the sixties and seventies,

"Revolutionary Songs" Sung in Guangzhou, Shenzhen the custom of putting up pictures of Mao Zedong and

other top leaders has made a comeback in some families. Even if people differ in their evaluation of Mao Zedong, In the minds of some people, Mao Zedong, who has been

the appearance of "Mao Zedong fever" is a real fact. dead for 15 years, has become a god who ascended into

Among the people on the mainland songs about Mao heaven, just like many celestial beings in China's history

Zedong are again being sung, e.g., "On Gold Hill in who evolved from mortals.

Beijing," "I Love Beijing's Tiananmen," and "Always

Rising, Never Setting Sun on the Grassland." The mel- The social phenomenon, source, and spreading influence

odies of these songs of the radical Red times in the sixties of "Mao Zedong fever," which appeared when the Chiand seventies have again become familiar to people. nese mainland entered the nineties and the Eighth FiveMost of the people who like to sing them are about 30 Year Plan period, has not yet been thoroughly looked

years old. In the song and dance halls of Guangzhou, into and studied by experts. Is it just the expression of a Shenzhen, and the cities in the Zhujiang Delta, the certain nostalgia? Is it that, because of the changes in

audience is often seen singing "revolutionary songs." On world affairs, people feel that it is hard to be parted from

the stage the singing star, although with a rock and roll past ties? Is it because up to now it is hard to forget the

beat, sets the whole hall to clapping, at times leading the image of Mao Zedong as the founder of the republic? Or

audience to join in, in unison and harmony, and the is it because some people are dissatisfied with presentwarmth of the audience's reaction is astonishing. Last day society and are seeking consolation and a way to

September in Guangzhou, singing stars of the mainland, vent their feelings? Or is it a manifestation of perplexity

Taiwan, and Hong Kong gave a song concert on the eve about the course that the mainland's modernization has

of the Asian Games. At the concert there was a revolu- taken...?

tionary and romantic scene blending the singing of the

songs "The Sun Is the Reddest, Chairman Mao Is the No matter what is the case, if Mao Zedong is really a

Dearest" and "Lover Under Starlight." spirit in heaven, perhaps he is constantly amazed at the

things that have happened after his death.

Tape, Picture Publishers Take Opportunity To Get Rich

From Nostalgia Application of Dialectical, Two-Way Thought

To ride the tide of "nostalgia," many tape and picture Urged

publishers on the mainland are competing with each HK2206064091 Beijing QIUSHI in Chinese No 10,

other in issuing tapes and records. Everywhere in Guang- 16 May 91 pp 45-47

zhou City people can buy the tapes "Glory of Mao

Zedong," "Thinking of You, Mao Zedong," and "Mao

Zedong's Poetry Recital." It is said that the tapes sell [Article by Zhou Donghang (0719 2639 5300), of

well. Dongtai City Government Office, Jiangsu: "Establish

Besides this surge of nostalgia there is a tendency to Idea of Dialectical, Two-Way Thought"]

"raise the temperature" in deifying Mao Zedong. [Text] "Two-way" is a term which has appeared quite

frequently in newspapers and periodicals in recent years. Pictures of Mao Zedong Put on Buses, Cars; in Rural It has been used, for example, to refer to the two-way

Areas People Even Set Up Incense Burners and Present exchang of e erience, the two-way

Offerings to Him exchange of experience, the two-way interflow of skilled

personnel, the two-way choices in university student

On the streets of cities and towns in Guangdong Prov- allocation, two-way alliances between enterprises, twoince, on the fronts of buses and private cars are affixed way regulation and control of market supply and

eye-catching pictures of Mao Zedong. People from else- demand, the two-way education between the educators

where who see them for the first time are astonished. If and those being educated, and so on. "Two-way" has
JPRS-CAR-91-052

23 September 1991 POLITICAL 9

become a common thought characteristic for many prac- serious at present, and this is a major restraining factor

tices and experiences in many spheres. It is not difficult in the strategy of using science and technology to invigto see that the reason the two-way idea has been so orate the villages. Practice has warned us that one-way

widely propagated and accepted is not only that this thought, that is, the thought mode which one-sidedly

formulation is a new one, but more importantly, it stresses the role of one side of things and ignores the

accords with dialectical thought, and more clearly and concurrently existing role of the other side, goes against

more specifically places in front of man the true features the objective reality of two-way links between things and

of the world. There is an idea that clearly putting forward seriously obstructs the development of objective things.

the two-way thought mode was not coincidental, but We should put efforts into striving to study and grasp the

rather is an advance, in accordance with the patterns, of two-way thought mode to satisfy the needs of practice

man's cognitive modes achieved through the practice of and promote the development of practice. Some areas

reform and opening up. have applied the two-way thought mode in economic

work and achieved obvious results. For example, so that

Cognitive modes are determined by modes of practice, product quality is truly guaranteed for both buyers and

while modes of practice are in turn determined by the sellers, the Hanchuan cable factory has established a

structures of the objective world and their patterns of follow-up record-keeping system for two-way product

movement. Two-way thought makes obvious the mutual quality. Over the last few years, the reason that the

links within the structures of things and is a character- economic development of a number of large counties in

istic which agrees with the practice of reform and Jiangsu, Zhejiang, Shanghai, Shandong, and Guangdong,

opening up. In terms of the structures of objective things, which are either grain or cotton producers or have high

the links between the two sides of a contradiction also financial income, have been in the leading position in

exist as two-way things. They are mutually influencing, the country is ascribable, on the thought mode level, to

mutually restraining, and play mutual roles. That is to open thought, that is two-way thought. We have already

say, at the same time as each side of a contradiction has begun to use two-way thought to explore the new charinfluence on, restrains, and plays a role on the other side, acteristics, new patterns, and new modes of ideological

it is also inevitably subject to the influence, restraints, and political work in the new period. In order to properly

and roles exerted on it by the other side. For example, in combine the leaders' guidance and education of the

physics, an action can produce a reaction; in chemistry masses with the masses' democratic supervision of the

decomposition exists at the same time as chemical leaders, Huaiyang City in Jiangsu began in 1989 to

combination; in philosophy, the determining role of propagate, in the various businesses and industries,

matter also involves a reaction by consciousness; while "dual morality and educational standards." Not only

in human society, the oppression of the ruling class can were ideological and moral activity standards stipulated

be produced concurrently with resistance by the ruled for the masses, but ideological and moral activity stanclass. The role which one side has on the other and that dards higher than the requirements for the masses were

which the second side has on the first emerge together stipulated for leading cadres. This practice greatly proand live and die together. Thus, people's thought modes moted the building of spiritual civilization and various

should be two-way. Only in this way will it be possible to aspects of work in this city. Innumerable facts have

truly understand and master these two-way links shown that two-way thought is a thought mode which

between things and will we be able to think of better ways can accomplish much and is an effective utilization of

to link up the sides of the contradiction and promote the materialist dialectics.

two-way roles of these two sides to accord with the

process by which new things replace old. In social If we further analyze and look from the angle of the two

practice, when things are given rise to, people often pay sides of the contradiction and the position and role of

attention to the role of only one of the directions, a their two-way links, these two-way links should be

one-way role. This is not the result of any need, but just divided into the primary and the secondary, the imporbias on the cognitive level. That view which artificially tant and the unimportant. This is because, as the various

splits apart the inevitable two-way links which are innate sides of the contradiction can be divided into the pri- in things will affect and obstruct the development of mary and the secondary, the two-way roles of the two

things. For example, in the fostering and employment of sides of the contradiction will not be balanced. For

talented persons, there exists a two-way flow. From the example, force is primary and reactive force is secvillages, every year there is an unending flow of new ondary; the determinant role is primary and the reactive

students to institutions of higher learning, while from the role is secondary. Also, if unit A goes to unit B to learn

institutions of higher learning there is a flow of skilled from it, although there will be mutual learning, we

personnel back to the villages. If the institutions of should see A's study of B as being primary; and so on. In

higher education do not send people to the villages or this way, the primary and secondary positions of the

send only a few persons, it will result in two extraordi- two-way roles between things way rely for their existence

nary phenomena-in the cities (especially in organs and on certain objective conditions. If we do some deeper

scientific research institutes) scientific research strengths analysis, we will discover that as soon as these objective

will lay idle, while in the villages (and especially the rural conditions change, the primary and secondary positions

enterprises) there will be a lack of skilled scientific and of the two-way roles will also correspondingly undergo

technical personnel. This contradiction is extremely change. For example, in chemical reactions, changes in
JPRS-CAR-91-052

10 POLITICAL 23 September 1991

external conditions such as concentrations, pressures, appealing onto circulation enterprises and onto conand temperatures can give rise to unequal changes in the sumers can only lead to the clogged circulation of cornspeed of positive reaction and the speed of retroaction, modities. They likewise do not understand that this will

resulting in a shift in the chemical equilibrium. If we seriously affect the implementation of the economic

speak in terms of commodity exchange, the fluctuations improvement and rectification policies, the policies necand changes in market supply and demand relations can essary for the sustained, stable, and coordinated develalso often lead to changes in the primary and secondary opment of the national economy. This is very stupid.

position of the two-way roles of the buyers and sellers. At The practices and ideas of those comrades who actively

times there is a "buyers' market" and at times there is a "oppose blockades" are something else. RENMIN

"sellers' market." The law of contradictions shows that RIBAO recently carried special reports on the opening

when the primary and secondary positions of the two up of the borders between the three provinces of Zhesides of a contradiction change in response to changes in jiang, Fujian, and Jiangxi in order to find common

conditions, the primary and secondary positions of the prosperity. In response to the situation where there were

two-way roles of the two sides of the contradiction will various differentials in policies between the provinces,

also change correspondingly. From this we can see that the neighboring counties (cities) of the three provinces,

the primary or secondary nature of the two-way roles jointly stressed "policy follow-up" and "policy conforbetween things exists universally and absolutely, while mity" to guarantee the relative stability of the market.

also being conditional and relative. This tells us that in They jointly organized combines of goods and materials

grasping and using the two-way thought mode, we musttranscended provinces and transcended counties gemraspingand u tc ng thess two aphy thought(cities), sc and they put great effort into the development of

use more dialectics and less metaphysics. border public relations. Opening the borders caused

some problems and losses in some areas, but an undiFor quite some time, the widespread propagation of the vided market was opened up, and the advantages outtwo-way thought mode has been determined by the weighed the problems. This manifested their two-way,

dialectics of reform and opening up. For example, the dialectical view of advantage and disadvantage. They

relationship between the planned economy and regula- not only looked at the losses which would result from

tion through the market mechanism is an extremely opening the borders, but also looked at the advantages

important and profound question. For the 10-plus years which would accrue to their area through the overall

of reform and opening up, we were engaged in repeated opening of the market. This shows that if we want to

exploration and we made repeated efforts centered on thoroughly break down the market blockades, it is insufthis question. Under the precondition of strengthening ficient just to study and become familiar with socialist

macroeconomic planned regulation and control, the fos- economic laws. It is also necessary to overcome selfish

tering of a market mechanism and the enlivening of departmentalism and also to overcome the, biases of

commodity interflow became hot topics in economic one-way thought, and to organically combine these two

life. However, in recent years, there has appeared the aspects.

phenomenon of regional market blockades. Various

regions and departments have established all sorts of The gradual establishment and perfection of a two-way

obstacles to interfere in the production and operational service system for agriculture has provided new answers

autonomy of enterprises. It has even occurred, under the for profound problems in the reform of the agricultural

contract responsibility system, that rigid regulations system. The role of two-way thought is even more

have been set down whereby enterprises are only allowed obvious here. It has placed the focal point of the work of

to purchase and market local products or require local improving agriculture and deepening reform of the rural

products to be rigidly arranged and matched. Some structure on establishing a two-way service system for

agriculture and freeing the great energy of the rural localities have also taken it upon themselves to set up productive forces. This has been a significant breakcheckpoints on roads, at stations, at ports, and at pro- through. Some basic-level rural cadres held to the old

vincial or regional borders, thereby obstructing the views and old methods which were so widespread before

normal flow of commodities. For products of other areas the dual-level operational system was implemented.

or for enterprises which deal in or use products from They hold that "In one year, there are 12 months. For

other areas, other localities have taken it upon them- three months, we grasp the 'two items to be handed up,'

selves to increase tax rates, change tax rates, limit credit, for two months we grasp family planning, for one and a raise credit interest rates, and change purchase/sale or half months we engage in funeral reform, for over two

wholesale/retail price differentials in order to forcibly months we have meetings, and for the remaining 60 days

increase the sales of the products of the locality, the weather is bad," and they maintain that they are kept

Reflecting that closed thought modes are still stubbornly busy handling these things. In other provinces the situentrenched in some people's minds, such regional ation is different. In these areas, great changes have been

market blockades have staged a comeback. These local- seen in recent years because many counties (cities) have

ities engage in selfish departmentalism and forget the propagated to differing degrees the two-way contracted

laws of commodity circulation. They do not even under- responsibility system in agriculture. Centered on all the

stand that selling poor quality goods at high prices and tasks of agricultural production, specific task targets

that forcing local products which customers do not find were set down at the city, county, township, village, and
JPRS-CAR-91-052

23 September 1991 POLITICAL 11

household level, and two-way contracts were signed. The Such links objectively exist between the two sides of

upper levels agreed in the contracts to provide the lower contradictions and they are divided into the primary and

levels with all the necessary agricultural means of pro- the secondary. The primary or secondary position of the

duction as well as technical and funding services. The links depends on the two-way roles of changes in certain

lower levels agreed through the contract with the upper conditions. We, in accordance with the practice of

levels to fulfill tasks in terms of area planted to various reform and opening up, must establish more consciously

crops, output, and fixed purchase volumes, as well as to a dialectical two-way thought concept to promote the

complete other economic targets. This two-way contract development of socialist construction.

system is multilevel and overall. At every level there are

two-way links between the upper and lower levels. This First Private Publisher Described

two-way system not only requires the peasants and the

villages to do certain things, but also stipulates what 91CMO480A Hong Kong CHING PAO [THE

services the village-level collective organizations and the MIRROR] in Chinese No 6, 10 Jun 91 pp 48-49

various levels of government departments should provide. Not only are the production tasks and the contri- [Article by Kuang Mu-lan (0562 1970 5695): "The Tian

butions which the peasants should make "quantified," Ze Publishing House, Mainland China's Only Private

but the service responsibilities of the various levels of Publisher, Feels the Pressure and Comes Near To Stopgovernment department and economic organization are ping Operations"]

"fixed." Thus, the difficulty of work in these places has [Excerpts] At a press conference on 2 April 1988, Du

been greatly reduced, and the amount of work has also Daozheng [2629 1418 2973], director of the Press and

been reduced. Results have obviously improved, and the Publication Administration, announced to Chinese and

pace of agricultural development has been quite swift. foreign reporters: Approval has been given to the estabThe reality of work in our villages at present is that lishment of China's first privately owned publishing

regardless of whether we speak of family contract respon- house, the Tian Ze Publishing House, in Shaanxi. The

sibility or of an appropriate degree of operations of scale, matter has been followed with great interest internationall require overall socialized service for agriculture. ally. How is this publishing house doing today?

Thus, the establishment and perfecting of the two-way

contracted responsibility system and the two-way service Established by Well-Known Scholars With Funds Saved

system both require that stress be placed on service From Food and Clothing

"from top to bottom." That is, the state and the collectives should provide good service to the peasants to The Tian Ze Publishing House was established by Dr.

stimulate their enthusiasm for making contributions to Zhou Yao [6650 10311, a very well-known entomologist,

the collective and the state. In this way rural work will be professor at Northwest Agricultural University, chief

changed from passive work to active work and the editor of an international academic publication (the Entosuperiorities of the socialist system will be fully brought mological Classification Journal), academician of the San

into play. For example, in order to get the peasants to Marino International Academy of Sciences, and member

safeguard and support family planning work, it is neces- of the CPPCC [Chinese People's Political Consultative

sary to help them rid themselves of worries about "being Conference] National Committee more than 120 profesold and without support." The insurance service system sors, research fellows, agricultural technicians, and memfor the single-child parent which some areas have estab- bers of the Scientific Council of the Chinese Academy of

lished is a good way to do this. By extension, in order to Sciences who had pooled their resources for the establishpromote one of the roles in the two-way roles between ment of the publishing house.

things, it is possible to adopt direct methods to strengthen one role while adopting indirect methods to The original sponsors of the publishing house included

strengthen the other role, so as to achieve opposite yet such well-known figures as the late Chen Shixiang, complementary results. This s also where the signifi- director, and Huang Fusheng [7806 1788 3932], research

cance of the dialectical law of two-way thought lies, fellow, of the Zoology Institute, Chinese Academy of Sciences; Zhou Mingzhen [6650 2494 6966], curator of

the Beijing Museum of Natural History; Yang Jikun Materialist dialectics has always stressed the two-way [2799 7162 2492], professor, Beijing Agricultural Uniroles between things. As Engels pointed out: "When we versity; and Zhao Xiufu [6392 0208 1788], professor,

think deeply about the natural world, the history of Fujian Agricultural College. They were joined later by

mankind, or our own mental activities, the first thing Professors Niu Man-chiang [3662 3341 3068] and Liang

which appears before us is a tableau of all sorts of links Tung-ting [2733 0681 1656], of the United States; Proand mutual roles endlessly interwoven." (Selected Works fessor Cheng Feng-ying [6774 7685 3467], of Canada;

of Marx and Engels, Vol 3, p 60) Two-way thought has and Tao Chia-chu [7118 1367 7467], research fellow

long existed in man's practical and cognitive activities, from Taiwan.

However, the practice of reform and opening up is richer

and more diverse than at any other time, and the links In founding the Tian Ze Publishing House, these scienbetween thought and practice are much more intimate tists are motivated by their strong dissatisfaction with

than in the past. This allows us to attain a deeper the situation in the publishing field in mainland China,

understanding of the universal links between things. where pornographic, feudalistic, and superstitious books
JPRS-CAR-91-052

12 POLITICAL 23 September 1991

and periodicals have flooded the market in recent years, year, it turned out 36 books about the moral education of

but it is extremely difficult for scientific and technolog- young people and about extracurricular guidance for

ical books to get published. They do not want to make middle and primary schools and 18 other books,

money, but wish to "contribute to the four modernizations including Artistic Expression of Modern Architecture and

of the motherland, help improve the moral trend of Selected Paintings of Guo Lifa, which account for 18

society, serve scientific studies, and glorify scientists. percent of the total number of titles published. It may have attempted to do too much as one publishing house, To raise funds, some of these scientists have scrimped on but it has not produced a bad book, not even one of poor

food and clothing. Some have invested their life savings taste.

and take only interest on their shares (at the same rate as

time deposits in banks) and no extra dividends. Zhou Yao In the past two years, the owners have been asked

has invested in the publishing house his life savings, what through friends or enticed with money to publish he earns by writing, and a part of his monthly pay as a numerous so-called "best sellers," for example, Palmprofessor, a total of more than 20,000 yuan. He takes no istry, A Study of the Ma Yi Physiognomy, The Biological interest on his shares. He serves as the director and editor Clock of the Human Body, Man's Tricks, How To

in chief without salary or allowance. In his will, he Become a Fascinating Woman, The Hei Te Report-a

dictates that his shares and interests will not be inherited Study of the Female Sex Act, and so on. The translator of

by his children and relatives, but will be used entirely for the last book said that he could obtain a "special permit"

the development of the scientific publishing business. The from the Press and Publication Administration in Beispirit is extremely touching. jing and guaranteed them a profit of 300,000 yuan. The

owners, acting on their conscience, sternly refused the

Unusually High Efficiency of Private Management Won offer.

Praises

Because the Tian Ze Publishing House is privately Feeling the Heat, Cutting Operations

owned, its management system is naturally different When the writer asked about their work in the past year,

from that of state-owned publishing houses. It has a they said that operations have come near to a halt in the

first-rate professional editorial staff, consisting mainly of past year, and that they are still faced with some obstrucprofessors and research fellows, who are either retired or tions. However, they believed that with the on-going

working part-time. The number of full-time editors and policy of reform and opening to the outside world today,

administrative personnel is very small. The problem of the problems can be solved. In the past year, many

everyone eating out of the same big pot does not exist, overseas Chinese have visited the publishing house and

and efficiency, therefore, is extremely high. indicated that they would donate or raise publication funds and make joint contributions to the prosperity of

Because expenses are limited, publishing costs are very the motherland. Tian Ze Publishing House is certainly

low. Other publishers would not publish any book with going to become increasingly more successful.

an impression of less than 10,000 or 8,000 copies because it would lose money. At Tian Ze, a printing of Veteran Writer Discusses Current Literary Tasks

3,000 copies is enough to cover costs. For books of high

academic value, they are willing to take a loss and print 91CMO5OOA Beijing WENYI BAO in Chinese

as few as 1,000 or 2,000 copies. 29 Jun 91 p 3

At the time of its establishment, Tian Ze had already [Article by Qin Mu: "The Solemn Mandate of a Writer at

bought such editing and composing equipment as an an Historical Intersect"]

electronic computer, a laser stamping machine, electric

Chinese-foreign language typewriters, electric foreign [Text] Over the last two years, guided by the Party's

language typewriters and so forth. This equipment has policy of rectifying literature on one hand and enriching

greatly enhanced the quality of its publications and it on the other, Chinese literature showed signs of

shortened its publishing time. prosperity after having experienced the most difficult

period of time. It is, however, still far from meeting the

In the two years from 7 June 1988 when it was formally needs of the time and people. Greater efforts should be

established to the end of June 1990, the publishing house made to create the conditions that are conducive to the

received not one cent from the state and borrowed no arrival of prosperity that is socialist in nature and has

money from the banks, yet it published 238 books (includ- specific implications.

ing 18 still in the printing shop), all of which are good

books and well received by academic circles at home and Socialist literature is different from literature of any

abroad, other time. It carries a solemn mandate and glorious task

which is to create healthy spiritual products under the

Conscientiously Publishing Books on Science guidance of communist aesthetic ideology with a view to

transforming and enriching the spiritual life of the

[passage omitted] Of the books published, 194, or 82 people, purifying their morality and sentiment, and

percent, are on biological science, agricultural and for- cherishing their confidence and courage to build a happy

estry science, and related subjects. Besides, in its first life.
JPRS-CAR-91-052

23 September 1991 POLITICAL 13

To achieve such a lofty objective, practical and effective the furnace of real life and come up with a brand-new

efforts must be made. A socialist writer must stand on a and purified artistic feel. They should use a great sense of

high plane and set strict demand on himself so as not to historical responsibility in the creation of works that are

fail the expectation of the time and people, consistent with the logic of life to encourage people to

love life and to dedicate themselves to the construction

A socialist writer should also closely follow the step of of a happy present and future.

the time. Literary works are supposed to be the spiritual

fire of an age, and even more so during the new historical A socialist writer should also be close to the people.

period of socialism. The socialist path is a historical People are the creators of history and the mother of

choice made by the Chinese people who have spent more writers. As Deng Xiaoping said, the artistic life of all

than a 100 years in exploration and pursuit and paid progressive literary and art workers lie in their insepadear prices time and again. It is the golden path on which rable connection with the people. We must firmly keep

the 1. 1 billion people are marching under the leadership this in mind and have the literary tree deeply rooted in

of the Chinese Communist Party. We must bravely and the soil of the people's life.

firmly walk along this road to the destination of commu- Only when writers are close to the people can they

nism. Reform and openness must be upheld with no Onlenw the people can the y

waver in the least because they represent an irreversible understand the people and clearly recognize the special historical histricl and hav tend pro ed o b th av nue nature of people's spiritual world in a socialist society. In trend and have proved to be the avenue C i a u o p bi w e si st e m i eai n o

towards a strong country. Literary works should reflect China, due to public ownership as the main relation of

and keep up with such pulses of the time and transmit production, the relationship between the people is a

the message of the time to advance the cause of brand-new, equal and friendly social relationship. It has socialisme has been demonstrated and will be more fully shown that

such spiritual world is more rational, more humane, and

At the same time, it should also be noted that we are now more conducive to the overall development of mankind

entering the last part of this century. We are right at the than that of any other time and society. Only when

intersect of historical changes and facing a turbulent, writers are deeply involved in such a world can they

unpredictable, and eventful world. The call and hope of appreciate its rich and extensive potential, consciously

a new century coexist with the desperation and lamen- depict the selfless and dedicated spirit found in the new

tation of the end of the century. The progress and type of socialist personal relationships as well as the

reaction of the historical process, the growth and setback accompanying socialist human feelings, and create a

of socialism, the distillation and degeneration of people's brand-new aesthetic world in their works. We must

mind, the richness and impetuousness of social life, all pursue, explore and try to attain at an early time such

have become so dazzling that they are pounding at the lofty and ideal realm with all our efforts. But the only

soul of everybody. Such distinguished features of the available approach towards that realm is to be close to

times need to be observed and grasped by the writers, the people, have mutual affinity with them, and conWith a self-centered mentality that ignores social events, sciously receive the nurturing of the people's artistic

it is impossible to produce any works that carry the feelings. In return, it is a privilege and a glorious task for

flavor of a great era. the socialist writers to create rich and colorful artistic

works to meet the needs of the people's spiritual life and

A socialist writer must be close to life. Life is the source improve their artistic temperament.

of creative works, as has been demonstrated by practice.

Real life in China is rich and colorful. People at different We are at an historical intersect, a time of change and

posts of socialist construction are creating vivid and turbulence as well as a time of difficult pioneering and

magnificent scenes which provide unlimited source striving for progress. This age calls for a pioneering spirit

materials for literary creation. Our works should timely and constantly generates such spirit. It needs many heros

and truly reflect the lofty spiritual world of those new-life and outstanding people and forever producing such

creators and their glorious achievements so as to enable people. Therefore, socialist writers have an enormous

the readers to appreciate the great steps that are being space for their literary creation and imagination.

taken in the historical process of Chinese modernization Chinese revolutionary literature has closely followed the

construction. steps of the Party and gone through a long, glorious and

To be close to life, writers will have to step out of their difficult course. It will have a wonderful but grave future

small study and enter the real world. They must identify just like the Chinese socialist course. On the way to the

with the masses, personally experience the vitality of the remote future let all writers who are loyal to socialism go

masses in socialist construction as well as their various hand-in-hand and write works of historical significance.

psychological and spiritual phenomena under the new

historical conditions. They should consciously develop Malpractice-Rectifying Group Visits Guangdong

themes, subject matters, plots, expressions, and poetic HK0807073591 Guangzhou Guangdong People's Radio

flavor from the rich life of the people. They should Network in Mandarin 0400 GMT 4 Jul 91

nurture themselves with the determined spirit of the

masses who are the creators of history. They should [Text] The State Council work group in charge of rectipurify their idealogy, feeling, and view of the world in fying unhealthy professional tendencies reaffirmed
JPRS-CAR-91-052

14 POLITICAL 23 September 1991

Guangdong's achievements in this respect. The work war against unhealthy professional tendencies. In addigroup made this assessment after listening to relevant tion, Guangdong took effective measures in building a

reports and making investigations in Shenzhen, Foshan, clean and honest government; in introducing a system

and Zhuhai. whereby the public is kept aware of the government's

decisionmaking process and operations and wherein

The work group held that Guangdong had made great government workers are subject to supervision by the

and earnest efforts to build a clean and honest govern- masses; and in examining and prosecuting major and

ment and rectify unhealthy professional tendencies. Pro- important cases, scoring remarkable successes.

ceeding from actual conditions, Guangdong attached

great importance to checking up on cadres who abused The work group hoped that Guangdong would try to

their power by building private houses, and it achieved raise the cadres' vocational level and strengthen their

marked success in ending the malpractice. Making fairly contingent politically and organizationally while congreat achievements, Guangdong regarded the work of tinuing to rectify unhealthy professional tendencies and

checking unreasonable charges, apportions, and fines as to work out a set of effective and operational measures

a breakthrough point and the principal content of the for checking unhealthy professional tendencies.
JPRS-CAR-91-052

23 September 1991 ECONOMIC 15

NATIONAL AFFAIRS, POLICY a stock market in a socialist country under the prerequisite of regarding state ownership as the basis. He anaBeijing Seminar on Share-holding System, Stock lyzed: Judged from actual departments, implementing

Market the share-holding system and developing stock market

involve the two issues of capital and enterprise mecha- 91CE0652A Chongqing GAIGE [REFORM] in Chinese nism transformation. There is a shortage of funds for

No 3, 20 May 91 pp 5-8 state construction and enterprise transformation and

[Summary of Seminar by Shen Hongsheng (3088 7703 development. However since family and personal 3932) and Ji Zhaoquan (4764 0340 0356), secretaries of income levels are continually rising, there is the issue of the seminar: "Improving the Share-holding System and how to transform savings into investment. In the past we

the Experiment of Stock Market"] relied only on the transformation of bank deposits. Now

people suggest that we use other forms of working funds

[Text] In March 1991, the Comprehensive Development to achieve the transformation, especially the forms of

and Research Institute and GAIGE magazine jointly stocks and bonds, which are of great significance. As for

sponsored in Beijing a "seminar on improving the share- the issue of the transformation of enterprise mechanism,

holding system and the experiment of stock market." he said that the share-holding system can push enterAttending the seminar were over 100 people, including prises into market competition and make them really

the representatives of stock and security companies in independent in management and in assuming responsiShenzhen and Shanghai, experts and scholars from col- bility for their own profits and losses. Therefore, it is

leges and scientific and research units in Beijing, and probably a better mechanism for enterprises.

from the departments concerned at the central level. At

the seminar, stock and security companies in Shenzhen After exchanges and discussions at the seminar, the

and Shanghai introduced their experience, and Hong participants reached the following common understandKong and Taiwan scholars and security companies were ings:

also invited to introduce their experience. 1. What exactly does the share-holding system belong to,

Leading comrades attending and speaking at the seminar capitalism or socialism? The share-holding system has

were Ma Hong [7456 3163], director of the Development risen and fallen several times in the course of reform.

Research Center of the State Council; Gui Shiyong [2710 This is mainly because some people regard it as capitalist

0013 6978], vice minister of the State Planning Commis- stuff. After discussions, the participants held that the

sion; Liu Hongru [0491 7703 0320], vice minister of the share-holding system is a form of organization for enterState Restructuring of the Economic System Commis- prise property. It divides property into shares of equal

sion; and Tang Bingwu [3282 0014 0582], director of the value and defines the nature and amount of property.

State Administration of State Property. Qualitative definition is to determine to whom the

property belongs, and quantitative definition is to deterComrade Ma Hong pointed out that not long ago the mine who has how much property. Therefore, this form

Seventh Plenum of the 13th CPC Central Committee and system of organization itself does not have the

adopted a "proposal" which set forth a very important nature of class. It does not belong to capitalism or

issue, that is to increase economic returns. Increasing socialism. It is neutral, because it does not have any

economic returns is a very complicated task. One impor- direct relation to the ownership of property. History

tant aspect is the issue of fund management. He thinks shows that the share-holding system did not exist in the

that generally China's economic construction suffers initial period of capitalist society, nor did the appearfrom a shortage of funds on one hand, and on the other ance of the share-holding system change the nature of the

hand, the existing amount of property has reached a private ownership of capitalist society. By the same

considerable scale. Since our property has a prominent token, implementing the share-holding system in a

tendency of "solidification," it cannot effectively flow socialist society will not change the nature of socialist

from departments of lower efficiency to departments of public ownership either.

higher efficiency, thus creating numerous problems for

structural readjustment. Implementing the share-holding 2. Do all forms of share-holding system need to issue

system may be a more effective measure, which has been stocks to the public? Some people think that to impleproven by the development of the world economy. Of ment the share-holding system is to issue stocks to the

course, when dealing with new things like the share- public and to carry out stock exchange. After discusholding system, we must not copy it automatically or sions, the participants agreed that it is a misunderrush headlong into mass action, although we should have standing caused by the lack of knowledge in the sharea positive attitude. We need to analyze the similarities holding system. To implement the share-holding system,

and differences between the share-holding systems in enterprises may adopt two main forms: One is the

China and Western countries. In practice, we should limited-liability company. According to law, a certain

draw on rational aspects and avoid harmful aspects. number of share-holders jointly invest in an enterprise

and stocks are issued to workers in the enterprise. The

Comrade Liu Hongru pointed out that through theoret- number of shares owned by each shareholder may vary, ical research and practical exploration, we should find a but the enterprise does not issue stocks to the public. The

way to implement the share-holding system and establish other is the limited-stock company. Namely according to
JPRS-CAR-91-052

16 ECONOMIC 23 September 1991

law, a fairly large number of shareholders jointly invest of private ownership because shares are held by individin an enterprise. Total investment is divided into shares uals in society. However, if the percentage is very small,

of equal value and then issued to the public. Stocks may it would not affect the nature of public ownership as the

be issued in two forms: One is over the counter transac- basis of enterprises. Thus, implementing the sharetions, which involve selling stocks on the basis of their holding system not only will not evolve into "privatizaface value and does not involve the issue of price tion," but actually upholds the party's principle of

fluctuation. Another is listing on the stock market. Due "regarding public ownership as the basis and properly

to the supply and demand relations of stocks, or for other developing other economic elements."

reasons, the actual sales price of stocks fluctuates. Stocks

listed on the market need to be strictly screened. This is 5. Will the implementation of the share-holding system

why only a limited number of companies can be listed, lead to the expansion of investment in capital construcalthough there are many stock companies. Currently, if tion? Some people think that implementing the shareChina wants to implement the share-holding system, it holding system would expand the scale of capital conshould concentrate on the limited-liability company. struction, thus causing the investment of capital

Even if it wants to implement the limited-stock corn- construction to expand. After discussions, the participany, only a few companies should be allowed to list pants held that they are two different issues. The scale of

their stocks on the market. Because of this, not all forms capital construction belongs to the issue of macroecoof the share-holding system need to issue stocks to the nomic control, and implementing the share-holding

public, nor are all companies allowed to list their stocks system is the issue of finding the sources of funds. After

on the market. determining the scale of capital construction, implementing the share-holding system is one way to find the

3. Will the implementation of the share-holding system source of funds for capital construction. Because of this, "change public property into private property?" The it not only will not cause the expansion of investment but

participants held that enterprises implementing the will actually insure the raising of part of the capital

share-holding system have strict definitions for property. construction funds and reduce the burden of state

The shares of state property are held by the state, finance.

collective property by collectives, and private property 6. Will the implementation of the share-holding system

by private shareholders. Each has its own representatives lead to the expansion of consumption funds? Some

to exercise its proprietary rights as share-holders. This people think that implementing the share-holding system

not only will not turn public property into private pellin kshat i stributingth e tolindividproperty but theownrsip will f on ublc the roprtydu contrary effectively toth clardefini- safeguard and uals selling would stocks causeand consumption distributing funds dividends to expand. to individ- After

the ownership of public property due to the clear discussions, the participants held that stocks are diftion of property rights. ferent from bonds. Bonds need payments of interest and

capital, but stocks need only payments of extra divi- 4. Will the existence of private shareholders under the dends, not capital. Therefore, issuing stocks can change a

share-holding system evolve into privatization? The par- part of consumption funds into accumulation funds.

ticipants held that whether or not to allow private Consumption funds would not expand; they would actushareholders would be determined by the initial period ally be suppressed.

of socialism. Since China allows limited private ownership to exist and develop moderately in the ownership 7. Will the implementation of the share-holding system

system and a small number of people to run small-scale affect savings? Some people think that if we implement

private enterprises, it can, of course allow a small the share-holding system, the people would withdraw

amount of private shareholding. The percentage of pri- bank deposits to buy stocks, thus affecting savings. After

vate shares may be determined by the constitution of discussions, the participants held that China now has

stock companies. If the percentage is very small, there over 700 billion yuan in savings deposits which cannot

will not be any problem of privatization. For instance, be all withdrawn to buy stocks. If a part of the saving is

Shanghai Municipality has 11 enterprises implementing transferred to stocks, it is not a bad thing, but a good

the share-holding system that issues stocks. Of the 880 thing, as far as the stability of the national economy is

million yuan of stocks issued by these enterprises, 74 concerned. Savings can be withdrawn anytime. Like a

percent are held by the state, 19 percent are held by "tiger" kept in a cage, they can get out at anytime to

enterprises, and only 7 percent are held by private shake the market. But stocks cannot be withdrawn; they

shareholders. Besides, private shareholding has two con- can only be transferred. Because of this, turning part of

ditions: One is that enterprise workers hold the stocks in savings into future productive stocks is like locking the

their own companies which do not issue stocks to the "tiger" permanently in the cage; this could only benefit

public; another is that individuals hold stocks in enter- the stability of the economy.

prises which do issue stocks to the public. Since workers

participate in labor and hold shares, the former is a kind 8. Will the implementation of the share-holding system

of cooperative economy which has the nature of public give rise to an rentier class? Some people think that

ownership, as long as there is a limit on the amount. It implementing the share-holding system would generate a

also helps workers pay attention to the increase and group of people who make a living by cutting interest

decrease of enterprise property. The latter has the nature coupons, thus creating an rentier class. After discussions,
JPRS-CAR-91-052

23 September 1991 ECONOMIC 17

the participants held that the question of whether or not regard to efficiency, development, contributions to the

to allow the existence and moderate development of state, and enterprise accumulation.

private ownership belongs to the policy issue of the

initial period of socialism. Our policy, in reform of the For instance, the Shenzhen Jintian Industrial, Ltd., used

distribution system, is based clearly on distribution to be a state-run enterprise. After implementing the

according each person's work, allowing for co-existence share-holding system in 1988, in the past three years, its

of multiple forms of distribution. In other words, a small annual industrial output value increased 16-fold and its

amount of "nonlabor income" is allowed. Stock divi- annual profits increased 3-fold. In the two years after it

dends and extra dividends are a type of nonlabor implemented the share-holding system, the Shenzhen

income, but drawing interest on bank deposits, treasury Wanke Enterprise, Ltd., increased the value of state

bonds, and municipal bonds is also considered nonlabor property by 14-fold and paid a total of 5 million yuan of

income. The nonlabor income of most people could not taxes in two years, which was equivalent to its profit

be the main source of income. If such income of a very level before the share-holding system.

few people is significant, it could be regulated with In sum, the participants held that the share-holding

income regulatory tax. Because of this, it would not form system is an inevitable outcome of the development of

an interest-eating class, but would actually reflect the the commodity economy and that to develop the comparty's principle of multiple forms of distribution based modity economy, some enterprises must implement the

on to each according to his work. share-holding system. However to implement the shareholding system, China still lacks experience, and both

9. How do we treat the fluctuation of stock prices? Some internal and external conditions are insufficient. It is not

people think that in 1990 the stock prices of Shenzhen appropriate to carry it out on a large scale at present, but

City fluctuated constantly and some people engaged in it is extremely necessary to experiment with it in selected

speculation, causing confusions and disturbances in the units. The guidelines of the Seventh Plenary Session of

public. After discussions, the participants held that once the 13th CPC Central Committee regarding the 10-year

stocks enter the market, they would become commodi- program and the Eighth Five-Year Plan point out: It is

ties and that the fluctuation of commodity prices is necessary to explore various effective forms for the

caused mainly by the supply and demand relationship. implementation of the public economy. The limitedWhen the supply is limited and the demand is high, the liability and limited stock companies which are based on

price will inevitably rise. Otherwise, the price will fall. public ownership are definitely an effective form of

Therefore, the fluctuation of the stock market is inevi- implementation. We should use this form and system of

table. The problem is not price fluctuation. The problem organization to accelerate the development of China's

is how we handle such fluctuation. In the second half of socialist commodity economy.

1990, Shenzhen's stock market rose continuously. The

main reason for this was that the number of stocks During the seminar, the participants conscientiously

available on the market was too small and the gap studied the guidelines of the Seventh Plenary Session of

between the supply and the demand was too great. The the 13th CPC Central Committee and made the folbest solution at the time was to improve the control of lowing proposals on how to continue to experiment with

the securities market while introducing new stocks. This the share-holding system in selected units:

could regulate the abnormal situation of the market and

recover a large amount of stock funds for use in construc- 1. We should properly expand the pilot projects of the

tion. Due to a lack of experience, we failed to do so, thus share-holding system and focus on pushing the limitedlosing an excellent opportunity to raise money. The liability company that issue stocks to internal sharedelay in introducing new stocks to the market caused holders, while increasing the number of limited-stock

shareholders to doubt whether the government would companies. Comrade Li Peng pointed out: "It is imposallow the existence of a stock market. As a result, another sible for enterprise groups not to implement the shareabnormal situation appeared-the stock market fell con- holding system." Representatives at the seminar unanitinuously. The key to solving this issue is to authorize mously agreed that this inference is very correct and

pilot cities to increase the issue of stocks in a planned hoped that some enterprise groups can take the lead in

and timely manner, experimenting with the system.

2. Workers' shareholding is of the nature of the cooper- 10. Some people ask: Why do we need to implement the ative economy, which is conducive to arousing workers'

share-holding system if state-owned enterprises are car- sense of responsibility for being the master. It may be

rying out the contract system? After discussions, the implemented in limited-liability companies and stock

participants held that the contract system focuses on companies. We should not put too many restricts on this.

solving the issue of enterprises' management mechanism, having some restrictions, while the share-holding 3. With regard to the pilot projects of issuing stocks to

system can solve not only the problem of the enterprises the public, we should exercise decentralized control. The

management mechanism but also the problem of prop- central government may control the total issue of stocks

erty operation mechanism. Practice has fully proven that and assign the breakdown of the total amount to difthere are great contrasts between general enterprises and ferent cities carrying out the pilot projects of reform. As

enterprises implementing the share-holding system in for which enterprises should carry out the experiments of
JPRS-CAR-91-052

18 ECONOMIC 23 September 1991

reform and which enterprises issue how much stock, it is, we cannot realistically imagine eliminating these

reform cities may decide according to their own condi- conditions completely in one fell swoop. Hence it is

tions. There is no need for each and every enterprise to imperative that we examine the effects of each set of

report to the central government for examination and factors on interregional blockades and look for a way to

approval. change some of the conditions and break down the

blockades. Using the institutional factors existing in the 4. Except for Shanghai and Shenzhen, all cities have finance contracting system, this article analyzes the conducted experiments in the past. Some have issued effects of policy factors on regional blockades and

stocks but still lack a complete stock market. The participants suggested that we should allow enterprises which explores the possibility of eliminating such blockades

have already issued stocks to list their stocks with through policy adjustments.

Shanghai's and Shenzhen's stock markets to carry out

transactions. By making institutional factors, whose core is the local

5. We should formulate as soon as possible pertinent finance contracting system, the underlying assumption

laws. The guidelines proposed by the Seventh Plenary of our analysis, we affirm the status of the local governSession of the 13th CPC Central Committee already ment as the principal player with its own interests. This

pointed out the need to formulate the "law of corpora- can be justified as follows. First, the per capita national

tion," suggesting that the law of corporation include the income of China is quite low and 800 million Chinese

contents of two aspects: the limited-liability company still live in the countryside. The delegation of authority

and the corporation. It is inappropriate to formulate by the state to the enterprise in itself will not liberate this

only the law covering the former. Before the state law is vast population from the well-established practices of the

introduced, we should allow different provinces and natural economy and catapult it into the orbit of a

municipalities to formulate first some temporary rules commodity economy. The fact of the matter is that local

and regulations according to their own conditions to governments at all levels are an indispensable vital force.

meet urgent needs. Without their effort, the march toward a commodity

economy will take that much longer. The central govern6. We should carry out as soon as possible the experment ment, therefore, must rely on local governments at all

of allowing foreigners to buy stocks in China and Chi- levels to launch and organize local economic developnese enterprises to issue stocks outside China. ment, at the same time giving them the corresponding

7. To effectively control the stocks entering the market, power and authority. Second, given the lack of an

we suggest that we establish a "national security control existing model, economic structural reform in China is

commission" on the basis of common international highly exploratory. To make reform less risky and mainexperience, formulate a unified policy, and exercise tain a stable reform order, we need a major player that is

control and supervision over the stock market. This even more direct than the central government to actually

organ should belong and answer directly to the State carry out reform. After they were delegated authority

Council. and allowed to keep their profits, enterprises have conducted themselves irresponsibly in many ways. They are

in a better position to supervise enterprises and interEconomic Policies Encourage Regional Blockades vene in a more timely and effective manner. In addition,

91CE0682A Kunming ZHONGGUO JINGJI WENTI they assume many economic responsibilities of a local

[CHINA'S ECONOMIC PROBLEMS] in Chinese No 3, nature, such as stabilizing the social and economic order,

20 May 91 pp 20-25 providing jobs, raising funds to finance urban construction and housing, and undertake food basket projects. In

[Article by Xu Hua (1776 5478): "Effects of Economic short, the responsibilities of local governments are

Policies on Regional Blockades"] arduous. Unless they are armed with corresponding

powers and resources, local governments will not be able

[Text] Some current policies have encouraged and wors- to carry out their functions properly. Third, the central

ened interregional market blockades, according to the government has decided that the finance contracting

writer. If economic policies are improved and eliminate system will remain unchanged in the Eighth Five-Year

their tendency to cause regional blockades, then possibly Plan. This determines that our starting point when we

regional blockades will be substantially reduced. We discuss the problem of regional blockades is not whether

propose that existing economic policies be systematically we should recognize the locality as a principle interest

adjusted and amplified. party. Instead we must assume that it is and proceed

gthe Issue from there to search for a practical solution. Fourth,

1. Raising tinstitutional factors last longer than policy factors and it

When we examine and analyze interregional blockades, is more difficult and costly to reform them. Since the

we must not confine ourselves to the usual causes and institutional factors behind regional blockades will not

danger. This is because behind the phenomenon is an change in the foreseeable future, we should look long and

array of factors, some institutional, some policy-related, hard at the possibility of achieving our projected goals by

which work in different ways. The real world being what adjusting policy-related factors.
JPRS-CAR-91-052

23 September 1991 ECONOMIC 19

2. Effects of Individual Policies on Regional Blockades the interior, particularly those provinces rich in

resources that had traditionally relied on funds from the Generally speaking, any economic policy that directly or state. They must create jobs, adjust the production

indirectly impacts the interregional balance of interests structure, and develop their abundant natural resources,

and the realization of local economic interests gives rise yet they are woefully short of funds and technology. All

to regional blockades to some extent. Depending on their this forces provincial governments to pay closer attenlevel of operation, economic policies can be divided into tion to the source of local revenues and stress the

macroeconomic polices, such as fiscal policies and mon- protection of local enterprises.

etary policies; microeconomic policies, such as the

industrial policy, wage policy, price policy, and employ- Another regional effect of the investment policy is the

ment policy; and regional policies, such as the invest- convergence of regional industrial structures caused by

ment policy and foreign exchange retention policy. Since the delegation of investment management authority and

a regional policy itself embodies the principle of differ- the lack of economies of scale among enterprises. Since

ential treatment, it directly determines and regulates the 1984, the central government has delegated the authority

distribution of interests among the various regions to plan and manage fixed assets investment. Given an

through various paths. The reason is that under a given unsound price system, the delegation of investment

set of institutions, regions differ in their response to and management authority in effect amounts to the central

ability to cope with macroeconomic and microeconomic government abandoning any attempt to implement an

policies. In terms of the formulation and implementa- industrial policy on a national scale so as to further

tion of economic policies, in China both macroeconomic rationalize the distribution of productive forces and the

and regional economic policies are formulated and industrial structure. Succumbing to the temptation of an

enforced by the central government. Some microeco- irrational price system, local governments have scramnomic policies, on the other hand, are formulated by the bled to develop a number of profitable processing induscentral government and implemented by local govern- tries, particularly those that turn out upscale durable

ments. Other microeconomic policies are formulated consumer goods and office supplies. The result is that the

and implemented by local governments as authorized by industrial structure is becoming increasingly similar

the central authorities and in light of local conditions from region to region. At the same time, because finanand needs. There is yet another type of policy-"local cial resources are limited and funds are scattered, the

policy"-which is formulated and implemented by a development of processing projects that require limited

local government to protect its own interests. Because of investment, pay off quickly, and turn out high-priced

its protectionist nature, this kind of policy often is an and profitable products has become a major way to important tool for enforcing a regional blockade, broaden revenue sources for local governments. As a

Clearly, our discussion here does not include this kind of result, the scale of investment projects trails that of

local protectionist policy. Below is an analysis of the economies of scale and duplication of imports is exteneffects of various economic policies. sive. The convergence of structure between regions has

A) Effects of investment policies led to excessive competition within an industry, while

the miniaturization of projects has prevented enterprises

The effects of investment policies first and foremost from improving their efficiency through competition

come from the principle of differential treatment. For 30 and actually made them less able to compete. When

years before the introduction of reform and open policy, there is a downturn in the economy and the market

China followed a policy of balanced regional develop- softens, the interests of one region clash sharply with

ment policy, giving priority to the large-scale westward those of others. Against this backdrop local protectionist

movement of productive forces. Several major rounds of policies were born.

investment dispersal succeeded in putting an end to the

unjustifiable concentration of industry along the eastern These two regional effects of the investment policy differ

coast characteristic of the early years of the PRC, but in that one is direct, the other indirect. The regional bias

only at the expense of economic efficiency. Not only was of investment has directly altered the regional distributhe west not lifted from poverty and backwardness, but tion of interests, while the delegation of investment

the development of the eastern coast has also been management authority sowed the seeds for future condirectly hurt. Since reform and the open policy got under flict between regions on the market. The latter effect is

way, the state has shifted the focus of economic construc- felt indirectly and more slowly.

tion onto the improvement of economic performance. The regional development strategy has begun to exhibit B) Effects of the foreign exchange retention policy

the characteristics of imbalance. The investment policy

notably favored the coast. In recent years fixed assets The state has taken a string of measures in recent years to

investment by units owned by the whole people in the encourage exports and the earning of foreign exchange.

interior declined sharply relative to investment nation- Of all these measures, the impact of the foreign exchange

wide, while investment by the nine coastal provinces retention policy differs the most from region to region.

rose appreciably. Even as it successfully tapped enor- The five special economic zones are allowed to keep 100

mous economic potential, the regional bias of the invest- percent of the foreign exchange they earn on their

ment policy has also created problems for provinces in exports. In Fujian and Guangdong, it is 30 percent; areas
JPRS-CAR-91-052

20 ECONOMIC 23 September 1991

inhabited by minority nationalities, 50 percent, and increase the value of their products. The upshot is an

other provinces and regions, 25 percent. increasingly similar industrial structure from one region

It is the regional bias of the foreign exchange retention to the next.

policy that has directly caused localities to scramble for Second, to make price reform less risky and ease the

goods and supplies and put up regional blockades. For- burden on the national coffers, the government has

eign trade enterprises in areas with a high rate of foreign opted to lift price controls on some agricultural products

exchange retention use their advantageous position to and basic consumer goods and raise prices gradually

raise the procurement prices of exports artificially. To region by region. When prices are deregulated or raised,

the interior province receiving no preferential treatment, the local government concerned must issue financial

such conduct squeezes out the normal business of local subsidies to local residents. For this reason, price deregforeign trade companies, on the one hand, and raises ulation and price increases can only first take place in

production costs for local processing enterprises using those areas which are economically strong and finanthe same sources of goods and raw materials, on the cially sound. For any area, the advantage of being the

other. Their interests being hurt directly, resources- first to lift price control or raise prices is that it can

producing areas have no choice but to impose an admin- attract goods from other areas, thereby improving local

istrative blockade. residents' actual well-being and blunting the local trend

The disparate regional impact of the foreign exchange toward rising wages and other costs by using cheap retentdisparate regialo impa o the fcoreigns examnge resources from outside, which is an indirect financial

retention policy also widens the income gaps among gain for the local government in question. For areas

regions. Regions that enjoy a higher foreign exchange where prices have not been deregulated or raised, no

retention ratio are in a position to import on their own a doubt there will be a shortage of local commodities.

variety of commodities of which there is a shortage, Given a lack of financial resources to carry out price

using the plentiful foreign exchange funds they have onchoice

hand, and earn large sums of money. This effectively eorm,

widens regional income gaps further. The artificial wid- but to resort to administrative blockade by setting up

ening of these gaps provides an emotional argument for barriers everywhere to prevent an outflow of commodithe establishment of market barriers and makes the

government feel justified in doing so. Third, the system of level-by-level price management has

C) Effects of the price policy given local governments at all levels a certain amount of

power to set prices and manage prices. This has tremenThe effects of the price policy on the distribution of dous significance for helping prices regulate market

interests among regions are multifaceted. supply and demand flexibly. However, the drawback of

the deregulation of price management authority is that it First of all, the decontrol of prices and the introduction also makes it legal for local governments to compete on of a variety of price systems have redistributed interests price to further local interests. When the market is

among regions. After several rounds of reform, the prices booming, the localities jack up the prices of their leading of a majority of agricultural products and light industrial products as well as the prices of raw materials for use in

products were deregulated, while the prices of grain and profitable processing industries in a desperate bid to

cooking oil under contract and the procurement prices of increase profits. When the market loses steam, they several major agricultural products that impact the scramble to raise the sale prices of products from outside

national economy and the people's livelihood including to increase the market share of local products by manipcotton, flue-cured tobacco, and sugar are still set by the ulating the regional price differentials. When the line

state. As for capital goods, a dual-track pricing system between the misuse of the price mechanism and proper

has been adopted: within the plan prices are set by the price management is blurred, normal interregional comstate, outside the plan prices are negotiated. At a time modity circulation is destroyed. when the overall price level keeps going up, the price

policy mentioned above basically perpetuates the tradi- D) Effects of the monetary policy

tional unsound price structure in which energy, raw

materials, and other primary products are underpriced The monetary policy is a means available to the central

and processed products are overpriced. Through the government to regulate the money supply and the total

exchange between cheap raw materials and high-priced scale of credit. Misused, the monetary policy will have

processed products, the value of commodities continues serious repercussions for a local economy and the balto move from the west to the east. Although the central ance of regional interests. In China a sustained expangovernment has been compensating raw material- sionary monetary policy is often the product of an

exporting areas in the west with financial subsidies, such economic development strategy that seeks excessively

compensation is not based on the transfer of value and rapid growth. Spurred on by just such a policy, local

injects no life into the economy of the west. Misguided governments scrambled to outpace one another in ecoby this price policy and to work themselves out of this nomic growth between 1985-1988. Launching investunfavorable position, regions in the west use their power ment projects and expanding production unrealistically

to review and approve investment projects to develop with no regard for national strength and divorced from

processing industries using local raw materials so as to local reality and market demand. In so doing they laid
JPRS-CAR-91-052

23 September 1991 ECONOMIC 21

the material foundation for the over-production that governments must organize and coordinate all resources

came subsequently. To ensure the availability of raw within their jurisdictions through their own efforts to

materials and supplementary materials essential to rapid improve economic performance and enhance local ecodevelopment, the local government is bound to do nomic interests. However, not only do existing policies

everything to retain goods that would otherwise be fail to produce the above-mentioned effects; on the

shipped out of the area. A sustained restrictive monetary contrary, they further induce and encourage local govpolicy is usually adopted by the government as an ernments to deviate from the regular channels to

adjustment to an overheated economy where the propor- advance and protect local interests. On the one hand, the

tions have gone seriously out of balance. Since the fourth current body of economic legislation has no mechanisms

quarter of 1988, when China tightened the money supply to restrain the interest-seeking behavior of local governand began to improve the economic climate and rectify ments. The shortcomings of and lack of coordination

the economic order, the momentum of runaway growth between the existing policies give some localities an

has been checked and the market softened after years of opportunity to openly lay their hands on the resources of

explosive demand. Enterprises experienced serious cash other areas to beef up their own economic muscle. On

flow and production difficulties, widely damaging the the other hand, most of the existing economic policies

economic interests of all regions. To extricate its local are characterized by a regional bias. According to the

enterprises from their plight as well as to ease its own policy-by-policy analysis above, all policies, whether it is

financial impasse, one region after another has taken the investment policy, foreign exchange retention policy,

various steps to prohibit or restrict the inflow of finished or price, directly or indirectly redistribute economic

products from other places to help move local markets. A interests among the regions to the benefit of some and at

special feature of the impact of the monetary policy is its the expense of others. In the process, the former are

extensiveness. While other policies impact only a spurred to make the most of the policies and gradually

handful of products and areas, the monetary policy convert the transferred interests into vested interests,

affects practically all areas in a more or less similar while the latter are forced to take administrative meafashion. The number of products kept out of various sures to protect local economic interests. The effects of

local markets is well over 100. As it directly determines our economic policies reinforce the interest-centeredness

the volume of commodities in circulation, the monetary of local governments and distract them from carrying

policy plays a leading role among the various policies. out their regular duties and functions. This is a leading

The local blockades resulting from a confused monetary cause of regional blockades.

policy in turn derail other economic policies and other

means of economic leverage, causing tremendous B) The matai effects of the interregional distribution of

damage. interests

3. The Comprehensive Effects of Economic Policies on The existing collection of economic policies is seldom

Regional Blockades complementary when it comes to the distribution of

By studying the impact of China's economic policies on interests among regions. The result is a striking matai

local economic behavior comprehensively, we can steer effect that artificially widens the disparity in levels of

clear of the one-sidedness that often goes with analyzing economic development between regions. This can take

the effects of a single policy and will be better able to either one of two forms. In the first scenario, the ecoevaluate the whole body of economic legislation system- nomic policy alternates with the market in transferring

atically and put forward suggestions for improvement. In interests. One example is the foreign exchange retention

our opinion, the whole body of economic legislation in policy. The region that enjoys a preferential policy can

effect in recent years has had the following four kinds of retain a higher percentage of every sum of foreign

effects on regional blockades: exchange that it earns. Whether it uses the money to

regulate foreign exchange or import commodities in

A) They have accumulatively stimulated the tendency to short supply, it stands to earn a larger sum of renminbi,

advance and protect local interests, which only enhances its capability to procure commodities for export. This, in turn, enables it to augment the

Given the finance contracting system and the practice of amount of foreign exchange it retains and its renminbi

evaluating local leading cadres by the economic devel- earnings time after time. In the second scenario, the

opment of the area and its financial status, local govern- leading policy works in tandem with the successor policy

ments have effectively emerged as relatively indepen- to redistribute accumulated interests. After prices were

dent leading entities with their own economic interests, deregulated by group and a variety of price types were

Naturally it has become the responsibility and mission of introduced, for instance, state investment began to favor

a local government to advance and protect local inter- the eastern coast. As a result, areas in the east not only

ests. If our various economic policies constitute a obtain the transferred value derived from the exchange

coherent system that creates a favorable macroeconomic between manufactured goods and primary products, but

environment, eliminating the possibility of furthering also receive a rising flow of fund inputs. In contrast,

local interests at the expense of those of other areas and these policies make a bad situation worse for other areas,

establishing a balance of interests between the regions particularly raw material producing areas, which are

that promotes fair competition, then the various local confronted with multiple unfavorable circumstances.
JPRS-CAR-91-052

22 ECONOMIC 23 September 1991

The matai effect of economic policies intensifies the measure of self-restraint and submit themselves to reguconflict of interests among regions and makes it imper- lation and control by the central government. But when

ative for undeveloped areas to resort to protectionism. the economic climate deteriorates and economic interests between the regions become lopsided, economic

The polices of financial subsidy and poverty relief do not policies are critical as a check on the economic behavior

appreciably offset the matai effect in the interregional of local governments. This is because administrative fiat

distribution of interests. This is because the state too has cannot improve the situation under these circumstances.

serious budgetary difficulties. Financial subsidies and If economic policies are properly applied, with the result

poverty relief grants often are no more than a drop in the that the economic climate gradually improves, local

bucket. governments will not have to fall back on protectionism.

If, on the other hand, economic policies are misguided,

C) Effects of the short-sighted objectives and behavior of local governments likely will "run the red light colleclocal governments tively" despite repeated injunctions and put up all sorts

of trade barriers, overt and covert. Misguided economic

In the long haul, promoting a free flow of commodities policies can take one of two forms. One, they may be too

among regions is enormously positive to the formation rash or drastic, leaving no room for adjustments. Such

of a sound international division of labor and making the policies are more than the local governments can cope

most of every area's strengths. It is also consistent with with. For instance, although the retrenchment policy of

the fundamental interests of raising the level of eco- the past two years is absolutely indispensable to curbing

nomic development in all areas and improving the virulent inflation, the fact that the brakes were hit too

people's living standards. However, the current eco- hard has pushed the economy into a decline with enternomic policy forces local governments to act short- prises everywhere caught in a production slump. Two,

sightedly, not far-sightedly. First of all, the performance the restraining effects of some policies may impact too

evaluation system for local leading cadres has intensified broad an area. This is particularly true in the case of

their sense of responsibility and put them under greater macroeconomic policies, which usually affect the ecopressure. At the same time it has also bred utilitarianism. nomic interests at every level. When a tight monetary

We evaluate a cadre by the economic growth rate of the policy jeopardizes the production and cash flow of

locality and its financial situation but often overlook his enterprises everywhere, it takes only one area to adopt

contributions to laying the groundwork for long-term protectionist measures before everybody else follows

development because they are invisible. Second, an suit. Faced with this situation, the central government

excessive burden is another factor that makes local can only respond with a "just this once." When ecogovernments behave myopically. Faced with all sorts of nomic policies are "ineffective in controlling the

demands on their revenues, such as stabilizing the masses," the authority of the central government in

market, placing people in jobs, building housing, and regulating and managing the economy is undermined.

solving the food problems of urban residents, the local This is an important reason why regional blockades have

governments are stretched to the limit financially and survived repeated orders to outlaw them.

are hardly in a position to adhere to long-term development goals. Third, the hastiness with which national 4. Improving Existing Economic Policies

policies have been introduced and their inconsistency have proved more than the local governments can The above analysis of effects gives us reason to believe

handle. Lacking a stable environment for local economic that some of the existing economic policies have played

development, all the areas believe that what matters a role in causing and encouraging the emergence of

most is to reap short-term profits. With economic poli- regional blockades. If economic policies are improved to

cies thus contributing to myopic behavior, local govern- eliminate the negative effects that cause regional blockments have no choice but to concentrate on the short- ades, the possibility that such blockades may occur will

term gains of their localities, which makes them ever largely be removed even with finance contracting. We

more mindful of whether or not they will come out ahead propose that existing economic policies be systematically

following changes in the distribution of interests among adjusted and amplified specifically in the following

the localities and between the central government and direction:

the localities.

A) Making existing policies more balanced. This means

D) Administrative blockades by local governments we must change their accumulative common tendency

undermine the effectiveness of law and make them more comprehensive and more effective

in restraining the behavior of local governments. The

It is not that the central government has no checks at all following steps, among others, should be taken: 1) Cooron the behavior of local governments. It is just that the dinate existing fiscal, monetary, tax, price, wage, investchecks seldom manage to balance economic interests but ment, and foreign trade policies across the board,

more often consist of ill-timed administrative orders. removing provisions that contradict one another. 2)

When the economic climate is favorable and there is a Standardize the limits of local economic management

semblance of balance in the economic interests of the authority so that policies made by local governments are

various areas, most local governments manage to show a consistent with national principles. Regarding the prices
JPRS-CAR-91-052

23 September 1991 ECONOMIC 23

of various categories of commodities that local govern- local governments from deviating from long-term objecments have been authorized to handle, for instance, a tives in pursuit of short-term profits.

price differential ratio must be set at different levels to

prevent local authorities from misusing the price factor D) Moderation. This means that whether it is intended

to gain a competitive edge. Another example, local to stimulate economic growth or to restrain it, an ecogovernments have been given the power to review and nomic policy must not go to extremes. Even a policy that

approve some types of investment projects. In reviewing favors a certain region must not affect or damage the

these projects, however, they must evaluate their feasi- interests of other areas excessively. Of the entire range of

bility in accordance with uniform shadow prices set by economic policies, it is particularly important that the

the central government. This can prevent the over- monetary policy be properly moderate. Toward that end,

production of commodities that occurs when all locali- we must work hard to achieve the following: 1) Establish

ties jump on the bandwagon of a product where price a guiding philosophy that revolves around the improveirrationality gives rise to "bogus" profits. 3) Set up a ment of economic performance and emphasizes modsystem to enable consumers and enterprises to report the erate economic growth. Remove the pressure that the

existence of regional blockades. Encourage consumers catch-up-with-and-overtake type of economic developand enterprises to take part in supervision. Where the ment strategy exerts on the monetary policy. 2) Deterpresence of a regional blockade has been verified, the mine the size of the growth of the money supply

reporter should be rewarded. Disciplinary measures according to the economic growth rate and the extent to

should be taken against the leader of a locality where a which the economy is monetarized. 3) Create conditions

blockade exists and economic sanctions should be for the central bank to operate on the open market.

imposed on the area in question. Micro-regulate the money supply.

B) Make existing policies more compensatory. This Provinces, Cities Try To Improve Large,

means making the body of economic policies better able Medium-Sized Enterprises

to distribute economic interests among the regions in a 91CE0676A Chongqing TIGAI XINXI [SYSTEM

dual direction, accommodating the interests of underde- REFORM NEWS] in Chinese No 10, 20 May 91 pp 4-9

veloped and developed areas. Beginning this year, the

policy of varying the foreign exchange retention ratio by [Seven articles by Huan Xin (3883 0207) et al: "Creating

region has been replaced by uniform ratios for the the Conditions for Enlivening Large- and Medium-Sized

various major categories of commodities. That aside, Enterprises To Extricate the National Economy From Its

there are other measures that can make policies more Dire Straits-Provinces and Cities Draw Up Measures

compensatory: 1) At a time when a major overhaul of the To Improve Their Large- and Medium-Sized Enterprice system still lies in the future and when old price prises"; the first paragraph in italics is a source-supplied

ratios between raw materials and processed products are editorial note.]

still in place, central government investment should

favor raw-material bases in the west as appropriate so [Text] Editorial Note: In the last two years, enterprises,

that the profits from market distribution guided by especially the large- and medium-sized people-owned

distorted prices and those from financial redistribution enterprises, have been plagued by many problems. This is

cancel each other out, thus putting an end to the disad- because enterprises lack the necessary power to make

vantage at which raw material-producing provinces now management decisions and the necessary funds to engage

find themselves. 2) Draw up a practical and feasible in expanded reproduction or even sustain simple repropolicy to spur coastal enterprises to invest in the interior duction. These are the main reasons for our failure to

and encourage the free interregional movement of funds, enliven enterprises. The tendency to kill the goose that

technology, manpower, and other elements of produc- lays the golden eggs, the desire for quick profit and

tion. immediate success, the attempts to retrive power and

control more money have only hastened enterprises'

C) Make existing policies more forward-looking. A body demise and ruined the economy. This certainly is not the

of economic legislation that is forward-looking refers to objective of rectification and improvement. It is because

its ability to steer local leading cadres to focus their we have finally come to realize our mistakes that this

energies on the long-term objectives of economic devel- year, acting in the spirit of the Seventh Plenary Session of

opment. Toward that end, we must: 1) Improve the the 13th Party Central Committee and of the National

appointment system and evaluation system for local Conference on Restructuring the Economy System, the

leading cadres. The evaluation system should concen- localities have been busy drawing up policies and meatrate on the improvement of local economic perfor- sures to enliven the large- and medium-sized enterprises,

mance, not the economic growth rate or the financial to devolve power and yield profit to the lower levels, and to

situation; 2) Make policies more scientific and consis- provide the basic conditions for enlivening enterprises.

tent. Before a policy is introduced, there must be a full These are necessary steps. Yet, years of reform experience

scientific study. In particular, the regional economic proved that it is simply not enough to just reduce taxes

impact of the policy in question must be analyzed in and yield profit. To really enliven enterprises, we must

earnest. The scientific nature of a policy is a prerequisite work hard on improving the enterprise management

for its stability. And only policy stability will prevent mechanisms. We must increase enterprise vitality, but we
JPRS-CAR-91-052

24 ECONOMIC 23 September 1991

also must also boost our ability to restrain them. This allowed to follow the basic wage standards of the joint

should be the direction of thorough enterprise reform. ventures, and depending on the type of enterprise, their

Only in this way can we finally get out of the vicious cycle wage level will be 20-50 percent higher than the average where "decontrol means chaos, and chaos leads to control, wage of the municipality's budgeted industrial enterand control leads to rigidity, and rigidity prompts decon- prises. Enterprises will be allowed to promote workers

trol, "a cycle which has plagued our economy for decades. based on the tests they passed. At the same time, they Only in this way can we lay the solid microeconomic may implement a supplementary insurance system, and

foundation for the planned commodity economy and only personal income regulation taxes may be levied on

successfully change the old system into a new socialist the workers' wage income.

commodity economy and eventually put the national

economy on a benign cycle. 5. Upon delivering their profits to the higher authorities,

enterprises may spend more on technological exploraTianjin: Change the Enterprise Mechanisms To Enliven tion, activities to promote sales, advertisement and

Some Large- and Medium-Sized Enterprises-by Huan publicity, depreciation, and major renovation than curXin rently allowed, and may follow the example of the joint

ventures and township enterprises. Depending on what

Relevant departments in Tianjin are prepared to select the individual enterprise needs for production and opersome of the municipality's large- and medium-sized ation, each may take out a fixed percentage of its income

enterprises which produce high quality products, which from sales as tax on the possession of funds to supple- have good market potentials, and which have solid ment its circulation fund.

management skills to pilot its program. On the premise

that it will keep the state's assets intact and even add 6. To control local power to set product prices, on the

value to them and that it will fulfill the mandatory plans premise that the tasks handed down by the higher

handed down by the state, Tianjin will further change the authorities will be completed, enterprises will be free to

enterprise mechanisms. Specifically: determine the seasonal price differential and regional price differential where necessary, and they will be

1. With regard to the formation of administrative allowed to dispose of the goods they have overstocked in

leading group, Tianjin will comply with the "Enterprise the market as they see fit.

Law" and let the factory director nominate his deputy

director, the chief engineer, the chief economist, and the 7. Enterprises will be allowed to choose their own

mid-level administrative cadres, and if approved, the suppliers for the raw and processed materials, and spare

nominees will be confirmed. As an alternative, candi- parts they need in the course of production.

dates may be nominated on a competitive basis and

confirmed by the enterprise party and government 8. For products that do not require export subsidy, while

leaders. In other words, the factory director will have the making sure that enterprises and localities are retaining

power to nominate people to the leading group, but the their share of the foreign exchange income as stipulated

par ty committee and the senior departments in charge by the state, enterprises will have the right to choose the

will have veto power. port from which to export their goods and choose their

own affiliated sales agencies. They have the right to

2. Enterprises will be allowed to set up their own obtain and utilize their legal share of retained foreign

organizational structure and hire their own workers. So exchange. The higher level departments in charge will no

long as the tasks handed down by the higher authorities longer centralize enterprises' retained foreign exchange

are completed, no department may interfere nor make income.

that the basis of assorted criticisms.

Harbin: Formulate Policies and Measures To Enliven 3. With respect to the labor employment system, enter- Large- and Medium-Sized Enterprises--Cao Jiang

prises will be allowed to sign contracts with their perma- 12580 3068]

nent staff. Enterprises will be allowed to implement their

own lay-off and retirement systems. The factory director Harbin's city government has formulated new policies

has the right to discharge workers, the right to reject and measures to further enliven the large- and mediumunnecessary workers assigned by his superiors, and the sized enterprises. The important measures are: (1) The

right to decide whether to rehire workers who have been city will maintain the continuity and stability of the

reformed through labor, policy to enliven enterprises. It will continue to implement the provincial government's "Article 50" and the

4. With respect to allocation, further steps will be taken six documents and the detail rules and regulations preto smash the "big pot." Enterprises will be allowed to pared by the city government to promote sales and

implement an enterprise wage system by keeping the increase production as well as other policies that aim to

original wages on file for reference. Enterprises whose enliven enterprises. The relevent departments should

labor productivity rate, profit to profit tax ratio, wage to carefully sort out the documents they have handed

profit tax ratio, and per capita profit tax rate can match down. All measures that are not in keeping with the spirit

that of the joint ventures in the same line of business or of enlivening enterprises will be abolished one month

have reached the average level of enterprises in Tianjin from the day of promulgation of these new measures. (2)

Municipality's development zone in 1990 will be The city will resolutely curtail the "three disturbances"
JPRS-CAR-91-052

23 September 1991 ECONOMIC 25

and protect enterprises' legal rights and privileges. It will will be given the right to handle their own exports.

set up a responsibility system and a reporting system to Enterprises may implement "multiple systems under one

curb the "three disturbances" and curtail all unhealthy roof' and diversify their operation. Collective entertendencies that are eroding enterprises' retained profits. prises set up by surplus enterprise workers which are

(3) The city will expand enterprises' right to manage independently accountable and which are responsible for

their own fixed asset investments. So long as the projects their own profits and losses will enjoy the same prefercomply with the state's industrial policy, are within the ential treatment as other newly created township collecstate's investment control scope, and do not require the tive enterprises. Enterprises will be permitted to use

city to balance the necessary funds and so on, as soon as their surplus equipment, their own funds, and their own

they are examined and verified by the department in technology to set up, head, or link up with others to set

charge of that trade or industry, enterprises may approve up neighborhood and township enterprises. They will

any production-oriented capital construction project receive preferential treatment in terms of tax exemption

worth 5 million yuan or less, and for technological and reduction and so on. (8) Enterprises will be given

transformation projects worth 10 million yuan or less, more power to set product prices. Enterprises are free to

they should report to the city' Planning Commission and raise the price of quality products so long as it stays

follow the usual procedure. (4) Upon approval, enter- within the range set by the state. During the trial-sale

prises which are receiving special assistance, which period of a new product, enterprises are free to set their

urgently need to be developed, and which have many own prices. If approved by the Department of Comtechnological transformation duties may adopt the modity Prices, enterprises may attach a material price

method of adding up their taxes and profits to determine differential to the planned products that contain extraa contract base, pay their taxes as required by law, and a plan materials.

fixed percentage of any above-base revenue will be

returned to them by the finance ministry as an invest- Shanghai Municipal Economic Commission: Several

ment. Such contract may be fixed for a period of five Concrete Measures To Enliven Large- and

years. (5) Profitable enterprises that are more resilient Medium-Sized Enterprises-Xiao Jiang [2556 30681

may obtain a new product development fund based on 2 Giving Enterprises Their Decision-Making Rights:

percent of their annual sales and may raise their depreciation of fixed assets to 10 percent, and they may obtain 1. With respect to production management, the bureau

a sum equal to 1 to 2 percent of their annual sales to in charge will only take care of the mandatory plans

supplement their own circulation funds. Enterprises bur- handed down by the state and by the municipality. The

dened with heavy technological tranformation responsi- rest will be up to the companies and enterprises to make

bilities and which have serious difficulties and need their own management decisions.

special assistance may obtain a new product development fund based on 1 to 2 percent of their annual sales 2. The municipality will continue to apply the method of

and may raise their fixed asset depreciate rate to 8-10 linking the total wage bill to profitability or other ecopercent, and they may obtain a sum equal to 1 percent of nomic indicators and will further make sure that entertheir annual sales to supplement their own circulation prises are free to determine their own form of wage

funds, payment and method of distributing bonuses. The government departments will only oversee enterprises' total

(6) The city encourages enterprises to develop new wage bill, the source of funds, and their democratic

products and accelerate the secondary development and allocation process and will examine and verify the wages

application of the results of their R&D. Upon examina- of enterprise leading cadres according to each cadre's

tion and verification by the department in charge of management jurisdiction. The rest will be decided by

enterprises, enterprises that need loans will be given enterprises themselves.

preferential treatment, and if approved by the finance 3. The municipality will strictly comply with the state's

department, they will be given the discount rate as a price management standards to manage product prices

subsidy. Successful projects will be awarded the same and will follow the report-for-approval and declaration

tax-exempt status as other new products, and enterprises procedures. Enterprises are free to set the price of

will have the right to set their own prices during the products not listed in the catalogs of the State or Munictrial-sale period. For the unsuccessful projects, the losses ipal Administration of Commodity Prices. The bureau

may be listed as a nonoperating expense if approved by (company) in charge will no longer control the price of

the finance department. (7) Foreign trade companies products not listed in the Administration o f Commodity

should give preference to enterprises that export goods Prices catalogs, and the Adminstration will continue to

worth over $1 million and charge them a lower agency reduce the types of products it lists.

fee. Enterprises earning more than $3 million through

exporting will enjoy the same preferential treatment as 4. The municipality will make sure that enterprises have

that extended by the city government to enterprises in the right to set up their own internal organs. No higher

the production bases. If the local foreign trade compa- level units should interfere, nor should they base their

nies are unable serve as their agents, enterprises will be evaluation of enterprise performance on the way these

free to choose their own ports, and qualified enterprises organs are set up.
JPRS-CAR-91-052

26 ECONOMIC 23 September 1991

Deepening the Reform Process: percent a year. Beginning in 1991, each year, the financial ministry will refund 20 percent of the money enter- 1. The municipality will experiment with the reform of prises in the pilot project have delivered in excess of

the labor and wage systems which will be centered their contract base. Enterprises may take out 10-20

around the job contract system in qualified enterprises percent of their retained profit, based on 50 percent of

and trades and industries. In addition, several enter- the current interest rate, they will be charged a stateprises will be selected to experiment with the reform of assigned circulation fund utilization fee on a monthly the labor, wage, and insurance systems which will be basis. The bank will repay enterprises in full as a way to

centered around the all-workers labor contract system. increase and supplement the state-allocated circulation

2. The pilot project involving the shareholding system fund and so on. When enterprises in the pilot project will2beexpanded. The milotupt ino lvingthe wlaceldg ster- raise capital to fund the importation of foreign tech- will be expanded. The municipality will actively expe-ri nology to facilitate their own technological transforma- ment with the shareholding system whereby enterprises tion, they should also make arrangements for the circuwill buy into each other and own each other's stocks. It lation funds they will need when they go into production.

will further perfect the enterprise shareholding system If they fall short, they may take out 30 percent of their

now being tested and will actively but cautiously exper- ne y-fall prt to mayplement their

iment with the setting up of limited liability, share- new-earned profit to supplement their circulation funds.

holding companies with Chinese and foreign share- Ningbo City: Promulgating Several Regulations To

holders among the enterprise groups and enterprises in Further Enliven Large- and Medium-Sized and the

the Pudong New Zone. Mainstay Enterprises-Ningbo

Henan Province: Designate a Group of Enterprises as To encourage and support enterprise technological transDecontrol Experimental Units and Let Enterprises Pave formation, there are the following important measures:

the Way for More Advanced Reforms-Zheng Yin 1. The technological improvement norm has been

16774 68921 included in the responsibility contracts and in the facHenan has designated 45 enterprises as experimental tory director's goals during his term.

units to test the decontrol program. 2. The composite rate of depreciation of fixed assets and

To an extent, enterprises in the pilot project may break the new product development fund enterprises collect

some of the current enterprises reform rules and regula- will be raised by 1 percentage point. Payment of printions in carrying out some advanced reform experi- cipal and interest on bonds to fund the city's key

ments. Enterprise managers now have the right to nom- technological transformation projects with pre-tax funds

inate, hire, or fire their deputy administrators and the will be permitted.

"three chiefs." They have the right to determine their 3. During the debt repayment period, the additional

internal management format, install their own internal profit generated by a handful of key projects will enjoy

organs, and implement diverse allocation methods, tax reduction or exemption when those enterprises go Guided by the Labor Department, and without any into production so that they can pay off their debts

quota restriction, they also have the right to openly sooner. If approved, state-run enterprises that invest

recruit local nonagricultural workers. They also have the more than 500,000 yuan of their own money on technoright to legally dismiss their workers. They have the right logical improvements will be exempt from paying

to set the price of products not under the state's pricing income tax on their additional profit for a period of two

system, and if the products are under the state's pricing years. If only some of enterprises' own funds were used,

system, they have the right to adjust the price down- the exemption will be proportional to what they put in.

wards as long as it stays within the permitted range.

Enterprises are free to market those products which they 4. A technological improvement responsibility system produce using raw materials they have purchased on will be put into effect. Those who have entered into

their own, but products they sell themselves will be technological improvement investment contracts may allocated centrally. Enterprises have the right to manage take out 30 percent of their contracted investment

their own foreign trade, the right to choose which port to amount to be spent on the unit's collective welfare and

ship their goods out of, and the right to build factories on bonus payment to workers who have contributed to

overseas, to import and export directly, to submit their the project. Those who pay off their debts early may take

own tax reports, and deposit their spot exchange, and so out 30 percent from the interest payment on their

on. Enterprises are free to bring in foreign capital of less contracted loans to reward workers who have made a

than $5 million. With respect to technological transfor- contribution. If a project goes into production on time

mations, they have the same right to examine and and meets its design requirements within the first year,

approve projects as the cities and prefectures. They are on the next year the wages of the enterprise's legal free to set up projects worth less than 10 million yuan, so representative and the project manager will be raised by long as they comply with the state's industrial policy, one grade within two years' time, and if it meets its

Enterprises using their own funds to make technological design requirements three years in a row, the represenimprovements are exempt from paying income tax on tative and the manager will receive a permanent promotheir additional profit for a period of one to three years tion on the fourth year. Those in charge of projects that

and increase their depreciation of fixed assets by 1-2 cannot generate the intended benefits or that produce
JPRS-CAR-91-052

23 September 1991 ECONOMIC 27

low-quality products will be held administratively and large- and medium-sized enterprises to make the second

even legally responsible and will be made to pay back the round of contracting a success. (a) We should include the

routine bonuses they received during the course of the planned mandatory tasks in the responsibility contracts

project. and give them equal status as the profit norm and make

sure that everything is indeed "taken care of and guar- To help the industrial enterprises cut loss and increase anteed." (b) Under the current double track pricing profit, there are the following measures: system, when we determine the contract base, we must

1. Enterprises will be supervised at separate levels, and figure out the profit differential based on the difference

each level will have its responsibilities. The department between "planned" and "market" prices to determine a

in charge of enterprises will sign a two-way responsibility proper base so that enterprises need not sacrifice profit

pledge with enterprises to cut loss and increase profit in order to fulfill the mandatory plan. (c) Large- and

within a set period of time. medium-sized enterprises of different types should

adopt different forms of contract system. The profit2. Banks will provide enterprises that have signed the oriented, competitive enterprises have fewer mandatory

responsibility pledge with the necessary circulation plans; their contract base should be readjusted according

funds during the term of the agreement. They will be to the average profit rate of similar products or of more lenient about charging additional interest or enterprises in the same line of business. Enterprises that

imposing penalty interest. Sales and marketing people are profit-oriented but face little competition have more

are allowed to test the "five joint and one remuneration" mandatory duties. In determining their contract base,

system-joint purchases, joint sales, joint prices, joint consideration must be given to price changes and to the

expenses, and joint retrival of payment for goods and coefficient of the share of mandatory plan to properly

remuneration based on a percentage of total purchase readjust the profit allocation relationship.

and sales. Enterprises that suffer loss as a result of

government policies can apply for exemption from the 2. We need to implement a biased policy that is compatpayment of state-appropriated circulation fund utiliza- ible with the state's industrial policy. We must make an

tion fee and industrial structure regulation fund. earnest effort to correct the "reversed biased policy" and

promulgate a biased policy with regard to funds, foreign 3. With respect to awards and penalties, workers in exchange, raw material, and transportation which is

enterprises that manage to fulfill or over-fulfill the cur- compatible with the status of the large- and mediumrent year's loss reduction or profit increase goals will sized enterprises and with the state's industrial policy in

receive an average bonus that equals three months' (in order to improve the large- and medium-sized enterthe case of enterprises that cut loss) to four months' (in prises' external environment. Just as when we set up the

the case of enterprises that increase profit) pay, and as specialized plants a couple of years ago, we should

for the managers, their bonus will vary depending on the implement preferential policies in terms of taxation,

situation; they will probably get twice of what the allocation, and labor utilization to change enterprises'

average worker gets. If an enterprise is linking wages to mechanisms and decontrol their operations.

profit, and if it must cut wages, it may reduce the

necessary wage-cut by 50 percent. 3. We need to develop lateral ties and organize enterprise

groups headed by the large- and medium-sized mainstay With regard to giving enterprises their right to make enterprises. We should make enterprise groups the main

decisions and deepening the internal reform process, the form of organization that circulates and recombines the

city will further reiterate and clarify that enterprises have key factors of production among enterprises and graduthe right to make production and management decisions, ally form a socialized, professionally coordinated, extenthe right to decide whom they hire, the right to deter- sive production network. We need to take steps to

mine how they allocate funds, the right to install organs resolve the difficult points we may run into when we set

as they see fit, and the right to decide on the circulation up enterprise groups today: (a) We should merge and

of key factors of production. The city has asked that all combine the money-losing enterprises. Enterprises that

fines, fees, and apportionments be sorted out carefully are being taken over and which have more liability than

and all inspection, evaluation, and examination prior to equity should be allowed to shut down completely. (b)

acceptance be tightly controlled. The city will uphold More funds will be allocated to get enterprises moving

and perfect the factory director (manager) responsibility again so that the stock of goods can be circulated

system and will deepen the reform of the internal labor normally after the merger. (c) Enterprise groups will

utilization and allocation systems. It will perfect the gradually be put on separate planning lists, or they can internal economic responsibility system and enhance enter into a group contract. (d) Enterprises that produce

democratic management. goods which can be sold overseas should be given foreign

Hunan Provincial Commission for Restructuring the trade rights.

Economic System: Several Suggestions on Enlivening 4. We should readjust the administrative system. As

Large- and Medium-Sized Enter24ises-Xin Ye [0207 soon as possible, we should classify large- and medium2814] sized enterprises by grades and by trade and manage

1. We must uphold and perfect the contract management them accordingly, gradually switching from the system

responsibility system and focus on the characteristics of of administration by department to administration by
JPRS-CAR-91-052

28 ECONOMIC 23 September 1991

trade. We should compile statistics, allocate funds and special fund is reserved for special use and should be

goods and materials, and examine and evaluate all entered separately as cost in the accounting books. (6) products by trade and make plans to facilitate their We should gradually ease the tight supply of circulation

development by trade. In particular, we must classify the funds for large- and medium-sized enterprises. Largetax categories properly and set the proper profit reten- and medium-sized enterprises implementing the contion percentages, so that the central and the local gov- tract responsibility system may take out a certain perernments each assumes its share of responsiblities and centage of their retained profit to supplement their

gets its share of the profit. The state and the provinces circulation fund. The amount should be stipulated in

should remain in charge of large- and medium-sized their responsibility contracts and strictly verified. In

enterprises that are large in scope, have broad ramifica- accordance with the state's industrial policy, the banks

tions, and which have an impact, on the national and the finance department should adopt a differential

economy and the people's livelihood, but the rest should interest policy and provide the large- and medium-sized

be left to market regulations. Enterprises that compete in enterprises with fixed-quota circulation fund loans at

the market should be administered by the urban centers. low interest or at discount rate. (7) We should further

expand the large- and medium-sized enterprises' right to Relevant Departments of Jilin City: Several Issues make production and management decisions. We should

Which Must Be Resolved in Enlivening Large- and further reduce the categories and quantity of products Medium-Sized Enterprises--Yi Wen [3015 2429] under mandatory planning being assigned to the large-

(1) We should provide different types of guidance and and medium-sized enterprises and increase the share of

enliven large- and medium-sized enterprises over time goods they may market on their own. For products which

and in batches. In accordance with the industrial policy must be remain under mandatory plans at this time, we

and based on the enterprise scope, level of profitability, can allow enterprises to "guarantee quantity but not the

management base, and enterprise quality and so on, we price" of a fixed percentage of them: The goods will be

should select a group of large- and medium-sized enter- allocated under state plans, but enterprises are free to set

prises to implement a special policy and give these the price. Qualified mainstay enterprises.should be given

enterpr ise even more production and management the right to engage in foreign trade activities. (8) We

rights. (2) We must maintain the continuity and stability must make an earnest effort to reduce the large- and

of the series of rules and regulations promulgated by the medium-sized enterprises' burden. Large- and mediumstate, the province, and the city to increase enterprises' sized enterprises that have their own schools and comright to make decisions and to increase enterprise mercial facilities should be exempt from all or part of the

vitality. (3) We must uphold and perfect the enterprise educational surcharge and commercial outlet fee. (9) We

contract management responsibility system, further must make sure that large- and medium-sized enterprises

deepen enterprise internal reform, and safeguard the have the proper production conditions. Enterprises with

powers bestowed on the factory directors (managers) by mandatory production responsibilities should be given the Enterprise Law. We should change the existing priority, and arrangements should be made at the central

eight-grade wage system into a job- and skill-based wage level to facilitate their production, supply, sales, and

system and widen the income gap by a reasonable transportation. (10) More power to manage product

amount. Qualified enterprises may be managed under prices will be handed down. With respect to the planned

the whole staff contract system on a trial basis. (4) We products, if an increase in the price raw materials should

should gather funds via many channels, step up techno- raise the production cost, the large- and medium-sized

logical transformation, and boost the large- and enterprises may add a raw material differential price to

medium-sized enterprises' staying power. We can raise the planned price. Enterprises may charge whatever the

the composite rate of depreciation of fixed assets to a market will bear for extra-plan or above-quota industrial

reasonable level for the more resilient large- and means of production they produce. The price of extramedium-sized state-run enterprises. We should set up a plan products which enterprises produce using negotipilot project to reassess the value of assets of the large- ated-price raw materials is not under control. Enterprises

and medium-sized mainstay state-run enterprises that may set the trial-sale prices of products recognized to be

have many technological improvement tasks and speed new products. The price of goods enterprises produce for

up the depreciation of those assets based on their reas- direct export or the foreign trade department procures sessed value. We should continue to allow the large- and for export is not under control. The regulation and

medium-sized state-run enterprises to pay their debts interchange of goods and materials between planned and

with pre-tax funds. If approved by the government at extra-plan products will be permitted, and the resulting

their level, a few state-run enterprises which have been price differential should be accounted for separately; it

singled out by the state or the province or the city for will not be regarded as profit and may be rolled over and

special support, which have many technological transfor- spent as enterprises see fit. Large and medium entermation duties, and which cannot afford to repay their prises will be free to sell at the market price any planned

debts may be exempt from paying profit tax for a specific product they have produced but have not been tranperiod of time after they go into production to help them ferred or allocated or purchased by the state within a

pay off their debts sooner. (5) We should set up a new certain period of time. (11) We need to promulgate a set

product development fund. Enterprises may obtain such of versatile marketing policies and develop more new

fund based on 1-2 percent of their total sales. This markets. We should implement a sales contract system
JPRS-CAR-91-052

23 September 1991 ECONOMIC 29

for all products except those transferred and allocated adoping different reform measures. We can make collecunder state plans and the hot-selling products. Qualified tive groups of wholesaling enterprises. This would be

products can be put under one big contract. We should beneficial to macroeconomic readjustment and control

allow the sales personnel to get larger bonuses. The banks and market stabilzation.

will not try to recover any loan fund out of funds

enterprises have gathered by clearing out their over- Analysis of Capital Steel's Reform Experience

stocked and unmarketable goods. The banks need not

treat those enterprises that incur losses as a result of the Lessons for State Enterprise Sector

clearing out of their overstocked goods as money-losing

enterprises. Enterprises that have difficulty paying taxes 91CE0673A Beijing JINGJI GUANLI [ECONOMIC

may follow procedure and apply for a one-time tax MANAGEMENT] in Chinese No 6, 5 Jun 91 pp 4-5

reduction or exemption. For enterprises that link wages

to profit, if the clearing out of overstocked products has [Article by Bai Jiefu (4101 0094 1133); Editor, An

adversely affected their profit, upon a pproval by the Luming (1344 6424 2494): "Lessons Learned From

finance and labor departments, they will be deemed to Capital Steel's Reform Experience"] have fulfilled their profit base. [Text] The Capital Iron and Steel Corp (Capital Steel) is

a large enterprise with 180,000 staff members and

Tian Jiyun Discusses Easing Retail Controls workers. Since the Third Plenary Session of the 11 th

CPC Central Committee, the state has approved it as a

91CE0674A Chongqing TIGAI XINXI [SYSTEM reform pilot project enterprise. The major policies REFORM NEWS] in Chinese No 10, 20 May 91 p 23 granted by the state to Capital Steel are firm contract

bases, ensured payments to the state, retention of all [Text] State Council Vice Premier Tian Jiyun [3944 above-contract profits, individual responsibility for

4764 0061] recently made several points regarding deep- debts, no further recoupment of state investment, and all

ening reforms in the commercial sector. costs for increasing production and improving staff

I advocate enlivening retail sales and managing whole- members and workers' living conditions coming out of

saling. Of course there must be a differentiation enterprise retained profits. While these policies have

according to products, and state-run enterprises must given Capital Steel the necessary mechanisms for selftightly manage the wholesaling of certain listed products. stimulation, self-accumulation, self-upgrading, and selfThe opposite is true for retail sales; controls should be development, and enabled it to achieve good results in

eased except for certain listed products. I contend that sustained and large-scale improvement of its economic

state-run enterprises must handle mainly wholesaling efficiency, the lack of public understanding of its overall

and have basic monopolies over important production situation has led to disagreement over how to assess its

and production materials related to state planning, pilot project reform process. Some people have comWholesaling must basically be in the hands of state-run mented that Capital Steel's improved efficiency is due to

enterprises while also easing controls within limits, the "preferential policies" granted to it by the state,

Regarding retail sales, controls should be eased with the mainly lower contract bases and higher percentages of

exception of stipulating items that are not allowed to be independent sales.

sold. Overly tight controls on retail sales will not work. The Beijing Municipal CPC Committee recently sent a

Excess personnel in state-run enterprises shall engage in fact-finding group to conduct a thorough investigation of

retail sales. Capital Steel. The data provided by this fact-finding

At present, state-run enterprises are tightly controlled, group shows that Capital Steel's contract bases are

collectives are loosely controlled, and individually- certainly not low, and that its profits turned over to the

owned enterprises cannot be controlled. First, there are state have increased at an average rate of 7.2 percent a

unfair policies, and second, in some state-run enterprises year, which is higher than the rate of increase in realized

business is casual. We must draw them out with policies, profits for many other large enterprises. While the state

Commercial problems must be resolved through reform. plan gives Capital Steel the authority to market 15

It will not do to go backward, nor should we. percent of its common rolled carbon steel on its own,

which is certainly a slightly higher percentage than that

As for my thoughts on deepening reforms in the com- allowed to other large steel mills, this is not an excepmercial sector, I wonder whether we can enliven things tional preference in the context of adjustment of the

by having basic monopolies on wholesaling by state-run national economy and sluggish rolled steel sales, but

enterprises and easing controls on retail sales except for rather is a major reform in steering large enterprises into

certain listed products. State-run enterprises should fall the socialist commodity economy. Even more significant

under the same policies as collectives and individually- is that not only has the amount of rolled steel allocated

owned enterprises, with equal competition for all. The by the state from Capital Steel not decreased, but rather

talents of state-run enterprises cannot be inferior to it has increased at an average rate of 9.3 percent a year,

those of small peddlars. The issue is one of unfair which is a higher rate than that of most other steel mills.

competitive conditions. We must assist state-run com- That Capital Steel's rolled steel output had increased

mercial sectors in resolving some operational issues and from 1.17 million tons in 1978 to 3.81 million tons by
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30 ECONOMIC 23 September 1991

1990, shows that developing a socialist commodity Assessment of enterprise economic efficiency is based

economy with state guidance can speed up production not on output and output value alone, but even more

growth sharply. importantly on the input-output ratio. That is, high efficiency is based on tying up less of the state's fixed

Once Capital Steel put the contract management respon- assets and circulating funds, and creating more profits

sibility system into effect, it quickly shifted its work and taxes. the best index of economic efficiency is the

priority to improvement of its economic efficiency. fund-profit/tax margin. While Capital Steel's fundWhile Capital Steel's realized profits and taxes profit/tax margin was only 25.67 percent in 1978, it had

amounted to only 377 million yuan in 1978 before reached 66.44 percent by 1990, or 2.59 times its pre- reform began, they had reached 2.625 billion yuan by reform level, and the highest in its industry.

1990, or 6.96 times their pre-reform level. The enlargment of this realized profit and tax "cake" brought In a

increased benefits for all three parties, i.e., the state, the sized work report, Premier Li Peng emphaCapital Steel enterprise, and its staff members and sized that further invigoration of large- and mediumworkers, Capital Steel with the state benefitting the most. While sized state-owned enterprises is a future economic paid 371 million yuan to the state in 1978, reform priority, which will have a direct impact on the

Capital ateer paidui that3yer's million yuatothe ya n in development of China's economy and the consolidation which, after deducting that year's 182 million yain of socialism. While this matter had been brought up as

recoupment of state investment, left a net of 189 million of soas the This mar Session ough t CPC yuan being paid to the state, the 1.499 billion yuan that long ago as the Third Plenary Session of the 12th CPC

it paid to the state in 1990 was 7.9 times that of 1987. Central Committee in 1982, many large- and medium- While Capital Steel's cumulative contribution to the size enterprises have still not been invigorated eight or state in the the decades before reform was 3.246 billion nine years later. Practice has proven that Capital Steel yuan (including 1.689 billion yuan as recoupment of has created the following major valuable experiences in state investment in fixed assets), its contribution to the enterprise invigoration: 1) It adopted the method of rigid state in the 12 years after reform amounted to 13.3 contracting with the state on one hand, along with billion yuan (including 3.71 billion yuan in new open-ended profit retention on the other. Capital Steel

increased state assets that Capital Steel paid for with its began contracting in 1979, practicing one-year contracts

own money). That its 12-year post-reform contribution in 1979 and 1980, putting rigid contract bases and was 4.1 times its 30-year pre-reform one, shows that it is retention of all above-contract profits into effect in 1981,

the state that has benefited the most from Capital Steel's and instituting a progressive guaranteed payment system implementation of the contract management responsi- in 1982. It first set the progressive rate at 6 percent, and bimltysysteme n olater took the initiative to raise it to 7.2 percent. Earning bility system. increasingly higher profits enabled increasingly more

Along with ensuring yearly increases in revenue for the profits to be kept, and increased investment in technostate and steadily increasing its retained profits, Capital logical upgrading led to the earning of even greater

Steel has also made great advances in modernization and profits. This formed a good cycle of fund rollover and

upgrading. Capital Steel's retained profits are distributed proliferation, drove enterprises to constantly enlarge the

and used in a ratio of 6:2:2, with production develop- "cake," and brought simultaneous benefit increases to

ment accounting for 60 percent, and collective welfare the state, enterprises, and staff members and workers. 2)

and wage-bonuses accounting for 20 percent each. In 12 It established within an enterprise the contract manageyears of reform, Capital Steel retained profits of 4.975 ment responsibility system, which combined duties,

billion yuan, 60 percent of which was in addition to rights, and interests level by level, and made the indidepreciation and overhaul funds, invested 4.27 billion vidual the focus of contract guarantees. 3) It practiced

yuan in production development, and completed 4,036 full contracting of all personnel and democratic manageupgrading and construction projects, 108 of which were ment, and established a complete set of democratic

key ones. This upgrading has made all of its key equip- management regulations that made staff members and

ment, such as iron-smelting, steelmaking, and steel workers the masters. 4) It established and perfected

rolling, computer controlled, bringing it up to current various rules and regulations, upheld strict factory conadvanced international standards. trol, and practiced distribution according to work based

on strict evaluations. 5) It permitted cadre promotions Along with these production developments, it has also and demotions. It practiced a system of personnel seleccorrespondingly improved its staff members and tion through examination and assessment of proficiency, workers' living conditions. Capital Steel links payrolls to chose and appointed personnel according to ability,

realized profits in a floating ratio of 0.8:1. Its yearly made the best possible use of personnel, and changed an

increases in realized profits had raised the average average of 9.1 percent of its leading cadres above the

monthly income of its staff members and workers from factory section level each year. Moreover, it made a

61.57 yuan in pre-reform 1978 to 280 yuan by 1990, for comprehensive improvement in the proficiency of its

an increase of 350 percent. It has used collective welfare staff members and workers, 46 percent of whom now

funds to construct 1.72 million sq m of housing, set up a have higher than technical high school educations. 6) It

large number of agricultural, livestock, and nonstaple supported political leadership by party committees, and

food bases, and build food processing assembly lines and continuously intensified party ideological and political various educational facilities, indoctrination.
JPRS-CAR-91-052

23 September 1991 ECONOMIC 31

These rich experiences that Capital Steel accumulated in national industrial policy should be set lower, so that

its pilot project reforms have taught us the following they can recuperate and build up their strength, keep

profound lessons: more financial reserves, and upgrade and expand on

their own.

1. Capital Steel's experience shows that large stateowned enterprises certainly do not necessarily have to be Li Yining's Comments

inefficient. Reform, the contract management responsibility system, and bringing the initiative of the vast 91CEO673B Chongqing TIGAI XINXI [SYSTEM

numbers of enterprise staff members and workers as the REFORM NEWS] in Chinese No 9, S May 91 pp 32-33

masters into full play, can make enterprises full of

vitality and vigor, while enabling them to remain under [Article edited by Zhang Xinlin (1728 2450 2651): "Li

public ownership. Invigorating these large enterprises Yining Comments on Capital Steel's Experiences"]

demonstrates the superiority of socialism, showing that [Text] Beijing University Professor Li Yining [0632 0110

it has high hopes of success. 1337] recently set forth his views on "Capital Steel's"

2. The contract policies granted by the state to Capital experiences.

Steel have not only invigorated this enterprise, but have Li Yining commented as follows on Capital Steel's

also increased state revenue. It is understood that many current position: While Capital Steel has taken a great

enterprises are asking to be granted the same policies as step forward on the path of reform, it has not yet reached

were granted to Capital Steel. As Capital Steel was able its destination, and is still some way off from being a goal

to achieve such good results with these "preferential model. The three indications that it had become a goal

policies," why should they not be turned into "regular model would be that it had, 1) acquired management

policies" that all can enjoy?. decisionmaking power by breaking its business manage3. While the key idea of the contract policies granted by ment free from government administration, 2) assumed

.hile state o Cpideal oSteel w tonturat ponhes granter i the sole responsibility for its profits or losses and set up the state to Capital Steel was to turn on the water in self-restraint mechanisms and, 3) acquired control over

order to "make the enterprise a reservoir of wealth," the circulation, and was able to optimize the makeup, of

which enriched the enterprise but even more so the state, its key production factors. Capital Steel is still some way

finance departments usually put enterprise and state off from being a goal model because it has not yet truely

enrichment in opposition to each other, thinking that broken its business management free from government

giving to enterprises means taking from the state. As far administration, and does not yet enjoy full decisionback as in a 1942 article entitled "Financial and Eco- making power. Until it has broken its business managenomic Problems During the War of Resistance Against ment free from government administration, it will be

Japan," Comrade Mao Zedong had spoken as follows: unable to truely assume the sole responsibility for its

"Even though developing our economy and ensuring profits or losses, and will continue to experience diffisupplies is our general financial and economic policy, culty in acquiring control over the circulation of its key

many comrades put undue emphasis on finance, while production factors.

misunderstanding the overall importance of economic

matters. They get bogged down in racking their brains all Li Yining cited the following five current unfavorable

day on purely revenue and expenditure matters, without public assessments of Capital Steel's successes: 1) The

being able to resolve anything despite their efforts. This public finance sector has emphasized repeatedly that

is because outdated, conservative ideas are doing mis- Capital Steel's model must not be copied because it leads

chief in these comrades' minds. While not understanding to a loss of state revenue. An increase of only 7.2 percent

that the quality of financial policy naturally is enough to in profits paid to the state, along with the current high

affect the economy, they have still decided that finance is rate of inflation, would mean losses for the state. 2)

really economics, that fiscal difficulties can be resolved Planning commission comrades say that it would be

without a solid economic foundation, and that financial impossible to control the scope of capital construction if

abundance can be achieved without economic develop- all enterprises were allowed to undertake projects everyment." Comrade Mao Zedong's words have great imme- where like Capital Steel (referring to its big Qilu mill). 3)

diacy, in that it is always impossible to resolve fiscal The materials sector says that Capital Steel is allowed

difficulties without invigorating enterprises and too big a percentage of independent sales, and that it

increasing production. would be unable to control the situation if other enterprises were allowed such a high percentage of indepen- 4. The major reason why it has been impossible to dent sales. 4) The Ministry of Metallurgical Industry says

invigorate large enterprises is that they have too many that it is unable to control Capital Steel because it is not

tax categories and too heavy burdens. Budgeted state- under its jurisdiction. 5) Theoretical circles have noted

owned enterprises throughout China retained only 8.9 that while Capital Steel's model per se is good, it is not

percent of their realized profits in 1990. Thus, decisive standard, and a nonstandard model should not be popsteps must be taken to ease enterprise burdens. More- ularized.

over, the contract bases of large enterprises should not be

set too high. In particular, the contract bases of large Li Yining disagreed with these assessments as follows:

enterprises whose development is in keeping with The Ministry of Finance's assessment is wrong, and
JPRS-CAR-91-052

32 ECONOMIC 23 September 1991

Capital Steel's position is right, because the water must contract management. For instance, Capital Steel's wellbe turned on to transform enterprises and their produc- placed emphasis on ideological and political indoctrinative forces into reservoirs of wealth. The Planning Com- tion in the 1950's is unrelated and cannot be linked to

mission's assessment is also biased, because the state contract management.

should control projects that are not in keeping with

industrial policy. If Capital Steel's Qilu project is in Which of Capital Steel's practices should be copied, and

keeping with state industrial policy, the state should not which not? Certain outsiders have said that Capital Steel

control it too rigidly. I cannot agree with the materials is, 1) not allowed to be copied, 2) not dared to be copied,

sector's assessment either, because all enterprises should and 3) impossible to copy. Li Yining remarked that

be allowed the same higher percentage of independent Capital Steel has the following four practices that can be

sales as Capital Steel, directive planning should be learned from, but must be supplemented: 1) It has

reduced gradually, and enterprises should be encouraged generally persisted in putting the State's interests first,

to market on their own products they can produce in while correctly handling the relations among the interexcess of production targets, and to reduce costs. The ests of the State, enterprises, and staff members and

Ministry of Metallurgical Industry's assessment is also workers. 2) It has established an internal contract manwrong because, in order to invigorate enterprises, the agement responsibility system. While there is basically

Ministry of Metalllurgical Industry should control only no management within many enterprises, where congeneral policies and principles. If it tried to control tracting is substituted for management, Capital Steel has

everything, how could enterprises ever develop? a host of internal contract regulations as its foundation,

which should be popularized. 3) Emphasis must be

Li Yining commented that the theoretical circles' assess- placed on the technological upgrading of enterprises,

ment must be taken seriously as follows: That is, as most enterprise funds should go to technological

Capital Steel per se is not a reform goal model, while its upgrading, and shortsighted actions should be elimicurrent successes should be affirmed, it has not yet nated. 4) Cross-industrial management should be pracreached its destination. The crux of the matter is how to ticed, and multipurpose enterprises should be set up, in

standardize the management of national assets. The which there is mutual supplementation and enhanced

direction of national assets management reform is contingency capability.

toward the separation of taxes from profits, and the Li Yining has several reservations about Capital Steel's

separation of the state's ownerhip and management practices. For instance, contract periods are 15 years,

functions. I disagree with Yang Peixin [2799 1014 2450] and it is very hard to predict conditions 15 years in

that the separation of taxes from profits is an indiscrim- advance, for the finance sector in particular.

inate imitation of the West. Many people are confused

on this point, and even enterprises mistakenly think that Li Yining's overall assessment of Capital Steel is that it

the separation of taxes from profits would be disadvan- has gone only halfway on the reform path, so that the

tageous to them. The key problem is that tax rates are set contract management responsibility system is not a goal

too high, and the Ministry of Finance's practice of killing model, but is merely a feasible option for the current

the hen to get at the eggs can only doom enterprises, stage.

Under the contract system, enterprises must make up

losses with their own funds. While the separation of Three Stages of Combining Planned, Market

taxes from profits would benefit enterprises, because Economy

profits would be paid to the state only if they were

earned, two conditions are not ripe for its implementa- 91CE0727A Beijing CAIMAO JINGJI [FINANCE AND

tion. That is, national assets property rights have not TRADE ECONOMICS] in Chinese No 6, 11 Jun 91

been truly standardized, and our pricing system has not pp 13-16

been rationalized, which means that the separation of

taxes from profits must remain a pilot project. [Article by Zhang Sai (1728 1049): "Development

Models for Combining Planning With the Market"]

Li Yining made the following detailed analysis of the

causes of Capital Steel's successes: While some of Capital [Text] Combining Planning and the Market: The Current

Steel's current successes have resulted from reform, Situation

others have not. For instance, factors, such as improved Since the Third Plenum of the 13th CPC Central Comcadre proficiency, enhanced ideological and political mittee, China's socialist commodity economy has made

indoctrination, an improved management base, and steady headway and the combination of planning and

increased product sales, must be distinguished, and all the market is being intensified ceaselessly. Judging from

successes must not be imputed to the contract manage- the current situation, the decade old planning-market

ment responsibility system. I think that many successes combination has gone through three stages.

are due to the contract management responsibility

system. For instance, that contracted enterprises have 1) The period of the introduction of the market mechamore decisionmaking power and more accumulated nism (1979-1984). Economic structural reform got under

funds for upgrading their technology, are both reform- way in 1979. National economic management methods

related. But other successes are not necessarily related to were improved. The scope of command planning was
JPRS-CAR-91-052

23 September 1991 ECONOMIC 33

gradually reduced while guidance planning and market the market mechanism up to a point and created a

regulation became relatively more important. The law of relatively stable environment for the next step in its

value was taken more seriously throughout society. The drive to reform the planning mechanism and expedite

scope of the market was expanded progressively. The the maturing of the market.

consumer goods market was maturing systematically.

The capital goods procurement and selling market under By and large the planning mechanism and the market

the planned guidance of the state was also beginning to mechanism are still each doing their thing independent

take shape. In addition, a capital market and a tech- of the other at all levels of economic operations at the

nology market emerged. During this period, the market present stage. There is neither coordination nor coopermechanism had just been introduced into the planned ation. Basically it is a superficial kind of combination.

economy and had not developed in a major way. Its There are two important and direct reasons why the

impact on the operations of the economy was minimal, change in the planning mechanism has been slow, why

the market mechanism remains underdeveloped, and 2) The early development of the market mechanism why the two clash endlessly and cannot be coordinated

(1985-1988). Both the planning mechanism and the with each other. First, the price system is irrational. The

market mechanism were influencing market operations. price mechanism lies at the very heart of the market

Conflicts had begun to appear between the two. Coin- mechanism. A sound price system can guide the sound

pared to the earlier period, the market had grown in allocation and utilization of resources and regulate the

breadth and depth. The capital goods market and short- economy properly. In contrast, when the price system is

term fund market were growing rapidly. Society-wide the skewed, price signals distorted, and price mechanism not

prices of about one-half of the commodities were already maturing properly, administrative means are resorted to

being regulated by the market to varying degrees. The regulate and control economic operations. The introducmethods of macroeconomic regulation and control were tion of administrative tools and the underdevelopment

further transformed. The number of products under of the price mechanism, in turn, prevent prices from

command planning management and the categories of fulfilling their regulatory role properly. The result is a

materials centrally allocated had been significantly lopsided economic structure and economic disorder.

reduced. Banking and taxation had become important During the past several years, the assortment of probtools of national economic management. In the wake of lems in the nation's economy has all been related directly

the initial development of the market mechanism and or indirectly to irrational prices and to our failure to

the initial change in the planning mechanism, enter- understand the law of value comprehensively and thorprises were energized. However, the change in the tradi- oughly or to operate in strict accordance with it. Second,

tional planning mechanism had been slow. It was ill- the lack of variety in the methods of macroeconomic

suited to the new commodity economy and incompatible regulation and control is ill suited to the development of

with the operations of the market mechanism. More- the commodity economy. In the last couple of years,

over, the market mechanism itself was still immature. As such methods have undergone more extensive changes,

a result, there was constant friction between the two in but direct administrative management still plays a key

the course of economic operations, significantly lowering role in national economic management. With no coordithe efficiency of resource allocation and undermining nation among them and lacking flexibility and versathe stable coordinated development of the national tility, the various means of economic leverage still bear

economy. the clear mark of direct administrative management.

Consequently, economic operations remain largely 3) During the period from 1988 up to the present, the trapped in a "deregulate-chaos-regulate-over-control"

relations between planning and the market were vicious circle.

adjusted, planning management was improved, the

market order was rectified, and the market became more Development Models for Combining Planning and the

functional. As conflicts between the planning mecha- Market

nism and market mechanism intensified, the imbalance

in the national economy worsened. There was no coor- Combining planning and the market does not mean

dination between the various principal economic enti- combining the planned economy and the market

ties. Material and financial resources under the direct economy but combining the planning mechanism and

control of the state were dwindling rapidly. Macroeco- the market mechanism. Looking back at the course of

nomic regulation and control by the state was not strong history, both the modern planned economy and the

enough. The plan, particularly command planning, was modern market economy are forms of commodity

not being executed. With all that in mind, the state economy. The two are based on a different ownership

moved to adjust the relations between planning and the system and operate differently. It is neither necessary market even as it sought to improve the economic nor possible to combine them. In contrast, as methods of

climate and rectify the economic order. By reasserting resource allocation, the planning mechanism and the

the integrity and authoritativeness of command plan- market mechanism are free from the restraints of social

ning, re-centralizing funds and materials, and improving institutions. It is both necessary and possible to combine

the market order, the state has removed the superficial them. In the case of the planning mechanism, the starting

tension between the traditional planning mechanism and point is the economy as a whole. Resources throughout
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34 ECONOMIC 23 September 1991

society are allocated and the regulation and control of with each other. In the process of combination, thereevery economic entity is considered in the overall con- fore, both need a period of self-adjustment and mutual

text. In the case of the market mechanism, the starting adaptation. In other words, the superficial combination

point is primarily the cell of the economy. The decen- between the planning mechanism and market mechatralized activities of a multitude of economic entities are nism is an objective fact. That combination is a stage

regulated by price and interest rates through the inter- that cannot be bypassed. However, it is not the objective

mediary of the market, thereby bringing about the of reform. Our mission is to speed up the mutual

rational allocation of resources throughout society. The accommodation between the planning mechanism and

most important manifestation of market mechanism is market mechanism and accelerate the transition from

price and it is through competition more than anything superficial combination to merger.

else that the market mechanism fulfills its role. The

principal manifestation of the planning mechanism, on 2) Permeating and merging stage. As the change from the

the other hand, is the industrial policy, taxation, wage, traditional planning mechanism is complete and the

credit, miscellaneous rules and regulations, and admin- market mechanism gradually matures, the mutual rejecistrative measures. It is through noncompetitive direct tion between the planning mechanism and market mechand indirect distribution that the planning mechanism anism gives way to mutual accommodation. Their relaprimarily achieves its effect. The planning mechanism tions become more harmonious. The two begin to

and market mechanism allocate the same kinds of permeate and merge with each other. In the course of

resources, so the question of the planning mechanism regulating the economy and allocating resources, they

allocating only major resources and the market mecha- gradually coincide in the way they work and less often

nism allocating only minor resources does not arise. The conflict with each other. The state uses all sorts of

scope of the two mechanisms basically coincide, as both economic tools and economic variables to regulate and

are society-wide, so again it is not a case of the planning control the market and achieve the goals of state planned

mechanism being suitable only at the macroeconomic management through the market mechanism. But having

level and the market mechanism being suitable only at the state regulate the market and guide economic develthe microeconomic level. The planning mechanism and opment is not an ideal model of resource allocation,

market mechanism differ primarily in the method of either. The planning mechanism is responsible for macresource allocation, or, to put it differently, in the way roeconomic regulation while the market mechanism is

they fulfill their role. They each have their own strengths responsible for microeconomic guidance. Each does its

and are complementary. For the principal economic own thing and cannot substitute for the other. This is no

entity that regulates and controls economic operations, more than a higher form of superficial combination and

therefore, the planning mechanism and market mecha- cannot fully overcome the conflicts between the planning

nism incorporate different things and make the most of mechanism and market mechanism. Thus we can see

their respective strengths. This is precisely why countries that merging combination is but a transitional stage. The

with a market economy practice planning and those that duration of this stage depends on the extent to which the

practice economic planning find it necessary to develop planning mechanism and market mechanism permeate

and improve their markets as well. and merge with each other.

The organic combination of the planning mechanism 3) The stage of the new mechanism combining the

and market mechanism is no simple functional reconfig- strengths of both the planning mechanism and market

uration. Instead it is intended to create a new resource mechanism. When the merger between the planning

allocation mechanism that incorporates both planning mechanism and market mechanism reaches a certain

and the market and makes the most of their strengths in point, it would inevitably create a new economic mechresource allocation. In the new resource allocation mech- anism that combines the advantages of both the planning

anism, the planning mechanism and market mechanism mechanism and the market mechanism. You see the new

will not be on an equal footing. Nor will one be a senior mechanism actually at work when the government, as

partner and the other a junior partner. Instead we social manager, regulates one or several economic varidevelop what is good in the two mechanisms and discard ables and influences the operations of the economy as a

what is bad. It is a pooling of their strengths. It is the whole in accordance with the demand of the law of

unification of the guidance mechanism, realization value. Meanwhile, as the owner of state assets, the

mechanism, and coordination mechanism, government also functions as an economic entity and

participates in social economic activities. In that

The planning mechanism and market mechanism cannot capacity, it influences economic operations with its

be combined overnight. The combination process will economic prowess. In other words, the state achieves its

take a period of time and must comprise three stages at goal of regulating and controlling economic operations

least: by regulating economic variables and by participating in

economic activities. The new mechanism must still make

1) Superficial combination stage. As two forms of use of planning and the market. However, planning now

resource allocation, planning and the market require plays a guiding role; it is market-based planning. The

different conditions and work in different ways. There is market mechanism, on the other hand, plays an actualan objective possibility they might reject and conflict izing role; it is market under the restraint of planning.
JPRS-CAR-91-052

23 September 1991 ECONOMIC 35

Planning and the market have completely merged in one. profit margins is also the process of the rational allocaThis kind of new economic mechanism can choose an tion and utilization of all elements of production. Right

appropriate resource allocation method and effectively now in China there is as yet no level playing field where

allocate and use all sorts of capital goods, avoiding and the various economic entities can compete fairly. Enterovercoming any unnecessary disruption in the economy prises cannot compete effectively to sell their products to

as much as possible and maintaining stable and coordi- earn extra profits. Nor can the various sectors compete nated social and economic development on a long-term effectively for more profitable investment. There is as

basis. The development of the new mechanism is the yet no trend toward the equalization of profit margins

ultimate goal of combining planning and the market. throughout society. If we wait for the free competition

between sectors to bring about the equalization of profit The three stages of the planning-market combination margins society-wide, it will take too long. Accordingly

proceed from the simple to the difficult. As far as the we should grasp the opportunity afforded us now by the

stage of superficial combination is concerned, the prin- shrinking supply-demand gaps and a relatively soft

cipal goal is to develop and foster the market mechanism market to concentrate on "deregulation," supplemented

and improve the traditional planning mechanism, grad- by "regulation." Apart from the prices of some public ually adapting the two methods of resource allocation to utilities that may continue to be under centralized state

each other. Given the fact that China's industrial struc- control, the products of other industries can be dereguture is lopsided, its economic efficiency low, its macro- lated gradually so that they can float upward or downeconomic regulatory and control tools ineffective, and its ward freely. That way the price system can be rationalmarket underdeveloped, it is estimated that it will take ized to reflect economic activities throughout society as

us anywhere from three to five years to get out of the objectively and fairly as possible, lay the foundation for

superficial combination stage. The primary objective of the equalization of profit margins and the formation of

the permeating and merging stage is to make the most of production prices, create the conditions for fair compe- the strengths of the planning mechanism and market tition, reconcile the interests of all parties, and overcome

mechanism, gradually overcome their weaknesses, coor- the haphazardness of free competition.

dinate resource allocation, and regulate economic operations. As the level of economic development rises 2) Improve the methods of macroeconomic management

during this stage, the demand on the ability of the and regulate and control economic operations, flexibly planning mechanism and market mechanism to allocate using all sorts of economic tools. To begin with, reform

resources will also intensify. This stage will take about 10 the financial system and reverse the trend toward

years, maybe longer. Only then will we reach the highest interest separatism. At present regional separatism and

level of planning mechanism-market mechanism combi- monopolism are still a serious problem. We do not have

nation. a favorable environment that will lead to the formation

of a unified domestic market. As the economy rebounds,

Short-Term Measures To Expedite Planning-Market an assortment of "wars" will recur and an abnormal kind

Combination of competition fostered by miscellaneous administrative

forces will further distort the economic structure,

To speed up the change in the planning mechanism and throwing the national economy into a vicious circle

the maturing of the market mechanism, we should anew. If we are to end regional separatism, share interconcentrate on doing a good job in the following areas in ests in a fundamental way, and enhance the ability of the

the near future: state to regulate and control the macroeconomy, it is

imperative that we push ahead with the separate tax

1) Gradually rationalize the price system and nurture the system. First divide functional powers between the cenprice mechanism. The key to deepening price reform is tral government and local authorities clearly, then sepato replace subjectively determined price formation with rate revenue powers. On the other hand, we should adopt

objectively-determined price formation and develop a double-entry budgeting to overcome the "melting pot" price formation mechanism. Accordingly, we must first kind of spending. The idea is to do as much as the funds

set a society-wide average profit margin and form pro- we have allow us to do. Budget reform will necessarily

duction prices so as to ensure a correct direction for price lead to changes in the functions of government organs. It

reform and make reform less haphazard. In a commodity is inevitable that organs that prepare the budget will be

economy, commodity producers must maximize their separated from those that execute it. Second, improve profits. Owing to the competition among the various the banking mechanism. One, make interest rates more

commodity producers, capital circulates among produc- flexible and sensitive. In China, interest rates are slow to

tion sectors that differ in organic composition, turnover react to changes in economic operations and lack the

rate, and therefore, profit margin, changing the supply- initiative to regulate the economy. An urgent matter

demand relations and prices. The result is that the profit right now is to vary interest rates to suit the reality in

margins of different production sectors begin to different industries and areas and regulate the moveequalize, forming an average profit margin. The com- ment of capital goods. Two, go all out to develop a

modity values of different production sectors are con- capital market. Capital is the most precious element of

verted into production prices, that is, cost plus average production. The free movement of capital is an impor- profit margin. The process of the social equalization of tant prerequisite for fair competition. An increase in
JPRS-CAR-91-052

36 ECONOMIC 23 September 1991

capital mobility will facilitate the adjustment of the mix Rigidity With Flexibility-An Exploration of the Tranof inventories and improve output. Establishing a capital sition of Enterprises From Contract Management to the

market and improving it has become an important part Separation of Taxes From Profits"]

of the perfection of financial institutions. Third, implement and improve the various existing industrial poli- [Text] While the enterprise contract management

cies. Industrial policies guide the rational allocation of responsibility system has played a proper reform role in

resources society-wide. But due to the divorce of indus- readjusting the distribution relations between the state

trial policies from fund and material supplies, industrial and enterprises, changes in the economic climate have

policies are not as systematic, stable, and consistent as made its following major defects increasingly conspicthey should be. The result is that what industrial policies uous: contract management has steadily reduced the

we have fail to do what they should do in the economic ratio of state revenue to national income; too great

development process. In the future we should make disparities between the incomes of some contractors and

industrial policies more scientific and stable, make full their staff members and workers have led to new instause of them in fund and material supply, and implement bility; certain enterprises have been resorting to increasthem in earnest. Finally, a major effort should be made ingly serious deception in order to meet contract targets

to consolidate the leadership of state-owned commercial and gain higher wages and bonuses; contract manageenterprises in the realm of circulation. As a bridge ment has weakened enterprise tax payment mentality

linking production with consumption, state-owned com- and deterioriated state tax collection capability; contract

merce is enormously important for ensuring normal management has led to shortsighted enterprise actions

circulation for social reproduction. In making the most and created new inequalities. These defects that have

of state-owned commerce, we should concentrate on the surfaced in the use of the contract management responwholesale link. sibility system to regulate the profit distribution relations between the state and enterprises, have greatly 3) Mobilize the initiative of enterprises and revitalize restricted external factors, made it very hard for enterthem through a "give policy." As far as state-owned prises to sign long-term contract management contracts

enterprises are concerned, we should sort out enterprise with the state, and sharply exposed the shortsightedness

property rights, clarify the interests of all parties, and transitional nature of the contract management improve government management of enterprises, and responsibility system. As it has been impossible for the

revitalize enterprise operations. After enterprise prop- contract management responsibility system to solve

erty rights are sorted out, we should consider introducing these problems, conditions have become ripe for necesthe shareholding system. The shareholding system is not sary reform, based mostly on the separation of taxes

incompatible with public ownership. As long as the state from profits.

does a good job controlling shares, the public ownership

nature of the enterprise will remain unchanged and the In order to standardize enterprise reform pilot projects

state will still be able to carry out the national plan and in the separation of taxes from profits, the Ministry of

influence the economy. In addition, the state should Finance and the State Restructuring of the Economic

offer special treatment and apply preferential policy to System Commission issued a joint "Plan for the Implecertain enterprises only sparingly. As much as possible it mentation of State-Owned Enterprise Pilot Projects in

should create a level playing field conducive to fair the Separation of Taxes from Profits" (abbreviated herecompetition where the strong can really come out on top after as the "Plan"), in their Fiscal Reform Document

and the weak weeded out. No 2 in 1989. Its key points were as follows: it lowered

the income tax rate from 55 percent to 35 percent, while

Measures intended to intensify the combination between eliminating regulatory taxes; it switched loan repayment the planning and the market are interrelated. They must from pretax to aftertax; it contracted payment to the

be coordinated with one another if they are to be truly state of aftertax profits, with bases being set according to

effective. Take pains to check the tendency to wait 1988 realized enterprise profits, after deducting 35 perpassively or to be impatient for success. Push ahead with cent in income taxes, old loan repayment bases that had

reform actively but cautiously. Ensure economic growth. been set for enterprises, and the actual amount of profits

Grow out of the stage of superficial combination and that enterprises retained in 1988 (including loan repayenter the stage of permeating and merging. ment collections of the "two funds"). The current point

at issue is not a theoretical one, but rather a practical

one, in that the quantitative targets of this pilot project Separation of Taxes, Profits plan are hard for enterprises to accept, and it does not

not leave initiative to localities.

Transform Contract Management Although the "Plan" lowered the enterprise income tax

91CE0696A Beijing JINGJI CANKAO BAO in Chinese rate from 55 percent to 35 percent and eliminated

3 Jul 91 p 4 regulatory taxes, the sharp increase in pretax loan repayment, the decrease in the ratio of state revenue to

national income, and enterprise tax payments to the

[Article by He Jichuan (0149 3444 1557), affiliated with state having been far lower in reality than in name in

the Hunan Provincial Government Office: "Replacing recent years, have led enterprises and their responsible
JPRS-CAR-91-052

23 September 1991 ECONOMIC 37

departments to believe that the separation of taxes from capability, Yiyang City provided temporary exemptions

profits would increase enterprise burdens sharply. This from collection of energy, transportation, and extrabudis the basic reason why the reform transition to the getary regulatory funds from enterprises that repaid

separation of taxes from profits has been so hard to special loans out of aftertax profits, and allowed a faster

accomplish. This tells us that during the transitional rate of depreciation upon approval for fixed assets

phase of the transformation from contract management established with special loans, for key enterprises

to the separation of taxes from profits, the readjustment approved for upgrading and long-term projects with

of profit relations between the state and enterprises large investments, while the "Plan" did not contain these

should not advance at too fast a pace or on too large a provisions.

scale, and that the "Plan" must be implemented with a

certain amount of flexibility. In fact, some cities have Yiyang City's flexible steps in implementing the joint taken certain flexible steps in their implementation of "Plan" of the Ministry of Finance and the State Restrucreform pilot projects in the separation of taxes from turing of the Economic System Commission, apparently

profits, thus achieving the dual results of ensuring steady reduced state revenue somewhat. While the "Plan" stipincreases in both state revenue and enterprise retained ulated that Yiyang City's 25 budgeted state-owned

profits. Having already widely implemented contract industrial enterprises that were practicing the separation

management, Yiyang City in Hunan Province began in of taxes from profits should have paid income taxes to

1988 the reform transition from contract management to the state of 6.61 million yuan in 1988 and 7.35 million

the separation of taxes from profits in 25 of its budgeted yuan in 1989, which payments were 1.06 million yuan

state-owned industrial enterprises. In order to maintain and 1.03 million yuan, respectively, more than Yiyang

policy continuity and dovetail the separation of taxes city's stipulation, it was precisely these flexible steps that

from profits with contract management, it took the aroused the initiative of enterprises and their staff memfollowing interim steps in its specific implementation of bers and workers to take part in the separation of taxes

the separation of taxes from profits: from profits reform, promoted production developments

1. Except for calculating and collecting income taxes and thus, achieved the dual results of ensuring steady

according to the plan for the separation of taxes from increases in both state revenue and enterprise retained

profits, it assessed all other enterprise economic duties profits. In 1988, Yiyang City's 25 pilot project enterand targets according to the contract management pro- prises in the separation of taxes from profits realized

gram. profits of 26.276 million yuan, or 156.26 percent more

than was planned and an increase of 25.1 percent over

2. While the "Plan" stipulated a uniform calculation and 1987, paid the state income taxes of 5.553 million yuan,

collection of 35 percent in income taxes for all enter- or 28.2 percent more than in 1987, retained profits of

prises, Yiyang City calculated and collected them 13.601 million yuan, or an increase of 171.2 percent and,

according to a five-level supergraduated rate of 10 per- excluding aftertax loan repayments of 6.654 million

cent for annual profits of less than 10,000 yuan, 17 yuan, actually retained profits of 6.947 million yuan, or

percent for 10,000 to 30,000 yuan, 24 percent for 30,000 an increase of 38.4 percent. In 1989, due to factors such

to 100,000 yuan, 30 percent for 100,000 to 200,000 as the market slump, enterprise efficiency generally

yuan, and 35 percent for annual profits over 200,000 dropped, and Yiyang City's 25 pilot project enterprises

yuan. This expressed the principle of differential treat- realized 9.64 percent less profits than in 1988. Even

ment, and was more flexible and rational than a rigid tax under such unfavorable conditions, the large decrease in

rate. pretax loan repayments enabled these enterprises to pay

11.9 percent more in income taxes to the state and retain

3. While Yiyang City stipulated that during original 10.87 percent more in profits than in 1988, and achieve

enterprisee contract periods, the income taxes that simultaneous increases in state revenue and enterprise

should be paid according to the separation of taxes from retained profits.

profits plan that were in excess of original contract bases

would be cut by one-half, the "Plan" did not contain this It is thus obvious that during the transition from conprovision. Yiyang City also stipulated that enterprises tract management to the separation of taxes from profits,

that experienced real difficulties in paying their taxes we must pay attention to at least the following points in

could be granted appropriate tax reductions and exemp- guiding ideology:

tions with the approval of the tax management system.

4. Considering enterprise investment loan balances for 1. We must overcome the tendency to try to achieve

the end of 1987 as old loans, Yiyang City stipulated that quick success and instant results. We should make a

during original contract periods, 60 percent of loan completely new start based on full plans for putting

repayments would come from pre(income)tax profits theory into practice, overcome the impetuous tendency

and 40 percent from enterprise aftertax retained profits. to move from the first to the second phase of the

As the "Plan" stipulated that no more than 50 percent of substitution of taxes for profits too quickly, ensure that

old loan repayments would come from pretax profits, the reform transition to the separation of taxes from

Yiyang City's stipulation was obviously slightly more profits proceeds systematically, avoid impractical shortflexible. In order to enhance enterprise loan repayment cuts, and refrain from oversimplifying complex reforms.
JPRS-CAR-91-052

38 ECONOMIC 23 September 1991

2. We must not overemphasize one task at the expense of -It has brought the flexible regulatory role of taxation

others. The reform transition to the separation of taxes into full play, and begun to enable the state and

from profits is not a matter of simply lowering income enterprises to share both the profits and the risks. As

taxes, eliminating regulatory taxes, and switching loan income taxes are calculated and collected according to

repayment from pretax to aftertax, but is rather a very graduated rates for enterprises that practice the sepacomplex kind of systems engineering reform in read- ration of taxes from profits, the amount of income

justing the profit distribution relations between the state taxes paid depends on the amount of profits earned,

and enterprises. That is, as it involves the profit relations being either more, less, or none depending on whether

between both the state and enterprises and Central and more, less, or no profits are earned, which brings the

local governments, many sectors, such as finance, taxa- flexibility of income taxes into full play, and makes

tion, all departments in charge of enterprises, and them better suited to changing objective economic

banking, as well as reform of many systems, such as conditions.

business, finance, tax collection, banking, and pricing,

we must make overall plans and take all factors into -It has tended to rationalize and stabilize the profit

consideration, instead of attacking problems individu- distribution relations between the state and enterally. prises. Moreover, the income tax flexibility in the

separation of taxes from profits has stabilized the

3. We must guard against the mistake of "indiscriminate distribution relations of payments to the state,

application." During the transition from contract man- retained profits, and loan repayments in the midst of

agement to the separation of taxes from profits, the sharp fluctuations in objective economic conditions.

Central government must make only certain qualitative

stipulations on reform orientation, while allowing all -Its conversion of the loan repayment mechanism has

areas to take certain flexible steps according to their properly curbed investment increases, without having

actual conditions in its quantitative stipulations, substi- a negative impact on enterprise development stamina.

tute a "flexible" transition for a "rigid" one, and use In aftertax loan repayment, loans are repaid out of

nonuniform means to achieve the goal of standardiza- enterprise retained profits, which makes enterprises

tion. Only these methods will contribute to a smooth give more consideration to their own capabilities and

reform transition to the separation of taxes from profits, investment efficiency.

-It has speeded up enterprise loan repayment, and

Chongqing Achieves Good Results taken a step toward establishing a good cycle of

91CEO696B Beijing JINGJI CANKAO BAO in Chinese enterprise investment. In aftertax loan repayment, 9 Jul 91 p I enterprises realize that the slower they repay their

loans, the heavier their burdens become, which

enhances their sense of loan repayment responsibility.

[Article by Chai Yan (2693 4282): "Reform Pilot -In order to continue to bring the driving role of the

Projects in the Separation of Taxes From Profits Have current contract to into full role ofaahe

Achieved the Initial Successes of Bringing Taxation current contract system into full play, the separation

Flexibility Into Full Play and Stabilizing Profit Distribu- of taxes from profits reform includes the rational parts

tion Relations"] of the contract system in aftertax contracting. Its

major practical impact is on enterprises with better

[Text] After the city of Chongqing pioneered pilot economic efficiency and increasing realized profits.

projects in the separation of taxes from profits in 1988, That is, as they contract payments to the state of

27 Chinese provinces and cities (including plan-list aftertax profits, they can pay increasingly larger

cities) had selected certain areas, industries, and enter- amounts of taxes and profits to the state, while

prises to conduct such pilot projects by the end of May retaining increasingly larger amounts of profits.

1991. Almost 1,900 state-owned enterprises are participating in these pilot projects, of which 1,377 in 13

provinces and cities have been approved by the Ministry Shareholding System

of Finance. 91CE0696C Hong Kong CHING-CHI TAO-PAO

[ECONOMIC REPORTER] in Chinese

"The separation of taxes from profits, and aftertax loan No 25, 24 Jun 91 p 10

repayment and contracting," means that state-owned

enterprises first pay income taxes to the state out of their

realized profits according to the provisions of the tax [Article by Mo Wen (5459 2429): "China Should Set Up

laws, that various forms of contracting are then used to a Shareholding System Based on the Separation of Taxes

distribute after (income) tax profits among the state and From Profits"]

enterprises, and that enterprises finally repay fixed assets

investment loans out of their retained profits. [Text] While the general objectives of China's enterprise reform are to separate government administration from

These years of pilot project practice show that the business management and management from ownership,

separation of taxes from profits has had the following and give enterprises more management decisionmaking

initial impact: power, the sole responsibility for their profits or losses,
JPRS-CAR-91-052

23 September 1991 ECONOMIC 39

and self-development and restraint mechanisms, con- -The diversification of shareholding units, in which

flicting views still exist about particular reform models shares would no longer be owned by particular indeand approaches. pendent departments, would keep former responsible

government departments from being able to interfere

One view is that as the current contract system is suited directly in enterprise administration, which would

to China's national conditions, the future enterprise resolve the issue of government administration not

reform orientation should be to continue to adhere to the being separated from business management.

contract model, which ought to be further perfected and

improved through the following reforms: 1) enterprise -The election at shareholder meetings of boards of

decisionmaking power over production operations directors, which would appoint managers to be in

should be further expanded; 2) shortsighted enterprise charge of routine activities, would separate manageactions should be prevented and eliminated; 3) contract ment from ownership.

bases should be set rationally, in order to avoid draw- -These two things would give enterprises more manbacks, such as inequalities among enterprises and unfair agement decisionmaking power as follows:

competition; 4) management within enterprises should

be enhanced, so as to eliminate the phenomenon of -As a more standard system of the separation of taxes "substituting contracting for improved management"; 5) from profits would be used to handle the profit distriperfection of the contract system should be combined bution relations between the state and enterprises,

with readjustment of enterprise organizational struc- after paying property use fees to the state, enterprises

tures, in order to encourage enterprise contracting, could use the rest of their profits for upgrading and

mergers, leasing, and group development, development on their own initiative.

An alternate view is that the current system of enterprise -As external conditions would be equalized, diversified

payment of profits to the state and contracting contains shareholding enterprises with limited corporate

major defects, so should be replaced by the separation of responsibility would be able to be responsible for their

taxes from profits, and aftertax loan repayment and own risks.

contracting. Those who hold this view note the following

things: As enterprise payment of profits to the state PROVINCIAL

involves the relations between managers and owners,

while enterprise payment of taxes to the state is an

obligation that should be fulfilled, the two matters must Discussion of Capital Sources for Pudong

be separated. Moreover, as enterprises must pay taxes Development whether they make profits or not, pretax loan repayment 91CE0691A Hong Kong KUANG-CHIAO CHING

is actually a form of state subsidization of enterprises, [WIDE ANGLE] in Chinese No 7, 16 Jul 91 pp 50-51

which does not contribute to improvement of enterprise

fund use efficiency. The separation of taxes from profits,

and aftertax loan repayment and contracting, is based on [Article by Mo Li: "China's Largest Trans-Century

the following suppositions: 1) The formation of a Project-Where Will the 40-Billion-Yuan Funds for

rational pricing system. Otherwise, it would be impos- Pudong Come From?"]

sible to set rational income tax rates that would be [Text]With the Completion of the Nanpu Bridge, the

uniform throughout China. Moreover, there would be no [T e nt th plton of the SubsuaBride the

substantive difference between the application of dif- Development of Pudong Enters the Substantive Stage

ferent tax rates to various enterprises and the one-on-one The Nanpu Bridge, which crosses the Huangpu River to

negotiations in the contract system. 2) The formation of link the two sides, east and west, of Shanghai, was

new enterprise upgrading and development fund completed on 20 June 1991, and is expected to be

sources. As enterprise upgrading in recent years has operational by year end.

relied to a large degree on the preferential policy of

pretax loan repayment, conversion to aftertax loan 40-Billion-Yuan Funds for Infrastructure Construction

repayment would necessitate a search for new investment channels. 3) The removal of irrational aftertax According to Shanghai Municipality's Eighth Five-Year

burdens on enterprises. Except for paying taxes to the Plan, in the development work for the Pudong New

state and property use fees to the state-owned assets Zone, there are ten items of large-scale infrastructure.

management sector, enterprises should not in principle Besides the Nanpu Bridge, work will be started in the

be subject to other social burdens, latter half of 1991 on the projects for the second bridge

across the Huangpu River-the Yangpu Bridge, the

While both of these views have certain grounds, neither Pudong portion of the inner-ring line connecting the two

of them would be able to easily achieve the above-stated bridges, and the four shoreline-wise berths in the firstgeneral reform objectives. I think that a third approach phase project for the Waigaoqiao docking areas. The

should be taken, i.e., that China should set up a share- widening of Yanggao Road-the main north-south

holding system based on the separation of taxes from highway in the Pudong New Zone-will be completed in

profits, for the following reasons: 1993. Also to be completed and become operational in
JPRS-CAR-91-052

40 ECONOMIC 23 September 1991

the mid-90s are such projects under way as the second- Construction Bank system is preparing to organize synphase project for the waterworks, the gasworks, the dicated loans for supporting key projects.

first-phase project for the Waigaoqiao power plant, the

Pudong portion of the sewage-pooling project, and the The Shanghai municipal government is already using the

100,000 switch telephone project. Furthermore, the plan real estate industry based on compensated land use as an

also involves such large projects as a second interna- effective means of raising construction funds for the

tional airport, a second subway line, a third tunnel under Pudong New Zone. According to the plan, pioneering

the Huangpu river, and the Pudong portion of the development of the Lujiazui finance trade zone, the

outer-ring line. According to preliminary estimates of Jinqiao export processing zone, and the Waigaoqiao

the Pudong branch of the Construction Bank, for the duty-free zone, three newly formed development corpodevelopment of the Pudong New Zone, the projects for rations have acquired, from the municipal land bureau,

infrastructure alone will need construction funds of 40 the leases for land use. The Aerospace Ministry is also

billion yuan RMB. Shanghai is to raise, by itself, most of interested in getting a lease for a small area in Pudong for

the huge amount of funds, developing high-tech industries. Because some street

names, in the middle of the small Lujiazui zone, such as

Zhangyang and Wendeng come from Shandong, ShanWhere Will the Money Come From? dong Province intends to "develop the relevant area by

Just in the initial stage of development, Pudong will not itself." Bloc land lease will accumulate funds for the

be able to attract, in the near term, a large amount of zone, with the gradual development of the Pudong real

international capital. At such a time, how to raise the estate industry. According to statistics, various institufunds equal to the scale of the development has become tions will invest in Pudong for the construction of over

the focus of attention of all sides. 20 finance, trade or comprehensive-function buildings,

in addition to over 2,000 high-grade apartments, 20

China's Largest Trans-Century Project million square meters of floor space of housing, etc.

Between May and June of 1990 when China's largest Besides Shanghai's business, the investors also include

trans-century project of the Pudong development was the Yu'an Corporation of Anhui, China Daily, etc.

beginning, besides the State Council and the Shanghai The real estate development companies under the varmunicipal government which promulgated several poli- ious banks are even more active in going deep into cies, laws and regulations, the financial industry took iu ak r vnmr ciei on epit quike lawsandregoinion, ats, sthep fiahiad industries. t Pudong to select development projects. The total area for quick actions, going one step ahead other industries. the preliminarily negotiated projects is already over "Finances go first" to provide necessary "supplies" for various projects. varousproect. Tn-od Ten-odd fnanialinsituion heded 300,000 square meters. Furthermore, the Construction financial institutions headed Bank of Jiangsu Province is proposing that the three

by China's four bank, specialized ad treeChieseforignjoit-vntue banks, six foreign-funded fnanial Bankuof construction iangs banks ovinc of Jiangsu, s prpoing Zhejiang and at thenthre Shanghai

banks, and three Chinese-foreign joint-venture financial jointly organize a real estate development corporation institutions established branch banks or branch compa- (group) of a holding-company nature. It seems that such

nies in Pudong over time. According to a source, during (cron of bring-aong natres in that sulh

the Eighth Five-Year Plan period of 1991-95, the various action will bring along other industries in their developspecialized banks will raise 10 billion yuan in funds for ment in Pudong.

Pudong. With regard to the TV tower of the Lujiazui Developing Securities Investment in Pudong Has

area of Pudong, the Pudong branches of the Construc- Become the Common Understanding of the Parties

tion Bank and the Industrial and Commercial Bank have Concerned.

taken the lead in forming a syndicate to provide 150

million yuan RMB and $10 million in construction Up to now, the Pudong branch of the Construction Bank

funds; and the Construction Bank is also assuming the has already sold 5 million yuan in short-term fundrole of leading agent bank, together with the Industrial raising bonds for the large and medium-sized enterprises

and Commercial Bank and the Communications Bank, of the Pudong New Zone; and have designed the issuto provide 350 million yuan in loans for the construction ance plans for "stock-transferable enterprise bonds" and

of the Yangpu Bridge. The Bank of China is, together "enterprise bonds containing share-subscription right with five banks from France, Japan and Hong Kong, for new stocks" for two development corporations in

jointly funding the construction of the International Jinqiao and Waigaoqiao. This plan is still to be impleFinance Building. mented. But, developing securities investment in

Pudong is the common understanding of the people As the Yangtze delta region sees that the development of concerned. The establishment of a "development fund

Pudong will bring opportunities for the development of for the Pudong New Zone" is also inevitable.

many cities of the region, some financial institutions are

also taking actions. The Jiangsu and Zhejiang branches On 21-23 June 1991, the Investment Association of

of the Construction Bank are even more active. They are China, together with the institutions, experts and

enhancing financial management of funds to guarantee scholars concerned of the four regions of Beijing,

the funds for and the progress of such projects of concern Shanghai, Jiangsu and Zhejiang, held, at Shanghai, a

as the Shanghai-Hangzhou-Ningbo expressway and the joint discussion on the issue of "developing Pudong and

Qinshan Nuclear Power Station. Besides, that region's investing in the Yangtze Delta," and submitted, to the
JPRS-CAR-91-052

23 September 1991 ECONOMIC 41

center and the Shanghai government, recommendations The average disposable income of urban residents will

and reports on ways, means, methods and corresponding amount to 2,600 yuan by 1995 and 4,500 by the year

policies regarding investment for the development, to 2000. The per capita net income of peasants will reach

expedite the completion of Pudong's infrastructure and 1,350 yuan by 1995 and 2,600 yuan by year 2000.

attract even more foreign capital. With joint efforts of Deducting price increases, the average real income of

the center and Shanghai, Pudong is speeding up its urban residents will increase 3-5 percent on an annual

development. This move will accelerate and push devel- basis.

opment of the Yangtze river valley and the whole

country. Basic Ideas

Fujian Governor Optimistic About Future Governor Jia said that to achieve the above-mentioned

Development targets set in accordance with Fujian's specific circum91CE0690A Hong Kong CHING-CHI TAO..PAO stances, the focus of the strategy of economic and social

[ECONO690A REPORTER] K ChinG- se TAO-P9development will be on the overall improvement of [ECONOMIC REPORTER] in Chinese No 29, efficiency with a view to strengthening the basis, deep22 Jul 91 pp 26-27 ening reform, expanding external markets, rejuvenating

science and education, and optimizing the economic

[Article by Xu Zhuosong: "Full of Confidence in the structure.

Development of the Next Decade-a Conversation With

Fujian Governor Jia Qinglin"] Strengthening the basis means concentrating a certain

amount of financial resources, materials and labor to

[Text] As one of the earliest provinces to open to the practically strengthen the construction of agriculture,

outside world, Fujian has made great progress over the infrastructure, and basic industries. Efforts will be made

last 12 years. Within the framework of the Eighth to produce 10 billion kilograms of grain by 1995 and 11

Five-Year Plan and Ten-Year Plan, how will Fujian join billion kilograms by the year 2000, expand the acrea of

the ranks of economically developed provinces? Fujian fruit trees to 10 million mu and aquatic breeding to 2

Governor Jia Qinglin expressed his views in an interview million mu, and attain a forest cover rate of 53 percent

with journalists. and attain 60 percent by the year 2000. In the next 10

years, investment in fixed assets of the whole society will

The Major Objectives reach 200 billion yuan. Key construction includes ten

major transportation projects (one expressway, three Governor Jia was a senior engineer and held the position railways, three airports, and three ports), ten major

of General Manager of the Chinese Import and Export projects in postal communications, seven major energy Company of Machinery Equipment and Head of the projects, and another ten major projects in raw materials

Taiyuan Heavy-Duty Machinery Plant. In 1985 he was and other industries.

transferred to Fujian and was a member of the provincial

Standing Committee of the People's Congress and Furthering reform means to firmly and continuously Deputy Secretary of the Provincial Party Committee. push for comprehensive reform experiments, to explore

Last year he was acting governor and in April this year he courageously, and to speed up the pace of reforms.

was elected governor. Although he has not been governor During the period of the Eighth Five-Year Plan, in

for long, he has well thought out plans for Fujian and was conjunction with the establishment of a new system of

articulate in responding to questions. Governor Jia put planned commodity economy and an economic functhe objectives of the next decade into one sentence: tional mechanism that are not only consistent with the

quadrupling output five years ahead of time and state's macroeconomic regulations and control but also

achieving a comfortable living standard three years externally-oriented, emphasis should be placed on

ahead of time. strengthening macroeconomic regulations and control

and on the cultivation of a market system. There should The concrete targets based on this objective are that also be breakthroughs in the development of financial

GNP will reach 35.4 billion yuan in 1995, quadrupling institutions, commercialization of housing and real

that of 1980, and will reach 53 billion by the year 2000, estate development.

an annual average increase of 8.5 percent based on 1980

constant prices. GNP per capita will reach $800 by 1997 To expand external markets is to firmly and continuand $1,000 by the year 2000. Gross industrial output ously expand the scope of opening to the outside world

value will reach 65 billion yuan by 1995 and exceed 100 and walk onto the international economic arena with big

billion yuan by the year 2000, an annual increase of 10 strides. The consistency and stability of the open policy

percent. Gross agricultural output value will be 12 bil- must be maintained. At the same time, efforts should be

lion yuan by 1995, and 14.5 billion by the year 2000, an made to seek new breakthroughs in attracting foreign

annual increase of 4.5 percent. Exports will exceed $4 capital, to mobilize resources to launch large scale forbillion by 1995 and $8 billion by the year 2000, and eign-funded projects, to establish tax-exempted proaccount for an annual increase of one percentage point cessing zones and tax-exempted markets for means of

on average to GNP. Fiscal revenue will amount to 8.5-9 production, to establish Taiwanese-funded and foreignbillion yuan in 1995 and 14.5 billion in the year 2000. funded banks, to lead foreign businessmen to develop
JPRS-CAR-91-052

42 ECONOMIC 23 September 1991

and manage large pieces of land and to build ports, Ports and other small ports along the coast will increase

berths, power stations, expressways in the form of sole the handling capacity of the ports from a little over

foreign investment or joint ventures, and to rigorously 60,000 tons to 80,000-90,000 tons for every 100 million

expand the externally oriented economic development, yuan's worth of GNP.

To rejuvenate science and education is to adhere to the As for "achieving a comfortable living standard three

principal of using wisdom to obtain success and to rely years ahead of schedule," is an annual per capita GNP of

on scientific and technical education and raising the $800. This is not a problem for urban areas, the key is in

quality of labor to promote economic and social devel- large rural areas. Fujian has a rural population of 25

opment. Continue to implement the "Spark Plan," million at present and will have 27 million by 1995. It

"torch plan," "liaoyuan" and "bumper harvest plan," as should not be difficult to reach a conclusion when

well as other plans to accelerate the construction of the Fujian's existing resources are broken down for analysis.

Fuzhou-Xiamen high-tech park, and the "science and First of all, the province currently has 18.5 million mu of

technology corridor" along Quanzhou, Jinjiang, and cultivated land. Grain output will reach 20 billion jin by

Shisi. Continue to advocate that the whole society invest 1995 and 22 billion jin by the end of the century. This

in education, that resources be assembled and used for item alone should guarantee a comfortable living staneducation, and that education be funded by overseas dard for 5 million people. Second, Fujian has rich

Chinese. aquatic resources. The existing breeding area is 840,000

mu and will expand to 1 million mu in the next five

To optimize the economic structure is to rationally years. This item could enable 2 million people to have a

allocate factors of production by following the trend of comfortable life. Third, with respect to the fruit industry, international markets and relying on the support of the province's orchards will increase from 6 million mu

domestic markets, to coordinate regional economic to 10 million mu. This resource could guarantee a

development, to actively improve the industrial mix, comfortable living standard for 7 million people. Fourth,

and to gradually form a high-quality, highly efficient, Fujian's town and township enterprises are developing

externally-oriented, and light economic structure that rapidly, employ 2.8 million people at present, and 3.5

has Fujian's own characteristics, million by 1995. Based on a ratio of 1:2, this could bring

7 million people into a comfortable life. In addition,

The Necessity and Feasibility agriculture and sideline industry, such as transportation and construction, will also bring thousands of people Governor Jia believes that it is necessary and feasible to into a comfortable life.

implement the Eighth Five-Year Plan and Ten-Year

Plan. He said that first of all, Fujian's economic devel- It can be seen, therefore, that Fujian's Eighth Five-Year

opment was once very slow due to the problem of the Plan and Ten-Year Plan are not only necessary but also

Taiwan Straits and the influence of the cultural revolu- feasible. With efforts, these plans are achievable and

tion. The so called "ten-year war preparation followed by may even leave some margin.

ten-year turbulence" caused Fujian's GNP and per

capita income to be 22nd place in China. Second, after The Advantages of Fujian

almost 12 years of reform and opening, the above two What advantages does Fujian have as the basic assurance

indicators have moved up to 12th and 11th place respec- for achieving these objectives? Governor Jia summatively. But due to a weak basis, the indicators are still rized the advantages into four aspects.

below the national average. Third, the central government has time and again demanded that Fujian speed up First, the central government has granted Fujian many

its development and has endorsed many special policies preferential policies for opening to the outside. As early

and flexible measures to turn Fujian into a comprehen- as 1979, authorized by the central government, Fujian sive experiment zone of reform and opening. Therefore, and Guangdong became the first provinces to open up.

it is necessary for Fujian to achieve these objectives. Afterwards, with the support of the central government,

the province gradually formed a multi-layer pattern for As for feasibility, there is a scientific basis for quadru- opening to the outside. Meanwhile, the State Council

pling output five years ahead of schedule. Over the last decided to treat Fujian, Guangdong and Hainan as

12 years, Fujian's GNP has been growing at an annual comprehensive experiment zones in the country for

average rate of 10.5 percent. It should not be difficult to reform and opening and approved the establishment of

have a growth rate of 8.5 percent in the next five years. Taiwanese investment zones in Xiamen and Fuzhou.

In terms of the overall plan, industry, agriculture and These advantages became one of the most favorable

infrastructure were all designed with that growth target conditions for Fujian to speed up its economic construcin mind. The industrial growth rate will be 10 percent, tion and opening to the outside.

agriculture 1.5 percent, and electric power 10 percent. The supply of energy is guaranteed. With regard to Second, geographic advantages. Fujian is positioned

transportation, the ten key construction projects will along the Chinese southeast coast and is close to Taiwan,

raise the net railway freight from 40,000 tons to 50,000 Hong Kong and Macao. It has an endowed geographical

tons for every 100 million yuan's worth of GNP. In advantage to develop economic and trade exchanges

addition, the constructions of Mawei, Meizhou, Dongdu with Taiwan, Hong Kong, Macao, and the rest of the
JPRS-CAR-91-052

23 September 1991 ECONOMIC 43

world. Because of this advantage, native Fujianese can Third is to adjust the industrial mix. One of the most

be found in Taiwan, Hong Kong, Macao and all over the important points is to expand the scope of opening, world and they are characterized by the "three eights": 8 introduce advanced technologies, transform traditional

million overseas Fujian natives, 800,000 Hong Kong industries, and vigorously develop an externally oriented

residents are from Fujian, and 80 percent of Taiwan economy to develop the industrial mix toward being residents came from Fujian. The concerns and support technically advanced and export oriented.

of these native Fujianese for their hometown is also

Fujian's advantage. FINANCE, BANKING

Third, there has been great improvement in the investment environment. Over the last 12 years of reform and Current Status, Problems With Shanghai Stock

opening, the province has spent 12.3 billion yuan on Market

capital constructions in energy, transportation, raw 91CEO651A Chongqing GAIGE [REFORM] in Chinese

materials. A group of important projects such as airports, No 3, 20 May 91 pp 16-17

berths, power stations, highways, railways, communications, and raw materials have been newly constructed, [Article by Jiang Tiezhu (5592 6993 2691): "Shanghai's

expanded, and transformed. The newly added generator Experiment With Shareholding System-Current Status

capacity comes close to 1.5 million kilowatts, the coal and Problems"]

mining capacity has reached over 1 million tons, and

cement production 1.4 million tons. Six berths of over [Text] I. Shanghai's Pilot Project in Shareholding and the

10,000 tonnage have been constructed with an increased Stock Market

handling capacity of more than 3.6 million tons. These

infrastructures and basic industries provide the neces- Shanghai's pilot project in the shareholding system

sary investment environment, began in the second half of 1984. The first shareholding

enterprise in Shanghai was the Feiyue Audio Company,

Fourth, an externally oriented economy is basically in which was founded in November 1984 and began issuing

place. Over the last 12 years, the province's accumulated shares in January 1985. Thus far there are 11 sizeable

exports amounted to $9.375 billion, 7.6 times the total of shareholding companies in Shanghai, summarized by

the previous 28 years. In accumulation, 4,001 foreign trade or industry as follows: 1) Industry, four: Shanghai

investment contracts have been signed, and used a total Zhenkong Electronic Parts Shareholding Company Ltd.,

of $4.025 billion. There are 1,988 foreign-funded enter- with a total capital stock of 200 million yuan; Shanghai

prises in operation. Such indicators as the amount of Feiyue Shareholding Co. Ltd., founded September 1987,

foreign direct investment used, the number of foreign- total capital stock, 28 million yuan; Shanghai Feiyue

funded enterprises, output value, export earnings, and Audio Co., total capital stock, 1.65 million yuan; and

tax returns are all ranked second in the country, next to Shanghai Aishi Electronic Equipment Co., founded JanGuangdong. Fujian is ranked first for the share of uary 1985, total capital stock, 400,000 yuan. 2) Commerforeign-funded enterprises' output in total industrial cial services, four: Shanghai Yuyuan Shopping Center

output. Share-holding Co., Ltd., founded December 1987, total

capital stock, 6.50 million yuan; Shanghai New World

Finally, Governor Jia mentioned that Fujian is now Shopping Center, founded September 1988, total capital

facing three major basic tasks. stock, 2.1 million yuan; Shanghai Yanzhong Industrial

Co. Ltd., founded January 1985, total capital stock, 10

First is to raise funds. During Fujian's Eighth Five-Year million yuan; Shanghai Shenhua Electrical Engineering

Plan, it is estimated that investment in fixed assets will Shareholding Joint Co., founded March 1987, capital

require 75 billion yuan. A total of 200 billion yuan will stock, 5 million yuan. 3) Banking, two: Communications

be needed for the Ten-Year Plan. A "three-direction" Bank, Shanghai branch, founded April 1987, capital

approach will be adopted to fulfill this target, namely, stock, 623 million yuan; Shanghai International Securiupward, downward, and outward. Upward means to get ties Co., founded July 1988, capital stock, 11 million

funds from the state, downward from the masses, yuan. 4) Real estate, one: Shanghai Xingye Shareholding

through the issuance of bonds and stocks, and outward Co. Ltd., founded August 1988, capital stock 7 million

from overseas, which is also the most important part. It yuan.

includes two avenues: direct absorption of foreign cap- The 11 shareholding companies mentioned above have a

ital, setting up foreign-funded enterprises, and direct combined capital stock of 887 million yuan, including

foreign borrowing. 663 million yuan worth of shares owned by the state, or

74.77 percent of the total, 158 million yuan owned by Second is to explore markets. Fujian has to face two legal persons, or 17.76 percent, and 66 million yuan

markets: overseas and domestic markets. In recent years owned by individuals, or 7.48 percent. Fujian has maintained economic development despite a

weak domestic market. Reliance on overseas market is The shares of seven companies, with a total capital stock

one major reason. A certain growth rate of GNP is of 236 million yuan,, are being traded on the stock

assured by the leading force of export. exchange at present. Of this, the state owns 157 million
JPRS-CAR-91-052

44 ECONOMIC 23 September 1991

yuan, or 66.3 percent; legal persons own 16 million yuan, D) Expedite the separation of management right and

or 6.9 percent, and individuals own 63 million yuan, or asset investment right from administrative management

26.8 percent. Currently, though, only individually right and reduce administrative interference by the govowned shares are being traded on the stock market. In eminent in enterprise operations.

the short run, the prices of the shares of these seven

companies will remain strong, with most changing hands However, the pilot project in shareholding has run into

at three times their face value. The shares of the Yuyuan numerous problems that await further study and resoluShopping Center Shareholding Company are being tion. The main problems are:

traded at five times their face value.

First, there have been endless arguments about the

Let us now take a look at the stock market, which has shareholding system in all quarters. The absence of a

enjoyed fairly rapid growth and has reached a substantial consensus has prevented the pilot project from going full

scale since 1986. The Jingan Securities Department steam ahead. Some people are firmly opposed to the

(later renamed Shanyin Securities Co.) of the Trust and shareholding system, arguing that it is a concrete maniInvestment Company under the Shanghai Commerce festation of economic liberalization and that it is capiand Industry Bank became the first concern in Shanghai talism. Some people are full of misgivings and hesitate

to specialize in the issue and trading of shares when it every step of the way. Given the absence of a consensus

began trading shares over the counter in September on what basically constitutes a shareholding system, the

1980. Since then three other securities companies have pilot project, unlike the contract system, has neither

been set up, namely the Shanghai Haitong Securities Co., commanded the attention of all quarters nor enjoyed

the Shanghai Wanguo Securities Company, and the support across the board. It has just been limping along.

Shanghai Zhenxing Securities Co. So far there are 25

companies in Shanghai that handle the securities busi- Second, while the enterprise system is being modernized,

ness with over 50 trading points altogether. In view of enterprise operating mechanisms have remained

the growth of the securities business, the Shanghai Stock unchanged. The resultant contradiction and conflicts

Exchange was founded on 26 November 1990, which have prevented the experiment from proceeding norcurrently has 25 corporate legal persons as members. Of mally. The city has yet to introduce a number of mea- the first 30 securities traded on the market, five were sures relating to the shareholding system. Hence the

treasury bills, eight were enterprise bonds, nine were confusion in the management of the 11 shareholding

financial bonds, and eight were shares, (including one companies now in existence in the city. For instance,

issued by a company in Zhejiang). income taxes are being collected at 55 percent, 35

percent, and 50.25 percent and the excess progressive tax

II. Problems in the Shareholding Experiment and is being levied at eight levels. When it comes to loan

Solutions: repayment, pre-tax repayment coexists with after-tax

Based on Shanghai's experiment with the shareholding repayment. There are also multiple methods of giving

system, we think shareholding offers these minimal out dividends. In addition, no uniform laws and regulasysantagem, wtions exist in financial accounting, wages, and industry

advantages: and commerce registration.

A) When one raises capital by issuing shares, one does

not have to pay principal, only dividends. For the Third, there is a dearth of commodities on the stock

enterprise, it is the least expensive way to raise capital market available for trading, with a potential for soaring

and secure low-cost funds long term. prices and unchecked speculation.

B) Meet the demand of investors at home and abroad Judging from the initial results of Shanghai's experiment

and open up a new avenue for fund-raising. All investors with the shareholding system, we think the scale of the

want to ensure the safety of their investment and earn experiment is still too small and should be expanded.

high yields, at the same time being able to unload their First of all, though, we must resolve the following issues:

stocks easily if necessary. And share ownership precisely

satisfies these requirements on the part of the investor. First, unify our thinking and take steps to eliminate or

Hence issuing shares is more attractive to enterprises as minimize the shortcomings of the shareholding system.

a means of absorbing overseas funds than putting One, firmly maintain public ownership as the dominant

together a Sino-foreign joint venture, system, that is, the state and the public legal person

should own the bulk of the shares to guard against a drift

C) Lessen the burden on the state in investment and into capitalism. Two, strict rules should be made to

balancing foreign exchange. By issuing shares to raise regulate the individual ownership of shares. That way we

funds, enterprises are in effect easing the investment can prevent bipolarization and excessive income gaps.

burden on the treasury, allowing the latter to use what Three, improve the management of the stock market and

limited funds it has on projects relating to public facili- reduce stock speculation to a minimum.

ties and the infrastructure. And when an enterprise

issues shares to raise foreign capital, it has to balance its Second, implement the resolution of the Seventh Plenum

own foreign exchange accounts, which therefore does not of the 13th CPC Central Committee and the spirit of the

become a responsibility for the state. national conference on economic structural reform to
JPRS-CAR-91-052

23 September 1991 ECONOMIC 45

make the experiment in shareholding even better. Mea- in 1980 and in 1986, enforcement has been lax and that

sures for carrying out the pilot project should be worked source of taxes has eroded away.

out as soon as possible along with various rules and

regulations. Upon approval by the appropriate central Be that as it may, there is one type of tax that the

agencies, they should be promulgated and implemented government of China has that it has never had before,

by the local government. i.e., a tax on royalties for copyright works. It is stipulated it is requested that the central government confers that that portion of payment for works published by Third,anghai req esure central tovern ment , individual persons (including translations and other

upon Shanghai a measure of authority to experiment, works) which exceeds 800 yuan is subject to a 20 percent

including the power to allow a number of enterprises to tax. The thinking is that, irrespective of whether a work

participate in the pilot project and authorize others to was written in a month's time or over a lifetime before it

issue shares to the public in the near future. is published, the income is calculated on the basis of

what is received in one month. Of course, this is illogical.

Problems Collecting Personal Regulatory Taxes I remember several years ago in Beijing, a number of

91CEO715A Hong Kong CHING-CHI TAO-PAO well-known intellectuals held an informal discussion

[ECONOMIC REPORTER] in Chinese No 30, meeting where they publicly appealed to the Finance

29 Jul 91 pp 22-23 Ministry to cancel it. When an intellectual produces a

book, he can very easily spend eight or 10 years on it,

[By Ch'eng Hsun (4453 6598): "Why Is the Mainland even a lifetime. Reimbursements are extraordinarily

Unable To Collect Regulatory Taxes on Personal low. (The system of reimbursements on the mainland are

Income?"] not the same as in Hong Kong. A writer is generally paid

a one-time fee at the rate of 10-15 yuan for each 1,000

[Text] A Tax Revenue Concept Is Lacking characters. In Hong Kong, it is about 10 percent of

overall sales, with the payment being made at specified When it comes to taxes, there are significant differences times.) How can they use one month's income to impose

between Hong Kong and the mainland. When, each year a tax? Nevertheless, it is, from beginning to end, based

in early March, Hong Kong's Office of Finance presents on ability to pay. As of now, it is perhaps the mainland's to the Legislative Council the government's new annual steadiest and most reliable source of income tax on its

budget bill, people in Hong Kong are all eagerly waiting domestic residents.

to see it. However, when China's minister of finance

presents the new annual budget plan to the National With respect to other such regulatory taxes on personal People's Congress, the average person does not know W it is to that certai n p ersonal

what it is all about and most people do not even want to income, it is said that certain prominent "zou xue" know. This indifference on the part of mainlanders [6382 4494] actors and artists in the north pay something knomes Ths aishockftoence on theopart Ths misnoands however little it might be. If they do not, they face

comes as a shock to Hong Kong people. This is not, in adverse public opinion. There is no lack of other high- fact, an indication of the latter's interest in politics and income people, but those who voluntarily pay are perdisregard by mainlanders. It is merely Hong Kong peo- inpome andpfar betwthose ginningain pay aving

ple's concern about whether their taxes and expenses will haps few and far between. Beginning in 1989, having

be increased this year. And the mainlanders? Most of discovered huge leaks in this area, the government

them think that paying taxes is for the "big shots" or for started a campaign to declare taxes using domestic

those in charge of small collectives or for a small number newspaper propaganda and certain intellectuals such as

of households or newly rich households and that it has university professors whose income would be less than

nothing to do with them. Up to now, mainlanders have others. When it first started, everyone seemed enthusi- had extremely vague notions about taxes, astic. Many people made declarations. However, later

things gradually cooled off. Reportedly, there were three

Is a Regulatory Tax on Personal Income Essential? reasons. First, in the beginning everyone made honest

declarations. But certain "courageous" elements did not.

Prior to the eighties, people did not have the least notion The result was that persons who did and paid their taxes

about taxes. Following reform and opening to the out- later discovered that those who refused to make a

side world, the only tax imposed was a progressive tax on declaration had larger incomes than those who did. It

income of 800 yuan or more of foreigners working for was felt that, once again, it was the honest person who

"three kinds of partially or wholly foreign-owned enter- was left holding the bag. Thereafter, having the example,

prises" as well as for "three forms of import processing they emulated it. Because awards and penalties were not

and compensation trade" enterprises. No taxes were clearly demarcated, those making declarations naturally

imposed on local employees with high incomes or on lessened. The second reason was because income from

others with high incomes. It was just in the last three or wages which are on record and which can be confirmed

four years that they began to impose regulatory taxes on are low, whereas nonwage income, which can be considthe personal income of China's residents. It was stipu- erable, cannot be confirmed. There is no way to check on

lated that those earning 400 yuan or more a month in the facts of the situation. Third, the period during which

income and interest were subject to regulatory tax on a declaration could be made was long, once each year.

their personal income. Although rules and regulations on Much income can be removed from the country by then

the imposition of a personal income tax were announced and not be traced. The memories of those declaring their
JPRS-CAR-91-052

46 ECONOMIC 23 September 1991

taxes can also have faded by then, with the result that Most "gray income" consists of nonwage and offthey become "terribly muddled." Of course, the author- the-record cash income. The reimbursing unit or indiities do not make detailed inquiries, nor can they. vidual as a rule do not voluntarily provide tax data. In

Naturally, during the national economic retrenchment of the past, tax offices have always targeted for investigathe last two years and with the decline in income of all tion business firms whose records could be examined. As

trades and professions, tax revenue has been reduced, a rule, there is a lack of records on personal income, and

Even the notion of tax revenue has seen a natural it consequently falls through the cracks.

abatement. Given this situation, regulatory taxes on

personal income have become even more insignificant,

whether in terms of absolute amounts or in terms of their It Is Not Too Late To Mend the Fence Even Though

ratio to overall income from tax revenue. Some Sheep Have Been Lost

With the government of China's deficit getting larger and

with personal savings greatly increasing, it has been

The Tax System Is Unsound, Casual, and Slipshod impossible to halt the tendency for income to be distributed to individuals. While the control of wealth by the

Although Hong Kong's tax system is casual and many people is not necessarily a bad thing, an impoverished

people evade their taxes, the government is taking mea- government is not necessarily a good thing. In many

sures to cope with them. However, in comparison, countries of the world, both the people and the governChina's is more casual. It could not be made any more ment are wealthy. Tax revenues represent an important

casual. Its implementation lacks fairness, and it is irra- regulatory lever. With the income of residents now on

tional. Taxpayers are resentful. If they are unable to pay, the increase and the standard of living improving markthey do not. If they do not have to declare, they do not. edly, it would be better than issuing large amounts of

treasury bonds to spend some time seriously searching First the tax base is rigid. It neither increases nor out sources of taxation. While treasury bonds look

declines. In Hong Kong, an exempted amount of per- convenient, principal and interest still have to be paid.

sonal income and interest taxes which residents do not While taxation initially looks costly, it actually is a slight

pay is annually adjusted according to inflation. Gener- improvement. The results of the two approaches are not

ally, the amount is raised, but it still does not satisfy the same. It appears that it is now imperative for the

people. However, on the mainland there is amazing government to appropriately replenish its treasury with

stability. Even though in 1989 the inflation rate was tax revenues. In fact, even if new varieties of taxation are

more than 20 percent, there was still the one exempted not imposed, the old tax revenues will have to be

amount, and with the big drop in 1990, the exempted adjusted. China's tax revenues must at least double. At

amount did not decline. Taxpayers, of course, think this present, the knowledge of tax laws is being strengthened

is irrational. among China's citizens. This is a good start. However, in

addition to this, I suggest that China, as a point of

Second, there is also a type of tax exemption for the size departure, make appropriate use of the experience in tax

of family that is being supported. This is fair and management of foreign countries.

sensible. It is, in effect, a basic principle of tax systems.

However, the mainland tax exemption is the same no 1. The mainland tax system must go through a process of

matter how large the family, whether or not there is a development and improvement. Work should begin on

wife, a mother and father, or children to support. People revising tax regulations to accord with the constant

with higher incomes have the same exemption as people changes in China. Those regulations which can be comwith large families. This is naturally unfair. bined should be combined and those which should be

made more detailed should be made more detailed. It

Third, if the starting rate for a progressive income tax is should be simple but not slipshod. Taxation must be

high and the intention is to increase revenue, revenue convenient for the public and conform to economic

will, on the contrary, be reduced. The starting rate for principles. China's actual situation must be considered.

Hong Kong's progressive tax on personal income and It should first be simple and later more varied; it should

interest is 5 percent, divided into five levels. Not only first be low and later higher; it should collect from the

are the exemptions high (equal to the average income many with slight variation; and it should gradually be

from wages) for the mainland's regulatory tax on per- improved.

sonal income, the tax rates are also high. The first 2. Citizens must gradually form a public consciousness

starting rate is 20 percent, and the marginal tax rate is and the habit of paying taxes through respect for law.

higher at 60 percent (regulatory tax on personal income This can be accomplished by rectifying tax procedures,

starts at 5 percent and the marginal rate is 45 percent). improving efficiency, strengthening propaganda and tax

The concept of taxation has been lacking for the past management, and setting up a system of various types of

20-30 years. Now, when all of a sudden it is set so high, rewards and penalties.

people naturally find it difficult to accept.

3. A whole gamut of tax categories, in addition to

Fourth, because mainland residents have more "gray regulatory taxes on personal income, must be looked into

income," tax authorities have greater difficulty, and considered.
JPRS-CAR-91-052

23 September 1991 ECONOMIC 47

4. Procedurally, an integrated computation and collec- more than 10 percent. Individual, local and other mistion of taxes could be considered. They could be corn- cellaneous taxes increased 11.4 percent and 8.4 percent.

puted and collected item by item, once each year or twice In addition, tax organizations continued to expand tax

a year. At the same time, taxes could be linked with an auditing. Supplemental collections from would-be tax

individual's political and economic benefits, such as evaders came to 1.2 billion yuan, a 14.9 percent increase

housing, job promotions, children's acceptance in over the same period in 1990.

school, health care, and even retirement. Politically,

those holding public office and those chosen for various Local progress was uneven. In the first half of the year, of

offices in the National People Congress and the People's the 44 provinces, municipalities, autonomous regions,

Political Consultative Conference could, for example, set and cities under the juridiction of counties Guangdong,

the moral standard for respecting tax laws and be subject Hainan, Fujian, Guangxi, Yunnan, Xinjiang and Shento careful scrutiny. zhen, Ningpo and Changchun remitted their taxes on

schedule, and tax receipts increased by more than 8

percent. But 13 provinces and cities were behind

Report on Tax Collection First 6 Months schedule, and seven provinces (cities and autonomous

91CE0744A Beijing ZHONGGUO SHUIWU BAO regions) and two cities under the jurisidiction of counties

in Chinese 8 Aug 91 p I collected less than 45 percent of their quotas.

In the first half of the year, production continued to

[Article by Zhao Feng (6392 2800): "First Half Tax increase, market demand recovered steadily, and tax

Receipts Show Steady Growth, Work Will Be Hard in receipts increased, showing clear improvement over

the Second Half"] indicators a year earlier when the economy was in

recession. But in the second half of the year, unfavorable

[Text] This year, all sectors of the Chinese economy are factors exist that will make this year's tax collections

in recovery and the economic situation is developing in difficult to complete. The situation leaves no room for

a positive direction. On this basis, tax organizations at optimism. First, there is the sluggishness of the reproall levels and numerous revenue cadre, through their duction cycle. Product mixes are adjusted only slowly.

vigorous efforts, have achieved six consecutive months The conflict between quick development of production,

of steadily increasing tax receipts. In the first half of the and slow increase in demand is worsening. Possession of

year, business and commercial taxes totaled 98 billion the "three sources of funds" remains high, and there is a

yuan, an increase of 5.97 billion yuan, or 6.5 percent, serious problem of "triangular debts." All this makes for

over the same period in 1990. Other revenue in the same great difficulty in collecting back taxes. By the end of

period came to 36.52 billion yuan. June, enterprises owed 11.4 billion yuan in taxes, an

There are three points to be noted about business and increase of 4.4 billion yuan over the beginning of the

commercial tax receipts in the first half of the year: year and 2.26 billion yuan over the same time last year. The third quarter is the time for purchasing agricultural

Receipts from major revenue-producing taxes increased products, so financial needs will be even greater. Theresteadily. In the wake of China's general economic fore, it will be an arduous task to collect back taxes and

recovery, and especially the acceleration of growth in to control the growth of taxes owed. Second, Chinese

industries owned by the whole people, there has been exports are doing well, and it is possible that this will be

steady growth in revenue derived from the sales tax, the an exceptional year for drawbacks. In the first half of the

value-added tax, and the transaction tax, which account year, tax organizations nationwide, in keeping with

for about 85 percent of all tax receipts. Their growth Chinese national policy, processed 15.5 percent more in

rates were 6.1 percent, 12.1 percent and 7.5 percent export drawbacks than during the same period in 1990,

respectively. The portion of taxes derived from industry completing 55.7 percent of the annual plan. In the

rose 10.1 percent over the same period in 1990, about second half of the year, the need for export drawbacks

the same as growth in industrial output value during the will be greater and will bring great pressure on complesame period. This established the basis for a steady tion of the year's tax collection program. Third, some tax

increase in overall taxes. revenue will be lost because of disastrous floods. Since

the beginning of the summer, heavy rains have led to Receipts from both large and small sources increased disasters in many areas, especially in Anhui, Jiangsu,

significantly. Facing a difficult tax collection task this Henan, Hubei, Hunan, Guizhou, Sichuan, and Zhejiang

year, tax organizations in all areas are upholding the and other provinces where the floods were especially

principles of "stressing big taxes without neglecting the serious, affecting both production and markets. Sales

small" and "catching the small fish as well as the big and transaction taxes will be especially affected. Now is

ones." On the one hand, they are pressing major tax- the peak of the flood season, so more disasters are

paying enterprisess for more revenue and clearing up possible.

cases where back taxes are owed. On the other hand, they

continue to tighten supervision over smaller taxpayers. Raising revenue in the second half of the year will be

In the first half of the year, taxes collected from ciga- hard work. Taxation departments in all areas must

rettes, electric power, chemical, machinery, metals, correctly understand the present economic and tax colbuilding materials and other major products increased lection situations, continue to concentrate on clearing up
JPRS-CAR-91-052

48 ECONOMIC 23 September 1991

back taxes, and pursue major taxpayers. They must He said that in the next two to five years, the PICC

apply themselves to the main difficulties of tax collec- would finalize all the legal procedures for establishment

tion, solving all revenue problems by hard work. They of the group of companies and start its official operamust tighten oversight of export drawbacks and tax tions.

remissions. Taxation departments at all levels must

strengthen their resolve, overcome difficulties, and work The company should take active and steady measures to

to complete the mission of tax collection this year. find investment opportunities and increase investment

returns.

Tokyo Bank Branch Set Up in Shanghai He said that life insurance should be a top priority for

0W2808004991 Beijing XINHUA in English the insurance arms in Hong Kong and Macao.

2355 GMT27Aug 91 PICC subsidiaries should set up either solely-owned

[Text] Shanghai, August 28 (XINHUA)-The Tokyo ventures or joint ventures to develop life insurance

Bank Shanghai branch was set up August 16, according business not only in Hong Kong but also in the Southeast

to financial sources here today. Asian region.

The People's Bank of China approved the upgrading of He said that PICC should open up more frontiers in

the Shanghai liaison office of the Tokyo Bank to a Hong Kong and Macao by expanding the network and

branch bank. It is the third Japanese branch bank hiring more agents.

approved in Shanghai, after the Industrial Bank of Japan As Singapore is the financial hub of Southeast Asia,

and Sanwa Bank. The bank handles foreign currency PICC should fully recognize its role in helping its

deposits, credit, financial consultation and other busi- branches to get into the Southeast Asian insurance

nesses. market.

Shanghai has so far approved applications from 13 As a result, the PICC would strengthen the leadership of

foreign financial organizations to set up branches here. the two Singapore subsidiaries and develop life insurance there. People's Insurance Company To Increase Foreign

Business Li said that the PICC would also cement its relationship

HK0509011791 Beijing CHINA DAILY in English with counterparts in Taiwan.

5 Sep 91 p 2 He suggested direct insurance links across the Taiwan

Strait to promote trade and commerce between the two

[By staff reporter Wang Xiangwei: "Insurance Firm sides. Looks Overseas for Business"] Li said that because of lack of mutual cooperation at

[Text] The People's Insurance Company of China, the present, many problems have arisen out of the booming

country's major underwriter, is to increase its presence billion-dollar indirect trade between Taiwan and the

in Hong Kong, Macao, and Singapore. mainland.

The move is part of the company's plan to turn itself into He said that PICC would send representatives to partica diversified global group of companies in the remaining ipate in an insurance symposium across the Taiwan

decade of this century. Strait and would invite their Taiwan counterparts to

Yesterday afternoon, Li Yumin, PICC chairman and visit the mainland.

president, lectured top managers of the company's over- Looking further ahead, Li said that the PICC would step

seas branches and subsidiaries on the short-term and up its efforts in Europe and America.

long-term development plans.

Together with the Bank of China, the PICC called the INDUSTRY

general managers of its subsidiaries and branches to stay

in Beijing for a week-long conference. KEJI RIBAO Commentator's Article on

PICC has an overseas network of more than 60 branches High-Tech Development

and offices employing over 800 people. 0W1408022991 Beijing XINHUA Domestic Service

in Chinese 1025 GMT 13 Aug 91

Li said that the conference aimed to review the company's overseas insurance developments and draw up [Text] Beijing, 13 August (XINHUA)-In its issue

the long-term and short-haul development plans for the today, KEJI RIBAO publishes an article by a special

1990s. commentator entitled: "Developing High Technology to

Aid Industrialization." The article points out: The inferThey planned to set up a group of companies, riding on ence drawn by Comrade Deng Xiaoping that "science

the advantage of Hong Kong returning to the mainland and technology is not merely a productive force but is

in 1997. the primary force" enriches and develops Marxist theory
JPRS-CAR-91-052

23 September 1991 ECONOMIC 49

on productive forces. The inference bears important and (Unit: yuan/person)

relevant meaning and provides far-reaching guidance to

China's socialist construction noloy and science and tech- deelopent.(pc) Area 1-6/91 Changeover 1-6/90

nology development. National average 16481 6.9

The article is in three parts. The first part, linked to Beijing 23068 6.4

China's socialist construction practices, discusses the 22380

important functions of advanced science and technology Tianjin 1.9

in social development, emphatically attributing China's Hebei 14146 10.5

prosperity and progress to the superiority of the socialist Shanxi 11017 2.5

system and the advance of science and technology. The I Mongolia 10450 0.3

second part stresses the importance of high-tech development in accomplishing the second-step strategic objec- Liaoning 15832 2.1

tive of China's socialist construction, saying that high- Jilin 12817 4.2

tech is not only required in transforming traditional Heilongjiang 13324 2.7

industries but also in solving major problems like population, environment, and resources, which affects eco- Shanghai 28985 7.3

nomic and social development. Science and technology Jiangsu 20731 7.8

and related industries have become the most crucial Zhejiang 21102 11.8

players in the game. The third part emphasizes the need Zhuia8.

for deepened reform and emancipation of the first pro- Anhui 14854 8.5

ductive force, hoping that the state will fully tap the Fujian 16078 7.9

resources of science and technology personnel and give Jiangxi 11614 8.1

proper play to their roles by creating better policies, 19685 5.2

environments, and working and living conditions. Shandong3981 5.

Henan 1 3981 11.1

Government To Cut Quantity in Textiles Hubei 16341 4.6

0W1808091091 Beijing XINHUA in English Hunan 14125 5.3

0726 GMT 18 Aug 91 Guangdong 25231 19.0

Gunxii6072 7.5

[Text] Beijing, August 18 (XINHUA)-China will cut Guangxi 16072_7.5

quantity in the production of textiles to reduce over- Hainan 14327 8.3

stocking of products and adjust product structures, Sichuan 12845 8.5

XINHUA learned today from a national cotton working Guizhou 12037 1.9

meeting. Yunnan 19137 9.0

The spinning capacity in China has developed too fast in Tibet

recent years and it has surpassed market demand. Shaanxi 12291 13.2

As a result, the overstocking of pure cotton cloth, poly- Gansu 14668 4.5

ester fibre cloth, silk textiles, woollen goods and knitting Qinghai 13514 3.9

wool has been increasing, the meeting was told. Ningxia 13134 -1.6

This has held back the normal development of the textile Xinjiang 14402 11.0

industry.

The State Council urged departments concerned to Decrease Ratio of Industrial Product Cost by Area

strengthen management and be strict in approving new

projects in the industry. HK2308145291 Beijing CEI Database in English 23 Aug 91

The state will take strong measures with textile enterprises which already have a large stock of products. The [Text] Beijing (CEI)-Following is a list of economic

measures include limiting or stopping material supply, data showing the decrease ratio of industrial product

cost in China by areas from January to June 1991, released by the State Statistical Bureau:

Industrial Labor Productivity, Jan-Jun 91 released by teS eSaiilBru

HK2208115591 Beijing CEI Database in English Area 1-6/91 1-6/90

22 Aug 91 National Average -4.0 -5.8

[Text] Beijing (CEI)-Following is a list of economic Beijing -7.5 0.2

data showing the labor productivity in China's industrial Tianjin -2.9 -3.2

sector by areas from January to June 1991, released by Hebei -0.5 -6.4

the State Statistical Bureau:
JPRS-CAR-91-052

50 ECONOMIC 23 September 1991

Area 1-6/91 1-6/90 Automation control systems developed during the

period have helped China reduce its expenditure on National Average -4.0 -5.8 imports by 2.54 million U.S. dollars.

.-5 Ten kinds of industrial robots developed during the

Inner Mongolia -2.9 -9.1 period have been put to work paint spraying, welding,

Liaoning -3.1 -8.7 assembling, punching, pressing, casting and in other

fields. The functions of these robots have reached the

world advanced level.

Heilongjiang -2.8 -6.0

Shanghai -5.6 -5.5 New Electric-Motor Automobile Developed

Jiangsu -1.3 -0.8 0W0809024191 Beijing XINHUA in English

Zhejiang 1.5 -1.2 0225 GMT 8 Sep 91

Anhui -2.1 -4.0 [Text] Hangzhou, September 8 (XINHUA)-An auton-0.1 -1.9 mobile plant in east China has developed a new model of

Fujian -electric-motor car, which is expected to become a houseJiangxi -1.5 -3.3 hold type in China.

Shandong 0 -2.9 The Yefeng electric-motor car plant in Wenzhou city,

Henan -2.9 -8.7 Zhejiang Province, will put the new model into mass

Hubei -5.6 -5.2 production soon.

Hunan -1.5 -3.1 The five-seat model is slightly smaller than "Santana," a

Guangdong -6.0 -1.3 popular model produced by the Shanghai Volkswagen

Corporation, weighs 920 kg and runs 82 km per hour at

Guangxi -0.7 -1.7 maximum. The battery will last 202 km at each charge.

Hainan -2.4 -2.1 The electric-motor car is also installed with a gasoline

Sichuan -1.5 -6.3 engine for long-distance drive.

Guizhou -5.6 -6.2 Automobile experts here said that the success in producYunnan -5.0 -10.1 tion of the pollution-free car indicates China reached the

Tibet international advanced level in development of electricmotor car. Shaanxi -2.9 -6.4

Gansu -1.7 -5.6 They predict that the low-price car-less than 20,000

yuan (about 4,000 U.S. dollars)-will be popular among Qinghai -2.9 -8.2 domestic consumers. The state has agreed that the new

Ningxia -4.0 -5.2 model will be trial marketed in Hangzhou, Wenzhou and

Xinjiang -8.6 -5.6 Shenzhen.

Double-Digit Industrial Growth First 7 Months

Production of Machinery, Electronics Increases HK0909014491 Beijing CHINA DAILY in English

0W0709032391 Beijing XINHUA in English 9 Sep 91 p 1

0221 GMT 7 Sep 91 [By staff reporter Zhang Yu'an]

[Text) Beijing, September 7 (XINHUA)-During the [Text] China reported double-digit industrial growth in

Seventh Five-Year Plan period (1986-1990), China's the first seven months of the year, prompting the State

output value of machinery and electronic goods Statistical Bureau to warn against the possible overincreased by 68 percent, while its exports of these items heating of the economy.

rose by 560 percent. In August, industrial firms above the towship level

Experts attributed the sharp increase to the integration turned out 191.5 billion yuan ($36.13 billion) worth of

products, a rise of 14.6 percent over the same period last of machinery with electronic technology. year, according to a report released by the statistical

During the five-year period, Chinese scientists made 876 bureau last Saturday.

research achievements in adapting micro-electronic, The growth rate was the highest so far this year, despite

computer, information and other items of high tech- the affects of the flooding which hit vast areas of the

nology to the machinery industry; about one-fifth of country, it said.

these items reached the world advanced level.

But the news is not all good as the report said that there

Computer-aided design technology developed during the "has not been an obvious improvement" in the effiperiod has now been applied in 294 machinery enter- ciency of the country's industrial firms which are still

prises, helping develop 3,858 new products. plagued by "continuously increasing stockpiles."
JPRS-CAR-91-052

23 September 1991 ECONOMIC 51

The bureau suggested measures should be taken to Technical, Economic Indexes of Enterprises in

reduce or limit production of those firms or industries June

with large stockpiles. HK1309112791 Beijing CEI Database in English

13 Sep 91

Of the total industrial output, the output of light industry [Text] Beijing (CEI)-Following is a list of the main

increased 14.9 percent in August to 90 billion yuan technical and economic indexes of some of China's

($16.98 billion), while heavy industry registered an major enterprises in June 1991, released by the China

output of 101.5 billion yuan ($19.15 billion), up 14.3 State Statistical Bureau:

percent over the same month last year, it said.

Rural industries took the lead in output growth last Unit 6/91 6/90

month with a rise of 22.8 percent. The rural firms in A. Coal industry

Anhui and Jiangsu provinces, two of the areas hardest hit I. Ash ratio of coal Pc. 19.37 18.73

by the floods, recovered quickly from the flood damages 2. Waste rock ratio of Pc. 0.10 0.12

and increased output by 29.1 percent and 12.6 percent coal

respectively last month, it said. 3. Timber used in coal 10,000t 36.05 39.28

mining

The growth rate for State-run enterprises was 10.5 per- 4. Power consumption kwh 42.93 40.48

cent and for urban collectively-owned enterprises was [kilowatt

16.5 percent, according to the report. hours/t]

B. Oil industry

Guangdong Province in South China, a pioneer of the 1. Oil consumption in Pc. 1.79 1.77

open policy, still showed the highest industrial growth production

rate with a figure of 26.5 percent, followed by Zhejiang 2. Power consumption kwh 89.70 79.40

and Fujian provinces, whose growth rates were up 20.6 in production

percent from the same period last year. C. Power industry

Last month's high output pushed China's total industrial 1. Qualified power cycle PC. 99.45 99.71

production value to 1,504.2 billion yuan ($283.81 bil- 2. Coal consumption in g/kwh 393 393

lion) in the January-August period, registering a rise of power production

13.7 percent compared to the same period last year, the 3. Power consumption pc. 5.89 8.91

report said. in transmission

D. Metallurgical industry

However, energy production dropped by 0.1 percent last 1. Qualified pig iron pc. 99.94 99.98

month, of which coal output was down 1 percent. 2. Qualified rolled steel pc. 98.14 88.61

3. Iron ore consump. for kg./t 1808 1786

The six-month decline in coal production threw a pig iron

shadow on the energy market because the final quarter of productionxix

the year was usually the peak period for coal consump- 4. Comprehensive coke kg./t 571 567

tion with winter forthcoming, it explained, ratio

E. Machinery industry

The bureau suggested measures should be made to 1. Off-iron ratio pc. 7.22 7.40

strengthen coal production. 2. Power consumption kwh/t 720.72 740.20

in electric

Still, electricity generating capacity rose by 9.8 percent steelmaking

last month, the report added. 3. Coke consumption in kg/t 128.78 128.13

cupola furnace and In August, most of the country's key raw materials metal fumnace ____

accelerated their output, of which steel output went up

by 10.8 percent over the same month last year. SMALL-SCALE ENTERPRISES

At the same time, the report said, machinery and elec- Number of Private Businessmen Continues To

tronics products for fixed assets investment also main- Climb

tained rapid growth. 0W1408040891 Beijing XINHUA in English

0102 GMT 14 Aug 91

Production of bikes, color television sets, video [Text] Beijing, August 14 (XINHUA)-The total

recorders, yam, wool and beer also surpassed planned number of households of private industrialists and busiquotas, the report said. nessmen in China had reached 13.275 million by the end
JPRS-CAR-91-052

52 ECONOMIC 23 September 1991

of June this year, a 6.8 percent increase over the same country's total exports of this kind of product and

period of last year, according to the State Administration earning 100 million U.S. dollars in foreign exchange. of Industry and Commerce. In 1990 the company realized 900 million yuan in profits

Private firms employed 21.04 million workers, and their and taxes.

total capital was about 42.85 billion yuan (about 8.57

billion U.S. dollars) by the end of June-respectively an Hu Zhensheng, director of the Tianjin Xinhua Garment

8.7 percent and 18 percent increase over the same period Plant, is both strict on product quality and reliable in

of last year. carrying out contracts signed with foreign partners. The

company's clothes are warmly welcomed in more than

Private firms are mainly engaged in commerce, food 30 countries and regions worldwide. Meanwhile, with

processing, services, construction and repairs. the cooperation of foreign partners, many Chinese entrepreneurs have focused their attention on the developEntrepreneurs To Compete on World Market ment of new and high-tech products. Senior engineer Zhang Lianxiang, 51, assumed the post of director of the

0W1009012191 Beijing XINHUA in English Wuhan Heavy-Duty Machine Tool Plant in 1986. In

0109 GMT 10 Sep 91 tandem with the deepening of reform in his plant, Zhang

[Text] Hefei, September 10 (XINHUA)-Just like boldly imported foreign advanced technologies and

numerous other entrepreneurs in China today, Cai cooperated with foreign partners to improve the quality

Fuquan, director of the Anqing Leather Plant in east of his products. Statistics show that numerical-control

China's Anhui Province, has set targets designed to and precision products account for 80 percent of the

introduce more Chinese products to the world market plant's output. Together with a company from Germany,

and attract overseas investors, the plant developed the country's first 16-m numerical- control single-pillar vertical lathe.

Immediately after assuming his post as plant director chao sinldirect oftheB

five years ago, Cai, 33, began to seek foreign cooperation Shao Xiquan, director of the Beijing Dongfang Chemical

and ways to export his plant's products. As a result, the Plant, has gone all out to develop his plant into a

plant has established economic, technological and trade foreign-oriented enterprise with high economic effirelations with a number of countries, including Japan, ciency and developed high technologies through coFrance and the United States. It has also exported operation with foreign partners.

dozens of different products; in 1990 the exported prod- Since it started cooperation with a company from the

ucts were valued at over 10 million yuan, making the United States six years ago the plant's total industrial

leather plant the major exporter in Anhui Province. output value, and profits and taxes increased at average

The plant, which employs 1,500 workers, produces rates of 34 percent and 52.38 percent, respectively, a

300,000 tanned hides, 800,000 pairs of shoes, and two year. During this period, the plant's foreign exchange

million other leather products in over 1,000 varieties earnings stood at 20.537 million U.S. dollars. And the

annually. The plant's annual output value now stands at total investment in the plant was recouped within four

30 million yuan, while it pays profits and taxes of over years.

four million yuan a year. China has 7.9 million enterprises, over 400,000 of them

Cai has established a technical upgrading program for industrial enterprises at and above county level. Some

his plant, and has targeted an annual output value of 12,000 are large-scale enterprises. Foreign-funded enterover 100 million yuan by the end of the Eighth Five-Year prises stand at 22,000.

Plan Period (1991-1995). In addition, Cai projects that Due to the development of a foreign-oriented economy

annual profits and taxes will reach 25 million yuan and together with the import of foreign advanced technoloforeign exchange earnings, 20 million U.S. dollars during gies and funds, in the past decade and more the country

the period. raised its import and export volume from 38 billion U.S.

Another entrepreneur, Zhang Enshu, manager of the dollars ten years ago to 115.4 billion U.S. dollars in

China Construction Engineering Corporation, is now 1990.

known as a "worldwide contractor." Since 1983 Zhang

has contracted projects involving over 2.1 billion U.S. COMMERCE

dollars, including a major project in Iraq valued at over

260 million U.S. dollars, as well as highrise buildings in

Macao and Bangkok. All of the projects have won praise MOFERT Official Discusses MFN, U.S. Trade

for their high quality and low price. Relations

Huang Chun'e, manager of the Dalian Petrochemicals 91CE0693A Beijing GUOJI SHANGBAO in Chinese

Company, was the first to sell Chinese lubricating oil in 30 Jul 91 p 1

the United States. Within a period of six years the

company exported a total of 270,000 tons of lubricating [Article by Sun Zhenyu (1327 2182 1342): "Most

oil in eight varieties, accounting for 90 percent of the Favored Nation Treatment and Sino-U.S. Relations"]
JPRS-CAR-91-052

23 September 1991 ECONOMIC 53

[Text] The debate in the United States Congress over businessmen for expanding bilateral economic and trade

whether to extend most favored nation status to China cooperation. If conditions are added, this will further

has attracted attention. What affect does MFN have on destory the atmosphere and climate for Sino-U.S. ecodeveloping Sino-U.S. economic and trade relations? nomic and trade relations. It will force even more

What effect would cancelling MFN status have? What businessmen to consider gradually withdrawing from

are the prospects for extending undonditional MFN Sino-U.S. trade and economic cooperation. This would

status in 1991? What is China's attitude on this issue? engender a great retreat in Sino-U.S. economic trade

relations.

Everyone knows that the so-called MFN status is not

unilateral preferential treatment extended to China by If we further analyze the opinions of the American

the United States. Rather, it is bilateral nondiscrimina- congressmen, we can see that the majority of them are of

tory trade status which the two countries extend to each a political nature; for example, the issues of human

other. The Sino-U.S. Agreement on Trade Relations rights, arms sales, birth control, and Tibet. These issues

which took effect in Febrauary 1980 stipluates: both are clearly and totally unrelated to the category of pure

signatory parties to the agreement extend preferential trade with MFN status. It is irrational to harshly lump

status to each other in order to establish bilateral trade these issues together with MFN status. Bilateral diplorelations on a nondiscriminatory basis. At present the matic relations have been established for more than a

United States extends MFN status to more than 100 decade. Any political issues between the two countries

countries. Only ten or so countries have been excluded, can be resolved through normal diplomatic channels and

Of the countries which have signed trade agreements equal accords or through international multilateral negowith China, 113 enjoy preferential trade status extended tiations. There is no reason to relate them definitely to

by China. Therefore, cancelling China's MFN status MFN status. There are many such unresolved political

actually implies discriminatory treatment in future bilat- issues between the United States and other countries to

eral trade, which it extends MFN status, but the United States has

not linked political matters to MFN status. Some AmerBilateral trade has grown rapidly since China and the ican congressmen contend that any issue can be made a

United States established didplomatic relations in 1979. condition for extending MFN status. This is truly

The volume of trade has grown from $2.4 billion in 1979 absurd. It is irresponsible nearsighted behavior to use

to $11.8 billion in 1990; this is directly related to MFN MFN status as a tool to exert political pressure and even

status. Once the United States ceases to extend MFN go so far as to threaten to destroy long-term economic

status to China, that will be a unilateral act on the part of and trade relations.

the United States of tearing apart Sino-U.S. trade relations. It will seriously hamper bilateral political, eco- Since the beginning of 1991, when this issue came up, the

nomic and trade relations, situation has been a rather serious and precipitous. The

American press and public opinion have made a lot of

Should the United States cancel MFN status, it naturally unfavorable propaganda regarding extending MFN

would have an unfortunate effect on Chinese exports to status to China. There also has been strong sentiment

the United States and on the external orientation of the against doing so on the part of congressmen in the Senate

southern provinces. However, doing so will also seri- and House of Representatives. There was a gradual

ously harm the interests of American exporters, change in the situation after President Bush officially

importers, producers, and agriculturalists who trade with announced unconditional extension of MFN status to

China, and investors in China, as well as the general China on 27 May. Overseas Chinese and Chinese comAmericna consumer. Likewise, it will be an attack on patriots in American industrial and commerical circles

Hong Kong. Thus, cancellation of MFN status is in the and Chinese students studying in the United States

interests of neither China nor the United States. It also is endangered and threatened the importance of Sino-U.S.

detrimental to the stability and coordinated develop- relations by using various means to convince conment of the entire Asian Pacific region and the world. gressmen to cancel China's MFN status. Chinese departments concerned, foreign trade companies, industrial

In the course of the debate on extending MFN status to trade companies, and the Chinese Embassy in the

China in the U.S. Senate and House of Representatives, United States worked hard.

some congressmen proposed various addenda. China

cannot accept this. According to the Agreement on When the House of Representatives took a vote on the

Sino-U.S. Trade Relations, China did not append any issue on 10 July, the situation improved over that in

conditions to its extension of MFN status to the United 1990; support for the proposal to cancel MFN status to

States. It would be unfair for the United States to add China had 24 fewer votes and opposition to the proposal

conditions unilaterally. Doing so would violate the arti- gained 70 votes. If nothing unexpected happens, it is

cles of the bilateral trade agreement. expected that it will be hard for the Senate to get

two-thirds of the senators' vote on the proposals advoIt is very clear to the United States; the present annual cating cancellation of MFN status and advocating

deliberations on extending MFN status has cast a adding appended conditions, enough to veto President

shadow on Sino-U.S. economic and trade relations. It Bush's vote. Therefore, it is expected that in 1991 MFN

has dampened the enthusiasm of Chinese and American status will be extended unconditionally. Of course, this

-AI
JPRS-CAR-91-052

54 ECONOMIC 23 September 1991

does not eliminate the possibility that President Bush FOREIGN TRADE, INVESTMENT

will make promises to the requests of certain congressmen. Foreign Investment in Fujian, Special Policies

Our attitude is: 91CE0611A Hong Kong CHING-CHI TA O-PA 0

[ECONOMIC REPORTER] in Chinese No 22,

3 Jun 91 p 28

The Chinese Government has consistently given high

regard to developing economic and trade relations with

the United States. There is no longer any formidable [Article by Chen Jinbo (7115 6855 2672): "New Actions

fundamental political conflict in Sino-U.S. relations. in Fujian's Absorbing Foreign Investment"]

There is a strong mutual need in economic terms. The [Text] Nearly 2000 "Foreign-Funded" Enterprises in

Chinese side deeply understands the serious political, Production

economic and trade consequences of cancelling MFN

status as well as the economic losses to both countries. As one of the first provinces to open up and adopt

Therefore, the Chinese side has adopted a series of "special policies and flexible measures," Fujian has been

positive measures in order to obtain an extension of taking the lead in attracting foreign, especially Taiwan

MFN status. These measures include: Engaging in dis- investment in the nation, with its advantageous geogcussions with the United States regarding human rights raphy, large numbers of overseas Chinese, natural

and arms sales; making real progress on the issue of resources, and sufficient labor force. According to statisintellectual property rights; sending purchasing delega- tics, by the end of 1990, Fujian had approved the

tions to the United States; striving to reverse the down- establishment of 3,751 foreign-funded enterprises, conturn in imports from the United States; stipulating that tractual foreign investment worth $3.34 billion, and

products produced under labor reform shall not be 1,988 "foreign-funded" enterprises have started busiexported, and not allowing labor reform units to engage ness. In 1990, these enterprises realized 8.447 billion

in imports or exports; strictly augmenting control of yuan of output value, accounting for 27.8 percent of the

textile exports to the United States and entrepot quotas. total industrial output value above the township level in

It is obvious to all that China has made the greatest Fujian. They earned $797 million from export,

efforts with regard to the MFN issue. accounting for 36 percent of provincial export income.

Foreign-funded enterprises turned in 11 percent of provincial industrial and business revenue, and created

With regard to MFN status, China on the one hand will more than 300,000 jobs. These enterprises have become

strive for a good outcome and on the other hand prepare a pillar in Fujian's development of foreign oriented

for the worst. When the day comes that the United States economy.

cancels MFN status to China, both countries will pay the

price. As far as China is concerned, it is not the end of

the world. On the contrary, it will accelerate the pace of New Breakthroughs in Five Areas

China's policy of trade diversification. While developing To expand foreign investment more effectively, and

trade with West Europe, North America, and Japan, accelerate foreign investment, Fujian has made new

China will also strive to expand economic and trade arrangements and taken a series of new actions.

cooperation with Asia, Africa, Latin America, the countries of the South Pacific, the Soviet Union and East The general plan is to strengthen macro adjustment,

Europe. China will not be isolated. We have friends all control and advice based on the state industrial policy

over the world, and foreign investment direction policy. Follow the

principle of "advancing all large, medium, and small

projects, and welcoming all investment from Hong Our goal is to resolve the MFN issue in a fundamental Kong, Macao, overseas Chinese and foreign nations" in

way and eliminate the system of the United States in the guidance and approval of foreign investment. Persist

which there are annual deliberations to extend MFN in "five combinations," which means: encouraging forstatus. It is understandable that the present system in eign businessmen to develop large areas- of land and

which every year there is one half year of deliberations isolated industrial projects; developing basic industries,

on the issue creates a negative psychology on the people. basic facility projects and processing industries;

It is difficult for bilateral economic and trade relations to attracting labor-intensive projects and capital and techget on the proper track without fundamentally resolving nology intensive projects; starting new enterprises and

the issue. Of course, to a large degree, this depends on remodeling old enterprises; and introducing industrial

improved bilateral relations as well as changes in the projects and developmental agricultural projects. The

international situation. We hope that all knowledgeable focus is on the realization of new breakthroughs in the

persons in the United States will work side by side with following five areas: attracting investment from Taiwan

us and strive to fundamentally resolve the issue of MFN and foreign nations and directing it to large enterprises;

status for the good of continuously improving Sino- establishing joint projects with Taiwan in agricultural

American relations. development; steering Taiwan and foreign investment in

II
JPRS-CAR-91-052

23 September 1991 ECONOMIC 55

whole areas of land development; directing investment -Establish and constantly update projects for foreign

to basic facility construction, and to remodeling old investment. At present, Fujian has planned 2,000

enterprises, projects from which foreign businesses may select.

Fujian will gradually form the "three points" (Fuzhou, -Perfect and carry out a joint inspection and approval

Meizhou Bay, Xiamen) and "two lines" (along the Fu- system to upgrade efficiency and quality of project

Xia highway and railway) as the general layout to attract inspection and approval, and reduce procedures and

foreign investment to develop a foreign oriented time.

economy. Further, attention will be paid to hierarchical

importance and developmental speed in the opening up -Establish coordination agencies to effectively help

process, on the basis of regional and time differences, to solve problems in foreign-funded enterprises. Foreign

make ordered progress, weaknesses in one aspect may be trade agencies will invite other relevant agencies to set

supplemented by strengths in the other, and all areas will up coordination agencies similar to production manget ahead. Xiamen will be developed into an external, agement to provide services for "foreign-funded"

and comprehensive economic special zone with the focus enterprises.

on industry and advanced technology to spur on the

development of the Jiulong River delta and gradually -Establish service centers for foreign investment and

expand to the south and west of Fujian. Fuzhou will gradually set up service systems, markets and mechabecome an open city with a system of trade, industry and nisms for foreign-funded enterprises so that foreign

technology complex to enhance the development of Min businessmen may acquire labor, technology, funds, River Valley and Rive the Valeyandthe eastern region of Fujian. Meizhou means of production, necessary consultation and com- astrn egin ofFujan.Meihou missions from the market legally. This way, foreign- Bay will be gradually established as a region with heavy missionsnfromrthe market legally Thsw y on

and chemical industry, tourism, and processing industry funded enterprises will be able to legally carry on

for export to promote economic development of central independent operations based.

Fujian. Coastal regions will take the lead in developing a

foreign oriented economy to bring abut general develop- -Establish an economic dispute arbitration center for

ment in inland and mountainous areas. foreign-funded enterprises to exclusively deal with

complaints from these enterprises and properly help

solve economic disputes in time. Authorized by

Taking in Foreign Investment Extensively China's Trade Promotion Association, its Fujian Branch has invited representatives from relevant

agencies to set up an arbitration center. Enterprises During the Eighth Five-Year Plan (1991-1995), Fujian may thus have access to it for dispute complaints and

intends to more than double the total foreign investment arbitration and have their legal right and interests

of the Sixth Five-Year Plan and Seventh Five-Year Plan protected.

combined. Imported projects will reach higher and

deeper mental levels to promote the realization of the develop- goal of an average annual increase of 8 percent in --Strengthen cadre training in foreign investment and

theprovncal g ealofanaverageannual pr n oup v re, t i build contract management systems. In the near term, the provincial general production output value. organize four large specialized cadre training for

cadres of foreign-funded enterprises. Also, the relative

New actions taken in Fujian for attracting foreign invest- stability of such cadre ranks has to be assured to

ment also include the following concrete measures: enhance constant upgrading of their quality, and make

the work of absorbing foreign investment more formalized and scientific.

-Expand Taiwan investment, and actively promote

competition and cooperation among Taiwan, Hong -- Open up multi-channels for attracting foreign investKong, overseas Chinese, and foreign sources in their ment and doing business, with the goal of new breakinvestment. Taiwan will maintain an important posi- throughs in business negotiations, contracts and

tion in attracting investment, and Fujian will main- investment volume. Important business activities in

tain a leading position in the nation for attracting Fujian this year include: sending delegations to the

Taiwan investment. Therefore, we must improve local Second Investment Fair of Asian and Pacific Regions

legislation, and adopt more favorable policies. While to be held in Hong Kong, sponsoring 92 Xiamen

efforts are being made to build Taiwan investment Foreign Investment and Business Fair, and sponsoring

zones in Xiamen and Fuzhou, financial and material Fujian Export Commodity Fair in Hamburg, West

resources will be rounded up to speed the construction Germany. At the same time, various regions in Fujian

of basic facilities. In 10 years, Fujian will build one will effectively organize business activities by way of

express way, three airports, three sea ports and three cultural exchange, friendly visits, and specialized

railroads to create a favorable environment for large activities with foreign nations and regions, to extenscale foreign and Taiwan investment. sively take in foreign investment.
JPRS-CAR-91-052

56 ECONOMIC 23 September 1991

Light Industrial Products Imports, First Half Caprolactam ton 3,698 22,585

1991 neutral sodium carbonate ton 21,207 175,068

HK3107115991 Beijing CEI Database in English Syn organic dyestuff ton 6,705 3,835

31 Jul 91 Syn rganc dystuf to 6,705 3,835

Medicine 10,000 21,013 16,775

[Text] Beijing (CEI)-Following is a list showing China's USD

import volume of light industrial products in first half of Syn fertilizers ton 8,725,697 7,073,935

1991, according to primary statistics released by the Urea ton 3,495,173 3,742,197

general administration of customs: Pea ton 1,927 17,7 Pesticides ton 18,927 17,766

Item Unit Jan.-June Jan.-June Machine-tool set 24,971 18,585

191 1990 Motors, chassis unit 38,142 26,827

Cigarette 1,000 stk 2,598,418 2,773,518 Sedan car unit 18,278 13,955

Log c.m. 1,783,473 1,705,388 /Jeep unit 432 237

Pulp ton 237,524 68,882 Minibus unit 1,355 947

Crude drugs ton 3,563 1,375 Chassis set 202 771

Paper and paperboard ton 503,174 363,359 Motorcycle unit 827 9,086

newsprint ton 5,898 11,007 Ship unit 2,185 1,991

cement ton 55,711 234,898

Household fridge set 12,317 76,276 Metals, Minerals Imports, First Half 1991

Non-household fridge set 1,774 2,213 HK3107120491 Beijing CEI Database in English 31 Jul 91

Air-conditioner set 25,648 14,672

Copying machine set 6,206 2,553 [Text] Beijing (CEI)-Following is a list showing China's

TV set set 243,794 360,194 import volume of metals and minerals in first half of

1991, released by the General Administration of Cuscolor set 15,256 39,367 toms:

Video recorders set 6,670 23,264

Sound recorders set 144,009 1,188,834 Item Unit 1-6 1991 1-6 1990

Washing machine set 3,848 1,666 Iron ore ton 6,818,260 6,443,458

Household washer set 3,164 1,098 Coal ton 880,838 1,135,197

Camera set 23,859 11,218 Steel billets and roughtly ton 29,045 111,731

Cameras for specific use unit 126 74 forgings

G Rolled steel General cameras unit 23,733 11,144 ton 1,464,628 2,134,977

Materials for processing, 10,000 463,774 371,773 Steel wire rod ton 48,557 229,085

assembling usd Steel angles, shapes and sec- ton 25,254 131,109

(excluding those processed on contracts) tions

Seamless steel pipe ton 453,590 332,996

Iron and steel wire ton 8,494 30,950

Chemical, Machinery Products Imports, First Copper and alloy ton 21,744 29,513

Half 1991 Alum and alloy ton 21,577 47,361

HK3107121291 Beijing CEI Database in English Zinc and alloy ton 4,810 3,311

31 Jul 91 Zinadllotn ,81_331

[Text] Beijing (CEI)-Following is a list showing China's POPULATION

import volume of chemical and machinery products in

first half of 1991, according to primary statistics released

by the General Administration of Customs: Population Control, Social, Economic

Development

Item Unit 1-6 1991 1-6 1990 91CEO725A Beijing ZHONGGUO TONGJI XINXI

Rubber ton 175,928 148,406 BAO in Chinese 15 Jul 91 p 2

Syn rubber ton 23,747 15,462

Crude oil ton 2,258,470 1,949,396 [Article by staff reporters Jia Dechang (6328 1795 2490) and Xiao Jinghua (5135 0079 5478): "Population ConRefined oil ton 1,656,877 1,533,577 trol and China's Economic and Social Development in
JPRS-CAR-91-052

23 September 1991 ECONOMIC 57

the 1990's-Gist of Speeches at the Symposium on solved. Many people fear to be left without anyone to

China's Population Problem"] care for them in old age. The third reason is the great

disparity between city and countryside. City people are [Text] The last 10 years of this century will be critical little inclined to have many children, but the countryside

years for the achievement of the strategic targets that cannot easily be controlled in that respect. To realize our

China has set itself for the second stage of its economic target of controlling the population for the next 10 years,

and social development. During this period, China will it is a task of top priority for us to tackle the three

be facing the third peak of population growth, and the mentioned problems in a comprehensive way.

population situation will become extremely menacing.

China's mainland population already exceeds the 1.1 Xiao Zili (director of the Chinese Center for Population

billion mark and increases at the speedy rate of 16 Information and Research): There are good reasons for

million new additions every year. Initiating appropriate calling the Chinese population situation in the 1990's

countermeasures and a rigorous control of further pop- grim. First, the 1990's are the period of a third peak of

ulation growth are extremely urgent strategic tasks for births in China; there is an increase in women of

our party and our nation. In observance of World child-bearing age, and this is particularly true of the first

Population Day (11 July), and to study and probe into five years of the 1990's. According to forecasts based on

the relationship between population control and China's a 10 percent sampling of the fourth national census,

economic and social development in the 1990's, the there will be on the average every year 330 million

Office of the Census at the State Council and the Chinese women between the ages of 15 and 49 during the period

Statistical Information Newspaper held a symposium in from 1991 to the year 2000, and there will be on the

Beijing on 9 July on China's population problem. The average every year over 100 million persons between the

symposium was presided over by Sun Jingxin, deputy ages of 21 and 29 (women of this age group account for

chairman of the census leading group in the State 75 percent of all births during any year). Furthermore,

Council and concurrently director the group's adminis- the high incidence of several births per family is serious,

trative office, also vice president of the Chinese Demo- marriages and child births occur at earlier ages, and the

graphic Society. Other Chinese experts on population rate of early births is increasing; all these are factors that

problems and persons in charge of related work had been lead to an inordinately rapid population increase. In his

invited and participated in the symposium. The fol- "Report on the Work of the Government," given to the

lowing is a gist of their statements: Fourth Session of the Seventh National People's Congress, Premier Li Peng (2621 7720) definitely proposed

The Population Situation in the 1990's Is Grim that natural population growth during the coming 10

years will be controlled to within 15.5 per thousand per Wang Weizhi (research fellow at the Population year. To achieve these targets, it is in my opinion

Research Institute, Chinese Academy of Social Sci- necessary to focus our attention from now on on three

ences): The population problem is a worldwide problem. aspects: First, our targets in population development

According to the 1990 Annual Report of World Popula- must not only take quantitative concerns, but also qualtion, the world population has already reached 5.41 itative, structural, and distributional concerns into conbillion, and the rate at which the population increases sideration. We must fully understand our population

every year has gone up from the former 1.7 percent to the development targets and formulate these targets in a

present 1.8 percent, showing a rising trend. China is comprehensive way. Second, our population policy must

acountry with the largest population in the world; its comprise three levels, namely birth policy, population

mainland population at the end of 1990 had reached policy, and development policy. Among these, birth

1.14 billion. Since the 1970's, the Central Committee of policy is the core concern that must in no way can be

the Communist Party of China [CPC] and the State treated indifferently; it has already taken shape fairly

Council have given serious attention to the population well. The problem is now how to coordinate this policy

problem and have made family planning and population developmentally with our population policy and develcontrol a fundamental state policy. Up to now, very opment policy. We must not always allow the birth

substantial successes have been achieved by China in its policy to advance alone like the proverbial "isolated

population control and family planning, in that its force penetrating deep into enemy territory," but must

annual birth rate has been declining. However, since the harmoniously coordinate it with our insurance policy,

basic figure of China's population is so large, the annual poverty relief policy, and employment policy. Within

population increase is still quite considerable. In partic- these well-coordinated policies, we must establish a

ular the period of the Eighth Five-Year Plan will be a trend that will favor a policy of less births along with

peak period for births, and the population situation will eugenically healthy births.

remain grim. Why is it that there are all along these fairly

rapid population increases in China, while other coun- Optimum Size of Population Is Precondition for

tries that in some cases even encourage births can Economic and Social Development

maintain zero population growth? We have studied this

problem for many years, and the reason is basically quite Li Huijing (member of the committee of experts of the

obvious. In my opinion there are three main reasons for National Family Planning Commission, assistant

this: One is the relatively low cultural level. A second research fellow of the Economic Research Institute of the

reason is that the insurance problem has not yet been State Planning Commission): Since the establishment of
JPRS-CAR-91-052

58 ECONOMIC 23 September 1991

New China, great achievements have been accomplished materials, will adversely effect efforts to improve the

in China's economic construction, and these achieve- production structure, and will indirectly have a restricments are inseparably linked with our firm pursuit since tive effect on economic development. Maintaining the 1970's of family planning and control of population normal living and production conditions for the newly

growth. However, due to a variety of reasons, China's added population will require investments, and this will

population increased faster than its economic growth, have an adverse effect on investments that would otherand the two were not harmoniously coordinated. There wise have gone to raising the quality of the population.

is mutual restraint and mutual interaction between pop- To solve the employment problem of the newly added

ulation development and economic-social development, population, it will be necessary to develop laborAn economic structure at a determined stage of eco- intensive enterprises, and this will have an adverse effect

nomic development can only accommodate a certain on efforts to optimize the industrial structure. According

population. A population beyond this capacity will be of to general knowledge about the effects on the distribuno benefit to speak of, and may even be an impediment tion of national income gained in present Chinese and

to economic development. This is the often mentioned worldwide studies of population increases, every 1 peroptimum population growth. Over a long period of its cent increase in the population will require 3 percent of

past, China's population growth had exceeded the level the national income to service the said increase in

of its economic development. In many respects China is population.

quantitatively first in the world or among the topranking countries, but if averaged out among its large Liu Feng (deputy head of the Social Affairs Department

population it is very low, even below the world's per of the State Planning Commission): In a more extended

capita quantitative figures. In the approximately 40 long-range view, the excessively rapid increase in popuyears of New China's past, half of its newly acquired lation will have a most marked effect on the economy; it

national income is canceled out by the newly added will have a bearing on China's ability to achieve success

population. In recent years, China has had very abun- in the third stage of its strategic target, namely in the

dant harvests, but still had to import considerable quan- question whether China will be able by the middle of

tities of grain from abroad every year. Apart from this, it next century to achieve the living standard of a medium

is distinctly clear that many natural resources are very developed country. Calculated on the basis of data from

limited on a per capita basis. We must focus our atten- the fourth national census, China's population by the

tion on the fact that an excessively rapid population year 2000 will be close to 1.3 billion. It will therefore

growth will have a detrimental effect on the development become a very difficult proposition to control China's

of the national economy. We must earnestly sense the population to within 1.5 billion by the middle of the 21 st

urgency of this situation, and implement the policies of century. Basing on the forecasts of scientists in this field,

the Central Committee of the CPC and of the State and according to China's present conditions of natural

Council regarding control of population growth and resources, such as minerals, energy sources, arable land,

implementation of family planning. We must also exert fresh water, etc., a population of 1.5 to 1.6 billion would

efforts to achieve a congruity between population growth be critical for China. If China's population growth mainand economic-political development, tains its upward tendency, considering the fact that its

basic figure is already very large, China will certainly

Zhang Chunyuan (director of the Population Research break through that critical border line. Striving to

Institute of Beijing University, professor, and vice pres- achieve zero population growth and exerting efforts to

ident of the Chinese Demographic Society): Excessive realize the target of controlled population growth must,

population growth has a direct adverse effect on eco- therefore, not be relegated to the far-away future, but

nomic development. It is a restricting factor on a favor- must firmly taken in hand during the period of the

able ratio between consumption and accumulation Eighth Five-Year Plan and before advent of the third

within the distribution of national income. It compels peak of population growth.

diversion of funds that originally should have gone to

increase accumulation instead to consumption funds, in Population Increase and Aging of the Population

order to maintain, without decline, the consumption Wu Cangping (member of the standing committee of the

level of the original population under conditions of a Chinese People's Political Consultative Conference, vice

newly increased population. Second, assuming that the president and general secretary of the Chinese Demogsame consumption funds remain available, in order to raphy Society, professor at the Chinese People's Univerprovide employment for the new population, it induces sity): The problems connected with the aging population

of necessity a decline in the average level of technical frequently come on very quietly. Presently, aging popuequipment. Third, assuming that the same consumption lation is attracting more attention worldwide. Aging

funds remain available, an excessive growth of popula- population is not only a problem of the developed

tion will, out of necessity, inhibit any raise in the countries, but is in a certain sense an even much more

consumption level of the original population. serious problem in the developing countries. Many

developing countries are proposing the study of this

Moreover, by its restrictive effect on all efforts to raise issue. In the past, China has been completely quiet on

population quality, the newly added population will this subject, afraid that discussion of this topic would

cause a decline in the per capita availability of essential adversely affect family planning work.
JPRS-CAR-91-052

23 September 1991 ECONOMIC 59

In fact, family planning and aging of the population are regions inhabited by ethnic Han people because: a)

not mutually antagonistic subjects. A high birth rate is population growth is faster, and b) cultural quality of the

bound to lead to an aging population 60 years later, population is low. This creates the vicious circle of "the

Proper handling of the aging problem and family plan- poorer, the more births; and the more births, the

ning are therefore mutually supplementary and compli- poorer." We have seen that in some ethnic minority

mentary. In a developing country like China it is only regions it is difficult to extricate oneself from a state of

when there are few births that a certain portion of the poverty but easy to revert to a state of poverty, and that

country's financial and natural resources could be this is so for the above-stated reasons. The population

applied toward old age insurance, while the solution of problem in the ethnic minority regions must therefore

the old age insurance problem will make it possible to have the highest degree of serious attention from the

smoothly implement the country's family planning leadership at all levels.

policy.

We have to gain scientific knowledge of the aging Population Problem and Employment of Labor

problem in China. The scale on which aging occurs in

China is one of the largest, but its speed is not at all the Pan Feng (director of the Manpower and Resources

fastest. However, there is a very large disparity between Research Institute of the State Planning Commission):

the aging problem in the cities and the aging problem in The problem of labor employment has all along been

the countryside. given the most serious consideration by the Central

Committee of the CPC and by the State Council, who

have paid very special attention to the problem all

Population Growth of Ethnic Minorities and Family through these 40-odd years, and they have achieved

Planning successful results that have had the attention of the

Yang Yixing (deputy director of the Department of whole world. This has mainly manifested itself in the

Political and Legal Affairs in the State Nationalities following ways: Persons engaged in social work in cities

Affairs Commission): The problem of population growth and in the countryside have increased faster than the

among the ethnic minorities in its relation to family growth rate of the population. In the proportion of

planning deserves our close attention. The population of employed population within the population as a whole,

China's ethnic minorities has presently reached 91.2 China ranks internationally comparatively high. During

million people, which is a 35 percent increase, compared the period from 1952 to 1990, the population of the

to the third census of 1982 and almost double the whole country has about doubled, while the number of

nationwide increase. Reasons for that increase are: First, those employed in social work during the same time had

natural increases; second, changes of ethnic relationships increased 2.7 times. Calculated according to a 10 percent

of some ethnic Han comrades. People generally believe sampling of the aggregate data of the fourth census, the

regions inhabited by ethnic minorities are spacious but employed population of China accounts up to 51.18

sparsely populated regions. In reality this is not so. There percent of the total population of the country, which is

are many regions with ethnic minorities that are unsuit- higher than the 45.36 percent of the United States, 46.72

able for human habitation, for instance, deserts and percent of the Soviet Union, and 48.18 percent of Japan

snow-covered mountains. But, in fact, in places where (at 1986 figures). In 1952, China's unemployed were

ethnic minorities live closely together, population den- 13.2 percent, which by 1990 had dropped to 2.5 percent.

sity differs little from that in China's eastern regions, and Due to the gradual implementation of family planning

it would therefore also be necessary there to practice and the expansion of the areas of possible employment,

family planning and appropriately control population the number of persons depending for care on the work of

growth. This is indeed already being done in many ethnic each employed person in the cities had declined from

minority regions, and has been quite effective. However, 3.29 in 1957 to 1.77 in 1990 (including the employed

there are also ethnic minority regions where family worker himself as one of the persons to be cared for).

planning work has been restricted by particular difficulties. First, the cultural level of some ethnic minorities is However, as we look at the successes shown by these

comparatively low; second, there exist restraints due to figures, we also have to look soberly at the fact that the

natural conditions. Personnel in charge of family plan- basic situation in China of manpower supply exceeding

ning work are unable to deeply penetrate those regions; demand has not yet changed. Looking at the present

third, due to a low level of productive forces, there are situation we see that there is a manpower surplus of over

many facets of their lives a need for human labor. Great 100 million in the rural areas, for which we must seek

difficulties are therefore encountered in family planning new employment opportunities, and that there is an

work in regions inhabited by ethnic minorities. Ren- upward trend in urban unemployment during the last

dering family planning work effective among the ethnic few years. Looking at the 10 years ahead, we can see that

minorities would make it necessary to tackle the said the manpower expected during the 1990's is about 190

problems in a comprehensive way. million people; this figure, even when reduced by those

leaving the labor force due to age, will remain around

Zhang Tianlu (professor at the Beijing Institute of Eco- 100 million people. If we add to this figure the present

nomics): Population problems in the ethnic minority one of more than 100 million surplus manpower in the

regions are in a certain sense more serious than in cities and in the countryside, and also those that must be
JPRS-CAR-91-052

60 ECONOMIC 23 September 1991

relocated during the course of the industrial restruc- general education of people of working age before they

turing, as many as 200 million people will have to be enter into employment. This would be an absolutely provided employment. Looking at the situation from a indispensable measure to improve the quality of our

more extended long-range view, we see that according to manpower and to raise our labor productivity. At the

forecasts, and even assuming that we shall firmly adhere same time, we shall have to strengthen retraining activto the family planning policy, which will to some degree ities, prevent overaging of specialists, and have workers

control the addition of the population reaching adult- master new scientific techniques and skills. Training of

hood, we see that the new manpower in urban and rural workers before they enter into employment and onareas will be rising and not diminishing, resulting in the-job training, is, of course, bound to reduce the rate of

strong pressure to find employment. We must therefore persons of working age seeking employment. This reducbe firm in, on the one hand, placing great emphasis on tion is necessary, rational, and is also an indication of

family planning work, and, on the other hand, energeti- scientific and technical progress and of progress in

cally pursue economic development. We must be strict modernizing reproduction of our productive forces. It

in controlling and arresting population growth and insist may also mitigate employment pressure in the populathat any manpower increase conform to economic and tion. I also emphasize that raising the employment ratio

social development, and we must furthermore the gate within the total population and reducing the rate of

wide for new employment opportunities, so as to miti- employment of persons of working age appear outwardly

gate the employment pressure. as contradictory, but they are mutually supplementary

and complimentary factors, and at a higher level signify

Zhang Zehou (director of the Statistical Science a harmonious blending of the pursuit of a high employResearch Institute of the State Statistical Bureau): I also ment ratio and the principle of economic efficiency.

want to say something about labor resources and labor These improvements are achieved on the basis of the

employment problems. Presently, there are almost 700 control of population size, adjustment of the population

million persons of working age in China, and the total structure, and on the basis of the fullest utilization of the

number of persons employed in social work has reached manpower resource. Reductions too are achieved under

to over 560 million. About 26 percent of these are in the conditions of fullest utilization of manpower resources,

cities and 74 percent in the countryside. Theory and and will even more effectively raise the quality of the

practice has proven that it is a good thing to raise the employed. This indicates an optimal integration of

proportion of employed among the total population, and employment ratio and economic efficiency.

our ratio in that respect is not low. However, the rate at

which this ratio is raised must conform with the level of

the productive forces, and the ways and means of raising Marriage

the ratio must be rational; that means, increasing the

ratio of persons of working age within the total popula- Li Rongshi (deputy director of the Comprehensive Plantion must start out from a controlled population growth ning Department of the Ministry of Civil Affairs): I will

and a change of the population structure. On the other speak on the problem of population control in relation to

hand, the present comparatively high rate of employ- marriage. Marriage is the precondition and foundation

ment in China, apart from demonstrating the results of for human procreation. In the 1950's, China annually

our many years of emphasis on family planning and registered the marriage of 2 million couples, which by

population growth control, is to an even larger degree the 1960's had increased to 4 million, by the 1970's to 6

maintained by the excessively high number of persons of million, by the 1980's to 8 million, and by the 1990's to

working age and the employment of persons not of almost 10 million (in 1990 the figure was 9.46 million).

working age. That, we must say, is not very rational. The As marriages increased, births, of course, also increased.

working-age people in some economically developed In the last few years, the proportion of unmarried people

countries generally find employment after graduating in the Chinese population dropped by 3.44 percentage

from senior middle schools, universities, or as research points, and the age of high birth prospects advanced by

fellows; while in China, large numbers of junior middle two years, caused by the earlier ages of those entering

school students, and in the countryside large numbers of matrimony. At the same time, feudal marriage practices primary school students, go to work. In summary, the have reappeared in some localities, marriages and pregnumber of employed in China may be large, but their nancies at too early an age, and occasionally various

quality is low and their distribution irrational. We must, marriages occurred in disregard of the provisions of the

therefore, from now on not only regulate the population law, for instance, "firecracker marriages," and "banquet

structure through family planning and control of popu- marriages" (marriages without formal registration,

lation growth, but also devote much energy to enhancing merely by shooting off firecrackers or holding a baneducation, adjusting the educational structure, reducing quet). It is said that marriages ignoring legal requireemployment of the youth, and must also gradually ments account for about 15 percent of all marriages.

achieve modernization of the reproduction of our pro- These conditions indicate that in order to carry out

ductive forces, hence change from a strategy of pursuing family planning and strictly control population growth,

the principle of high employment to the strategy of comprehensive regulations on these matters is necessary;

pursuing the principle to economic efficiency. For this that work in many sectors, including marriage, must

purpose it is necessary to develop energetically the catch up; that loopholes in every conceivable direction
JPRS-CAR-91-052

23 September 1991 ECONOMIC 61

must be stopped; and that trades and professions must will not adopt a truly effective "existence strategy," the

all enter into the act, exercising common control. This is world's population will rise to 8.5 billion by the year

the only way that greater success can be achieved in our 2025. This would seriously impede all economic and

efforts to control population growth. social development in every country in the world. If we

speak of the distress that the population problem is

Quality of Statistical Population Data Seriously already inflicting, then we have to say that in China it

Challenged has indeed become a very conspicuous problem. Data

from last year's fourth nationwide census fully explain Sun Huaiyang (deputy head of the Census Office of the that the population situation in China is very grim.

State Council, head of the Population Department of the However, we firmly believe that in the eyes of the CPC

State Statistical Bureau): As we look at conditions pres- there is no difficulty that cannot be overcome. Precisely

ently shown in various localities, we see that party and as Secretary General Jiang Zemin (3068 3419 3046)

government organs at all levels energetically adopt mea- recently said: There is no difficulty and no enemy that

sures to implement directives of the central authorities, can conquer us, all will in the end be conquered by us.

and that they are making control of population growth a

major norm for the assessment of political achievements We believe that with the high degree of serious attention

of the various leaderships. To check the achievement of from the CPC Central Committee, the State Council and

population control targets, Hebei Province recently the local party and government leadership at all levels,

instituted population investigation teams for all levels, and with the earnest implementation by cadres at all

from the provincial level down to the county level, levels of the fundamental state policy of family planning, Anhui Province has also decided to institute, twice a with support and cooperation by the masses, it is a

year, sample investigations of population figures in all certainty that China's population control will become

counties. Most of the other provinces are also actively even more effective. We deeply believe that by the

preparing measures to check the conditions of imple- middle of the next century, at the time when the third

menting family planning. However, we cannot avoid stage of China's modernization target will be realized,

noticing that breaking up family planning work into China will certainly be able to achieve a population

many different levels, and the energetic implementation increase at an appropriate rate, that China will certainly

by party and government of the assessment of political be able to improved very substantially the quality of its

achievements, has also created additional difficulties for population, and that a rational structure will certainly be

population statistics work. The question of how to guar- maintained in China's population. China's population

antee the quality of population statistical data is indeed increase will also certainly conform harmoniously with

a formidable challenge for those engaged in statistical its social and economic development. We can say with

work. complete confidence: China's grand practices to achieve

a solution of its population problem will with certainty Looking back at the fourth census in 1990, the total be crowned by success!

figure computed at that time was about 15 million higher

than the figure published as annual figure by the State

Statistical Bureau, which clearly shows that omissions TRANSPORTATION

have definitely occurred in past reports of population

statistics and sample investigations. Since we are to Second-Phase Railway Electrification Project To

strictly control population growth from now on, how to Begin

prevent interference by basic level administrative leaderships in statistical population data, how to dispel fears SK1209094391 Shijiazhuang HEBEI RIBAO

about truly reporting excess births, how to solve the in Chinese 17 Jul 91 p I

dissatisfaction felt by the masses with frequent investi- [Summary] The second-phase project to electrify the

gations, also how to gain the support and cooperation of 653.02-km double-track Daqin Railway, a key state

the masses, etc., all constitute a critical test faced in construction project, will begin soon. The first-phase

population statistics work during the 1990's. We must electrification from Datong to Dashizhuang was comcarry out full and effective preparations so as to meet the pleted and commissioned at the end of 1988. The

challenge and stand the test. second-phase electrification from Dashizhuang to

Qinsan Coal Port, 267.5 km long, will need more than 60

We Have Full Confidence in Population Control million yuan of investment.

Sun Jingxin (deputy chairman of the census leading

group in the State Council and concurrently director of Container Berths Open at Shekou Port

the group's administrative office, also vice president of 0W2208051091 Beijing XINHUA in English

the Chinese Demographic Society): The population 1515 GMT 21 Aug 91

problem has by now become a worldwide problem and is

attracting the attention of more and more countries. [Text] Shenzhen, August 21 (XINHUA)-Two 50,000-

According to the report by the United Nations Fund for ton berths at the Shekou Container Harbor were put into

Population Activities, the world population has reached trial operation today in Shekou port, south China's

5.4 billion people. If the various countries of the world Shenzhen Special Economic Zone.
JPRS-CAR-91-052

62 ECONOMIC 23 September 1991

The two container berths, which are managed by the The ship import and export branch of the chamber of

Container Harbor Ltd. of Shekou port, have 650 m commerce, which was approved by the Ministry of

[meters] of shore line and average 14 m in depth. Foreign Economic Relations and Trade, received applications for membership from more than 100 enterprises With the above and other attached facilities, the harbor and accepted an initial group of 66, including China's

has an annual handling capacity of 500 thousand stan- large shipyards and major ship trading companies.

dard containers.

Liu said the new branch will also help manage other

After the first-phase construction on the two berths is business affairs among Chinese shipbuilders and trading

completed, the harbor will initiate such services as direct companies.

open lines and ship loading. It will promote cooperation and trade between Chinese

Officials predicted that the special harbor would play an companies and overseas firms, Liu said.

important role in the economic construction for both the

mainland and Hong Kong. It expects to establish ties with overseas companies and

help domestic firms open channels to the world market.

New Commerce Office To Specialize in Shipping CSSC officials said Chinese shipyards are now actively

HK2508071991 Beijing CHINA DAILY in English cooperating with overseas companies.

24 Aug 91 p 2 Reports show that shipyards under the CSSC received

overseas orders for vessels totalling more than 3 million

dead weight tons and earned $3 billion from the business [By staff reporter Chang Weimin: "Moves Taken To between 1979 and last year.

Spur Ship Exports"] For the first time in a decade, shipyards under the China

[Text] Chinese shipbuilders and companies that import State Shipbuilding Corporation went over their producand export ships will soon be consulting each other to tion target for the first half of the year.

coordinate the prices of vessels to be exported.

More rational prices are expected to be worked out this CHINA DAILY Reports New Ship-Building

year by a new branch of the China Chamber of Com- Organization

merce for Machinery and Electroncis Import and Export 0W2408013291 Beijing XINHUA in English

that will specialize in the ship industry. 0114 GMT 24 Aug 91

The establishment of the new branch was announced [Text] Beijing, August 24 (XINHUA)-China has

yesterday in Beijing. recently set up a new branch of the China Chamber of

The branch's secretary general Liu Kezeng said, "We'll Commerce for machinery and electronics import and

soon start the work and we expect to make a draft before export that will specialize in the ship industry, CHINA

the end of the year." DAILY reported today.

Coordinating the prices of vessels for export is important The establishment of the new branch was aimed to

but difficult as each enterprise has its own interests to 100 ship trading companies.

guard, Li Zhushi, the organization's head said.

sof which are With consideration of all factors, the new-born body is China now has some 600 shipyards, most ofwihae expected to work out more rational prices for vessels

medium-sized or small and under one of several minis- exported by thekcoutry and tbies oal and traders

tries. exported by the country and all the builders and traders

will soon be consulting with each other to deal with the

The shipyards combined have a powerful capacity. For problem, the paper said.

example, they built 147 of the 158 vessels China China exported a total of 158 vessels in 1988, according

exported in 1988 and earned $100 million. The other 11

vessels, all huge ones, were built by the shipyards under to the paper.

the China State Shipbuilding Corporation (CSSC). Diversified Economy in Rail Construction

Also there are 100 companies that have State-chartered Developed rights to import and export ships. 0W2708100291 Beijing XINHUA Domestic Service

Liu said prices of ships for export are to be set in in Chinese 0058 GMT 27 Aug 91

accordance with consideration of factors including production costs in China and the situation of the world [By reporter (Li Niangui) (2621 1628 6311)]

market and the prices will be adjusted each year. [Text] Beijing, 27 Aug (XINHUA)-According to the

"We believe the chamber will also help improve the data cited at a diversified economy work meeting curorder of the world market," the secretary general said. rently being held by the China Railway Construction
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23 September 1991 ECONOMIC 63

Corporation, this corporation has actively developed a ultimate solution to agricultural problems. Chairman

diversified economy and broken through the conven- Mao's discussion of farm mechanization pertains to the

tional structure of unitary construction. As a result, a tangible aspect of agriculture's scientific and technical

diversified economic system of industry, commerce, development and stresses the importance of this aspect

tourism, service trades, agriculture, animal husbandry, of S&T to agriculture." Comrade Deng Xiaoping's disand fishery has started to take shape and will develop cussion of the need to rely on S&T to solve agricultural

vigorously, problems stresses the connotations of modem agriculture as its principle aspect, with mechanization being The China Railway Construction Corporation is a large subsumed in science and technology. From this point of

building enterprise with 150,000 staff members and view, the thrust of the two formulations is the same.

workers; their main task is to build railways. Since 1984, However, the two sentences span a period of more than

they have developed a diversified economy; have raised 20 years. The meaning of farm mechanization was then

funds exceeding 300 million yuan; have run 842 stores, quite broad. It included water conservancy, chemical

factories, restaurants, and other tourist and service trade fertilizers, farm machinery, etc. The level of S&T develunits by using idle houses, space, and equipment; and opment at the time was relatively low. Essentially, only a

have given jobs to more than 17,600 people. Their total few aspects of S&T achievements were applied to agrioutput value in the past six years has reached 1.27 billion culture, all of which involved farm mechanization. Now,

yuan, while their profit totaled 62.98 million yuan. They however, compared with then, the scope of newly develhave paid taxes amounting to 40.12 million yuan. oped S&T that is applied to agriculture has greatly

These diversified economic productive units, scattered broadened. It includes atomic energy, electronics, inforall over the 26 provinces, municipalities, and autono- mation technology, lasers, bioengineerng, and space

mous regions, have not only solved the corporation staff technology. Because things are in the process of develmembers', workers', and their family members' prob- opment, including the S&T disciplines and new branches

lems of food, lodging, and shopping, but also supplied of learning and new technologies applicable to agriculsociety with numerous quality products. Currently they ture, the formulations for these things are also develare able to produce over 1,500 different kinds of prod- oping. It follows then that our understanding and our

ucts, of which nearly 100 have entered international concepts must also develop in a similar manner. Conmarkets and are for sale in 26 countries and regions. ceptually, we must be clear on two points: First, we must

Some enterprises have also successfully produced not separate "the fundamental way out" from "the

numerous high and new tech products. Products such as problem's fundamental solution" and set them against

concrete adhesive thickening, wireless intelligent street each other. Ultimately relying on S&T to solve farm

lamp testing and control instruments, human body problems means, in effect, applying all the achievements

infrared robbery warning devices, and highly effective of science and technology to promote the growth of

diesel oil additives were also produced by this corpora- agricultural production. Second, being unable to expand

tion for the first time in China. the scope of what is included in mechanization without

restrictions is not only insufficiently precise, it also

creates conceptual ambiguities among the disciplines. AGRICULTURE S&T-developed agriculture in no way negates or weakens

the importance of farm mechanization. It represents a

Liu Zhongyi Views Farm Mechanization somewhat broader application of science and technology

to agriculture. Ultimately relying on S&T to solve agri- 91CE0683A Beijing NONGYE JIXIE [FARM cultural problems includes farm mechanization.

MACHINERY] in Chinese No 5, 18 May 91 pp 2-4

Second, evaluating farm mechanization. How are we, in [By Liu Zhongyi (0491 0022 0001), Minister of Agricul- effect, to view the many years we have managed and

ture: "Do Not Set a Time Limit for Farm Mechaniza- applied farm mechanization? In the first place, I think

tion"] that implementing farm mechanization for more than 40

[Excerpt] [passage omitted] Several Points To Under- years now and convening the Third National Conference

stand Concerning Farm Mechanization on Farm Mechanization for its development have been

of major significance and have had a positive effect on

First, the function and position of farm mechanization, its history in China. First, there was the effect of its

This is an old issue that has gone through several stages start-up. Even the concept of farm mechanization was

and several ups and downs. Let us focus for a bit on what unclear during its implementation then. The majority of

has occurred from the time in 1959 when Chairman Mao peasants were using hand tools. Technical know-how was

pointed out that "the fundamental way out for agricul- shallow, and acceptance of new things slow. Mechanizature lies in mechanization" up to the opening of the tion broadened the outlook of the peasants and injected

Third National Conference on Farm Mechanization. I new elements in their thinking. Second, there was the

now realize that the basic spirit of the Chairman's support and promotion that was provided to the growth

pronouncement was correct and that it should be of farm production. Farm mechanization had a major

affirmed. Comrade Deng Xiaoping has declared, "It effect, especially in the vast reclaimed areas and on the

could be that we will have to rely on technology for an plains and in opening up the Sanjiang Plain in the
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64 ECONOMIC 23 September 1991

Northeast and in other large regions. If China had not vantage point, we see that there were shortcomings.

gradually instituted large-scale farm mechanization, the However, while we cannot deny the history of people's

Sanjiang Plain would still be a barren wasteland. Solving struggle to implement farm mechanization, even less

the problem of deep plowing had a positive effect on should we now and in the future deny that farm mechsolving the problem of not losing farming time. Third, anization should be practical and realistic. It represents

there was the link to irrigation facilities and the impor- one of the grand heroic feats in the building of China.

tant role they both played. There was no way to solve the

problem of drought and soil salinization that was then To sum up, in managing farm machinery work, we must

threatening the plains of North China. We finally relied work hard to exercise a positive role by adapting to the

on drilling wells and water diversion for irrigation. circumstances of agriculture and to the requirements and

Drilling wells, pumping water, and irrigation were all needs of agricultural growth and to those of national

effects of mechanization. Without the necessary mecha- economic growth as well. Farm mechanization has truly

nization equipment, the irrigation installations alone run into some new situations with the advent of the

could not have worked. Fourth, growth of the farm output-related system of contracted responsibility. There

machinery industry, the agricultural chemicals industry, is no denying that, in the course of a change this large, we

and construction of a rural electric power system were all can only overcome the shortcomings of everyone eating

promoted. Farm mechanization gave a hugh push to from the same big pot and egalitarianism by taking full

these activities. In the early fifties, China did not have a advantage of certain influences generated by farm mechtractor factory. The Soviet Union then aided in building anization at a larger scale of production. The most

Luoyang Tractor Factory No. 1. Following the Second prominent instance of this occurred during the two years

National Conference on Farm Mechanization, a site was following the 3d Plenary Session of the 11 th Central

designated in Hubei for a walking tractor factory. The Committee. I have seen peasants at rural fairs selling

farm machinery industry now has a fairly large produc- wheels, engines, oil pumps, and large farm tools because

tion capacity. At that time, chemical fertilizers were also they had taken the machinery apart and dispersed it.

included within the scope of farm mechanization. Every However, this sort of thing is not common and is quickly incldedwitin he sopeof armmechniztio. Eery taken care of. From now on, we have to consider linking county in the country built a chemical fertilizer plant.

Enthusiasm ran high. Some were successful right off, and growth of farm mechanization with S&T developed

others after they had made renovations. Very few were agriculture and with growth of commodity production.

A number ofh small plants built at that Energy projects, transport, and initial processing of

timecare still an nf othese to reckoned ale with in sup- agricultural sideline products represent several especially pling domesti cheminfluence toiber.ckonedwth in a essential aspects of rural economic growth. Management plying domestic chemical fertilizer. Fifth, there was a of farm machinery must gradually shift from adminis- heightening of economic and technical levels in the rural trative and technical management to technical and ecoareas and among the peasantry. This was accomplished nomic management technaged to ecoby visits to farm mechanization sites, training, and nomic management. In the past, we managed distribupopularizations and as a result of every county setting up mana thertehnolgy From nng on, we

farm machinery manufacturing and repair shops. At manage the technology from beginning to end, while

farmmaciney mnufctuing nd epar sops At taking into consideration economic management. present, these shops constitute the starting point and the

basic strength of much of rural industry. I think that Several Views on the Future Management of Farm

farm mechanization has been a heroic feat. Its short- Machinery

coming has been the undue haste with which it has been

carried out and the imposition of time limits. What From now on, the overall targets and tasks of managing

Chairman Mao said about striving to basically complete farm machinery call for improving agricultural produc- it within the Fourth and Fifth Five-Year Plans was taken tion and developing technical standards and efficiency

too literally and too close of track was kept on how long and improving economic results by bringing into play

it was taking. There was some impetuosity and some proper management and proper use of various types of

failure to act realistically. A second shortcoming was its farm machinery equipment. In the past, labor was

stereotypical approach and mutual faultfinding. It suf- counted as cheap. It was unprofitable to use farm

fered from overgeneralization and trying to influence machinery. This was the situation then. Then it was

those already influenced. It did not properly suit mea- egalitarianism and indiscriminate transfer of resources.

sures to local conditions. It did not provide proper When the order was given, a hugh force of men would

guidance to the different areas, nor was its methods move forward to do battle. It is not the same now.

practical and realistic. Although repeatedly stressing Recently when we were in the Beijing suburbs taking part

these things, they were not properly implemented. in labor, my Beijing comrades did an accounting for me

Another problem was only paying attention to quantities that showed, because of increased labor costs, using

of farm machinery and their areas of operation. Atten- machinery to dig trenches would be much cheaper than

tion to maintenance, upkeep, management, and parts using workers. Of course, this was the Beijing area. It

was lacking. In addition, there was a lack of experience could be a different situation in the outlying regions, and

in setting up suitable operational mechanisms for farm this must be specifically analyzed. I believe there are

machinery with respect to political measures. For a long many jobs where using machinery is more advantageous

time, there was no self-expansion and no favorable cycle than using manual labor. There are also jobs which are

of economic activity. Looking back from our present difficult to accomplish with manpower, and machines
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23 September 1991 ECONOMIC 65

have to be used. Last summer in Shandong Province an in 80 tractors, the work was quickly completed. Overall

abundant wheat harvest was in the offing, but when it agricultural development is a long-term, arduous task. It

came time to start bringing it in, it was raining calls for using farm machinery for ground leveling, deep

throughout the province. Jiaodong Prefecture has a plowing, building of water conservancy projects, and

strong economy with a full inventory of farm machinery, digging large-scale irrigation ditches. Farm machinery is

By using these machines to bring in the crop after it had not only used for cropland work. We also have to make

dried, the entire harvest was done within three to five active use of it in agricultural development work.

days; whereas Heze and Liaocheng prefectures lack this Second, we have to coordinate with irrigation networks.

equipment, were delayed, and as a result, had large Farm mechanization has always been inseparable from

losses. This means that having this equipment makes a water conservancy. Water conservancy construction and

tremendous difference. No matter how many men might irrigation both need machinery to be accomplished.

be mobilized, they could not have taken care of the However, after irrigation, because compressed surfaces

problem. At the same time, the use of farm machinery Howee te irito n, bee compressed sa

effectively improves working conditions. Thus, it can be ensure the next season's harvest. To do this requires

said that farm mechanization is well worth imple- farm machinery. Third, we have to coordinate with S&T

menting and that doing a good job of managing farm developed agriculture. With S&T developed agriculture

machinery is vitally important. I have several thoughts now flourishing and in full swing, many quarters need

on how to do a good job of managing farm machinery, the services of farm mechanization. When this session of

1. Society and the peasantry will have a new under- the conference was convened in Shandong, I visited

standing of farm machinery if we restore the respect for Shouguang County. That county's use of large awnings

it we once had through the exercise of our subjective for vegetables has developed rapidly and given rise to

initiative and make full use of what we presently have on two industries. One is the manufacture of bags, and the

hand. other, the sale of bamboo poles, which are used for large

Having everyone understand how truly essential farm awnings. Households which specialize in their sale travel Havhingeeryoiswilinse u ndr stat hw itrl eena faromoe south to purchase the poles and return to sell them to the

machinery is will increase investment in it and promote households specializing in vegetables. In addition, there its growth. If we are to increase and renovate our

equipment, we have to change our past approach of are households specializing in transportation and those

solely relying on state investment for mechanization, specializing in making grass screens. Comrades of mine

The old approach of not buying a piece of equipment who manage farm machinery are not just watching from

unless the state pays for it will not work. Areas whose the sidelines during the hugh upsurge in S&T developed

collective economies are strong are now beginning to agriculture, nor are they complacent and isolated from

want to mechanize. For example, drying equipment is in the rest of the world. They make full use of farm

great demand in Jilin because people know that, if after mechanization by using machinery wherever they can.

six months of hard work, their harvest mildews and rots, Fourth, we have to coordinate with commodity circulatheir hard work will have been for nought. Following tion. This is also an advantage to us. Using tractors for

growth of agricultural production, demand for farm field transport cannot be faulted. Of course, using them

mechanization emerges automatically. Under these kind for long-distance transport is another matter. Some say

of circumstances, we have to develop on the basis of our our diesel oil is all used for transport. This is not the case.

internal strengths. What is important is that we make full In fact, most parity-priced diesel oil is used for farmland

use of farm machinery. It can create value, alleviate the work. Diesel oil used for transport is mainly negotiatedintensity of labor, and solve a series of production price fuel. Some comrades have thought of the good idea

difficulties which manpower cannot resolve or which of developing gasoline-fueled vehicles for transport. It is

would not be feasible to resolve with manpower. In this a good approach, but there are certain difficulties and a

way, we can restore respect for farm machinery, length of time is needed. Moreover, tractors, especially

walking tractors, are essential to field transport. The

2. In managing farm machinery, we have to be good at public highway system will in the future extend to the

coordinating with other quarters to exploit the coordi- rural areas, and tractors will still be on the highways.

nated functions and effects of mechanization. Field transport is one of the overall functions of tractors

Farm machinery itself is multifunctional, and the scale in agricultural production. Transport is not the only

of its production is relatively large. Relying only on farm aspect of farm mechanization essential to commodity

machinery departments to exploit mechanization's com- circulation. There are others as well. Fifth, we have to

prehensive functions and effects will not work. We coordinate with the many aspects of the rural economy

definitely must coordinate with other quarters. First, we to form an all-points capability for providing vital equiphave to coordinate with overall agricultural development ment services. Peasants engaged in production are now

and farmland capital construction. We are now investing finding it easier because we are perfecting the outputseveral 10 billions in overall agricultural development in related system of contract responsibility for rural houseone year. Solely relying on manpower to do this is out of holds, consolidating the two-tiered management system,

the question. To develop 300,000 mu of paddy in increasing the strength of the collective economy, instiYingkou and Dawa counties in Liaoning, it was neces- tuting a system of socialized services, the content of

sary to build a protective tidal embankment. By bringing which is quite extensive, and creating uniform seeds,
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66 ECONOMIC 23 September 1991

irrigation, cultivation and harvesting, and crop protec- Current Work

tion. The two-tiered management system is slowly being

formed through a uniform organization of materials There are probably three major issues. First is the

supplied before production and a uniform organization question of farm machinery renovation. Comrades who

of sales after production. This very important subject are in charge of farm machinery are quite concerned

was studied by the National Conference on the Exchange about its ageing. This is indeed a major problem. Most of

of Rural Economic Work Experiences. It constitutes a it, especially the larger pieces, was purchased in the

sixties. It now has exceeded its serviceable life and has to key point in our future deepening of reform. The be replaced. It is not only farm machinery, fishing

thinking of the whole country is unanimous on this. In machinery also needs replacement. We have to consider

the process of developing and forming a system of this issue from two aspects. One is to achieve better

socialized services, the scope and arena for utilizing farm results by making full use of farm machinery and

machinery has become more and more extensive. The building a system in which there would be in-house

coordination with the various quarters we have been replacement of small pieces of equipment. Loans or

discussing above basically consists of coordinating with other sources of funds would have to be sought for

the local needs of agriculture and with local basic condi- middle- and large-sized pieces, including an effort made

tions. We do not want to redefine the scope of farm to resolve the renovation issue through agricultural

mechanization and impose time limits on it. The scope investments. Everyone should discuss what type of meaof farm mechanization and the time limits on it cannot sures we should take and how we should take advantage

be accurately defined using a "vague concept." Things of the enthusiasm and subjective initiative of various

are constantly changing and cannot be absolutely delin- quarters to create a favorable cycle of renovation from

eated. Originally, farm mechanization did not include now on. The state must also lend its support to this. The

drying. At the time, there was no electricity, a shortage of second is the fuel-oil issue. Diesel oil is the lifeblood of

kerosene, and automobiles still carried coal gas con- farm machinery. Without it, the machinery is of no use.

tainers. It was basically impossible to use coal and In recent years, the power of farm machinery has rapidly

electric dryers to harvest wheat. However, now they are been increased. However, the supply of diesel oil has not

essential. We definitely have to coordinate with the increased. The average amount of oil supplied per kilovarious quarters. We should take part in the entire great watt has steadily declined, and this has affected the full

upsurge of rural reform and development of agricultural exploitation of farm machinery. We should do the best

production by extending ourselves more and listening a we can to increase somewhat the amount of diesel oil

little better, by using the weapons we control, and by supplied by departments in charge. At the same time, we

taking advantage of our strong points. To exploit all the must also properly manage the limited amount of diesel

functions of farm machinery management, there must be oil used in agriculture, make sure it is used in agricultural

coordination in farm machinery utilization, mainte- production, be attentive to economies, and reduce waste.

nance, management, services, administration, and tech- The third is the issue of farm machinery administration

nical consulting. Farm machinery stations constitute a and management. Everyone agrees that the circumrelatively large part of our agricultural services system. stances of each locality are different. Specific measures

Breeding and screening improved varieties, irrigating must be suited to specific local conditions. However, the

farmland, cultivation, and crop protection all require major principles are the same. To properly manage farm

farm machinery. We must not extend services outside of machinery, it must be fully utilized and a capability

agricultural technology, nor can we stand in opposition created for self-development and self-renovation, which

or impede each other. We have to coordinate. Although will both contribute to agricultural production and

the extent of farm machinery services is broad, it cannot create conditions for our own subsistence and developinclude the entire range of agricultural services. Through ment.

coordination, we can realize our goal of properly managing farm machinery, strengthening our services, and Journal Examines Agricultural Funding

expanding mechanization. Only by broadening our way HK3008001691 Beijing JINGJI YANJIU [ECONOMIC

of thinking and blending farm machinery in with the RESEARCH] in Chinese No 6, 20 Jun 91 pp 54-61

various aspects of agricultural production, will farm

mechanization be able to grow again. The operation and (Article by the State Planning Commission's Economics

management of farm machinery must also take this Institute Rural Study Office, researched by Ma Xiaohe approach. we cannot rely solely on the state to finance (7456 2556 3109), Zhou Haichun (0719 3189 2504), Wu

machinery purchases. If we do, it will not be used Yan (0702 1484), Wang Weinong (3769 3634 6593),

efficiently. Since no allowance is made for depreciation, written by Zhou Haichun (0719 3189 2504), edited by

the machinery is reported as inoperable and the state Lin Li (2651 4539): "Agricultural Funds Movement and

asked to replace it. It is difficult to maintain such a Agricultural Development"-condensed version of an

system in any industry or facility. It is not a permanent 18,000-character research report]

solution. Farm machinery management must gradually

work toward technical, operational, and managerial [Text] In the 1990's, as our country's industrialization

changes and toward technical guidance, consultation, moves into the middle stage, the demand for agricultural

and services. products will not only grow swiftly on the quantitative
JPRS-CAR-91-052

23 September 1991 ECONOMIC 67

level but will also see an increase on the qualitative level, agricultural field capital construction; 2) in production,

However, the situation of agricultural product supply is using labor to replace material input and engaging in

such that, on the one hand, the mode whereby agricul- intensive farming.

tural growth relies on a large input of labor is difficult to

continue and, on the other hand, even if this mode is The success of this agricultural funds flow mechanism, in

continued, the productivity so released will be far from which the state played the main part and a large input of

capable of meeting the needs of the middle stage of labor by peasants was used to compensate for the outindustrialization. Thus, an agricultural growth mode flow of agricultural funds, was that it resolved the

characterized by a large-volume input of modem factors dilemma whereby agricultural development was insuffimust be included on the agenda of national economic cient and there was a need to engage in industrialization,

development strategies. This will, in turn, rely on the by centralizing the large volume of funds needed by

input of a large volume of funds. In a certain sense, it can nonagricultural industrial development. Also, to a cerbe said that the agricultural funds problem is a strategic tain degree, it avoided a shrinkage in agriculture which

problem which will determine whether or not the coor- could have occurred as a result of this. Under the

dinated development between agriculture and the conditions whereby a large volume of agricultural funds

national economy can be guaranteed in the 1990's. It is flowed into nonagricultural industries, the portion of

of major importance for us to analyze the flow patterns funds the state returned was centrally placed for building

of our country's agricultural funds and to explore pos- fields and water resources and organizing and propasible avenues for balancing the supply of and demand for gating agricultural science and technology research. This

agricultural funds in the 1990's. obviously improved the agricultural production conditions, the level of agricultural science and technology was

clearly raised and, to quite a great degree, compensated Traditional Agricultural Funds Flow and Agricultural for the insufficiency of investment by the peasants Development themselves. The agricultural-use means of production

After the establishment of the PRC, in order to swiftly which were supplied at low prices provided, in a situastrengthen our country's economic power and break tion where funds were extremely limited, a guarantee for

down the international economic blockade, after a short the material input required by agriculture. Further, a

recovery period our country began to engage in large- series of administrative measures forced the peasants to

scale industrialization in 1953. At that time, our coun- put the majority of their labor into agriculture and this

try's economic base was very weak and the development further compensated for the insufficiency of investment

of agriculture, which is the mother of industrialization, input. It was these measures which enabled agriculture,

was particularly insufficient. This was notably mani- on its very weak base, to both transfer funds and guarfested in the extremely poor labor productivity in agri- antee the agricultural products needed by the process of

culture. The countries which industrialized first had, at industrialization. When we look at the phenomenon

the beginning of industrialization, a ratio of 0.6 or above which occurred in some other countries which began

between agricultural labor productivity and nonagricul- industrializing after the war, where industrial developtural labor productivity, while in 1952 in our country ment and increased starvation existed side by side, then

this figure was only 0.21. This situation produced a the choice taken by our country in terms of agricultural

specific characteristic in the early part of our country's funds flow undoubtedly allowed great achievements to

industrialization: If we wanted agriculture to smoothly be realized.

support the course of industrialization, there was a need

to input a large volume of funds to swiftly raise agricul- At the same time as affirming the achievements realized

tural productivity. However, carrying out industrializa- by this mechanism, we must also recognize that this

tion smoothly also required the centralization of funds in brought many problems for the further development of

nonagricultural industry. This particular contradiction agriculture. First, this mechanism resulted in agriculture

in the early stage of industrialization forced us to choose seriously lacking a capacity for self-accumulation and

a quite specific agricultural funds flow mechanism. The self-development. The input of state funds could only

central components of this mechanism can be summed resolve the common problems faced by large-scale agriup as follows: Through the policy of compulsory pur- cultural producers. However, due to a lack of funds the

chase of agricultural products at low prices, the majority specific problems faced by different regions and difof agricultural funds were centralized in the hands of the ferent producers could not be resolved. Thus, the develstate and the state, in accordance with the agricultural opment of agriculture was inevitably restricted. Second,

products supply-demand situation, returned very limited this mechanism relied on a series of noneconomic meaamounts of funds. It also used administrative measures sures to force peasants to engage in production, leading

to force peasants to put most of their labor input into to the peasants' enthusiasm for labor lessening and the

agricultural production, to compensate for the shrinkage rise in labor productivity was very slow. Third, this

in agriculture resulting from the insufficient input of mechanism relied on the input of a large volume of labor

funds. This replacement of funds by labor was mainly to make up for the insufficiency of funds. While such a

manifested in two aspects: 1) through engaging in large- replacement is possible to a certain degree on both the

scale labor accumulation, mobilizing and organizing a technological and economic levels, it is not an unlimited

great amount of labor from the villages to engage in method. As time goes by, the cost of such replacement
JPRS-CAR-91-052

68 ECONOMIC 23 September 1991

becomes higher and higher and finally it will come to a the new collective economic organizations formed after

stage where marginal benefits are zero or even negative, the reforms, jointly shouldered the important task of

Then, unless a new growth mode is promoted, agricul- agricultural funds investment. Further, the state also

tural production will inevitably fall into a fluctuating encouraged agricultural product processing industries

situation. In the first 30 years after the establishment of and peasant joint operators to invest in building fixed

the PRC, the long-term development of agricultural raw materials supply bases. In this way, the agricultural

production was slow and even the problems of feeding investment entity structure was changed from the origand clothing everyone could not be solved. The reasons inal dual structure, comprising the state and the collecfor this are of course diverse but the various problems tives, to a plural investment entity structure comprising

with the traditional agricultural funds flow mechanism the state, collectives, peasants, and enterprises. Second,

must be seen as an important factor in this. It was as a the outflow of agricultural funds obviously decreased.

result of the existence of such problems that the agricul- According to estimates, from 1952 to 1978, the value of

tural revolution at the end of the 1970's was touched off. agricultural products was on average 45.9 percent higher

than the price. That is, an amount equivalent to 45.9

Agricultural Funds Flow and Agricultural Development percent of the price obtained by peasants flowed into the

Since Initiation of Reforms hands of the state. This transfer rate grew to 46.1 percent

in the period 1960 to 1965 during the national economic

The Third Plenary Session of the 11sth CPC Central difficulties and the period of readjustment. By the period

Committee set out the basic policy of carrying out 1979 to 1989, the transfer rate had fallen to 28.9 percent,

readjustment and reform of the entire national economy. with the lowest figure of 23.9 percent being recorded in

In respect of agricultural funds, it abolishedthepractice 1984, while the highest figure of 42.6 percent was

of shifting a large volume of funds out of agriculture and recorded in 1979. We can thus see that since implemenformulated an agricultural funds policy in which the rate tation of the reforms, there has been a sharp decline in

of outflow of agricultural funds was reduced and there the proportion of agricultural funds which are trans- was an increase in agricultural investment. To this end c a ferred. Finally, the decline in the agricultural funds

series of measures were adopted: 1) The purchase prices transfer rate meant that the proportion of income

for agricultural products were greatly increased and free obtained by the peasants per unit of agricultural product

market trade was reestablished. After fulfilling tasks set increased. Further, the implementation of the outputby state purchasing, the peasants were allowed to trade linked contracted responsibility system and the removal

their surplus products at free prices in the markets. 2) In of the administrative restrictions meant that agricultural

the rural areas, output-linked contracted responsibility product output volume saw a swift increase. The joint systems based on family operations were widely imple- effect of these two factors was that peasant incomes saw mented. This greatly motivated the enthusiasm of the a swift increase. In 1978, the per capita net income of

peasants for production, agricultural production clearly peasants was only 133.57 yuan. Subsequently, there was

increased and agricultural production costs fell, which a sustained increase in per capita net income and by

indirectly raised the prices paid for agricultural products. 1989 it had reached 601.5 yuan, an average annual

3) The state relaxed the administrative restrictions on increase of 14.7 percent. In 1978, the savings of peasant the peasants. The measures included: the gradual reduc- households totalled 5.57 billion yuan, a household

tion and final abolition in 1985 of mandatory planned average of 32.1 yuan. By 1989, the total amount of

purchase of agricultural products; encouraging peasants savings from peasant households had soared to 141.21

to develop nonagricultural industries; and encouraging billion yuan, a per-household average of 656.7 yuan. The

peasants, under the conditions of respecting state laws rapid growth in peasant income created fine conditions

and resolving their own grain needs, to enter the cities to for increasing investment in agriculture.

engage in tertiary industry. 4) The state increased its

investment in agriculture by a large margin. In 1979, the

Fourth Plenary Session of the 11 th CPC Central Coin- However, the readjustment of state agricultural funds

mittee passed the "CPC Central Committee Decision on policies provided some negative results which had not

Various Questions in Accelerating Agricultural Develop- been anticipated. First, at the same time as the rapid

ment" in which it was stipulated: "For the next three to increase in the income of peasants from agriculture,

five years, the state investment in agriculture as a pro- there was a marked decline in the funds invested in

portion of overall capital construction investment will be agriculture by both collectives and peasant households.

gradually raised to about 18 percent. The agricultural Let us first look at the investment in fixed assets by

operating expenses and expenditure for supporting com- collective economic organizations in the rural areas. In

munes and teams, as a proportion of total state expen- 1981, the total value of fixed asset investment by collecditure, will gradually be raised to about 8 percent. Local tive economic organizations in the rural areas was 8.366

financial income should mainly be used in agriculture billion yuan. Of this, 3.38 billion yuan, or 40.4 percent of

and agricultural industries." total investment, was put into agriculture. Subsequently,

this proportion gradually declined and by 1982 it was These measures produced a series of positive results. 33.5 percent. In 1983 and subsequently, not only did the

First, changes occurred in the investment entity struc- proportion decline but the absolute volume also saw

ture. As peasants households changed from purely con- negative growth. By 1986, the investment in agricultural

sumption units into production units they, together with fixed assets by collective economic organizations in the
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23 September 1991 ECONOMIC 69

rural areas was only 38 percent of that in 1982, with funds and a plural investment entity structure has been

agricultural investment only constituting 8.1 percent of formed. However, the new investment entity structure

total fixed assets investment in that year. After 1987, has not only failed to increase investment in agriculture

both the amount of investment and the proportion of but has also resulted in an overall decline in funds

agricultural investment rose but at a quite slow speed. invested in agriculture by the state, collectives, and

Even after the state took the decision in 1988 to readjust peasant households. The result of this has been: 1) Basic

the economy and strengthen agriculture, there was no agricultural facilities have become old and worn-out and

marked increase in the investment which collective agricultural production conditions have deteriorated. 2)

economic organizations in the rural areas used in agri- The agricultural science and technology service system

culture, with a growth of only 0.9 percent in 1988 and 2.1 which emerged and matured with long-term state finanpercent in 1989. The proportion of agricultural invest- cial support, and which realized outstanding achievement was 9.4 percent in 1988 and 11.4 percent in 1989. ments in promoting the growth of our country's agriculAlthough we lack complete statistical data on the flow ture, had difficulty in developing its work because of a

volume of the funds peasant households used in agricul- serious lack of funds. 3) The level of agricultural intentural fixed asset investment, if we examine the situation sification dropped and this was centrally manifested in

from the original value of fixed assets possessed by every there not being a clear increase in the per-unit output

100 peasant households, we see that there was a gradual yield of agricultural products and, in some cases, there

decline in the proportion constituted by agricultural was a decline. The combined effect of the abovemenfixed assets. In 1984, this proportion was 62.3 percent, tioned results was one of the major reasons our country's

by 1985 it had fallen to 53.1 percent, but by 1989 there agriculture entered a situation of fluctuation. had been a rebound, if only to 53.7 percent. The factors leading to this situation were diverse but, as

Second, and more seriously, the state investment in far as the decline in state funds investment was con- agriculture not only failed tp grow but actually saw an cerned, the following reasons were most important:

annual decline. The decline of state investment in agriculture was mainly manifested in four aspects. First, the 1. Mistakes on the subjective understanding level. At the

financial expenditure used for agricultural operating beginning of the reforms, following the great motivation

expenses and supporting the people's communes in rural of the production enthusiasm of the peasants through the

areas did not reach the initially envisaged 8 percent, relaxing of policies, agricultural production saw highactually seeing a gradual decline. In 1979, the figure was speed growth not experienced before and the difficult

7.1 percent and in 1987 it was 5.5 percent. In 1988 there situation of agriculture thus saw a change. This led to a

was a rebound but, in 1989, the figure was only 6.6 series of mistaken understandings: 1) It was not recogpercent, still less than the level in 1979. Second, there nized that this high-speed growth was achieved on the

was a great decline in agricultural capital construction material base accumulated through over 20 years of

investment and the figure grew increasingly distant from arduous construction and through the policy readjustthe envisaged agricultural investment proportion of 18 ment which had unleashed the production enthusiasm of

percent. In 1979, agricultural capital construction invest- the laborers which had been restrained for a long period.

ment totalled 6.241 billion yuan, giving a figure of 12.6 Rather, they thought that policies could replace material

percent. Subsequently, both the absolute and propor- input and that if policies were relaxed there was no need

tional figures both dropped, with the low point being to increase investment to achieve development of agrireached in 1981, when the absolute value was 2.415 culture. 2) The high-speed growth of agriculture together

billion yuan and the proportional figure was 7.3 percent. with the poor circulation channels which caused tempoAfter this, there was a rebound, but in 1989 the figure rary difficulties in selling agricultural products meant

was only 5.065 billion yuan, giving a proportion of 8.3 that some people assessed the agricultural situation

percent. Third, there was a sharp decline in investment wrongly, holding that China's agricultural problems had

in agricultural industries. During the Fifth Five-Year already been solved and that, in future, efforts in agriPlan, the investment in agricultural industries was 10.17 culture could be relaxed and strengths could be centralbillion yuan but, by the Sixth Five-Year Plan, this had ized in developing nonagricultural industry. 3) There

fallen to 4.48 billion yuan. The proportion that invest- was an overly high estimation of peasants' income and it

ment in agricultural industries constituted in overall was thought that peasants already had the capacity to

industrial investment was 8.7 percent during the Fifth resolve the agricultural funds investment problem. There

Five-Year Plan and 2.9 percent during the Sixth Five- were attempts to completely shift the task of increasing

Year Plan. In 1987, it fell further to 1.9 percent. Fourth, agricultural investment onto the peasants.

there was a continual decline in the proportion of

agricultural credit funds input. In 1979, the national 2. The existing economic structure was not advantageous

agricultural credit balance constituted 30.7 percent of to the state investing funds in agriculture. A basic

the rural credit balance but, by 1987, this proportion had characteristic of the existing economic structure was that

dropped to 23.5 percent. all levels of government in the country directly intervened in nonagricultural industrial operations. EnterIn brief, since initiation of the reforms, the readjustment prises belonged to governments and the governments not

of state policy in respect of agricultural funds has real- only obtained tax income from the nonagricultural

ized a marked reduction in the outflow of agricultural industries but also obtained operational profits. The
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70 ECONOMIC 23 September 1991

situation of nonagricultural operations was thus closely had taken the decision to strengthen agriculture, as far as

linked with government interests. On the other hand, in the local governments were concerned, because the

agriculture, although there were some state operations, inertia of stock formed by the high-speed development of

the proportions these constituted were very small and nonagricultural industry during the previous few years

the majority of agricultural operations were in the hands had meant that the local governments could not expend

of the peasants. Apart from in terms of a little tax much in the way of funds, together with the fact that the

income, the state did not suffer losses if losses were industrial characteristics and interests structure of agriincurred in agricultural operations and, likewise, did not culture had not changed, the local governments did not

directly obtain benefit by any increase in profits. In this have a great capacity and were also unwilling to quickly

way, as far as the various levels of government were increase agricultural investment. As far as the state was

concerned, agriculture was something completely concerned, because it was difficult to change the situaexternal and it was only when agricultural development tion of dispersed financial strengths within a short

affected the development of their "own" nonagricultural period, together with the fact that in the previous few

industries, that they, in charity, gave support to agricul- years the local governments had developed processing

ture. Then, when the agricultural situation improved industries to too great a degree, the state also had to

slightly, the state could naturally reduce its charity and make up serious deficiencies in basic industrial developthis led to a decline in agricultural investment. ment. Thus, the funds it could invest in agriculture were

extremely limited. This produced the situation after

3. The incomplete nature of the reform of the agricul- 1988 where the revival of state investment in agriculture

tural funds circulation process meant that a break was very slow.

appeared in agricultural funds movement and the state

financial administration, in order to compensate for this Why was it that, while the peasants' income from agribreak, assumed an increasingly heavy burden. After culture greatly increased, there was a decline in the funds

1979, the state greatly increased the purchase prices for invested in agriculture? The reasons are diverse.

agricultural products but did not raise the sales prices for 1. The comparative benefits of agriculture were quite

agricultural products correspondingly. The purchase- low. This situation was created by factors in two areas.

sales price differential thus became increasingly small, or On the one hand, after 1979, the great increase in

even inverted, and the state financial administration had agricultural product prices was just to compensate for

to make up the deficiencies. The result of this has been the excessively low agricultural product purchase prices

that the agricultural price subsidies provided by the state of the past. This compensation far from brought agriculhave seen a straight-line increase. In 1978, state subsi- tural product prices into accord with their value. After

dies for grain, cotton, and oil were 1.114 billion yuan. By 1984, following the reform of the prices of agricultural1989, these subsidies, together with the newly-added use means of production, the extra cost of the agricul- meat subsidy, had risen to 30 billion yuan. It can be tural-use means of production which had to be met by

imagined that if the state did not have to meet these the peasants, exceeded the rise in agricultural product

heavy price subsidies, the source of funds investment for purchase prices. This meant that the disparity between

agriculture could be guaranteed. agricultural product prices and their values which had

previously been reduced, was again expanded. On the

4. The uncoordinated nature of the overall reform of the other hand, prior to the reforms, because of the restricinvestment structure is the most important reason for tions of the various administrative measures, the peasthe decline in state investment in agriculture. After 1984, ants only choice in terms of an industry was agriculture,

following the formation of a new situation in rural opportunity costs approached zero and therefore there

investment, a reform of both the form and content of the was no problem of comparative interests. Thus, the

overall social investment structure was carried out. The deviation between agricultural product prices and value

core of the reform was the gradual reduction of central was acceptable. After the reforms began, following the

interference in investment decisionmaking, the expan- removal of the administrative restrictions, the opportusion of the decisionmakingjurisdictions of localities and nity costs of agriculture rose swiftly. At that time, even

other investment entities, the drawing in of the market though there was a little deviation between agricultural

mechanism into the investment sphere, and the stressing product prices and value, the peasant households who

of investment efficiency. This reform was clearly marked had investment autonomy, proceeded from the goal of

by the institution of "cooking in separate kitchens" on maximization of profits and put their funds into industhe financial administration level. However, this reform tries in which the product price/product value relationignored an important precondition and that is that our ship was to their advantage.

country has not yet formed a complete market mechanism. In a situation where price parity is confused and 2. The overall nature of agricultural funds needs and the

price signals unreal, allowing the various investment dispersed nature of the peasant households funds supply

entities to seek microeconomic results through invest- also influenced, to a certain degree, agricultural funds

ment had to be subject to the guidance of a fixed price investment by peasants. The construction of basic agrisystem. This reduced funds investment in agriculture, an cultural facilities such as dams, canals, and shelter forest

industry in which price parity is very low and the raising belts extends over a very wide range and there is no way

of productivity is slowest. In 1988, although the state the astronomical amounts needed for such projects can
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23 September 1991 ECONOMIC 71

be met by the new collective organizations or by peasant the isolated development of the urban economies,

households. Further, the slow rate of development of a leading to where the industrial structure is determined

rural funds market means that it is extremely difficult to by the urban demand structure. Today, the industrial

collect together the funds of peasants to invest in basic structure has now developed to where it has, to a serious

agricultural facilities, degree, a lead over the rural demand structure. However,

it lags behind the urban demand structure and this

3. The long-term nature of agricultural investment and inevitably brings a situation of market weakness. Today,

the haziness of property rights relationships also affects when it is said that the market for commodities is

the investment of funds in agriculture by peasant house- tending towards saturation, in the vast majority of cases

holds. We all know that agricultural investment, espe- it is only the urban markets which are saturated. The

cially for building basic facilities, enriching land, and rural areas are still far from saturated. However, as we

increasing soil fertility is something which only has to be have long implemented a policy which stresses the urban

done once and then benefits will be long forthcoming. areas and looks lightly on the rural areas, we have

However, because of the output-linked contracts, the seriously suppressed the demand for these commodities

separation of the two rights, and the lack at present of an in the broad rural areas market. For example, the policy

effective method for safeguarding the investment bene- of transferring agricultural funds which has been in place

fits of peasant households, the enthusiasm of the peas- has meant that, in monetary terms, the income of the

ants household for agricultural investment has declined, urban dwellers has long been two to three times that of

4. The scale of land management is too small. Because the peasants. If we also consider differences in purthe family output-linked contracted responsibility chasing power, the disparity is even wider. The result of

system was in accord with the characteristics of agricul- such a disparity is, first, that the effective demand of the

tural production, it certainly greatly motivated the pro- peasants is insufficient and, second, that the basic social

duction enthusiasm of the peasants. However, today, facilities of the rural areas are very poor. This has led to

this contract method whereby every family has a con- where the rural areas even lack the conditions for using

tract and every household plants fields, has resulted in many of the commodities produced for the cities and this the scale of land management being too small. Thus, in turn means that demand is very slight. On the one even if more funds are invested, the income will be very hand, urban demand is really saturated while, on the

limited. Therefore, the peasant households only see their other hand, in the rural areas there are markets but no

land as a means for maintaining their own livelihood and demand, or demand with no commodities to meet it.

place their hopes for increased income on nonagricul- This is the essential nature of the current market weaktural industry. This has resulted in a large volume of ness.

funds flowing into nonagricultural industries, while

funds invested in agriculture have naturally declined. If the above viewpoint is tenable, then in our current

economic readjustment we face a choice: Should we

continue to implement a policy whereby we only con- Ideas for Deepening Agricultural Funds Investment sider the cities and readjust the industrial structure to

Mechanism Reform accord with urban demands as they rise to higher levels?

At present, both the overall national economy and agri- Or should we change the existing policy and, at the same

culture itself have entered a crucial period which time as we appropriately restrain urban demand, bring

requires that we thoroughly discard the traditional agri- the rural areas into the entire national economic system,

cultural funds flow mode and increase funds investment place the rural areas on a par with the urban areas, and

in agriculture. Only in this way will we be able to readjust the industrial structure in accordance with the

promote the development of the overall national needs of both the urban and rural areas? It can be seen economy and of agriculture itself. that there is only one rational choice. We have to

redesign our urban-rural policies and use the developLooking from the angle of the overall national economy, ment of the rural economy to spur the overall national

only by increasing investment in agriculture and pro- economy to free itself from the quagmire of weakness.

moting the development of agriculture will we be able to This is because only when the urban and the rural areas

guide the national economy to escape from the whirlpool develop together can there be real development and can

of market weakness. At present, the problem in the there be development which has real staying power. Only

national economy which gives people the greatest head- through such a choice will we be able to avoid injurious

ache is that of market weakness. Many comrades believe readjustment of the industrial structure. Thus, if we want

that the cause of market weakness is the industrial to ensure that the national economy can escape its

structure lagging behind the demand structure. This difficulties, we must readjust macroeconomic policies

viewpoint can only be said to be partially correct. We and promote the development of the rural economy and,

believe that the current market weakness is essentially primarily, the development of agriculture.

the inevitable result of the long-term implementation of

a policy which stresses the urban areas, and looks lightly The development of agriculture is likewise currently in a

on the rural areas, and which is centered on the cities. crucial period. The crucial aspect lies in the fact that the

The basic characteristic of this policy is that it uses a former agricultural growth mode, characterized by the

large volume of transferred agricultural funds to support input of a large volume of labor, has already reached its
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72 ECONOMIC 23 September 1991

critical point and if we want agriculture to see further 1980's, we can see that regardless of whether we speak of

development, we must establish a modem agricultural the decline in state investment or the decline in the

growth model characterized by the input of a large investment of the peasants' own funds, the reasons lay in

volume of funds. The facts show extremely clearly that the fact that during the process of structural reform,

the development of agriculture has already reached a either the old systems had not been changed (as in the

stage where the growth or decline of funds investment case of the joint nature of government and enterprises)

has become the factor deciding the growth or decline of or else the transfer from the old system to the new had

agriculture. In order to further confirm this analysis, we not been completed (as was the case with the reform of

have carried out a Douglas function regression analysis agricultural funds circulation and agricultural property

of agricultural labor input, material input, and gross rights relations). This produced a series of contradicagricultural output value for the two periods 1952-1978 tions, leading to an overall decline in agricultural funds

and 1979-1989. The results are presented in the table investment. Thus, if we want to increase the investment

below. of funds in agriculture and promote agricultural development, the only choice is to continue to promote sof Agricultural Gross Output Value structural reform and put in order an agricultural investment mechanism. Specifically, this will include the foland Labor and Material Input lowing aspects:

Period 1952-1978 1979-1989

Equation AGNP- AGNP- KO.86 1. Promoting the overall reform of the price structure to

0.1268 KO.62 LO.21 ensure coordination between price structure reform and

LO.54 the reform of the investment structure. Generally, agriCoefficient T Constant -1.895 insignificant culture and other basic industries are subject to the

Tests Term influence of factors such as the development of natural

Labor 3.911 15.775 resources being initially easy and subsequently more Coefficient difficult and the difficulties involved in technological

Material 8.135 43.889 advance. Thus product costs generally see progressive Coefficient increase. Meanwhile, processing and manufacturing are

Square of cor- 0.981 0.996 influenced by technological progress and management

relation equa- renewal and product costs generally see progressive tion reductions. In a situation where inflation exists, only if

Equation F 348.125 2235.64 the rise in prices of the products of agriculture and other

test basic industries is faster than the rise in prices of the

Note: AGNP is the gross output value of agriculture; K is material products of processing and manufacturing industries will

consumption; and L is the agricultural labor force, it be possible to maintain the coordinated development

of basic industries and processing and manufacturing From the above table, we can see that the contribution of industries. However, the basic characteristic of our counlabor to the gross output value of agriculture obviously try's price structure is that the prices of the products of

declined after 1979, as compared to the period before agriculture and other basic industries have long been too

1978, while the contribution of material input obviously low, while the prices of the products of processing and

increased. Prior to 1978, for every 1 percent growth in manufacturing industries have been obviously too high.

agricultural labor force, the gross agricultural output Especially since the beginning of the reforms, the basic

value grew 0.5 percent. Subsequent to 1979, this figure idea of price readjustment has been to properly manage

fell to 0.2 percent, a 60 percent reduction. Prior to 1978, the prices of the products of basic industries and relax

every 1 percent growth in material input brought a 0.6 the prices of the products of processing and manufacpercent growth in agriculture. After 1979, this contribu- turing industries. In a situation where total social

tion grew to 0.85 percent, a rise of 50 percent. In fact, it demand exceeded supply, the relaxed prices of prois only from the second regression that it is possible to cessing and manufacturing products rose swiftly, while

see that future agricultural growth will mainly depend on the prices of basic products, because they were subject to

an increase in funds input. This is because for every 10 state management systems, saw a very limited speed of

percent growth in labor input, the gross output value of growth. The result of this was that the price structure,

agriculture will grow only 2 percent, while for every 10 which was already deformed, became more deformed.

percent growth in funds input, the gross output value will Thus, the various investment entities which had already

grow 8.5 percent. gained investment autonomy, under the guidance of this

deformed price structure proceeded to put their funds

Summing up the above, we can see that whether we talk into high-price, large-profit processing and manufacabout the healthy development of the overall national turing industries. The result of this was that agriculture,

economy or the development of agriculture itself, both as a basic industry, was subject to very low price parity,

require increased input of funds into agriculture. How had the slowest increase in productivity, and investment

then are we to increase the input of funds into agricul- was seriously deficient. Thus, if we want to increase the

ture? From the above analysis of the reasons for the investment of agricultural funds, we must reform the

decline in agricultural funds input in the latter half of the existing price structure. The basic principle is to impose
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23 September 1991 ECONOMIC 73

management on the prices of processing and manufac- The implementation of such a reform will allow the

turing industry products and raise the price of the avoidance of contradictions which often occur between

products of agriculture and other basic industries. In the dual functions and multiple concerns of the financial

order to avoid giving rise to cost-push inflation, the administration. In this way, the financial administration

amount by which basic industry product prices are will be able to collect financial strength to engage in

raised should not exceed the capacity of the processing undertakings which safeguard socioeconomic stability so

and manufacturing industries to absorb. The processing that agriculture, communications, and other basic indusand manufacturing industries should also actively pro- tries which require financial support will have a stable

mote technological transformation and raise the level of funds source. Also, we will avoid the past situation

operational management, to increase their capacity to whereby, when the agricultural situation saw a slight turn

absorb the basic industry product price rises. for the better, the financial administration, because of its

dual functions and its desire to maximize profits,

2. Reforming the existing financial structure to provide a reduced investment in agriculture. This led to the agrisystems base on which to stabilize state investment in cultural situation again affecting socioeconomic stability

agriculture. Although rationalization of the overall price and it was necessary to again increase funds investment

structure will improve the profitability of agricultural in agriculture. This produced cyclical oscillations.

investment, because of the innate patterns of industrialization, the earnings rate of agricultural investment will 3. Further promoting agricultural product price reform,

always be lower that that of nonagricultural industries, especially the reform of sales prices, and clearing out the

Thus, state financial support of agriculture is an indis- agricultural funds flow circulation channels. Although

pensable condition for the stable growth of agriculture. reform of the financial system will provide a systems

However, the existing structure is far from advantageous guarantee for increasing agricultural investment by the

to having the financial administration bring this role into financial administration, if the existing serious inversion

play. of the purchase and sales prices of agricultural products

is not reformed, the financial administration will not

Seen from experiences around the world, the primary have much in the way of funds to use in supporting

goal of the state financial administration is to maintain, agriculture. Thus, if we are to increase agricultural funds

through economic means, the stability of society and not investment, we must reform the sales prices of agriculto achieve maximization of profits. However, in our tural products. The specific ideas are: 1) reducing the

country, the primary function of state financial admin- number of types of agricultural products sold at cheap

istration is to directly participate in economic construc- prices. It is proposed that for the next several years, we

tion and promote economic growth. This has meant that should gradually abolish, except for grain, the system of

governments at various levels have used the financial selling food products cheaply. 2) Reducing, in value

administration to seek maximization of profits and terms, the amount of cheap grain subject to unified sale

socioeconomic stability has been pushed back into and completely abolishing the supply of cheap grain,

second place. The result of this has been that the various except in the case of food grain, readjusting the existing

levels of financial administration have zealously engaged standards for the supply of food grain, and reducing the

in building processing and manufacturing enterprises proportion of cheap grain supply. We should gradually

which require little investment and see quick results, readjust the price of cheap grain supply and gradually

Meanwhile, those industries which have long investment achieve a situation where sale price is the same as

cycles and poor investment earnings, but which are of purchase price, to achieve price rationality. 3) After the

major importance to the long-term socioeconomic sta- sales price of agricultural products is increased, limited

bility and which the financial administration should subsidies should be provided to residents. The basic

support, such as the basic industries of agriculture and principle should be that the growth in residents' income

communications, are not given support by the financial should be equal to, or faster than, the rise in food prices,

administration. Thus, we propose the reform of the so that subsidies can be reduced and then abolished. In

existing financial system. The basic suggestion is that the the opposite situation, the subsidies should be decided in

financial administration should not get directly involved accordance with residents' current consumption strucin building projects in which profit is the aim. They ture, so that even if food prices grow more quickly than

should not invest in these projects and should not take income, if residents' food consumption is clearly already

profits from existing state enterprises. The financial in the lead, then the subsidies should be reduced or

administration should only use taxation income and abolished. Recently, the State Council has made some

other financial administration income to engage in arrangements for this reform and at present the problem

undertakings which have the maintenance of socioeco- is that some difficulties have to be overcome in various

nomic stability as their goal. State economic activities areas before this can really be implemented. If this

which have profit as their goal should be taken on by problem is not resolved, the funds which the financial

other specialized organs (such as state asset management administration will have for investing in agriculture will

bureaus). Such organs will have profit maximization as be extremely limited.

their goals, will obtain profits from existing state-run

enterprises, and will use these profits to realize growth in 4. Further promoting reform in the rural areas and

state assets and promote economic development, putting in order a peasant investment mechanism. In the
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74 ECONOMIC 23 September 1991

new agricultural investment structure, the peasants now Hainan Province replaced the grain procurement prices form an agricultural investment entity. At present, the as well as the prices paid by township residents for

peasants do have an investment capacity but the rationed grain with state guidance prices and raised

problem is how to create a policy environment which prices as appropriate to bring procurement and selling

will encourage them to put their funds into agriculture. prices in line with one another. The move took effect on

To this end we propose: 1 May and had the approval of the State Council. How is

the policy working out in practice? What is the response A. Using the tax lever to regulate the earnings of dif- in the various quarters in society? What are the special

ferent industries in the rural areas. The comparative features of grain price reform in Hainan? Are there

benefits of agriculture are low and this is a major reason lessons the rest of the nation can learn? Armed with these

peasants are unwilling to invest in agriculture. The state, questions, we did a study in Hainan in mid- and late

at the same time as readjusting the price structure and April.

raising the benefits obtainable from agriculture, should

use the tax lever to appropriately reduce the earnings of

nonagricultural industries, so that there is coordinated Basic Features of Grain Price Reform Plan

funds input in both agriculture and nonagricultural

industries. Apart from the fact that it was introduced at the same

time as other grain price reform plans across the nation, B. Promoting the development of an agricultural funds Hainan's plan differs from the latter in six ways:

market, to resolve the contradictions between the overall

nature of agricultural funds needs and the dispersed -A different form of price management. While the rest

nature of peasants funds supply. The key lies in strength- of the nation still follows the grain procurement price

ening the financial capacity of the agricultural bank and system, Hainan has switched to the state guidance

the rural credit cooperatives, to actively organize savings price system.

and issue financial bonds, to collect together the funds

dispersed in the hands of peasant households and then -Prices can float within a certain range. Under the

invest them in building basic agricultural facilities. Hainan grain price reform plan approved by the State

Council, Hainan has the power to raise or lower

C. Further perfecting the double-level operational procurement and selling prices by 5 percent. In consystem, to resolve the problems of property rights being trast, other localities still follow state unified prices hazy, the operational scale of land being too small, and and have no power to adjust prices in either direction.

peasants being unwilling to invest in agriculture. We

propose that the collective, unified-operation entities be -Both procurement and selling prices have been

the economic entities, taking on the tasks of production, changed. Other plans only raised the selling prices of

investment, and distribution decisionmaking. Under the rationed grain and oil available to township residents,

unified decisionmaking of the collectives, the peasant while the Hainan plan also increased procurement

households will be relatively independent laboring units prices. The procurement price of 50 kilograms of

taking on the completion of various tasks through con- Grade 3 rice is now 35 yuan, up from 25 yuan.

tracts. To this end, we should change the existing contract system whereby every family contracts and every -The increase in selling prices is s l. Other

household plants fields. On the basis of upholding family plans in the nation raise the selling prices of flour, rice,

operations, in accordance with the operational capacity and, corn rationed to township residents by 0.2 yuan

of contractors, an appropriate amount of land should be per kilogram on the average. In contrast, the Hainan

contracted to them and operations of scale should be plan increases the selling price of Grade 3 polished implemented. The peasant households will then, apart long-grain non-glutinous rice by 0.68 yuan per kilofrom obtaining rewards in accordance with the amount gram, so 50 kilograms now sell for 50 yuan, up from 16

and quantity of labor they put in, also obtain earnings yuan, higher than the 44.5 yuan in Guangdong and 40

from funds they invest. In this way, it will be possible to yuan in Fujian. We can thus see that the increases are

avoid the haziness of property rights relations which higher in Hainan.

exists in the current contracting method and the problem -Put an end to the situation where selling prices are

of peasants being unwilling to invest, lower than procurement prices. The finance agency

has stopped subsidizing the difference between grain Grain Price Reform in Hainan procurement prices and selling prices but continues to

91CE0681A Beijing ZHONGGUO TONGJI XINXI subsidize operating costs (0.14 yuan per kilogram).

BAO in Chinese 4 Jul 91 p 1 Elsewhere in the country, new grain selling prices remain lower than the current procurement prices.

[Article by Qiu Xiaohua (6726 2556 5478) and Xie The government continues to subsidize the difference

Hongguang (6200 7703 0342): "Grain Price Reform in between the two sets of prices as well as the operating

Hainan"] costs.

[Text] As measures were adopted around the nation to -No uniform worker subsidies have been set since

raise the selling prices of grain and oil appropriately, prices go up by varying amounts across the nation.
JPRS-CAR-91-052

23 September 1991 ECONOMIC 75

Worker subsidies increase 6 yuan per person nation- Subsidies were calculated and worked out with meticuwide. In Hainan, it is 10 yuan. lous attention to detail, the idea being to take care of the

majority while trying to accommodate the special cases

In the one month or so since its introduction, the as well. Propaganda work was solid and extensive,

situation overall has been quite stable. In conversations building a consensus on the basis of understanding. The

with the local cadres and masses, we found that most state supported the plan and gave the province room to

people support and endorse the latest round of reform, maneuver and make changes.

the masses are at ease, food supply is normal, society is

orderly and market prices are stable. Previously Hainan had already taken two steps to reform

its grain procurement and selling system, which paved

The latest reform by Hainan has clearly paid off in four the way for the current round of reform. In the first step,

ways. First, it has basically divided the burden of the which took place between 1985 and 1988 before it

trading and consumption of grain among the govern- became a province, Hainan replaced the low prices for

ment, enterprises, and individuals, putting an end to the grain consumed domestically, grain used in food prosituation in which the government assumed total respon- cessing, grain used as nonagricultural forage, as well as

sibility, and turned every party's responsibility from assorted special grains-in-aid and grain used as a reward

hidden to overt. Basically the Hainan plan divided up with negotiated prices. It also cut 35 million kilograms

the burden as follows: state, 38 percent; enterprises, 42 from the low-priced grain quota, down to 50 million

percent; and individuals, 20 percent. Second, it has kilograms per year. The second step was taken at the

mobilized the enthusiasm of peasants for growing grain, beginning of 1990, after Hainan was made a province. In

Now that grain procurement prices have been raised, response to changes in the incomes and consumption

peasants in the province will increase their earnings patterns of its residents, grain ration was reduced by an

17.36 million yuan a year. This will make the peasants average 20 percent. At the same time the prices of

feel that grain cultivation is profitable. A trend toward cooking oil and sugar were deregulated. The low-priced

increasing the acreage under cultivation has appeared in grain ration for township residents was cut from 12.75

some places. Moreover, peasants have become notably kilograms per person per month on the average to about

more eager to meet the government grain procurement 10 kilograms. This alone trimmed the low-priced grain

quotas. Third, it has made township residents more quota by 60 million kilograms and reduced government

conservation-minded when it comes to grain consump- subsidies by 90 million yuan. By unveiling a string of

tion. No grain shortages have appeared in the wake of reform measures like these, Hainan gradually dismanthe reform. On the contrary, grain supply is fairly stable. tled the peripheral barriers surrounding grain procureThis shows that with grain prices up, people have ment reform and made all parties more adaptable,

become more economical in the way they consume grain, thereby lessening the pressure of the latest round of

Fourth, prices are stable, lessening the burden on the reform.

government coffers. Social commodity retail prices in

the province have been steadily declining since last year. To make the current round of reform a success, the

As a result of grain price reform, the finance department departments involved in Hainan have done a good deal

saw its revenues go up 2.20 million yuan while spending of research and studies, analyzing in earnest the possible

went up 1.17 million yuan, for a net gain of over 100 impact of reform on different types of consumers and

million yuan. It was able to reduce borrowing from the worked out carefully the corresponding compensation

banks by a corresponding amount and saved some funds standards so that the bulk of residents would not have to

for other undertakings. spend an excessive amount of money on food. Under

this reform, every worker was given 10 yuan in subsidy

From what we have learned in this survey, despite its per month. Add the 5.5 yuan of subsidy granted to him

overall success, there is also room for improvement in in 1990 when grain ration was reduced, and each housethe latest round of grain price reform, hold receives a total of 31 yuan in grain price differential

compensation. Assuming that each kilogram costs 1

yuan, the subsidy would enable the household to buy 31

Basic Lessons From the Success Story of Grain Price kilograms of grain, or 10 kilograms or so per person,

Reform basically unchanged from the fixed amount. In other

words, the vast majority of residents do not really have

Hainan took a bolder step than the rest of the nation in to pay more for grain after reform although the prices of

the current round of grain price reform. By and large it manufactured grain products have indeed risen. As a

has been "smooth sailing." Apart from reasons that have result, there have been relatively few complaints from

to do with the macroeconomic climate, (the whole nation the masses about grain price reform. Compared to the

is moving in that direction, both the State Council and rest of the nation, grain price subsidies in Hainan have

the CPC Central Committee have made grain price been set a fairly high level.

reform a priority, the principles and policies are correct,

and timing is good), there are factors unique to Hainan Before the reform plan was introduced, Hainan at first

itself, which can be summed up as follows: The proce- planned to make the change in one big stroke by deregdures are scientific and safe, with the province deciding ulating grain prices and had actually done a lot of

to clear the periphery first before storming the fortress. publicity with that in mind to achieve an understanding
JPRS-CAR-91-052

76 ECONOMIC 23 September 1991

and create the consensus that reform was inevitable. As further adjusted grain procurement and selling prices.

finally approved by the State Council, the reform plan Relatively risk-free and easy to carry out, the Hainan

was less risky than the original version. Besides, party plan was understood by and had the cooperation of most

and government leaders at all levels took the introduc- citizens. The whole process of reform has been smooth

tion of reform measures very seriously. They further and steady. Except for the fact that grain operating costs

refined publicity and educational work, unified thinking, continue to be subsidized by the government, reform in

and carried out in-depth surveys and studies to uncover that area having been put on hold, the relations between

and solve problems in time. Consequently, the current grain procurement prices and grain selling prices have

round of reform was greeted by a sympathetic public now basically been sorted out. Thus a new operating

opinion and a favorable climate, mechanism is now in place. What the Hainan experience

proves is that although grain price reform is highly Hainan leads the nation in adopting state guidance sensitive, affecting as it does the vital interests of the

prices and equalizing procurement prices with selling masses, and that we must move extremely cautiously, it

prices. Apart from geographical factors, it has also ben- can be done. On the contrary, provided we are deterefited from powerful support from the state. Before mined, choose and stick to the right approach, seize the

Hainan Province became self-sufficient in grain, the opportunity, and take thorough and comprehensive

state shipped 275 million kilograms of grain from the measures, we will accomplish something, perhaps a lot.

mainland to Hainan each year, including 225 million We propose that as their next move in grain price

kilograms of low-priced grain, about 70 percent of the reform, localities across the nation concentrate on

province's low-priced grain quota. This move alone reducing low-priced grain quotas. Nationwide most

enabled Hainan to go ahead with grain price reform by township residents do not use up all of their ration,

easing the various contradictions that might otherwise leaving about 3 kilograms unused per person per month,

arise in the course of reform. so the ration can be cut back as appropriate. Moreover,

Besides, Hainan is an island with a predominantly rural in the wake of rising incomes, grain accounts for just 6.6

population. This is an advantage when it comes to grain percent of a person's total living expenses. Thus the

price reform, amount of extra spending for the resident resulting from

the deregulation of commercial grain would have only a

limited effect on his budget and not cause strong reperBasic Philosophy Behind Nationwide Grain Price cussions. It is possible to trim 5 billion kilograms from

Reform: The Hainan Perspective industrial grain and domestic grain ration quotas, which

will save the government about 2 billion yuan in subsiSince 1 May, the selling prices of grain and cooking oil dies and pave the way for deepening grain price reform

have been raised around the nation successfully. Corn- and further raising grain selling prices by removing the

pared to Hainan, however, those places have made only external hurdles.

a relatively modest move. There the relations between

grain procurement prices and grain selling prices are far

from being straightened out. Even today the selling price 2. Mobilize the enthusiasm of peasants for growing

is off the procurement price by 0.1 yuan or so. With the grain. Right now we have to deal with the fact that state selling price still lower than the procurement price, the protected prices are not doing what they should do and burden on the treasury remains onerous. Moreover, that the prices of agricultural capital goods are soaring. burden atowhi the treas rernmains oroures. Mora ar, But we must also think long-term and solve the problem prices at which the government procures grain are of excessively low grain procurement prices. In the becoming more and more depressed, affecting the peas- current ro w grain pricurem, Hainan inke

ants' enthusiasm for production. Thus the task of deep- current round of grain price reform, Hainan linked

ening grain price reform across the nation remains an procurement prices to selling prices and solved the

arduous one. While the Hainan experience in grain price problem of the underpricing of grain at the procurement

reform is unique in some ways, it does offer a few lessons end. The reform enjoyed widespread support among the

applicable to the rest of the nation. peasants and was highly effective in unleashing their

enthusiasm for growing grain. Elsewhere in the nation,

1. The course taken by Hainan in grain price reform is however, grain price reform was limited to raising selling

practical and feasible and can certainly be duplicated, prices without doing anything to procurement prices,

Hainan is an island and a special zone. However, as a something which has elicited many complaints among

long-term grain-importing province, it has made a suc- the peasants. There are strong demands and high hopes

cessful move in grain price reform after years of hard that grain procurement prices will be raised as well. In

work. It success story offers a lesson that others can our opinion, grain procurement prices should be raised

emulate. In the seven years since 1985, when reform at the right moment provided there are sound internal

began, Hainan has been following a course of incremen- agricultural price ratios to send a clear signal to the

talism. It started out by attacking the periphery and then peasant and preserve and enhance his enthusiasm for

proceeded to storm the fortress, introducing progres- growing grain, thus setting the stage for a bumper harsively more thorough reform measures as the years went vest.

by. Specifically, it replaced the low prices of grain

consumed by industry with negotiated prices. Next it 3. Deal with different cases differently. Formulate a

reduced the amount of grain ration for residents. Then it comprehensive subsidy reform policy to soften the
JPRS-CAR-91-052

23 September 1991 ECONOMIC 77

impact of reform. In the course of reforming the grain 5. The strategy in grain price reform should be one of

price system, Hainan took pains to develop an appro- comprehensive balance on the national level and decenpriate subsidy policy to minimize the burden of reform tralized decision-making on the local level. China is a

upon the masses. In the short run, it does not do the vast country where the level of development varies from

government coffers much good when it has to shell out area to area. The conditions in grain importing areas are

subsidies even as reform is under way. On the other different from those in grain-exporting areas. Thus grain

hand, Hainan believes that as reform measures go into price reform cannot be carried out according to a

effect and relations are sorted out,t he financial burden national mode. The success stories in Hainan, Fujian,

on the state in the long haul will become progressively and Guangdong also tell us that decentralized policylighter. As we see it, this way of looking ahead instead of making and suiting measures to local conditions is a

looking back at the past helps people transcend the feasible approach in grain price reform. It is relatively

original mode of thinking and begin to consider and risk-free and is only slightly burdensome for the state.

solve problems from a new perspective. The reality in We should stick to this tried-and-true approach. Given a

China is that after more than a decade of reform and comprehensive balance on the national level, the localiopening to the outside world, the incomes of most people ties should decide the pace and model for their own

have risen notably. Instead of struggling to feed and reform while the state should concentrate on inspection

clothe themselves, some township residents have now and supervision and deal with any contingency.

attained a fairly comfortable standard of living. Thus

there is now a greater ability to cope with reform Ministry Says Timber Imports Increase

economically. Grain price reform is consistent with HK1908131991 Hong Kong TA KUNG PAO in Chinese

public wishes, but it must be achieved gradually. Also we 13 Aug 91 p 25

must see that the rise in incomes has been uneven. The

incomes of some households have been inching up [Report: "Interior Suffers From Disequilibrium of

sluggishly and some still live amid hardships. Their Timber Demand and Supply, Will Import Large Quaneconomic ability to cope with reform remains fragile. tities of Timber From Abroad"]

According to a study, among township households where

the per capita monthly income is less than 70 yuan [Text] The Ministry of Materials and Equipment's

(about 7.7 percent of all township households), per ZHONGGUO WUZI BAO [China's Material Post]

capita savings amount to only 352 yuan, compared with reports that domestic timber consumption has recently 1,909 yuan among households where per capita monthly drastically increased, widening the gap between demand

income is over 190 yuan (about 10.7 percent of all and supply in light of inadequate domestic timber pro- households,) a 4.4-fold difference. Therefore, different duction. As the shortage in domestic forest resources in

cases must be dealt with differently and a proper reform the next few years is expected to become very sharp, bulk

subsidy policy must be put together to suit different import of timber will be a long-term state policy. For this

income levels in order to ensure that the basic subsis- reason, people in the timber industry believe that this

tence needs of low-income residents are met. This is an will create a tremendous impact on global timber sales

important reason why reform has been successful in and the interior's foreign trade as it has always been a

Hainan. large timber consumption market.

Currently the interior consumes up to 100 million cubic

4. Pay attention to the timing of deepening grain price meters of timber each year, but produces domestically

reform. Hainan did a very good job in timing its grain less than 70 million cubic meters, leaving a wide gap

price reform. They picked the year following the bumper between demand and supply. As domestic forest

harvest of 1984 to replace the low prices of industrial resources have long been deprived of scientific care and

grain with negotiated prices. They also picked 1990 and treatment and subject to an imbalance between felling

1991, when peasants reaped a bumper crop, when and planting, forest resources deficits have been growing

market supply and market demand were in balance, and annually. According to statistics, the country's forest

when prices were stable, to cut the grain ration for areas are now 12.98 percent, much lower than the

residents and to equalize procurement prices with selling world's and Asia's 32 and 22 percent respectively.

prices, with anticipated results. As we see it, nationally Amounts of timber suitable for felling in future forests

speaking four criteria must be met in determining when will be less than 1.5 billion cubic meters, which will last

is a good time to deepen grain price reform. First, has only seven to eight years. One third of the country's 131

there been a bumper harvest? Second, is the overall price state-run forestry bureaus are faced with the dire proslevel on the market stable? Third, does the state have pect of running out of forests.

enough reserves? Fourth, can the finance office, enter- Faced with the growing domestic demand for timber, prise, and individual cope? Taking the four factors into previous measures such as economy of use, finding

consideration, we should not make regulations binding substitutes, and placing limits on timber consumption

on the whole nation across the board. Instead, the are no longer capable of solving problems. Only vast

localities should draw up their own grain price reform increases in imports can ease the contradiction. Recently plan depending on local conditions, the domestic timber processing industry has also been
JPRS-CAR-91-052

78 ECONOMIC 23 September 1991

developing rapidly. Synthetic plastic-board industries in Over the past three years, 200 villages in the province

Shanghai and Beijing, which enjoy some sort of founda- have established comprehensive service centers to serve

tion, often find their production facilities laying idle the herdsmen. As a result, the province's animal husowing to lack of raw materials, which cause great bandry industry has developed rapidly, and the growth

wastage. rate in the number of livestock increased from 3 percent

The report believes that the country each year needs to annually in 1979 to 22 percent in 1990.

import 15 million cubic meters of timber. If each cubic

meter of timber consumes three cubic meters of forest, Agricultural Research Projects Underway

that import amount could each year save 50 million 0W1409043891 Beijing Central People's Radio

cubic meters of forest from felling. This will be good for Network in Mandarin 0930 GMT 13 Sep 91

maintaining a stable transition for the domestic forest

industries. Meanwhile, as domestic forest resources are [From the "National Hookup" program]

concentrated in the northeast and southwest, whereas big

timber consumers are coastal cities in the southeast, [Text] According to XINHUA, the renowned agriculdomestic timber transport has been under a heavy ture-related research projects of the nation's Eighth

burden. Import of timber by coastal cities will alleviate Five-Year Plan are already underway. The Science and

the currently tight railway transport schedules. People in Technology Department of the Ministry of Agriculture

the timber industry point out that China is a big timber- said that mammoth research will be conducted on 17

consuming country in the world, with a wide domestic projects concerning the development of agricultural

timber market. If the interior is going to import vast resources, cultivation of new strains, the harnessing of

amounts of timber in the future, this will have a rela- resources in some regions, crop protection, animal hustively big impact on China's foreign trade and the global bandry, aquatic products, feeds, and others. The nation

timber market. also expects that its agricultural research will reach a

higher level by the end of the Eighth Five-Year Plan

period.

Qinghai Strengthens Grasslands Construction According to the department, cultivating new strains and

0W0909081491 Beijing XINHUA in English devising comprehensive measures to harness the

0717 GMT 9 Sep 91 resources in five large regions in the country will be the

priorities of the agricultural research program of the

[Text] Beijing, September 9 (XINHUA)-The provincial Eighth Five-Year Plan. With regard to the cultivation of

government in northwest China's Qinghai Province has new strains, efforts will be made to further improve the

adopted measures to encourage herdsmen to forsake quality and productivity of new strains. The target is to

their nomadic life and instead settle in one area to raise cultivate 250 new strains, and the productivity of some

livestock. of them will be 8-15 percent higher than those cultivated

As a result, the number of livestock in the province, one during the Seventh Five-Year Plan period.

of the country's five largest pastoral areas, reached a It has been learned that since the founding of New China

record high of over 23.18 million last year, according to 40 years ago, the nation has upgraded its major seed

today's PEOPLE'S DAILY. strains three times, thanks to the cultivation of more

than 4,000 good strains. During the next five years, At present, over 521,900 people in the province are China will organize a large number of experts to carry

engaging in animal husbandry. The grassland area in out comprehensive research to boost the productivity of

Qinghai now stands at 36.47 million hectares (ha), and the low and medium-yielding croplands in the

accounts for 96 percent of the province's total land area. Songjiang-Nengjiang plain, the Huanghe-Huaihe-Haihe

The output value of the animal husbandry industry is the plain, the loess plateau, the dry crop region in North

second highest contributor to the province's gross agri- China, and the red and yellow earth region in South

cultural output value. China. Moreover, on the basis of the work started during

the Seventh Five-Year Plan period, efforts will be made

As part of an effort to strengthen grasslands construction to complete over 50 experimental zones in various parts

the provincial financial department invested over 498 of the country, with the exception of Xinjiang, Qinghai,

million yuan to fence 591,633 ha. of prairie and plant Tibet, and Hainan.

grass on 386,470 ha., between 1979 and 1990. The world-renowned research to increase productivity in

In addition, the province constructed livestock shelters the Huanghe-Huaihe-Haihe plain will be expanded from

covering 244,200 square meters and improved over farming of the previous five-year plan period to all

222,530 ha of grasslands during the past decade. At sectors of the rural economy, including animal huspresent, 38 percent of Qinghai's previously nomadic bandry and processing of agricultural and sideline prodherdsmen have decided to settle in one area. ucts.
JPRS-CAR-91-052

23 September 1991 SOCIAL 79

Labor Official Urges Social Security Reform enterprises and promote reform of labor and wage sys91CMO519A Beijing JINGJI CANKAO BAO in Chinese tems, reform of the social security system must be

8 Jul 91 p 3 accelerated, and reform should be carried out in conjunction with reforms of the labor and wage systems in a

coordinated way.

[Article by Han Liangcheng of the Insurance Benefits

Department of the Ministry of Labor: "Reform of the Through reform, it is necessary to gradually establish a

Social Security System Should Not Be Delayed for a social security system that combines basic insurance

Single Moment"] with supplementary insurance, is funded by the state,

enterprises and individuals, links benefits to premium

[Text] Since the start of economic reform, China's payments and is managed in a socialized way.

existing social security system has become increasingly

unsuited to the needs of the development of socialist 1. The old-age insurance system

planned commodity economy. The state has tried

reforms, and the following have been the main items: (A) Change the single-layer insurance into multi-layer

insurance. The old-age insurance for enterprise

1. Enterprises have implemented on a trial basis a social employees consists of three parts: one, the state basic

plan for pension budgets. At present, enterprises in 2,274 old-age insurance, that is, mandatory insurance; two,

cities and counties, accounting for 96 percent of all cities enterprises' supplementary old-age insurance; and, third,

and counties nationwide, have implemented plans for individual savings to supplement old-age insurance.

pension budgets; 52 million working employees and over

10 million retirees are participating in the plan, over 17 (B) Implement social plans for pension budgets, and

billion yuan in funds have been collected annually, and establish a system of old-age insurance funds. Old-age

over 15 billion yuan has been paid annually. Employees insurance funds are to be raised, according to real needs

of urban and town collective enterprises in 1,047 cities and enterprises' supporting capabilities. On the basis of

and counties, accounting for 44 percent of all cities and the principle of "partial accumulation," the state, entercounties nationwide, have implemented plans for pen- prises and individuals are to share the burden. Plans for

sion budgets. pension budgets will move from city- and county-level

plans to provincial-level plans, and ultimately to

2. Establishment of a retirement and old-age insurance national-level plans.

system for contract workers of state-run enterprises. By

the end of 1989, nationwide 12 million urban contract (C) Establish a system of individual employees' paying

workers were covered by retirement and old-age insur- old-age insurance premiums.

ance. Units deduct about 15 percent of total wages for (D) Establish a system ensuring that retirees' real income

old-age insurance premiums, and the individual pays does not decrease due to inflation.

about 3 percent of his standard wages. The establishment

of the system has eliminated the contract workers' worry, 2. The system of medical insurance

and ensures the smooth implementation of labor reform.

Medical insurance should be reformed according to the

3. The preliminary establishment of a system of price principles of ensuring medical treatment, of eliminating

subsidy for retirees to mitigate the impact of inflation on waste, and of individuals' paying an appropriate amount

the life of retirees. in premium. Reform ideas are:

4. The preliminary establishment of a system of job- (A) Implement the method of individual employees

waiting insurance for employees of state-run enterprises. bearing responsibility for a small part of the expenses for

The source of funds for this system are enterprises pay a their medical care.

premium of 1 percent of the total standard wages of

employees. During job-waiting, an employee can receive, (B) Establish medical insurance funds. The funds are to

depending on seniority and amount of time job-waiting, be raised by social security institutions, according to the

job-waiting relief benefits in the amount of 50 to 75 principle of "meeting real needs and keeping a small

percent of his standard wages. For job-waiting relief surplus"; the units are to pay the amount equal to a

benefits, those with five or more years of employment certain portion of total wages, and the individual

history will be eligible for a maximum of two years, and employees are to pay the amount equal to a certain

those with less than five years of employment history will portion of their respective standard wages.

be eligible for a maximum of one year.

The above-mentioned reforms have played a positive 3. Job-waiting insurance

role in protecting the livelihood of employees and in (A) Expand the scope of coverage of job-waiting insurpromoting the development of production. They have ance. The scope of job-waiting insurance should graducreated conditions for a comprehensive deepening of ally develop from covering employees of bankrupt enterreform of the social security system, but have not fun- prises, employees laid off during the mandatory

damentally affected the old social security system; and rectification period for enterprises on the edge of bankthose old defects still exist to some extent. To invigorate ruptcy, workers whose contracts have been terminated,
JPRS-CAR-91-052

80 SOCIAL 23 September 1991

and employees dismissed by enterprises, to covering all Regarding benefits for job-related death, it is necessary

workers in all urban and town enterprises, to appropriately increase the amount for funeral-expense

benefits and the amount for support for surviving family (B) Appropriately raise the premium for job-waiting members; at the same time, establish a system of oneinsurance, time compensation.

(C) Improve management of job-waiting people, and

train and provide employment guidance for job-waiting (B) Establish a system of periodic adjustment of injury

people. Help job-waiting people find new jobs as soon as insurance benefits, to keep up with inflation and

possible, to shorten the time in job-waiting, reduce the improvement of people's living standards.

payment of job-waiting insurance premiums and alleviate enterprises' burden. (C) Establish injury insurance funds.

4. The system of injury insurance Reform of the social security system involves various

(A) Adjust the amount of benefits for injuries. It is aspects and is very complicated. It is necessary to recognecessary to change the method regarding injury benefits nize the difficulty of reform, and to actively search for

for employees from the existing method of providing solutions. During the Eighth Five-Year Plan period,

pensions only for those employees who have completely definitively take reform of the old-age insurance system

lost their ability to work into a method of providing and job-waiting insurance system as the breakthrough

long-term-based injury annuities as well as one-time points for reform of the social security system. At the

injury compensation for all injured employees in accor- same time, it is necessary to reform the systems of

dance with the degree of loss of ability to work. medical insurance and injury insurance.
JPRS-CAR-91-052

23 September 1991 MILITARY, PUBLIC SECURITY 81

Profit Policy Goal Gives 'Impetus' To Arms Sales 2. Air Technology Import-Export Corporation. This cor91CM0470A Hong Kong CHIU-SHIH NIEN-TAI [THE poration was reorganized from the former Third MinNINETIES] in Chinese No 256, 1 May 91 pp 52-53 istry of Machine Building Industry. It is responsible for

sales of MiG-19's, foreign sale models of F-7 and F-8

fighter planes, and FL-2 and FL-5 air missiles. It has

[Article by Cheng Zihua (4453 1311 5478): "Communist established branches abroad to sell space flight and

China's Weapons Diplomacy"] aviation products.

3. The Shipping Industry Corporation. This corporation [Text] During the early 1980's, the Chinese Communists was reorganized from the former Sixth Ministry of

established eight major import-export companies for Machine Building Industry. It is responsible for Ludaweapons. Munitions shipments increased from $1.2 bil- class and Jiangdong-class vessels, and warship sales, and

lion in 1980 to $3.1 billion in 1990. In order to learn about for foreign shipments of torpedoes, R-class, W-class, and

the real state of Communist China's armaments, Taiwan M-class submarines.

acquired quite a few specimens of Chinese Communist

equipment from Thailand and Israel, but most were 4. Electronics Technology Import-Export Corporation.

second generation weapons. This corporation was reorganized from the Fourth Ministry of Machine Building Industry. It is responsible for Following implementation of reform and opening to the sales of torpedo firing and electronic warfare systems,

outside world in 1978, the Chinese Communists used the anti-electronic warfare systems, and anti-electronic warshipment of munitions as a tool for earning foreign fare artillery systems.

exchange and for developing their overall interests in

order to give impetus to the flexible economic measures 5. Precision Machinery Import-Export Corporation.

of "enlivening the internal economy while opening to the This was reorganized from the former Eighth Ministry of

outside world" and to drastically change its former Machine Building Industry. It is responsible for sales of

policy about weapons shipments. SAM system air-defense missiles, C-801 ship-to-ship

A 3.6-Fold Growth in Weapons' Shipments Within 10 missiles, shore-to-ship Silkworm missiles, and all other

Years types of missiles.

Chinese Communist General Logistics Department data 6. Atomic Energy Import-Export Corporation. This corshow the establishment in the early 1980's, with the poration is responsible for servicing nuclear and bioapproval of the "State Council" and the "Central Mili- chemical defense equipment and the processing of

tary Affairs Committee," of eight large weapons import- nuclear waste.

export companies which combine industry and trade.

Munitions shipments abroad rose from $1.2 billion in 7. General Science and Technology Corporation. This is

1980 to $3.1 billion in 1990. Within the short space of 10 a unit under direct jurisdiction of the Chinese PLA

years, Chinese Communist weapons shipments grew [People's Liberation Army], and it is also Communist

3.6-fold. This showed these eight weapons import-export China's sole military sales agency corporation. It sells

companies to be outstanding units in "earning foreign strategic nuclear missiles and military satellites, as well

exchange" for Communist China. as observation and communication radar systems. Communist China's sales to Saudi Arabia of Dongfeng misThe Eight Weapons Import-Export Companies siles and carriers were also handled by the General Science and Technology Corporation.

1. The Northern Industrial Group. This group was

reorganized from the former Chinese Communist Fifth 8. The China New Age Corporation. This corporation is

Ministry of Machine Building Industry as a center for the general agent for the aforementioned seven large

production of conventional army weapons. Its exports corporations for the export of weapons. It is responsible

include the T-59, or the T-80 and T-85 tank, the YW- for handling sales of Chinese Communist ordnance

531-C, YW-531D, and E armored infantry combat vehi- abroad. The New Age Corporation is also the sales agent

cles; the YW-701A and B armored command cars; for the shipment of anything from equipment for indiYW-304-82 self-propelled mortar carriers, YW381-120 viduals to military computers.

self propelled howitzer carriers; YW-750 armored ambulances, anti-armor missiles or artillery; land-based No Legal Restrictions on Arms Shipments

Hongying Model 5 and Model 8 antiaircraft missiles;

machine guns, rifles, and both Black Star and Red Star In addition to the large weapons proxy corporations, all

pistols. In order to expand its "services," the northern weapons producing units in Communist China and

company not only established branch companies in the Chinese-owned agencies abroad may engage in weapons special economic zones, but also placed many large sales through certain channels. For example, the

advertisements in foreign military magazines showing Luoyang Photoelectricity Equipment Research Institute, fine equipment at reasonable prices and guaranteeing the Chengdu Aircraft Corporation, the Xi-an Oriental

after-sales service. It also participated in international Machinery Plant, the New Satellite On-board Equipweapons fairs in Beijing and elsewhere. ment Manufacturing Plant, the Xi-an Space Navigation
JPRS-CAR-91-052

82 MILITARY, PUBLIC SECURITY 23 September 1991

Equipment Corporation, the Dianhua Electronics Tech- process shows that the Chinese Communists are increasnology Research Institute, and the Nanchang Aircraft ingly commercializing the export of arms and ammuniManufacturing Corporation can all sell weapons. They tion. Analysis of Communist China's munitions export

may sell anything from equipment for which individuals policy shows a change from unitary to diversified sales

make deals to missile gyroscopes to strategic nuclear that Taiwan should heed.

missiles so long as there is a way to do it. Even individuals may buy this equipment. This shows that China is Taiwan Gets Chinese Communist Military Equipment

not limited by legal regulations in the shipment of From Third Countries

weapons abroad. The CPC Central Committee, the State

Council, and all business corporations under the juris- Actually, in the military weaponry development process,

diction of each of the PLA's general departments [Gen- Communist China has always posed a threat to Taiwan.

eral Staff Department, General Logistics Department, In order to gain an understanding of the real state of

etc.] may do anything possible to promote the sale of Communist China's armaments, Taiwan obtained quite

weapons abroad under a profit sharing policy. Since a bit of military equipment from Thailand and Israel,

1984, in particular, when the Chinese Communists particularly in the field of missile technology. Taiwan

required that all weapons sales corporations must be obtained specimens of Chinese Communist missiles

responsible for their own profits and losses and also through a Thailand agent. However, according to the

tender 50 percent of funds received to the central gov- Chinese Communists, most of the specimens that

ernment, in order to be successful, all sales corporations Taiwan has obtained from a third country are second

have created multiple channels to facilitate sales and generation weapons. Virtually all of the arms that Comhave greatly shortened the time required to obtain munist China has sold abroad are refitted and simplified

weapons. In a situation of not very much supervision models, and do not include third generation technology.

and control, "cheapness, sturdiness, durability, ease of Therefore, Taiwan has revealed that these specimens

operation, after sale service, and reasonable prices" have obtained from third countries cannot reflect the state of

become the best selling points in advertisements pro- development of Communist China's arms. According to

moting the sale of Chinese Communist weapons, an official in the Intelligence Department of the Chinese

Communist General Staff, Communist China's eight large arms corporations regularly receive orders of

Shipments of Red Star Pistols to Hong Kong and Taiwan unknown origin, and they also suspect that some of these

orders are for transshipment to Taiwan. Therefore, in

In addition to the economic factor in Communist processing them, the Chinese Communists are keenly aware of the possible intended use of the weapons. China's sales of weapons, its pursuit of a "weapons Granted that under the policy of making profits, Caindiplomacy" policy is an indirect strategy used to attack Gunt that expolts of man g profits, Cot

Taiwan. For example, Communist China's sales of munist China's exports of arms and ammunition are not

ydiplomatic controlled; nevertheless, in accepting orders, Chinese Dongfeng missiles to Saudi Arabia destroyed om Communist intelligence units can also make up their

relations between Taiwan and Saudi Arabia. Communist mind whether or not to sell after study. Clearly, both China's sales of munitions to the Third World also Communist China and Taiwan keep their separate

indirectly limit Taiwan's progress in diplomatic relations counsel on "arms shipments."

with the Third World.

Profits From Sales of Weapons Used To Improve WeapFurthermore, the Northern Industrial Group's delivery onry

Taiwan, of Black Star and Red Star pistols to Japan, Korea, and Hong Kong caused a rapid deterioration of In addition to the political and economic factors, one of

public order in Taiwan and Hong Kong. Possibly this the reasons that Communist China's shipments of arms publi order in Taiwa n and Hm ngs Cinas Possigpolicy; and ammunition are free of restrictions has to do with

was not a part of Communist China's foreign plc; national defense. Following the Chinese Communist nevertheless, it cannot be denied that in a situation in n non ement owingct o hineszeC ofuis

which weapons export companies have to pay a part of 1984 announcement of a cut of I million in the size of its

their Korea, profits Hong to Kong, the state, the annual export to Japan, armed forces, in particular, it has pursued a policy of and Taiwan of more than 100o,000 cutbacks in national defense expenditures. It is estiBlack Star and Red Star pistols can be done only with the mated that about 50 percent of the profits from Chinese tacit approval of the Chinese Communists. Communist arms sales were applied to national defense expenditures for the period 1984 to 1991, including 30

percent for national defense research expenditures, and

An official of the Chinese Communist Northern Indus- 20 percent for other construction. Analysis of Commutrial Company confirmed that the Northern Industrial nist China's allocation percentages suggests that the

Company's strategic spot for the export of arms was the Chinese Communists plan to pursue a gradual method in

Shenzhen special economic zone where business the long-range improvement of their weaponry. In

involving Black Star and Red Star pistols was a staple of coming years, Communist China is bound to pose a real

the export trade. Once a price was agreed upon, every- threat to Taiwan. This point is clear from the "shipthing from the placing of orders to transportation to the ments" of Black Star and Red Star pistols to Taiwan and

delivery of the goods was handled by professionals. The the sales of Dongfeng missiles to Saudi Arabia which
JPRS-CAR-91-052

23 September 1991 MILITARY, PUBLIC SECURITY 83

caused a rupture in diplomatic relations between Taiwan a major parallel mechanism, the first of its kind in the

and Saudi Arabia. In addition, the Chinese Communists world, through the use of artificial intelligence language. intend to import Soviet SU-27 fighters to redress the Heath, a renowned British computer professor, believes

balance in the air over the Taiwan Straits. It appears that that this constitutes a revolutionary idea in the history of

unless Taiwan further studies Communist China's policy computer structure.

in making arms shipments, the one that will be harmed

will be Taiwan not Communist China. Since his return to China in 1984, Li Deyi has shouldered a heavy responsibility as chief designer for our

Computer System Designer Profiled Armed Forces' command automation, a key project during the Seventh Five-Year Plan period. Command

0W2408013491 Beijing Central People's Radio automation is an important prerequisite for national

Network in Mandarin 2130 GMT 22 Aug 91 defense modernization and military modernization.

Currently, a revolutionary wave of new technology is

["Feature report" by station reporter Zhang Zhongwen sweeping over the entire world, and it has changed from the "News and Press Review" program: "An Out- tremendously the traditional form of military confronstanding Science-Technology Figure"] tation. Future warfare will be one of high technology and

[Text] Here is an introduction to Li Deyi, the deputy of system versus system. Advanced command systems

chief designer of our Armed Forces' command automa- can make up for inadequacies in weaponry.

tion. Through the concerted efforts of Li Deyi and his colIn June 1990, an academic book called "The Fuzzy leagues over a period of 10 years, command automation

Deductive Digital Database" [Mo Hu Yan Yi Shu Ju Ku of our Armed Forces has made significant progress.

2875 4739 3348 4946 2422 2207 1655] was published in From a monobase development system, the armed forces

New York in the United States. It aroused great interest computer application has entered the stage of a longamong the world's computer experts. The book puts range multibase development system. Command autoforward a theory concerning a new generation of com- mation has become a symbol of our Armed Forces'

puters. It was reprinted and distributed in many cities advancement toward quality improvement and innovaincluding London, Lisbon, Tokyo, and Toronto. The tion. It has strengthened the combat effectiveness of our

author of this book is Li Deyi, chief engineer of a certain troops. It has been learned from the relevant department

research institute under the General Staff Headquarters that since this all-army command automation system

of the People's Liberation Army. developed by Li Deyi and his colleagues was put into

actual application, it has steadily and reliably handled

Currently, electronic information technology has and processed several millions sets of documents,

become the most active and newly guided technology in graphic figures, and data, in the course of routine

the world of science and technology. Traditionally, com- combat, emergency rescue and relief work, and everyday

puters have long been used in digital calculation and combat readiness. It has won a class state award in

precision data processing. Great difficulties have been computer application. After scoring this major academic

encountered in attempts to directly and effectively use success, some foreign companies and research organiza- them for information management, policymaking, tions have repeatedly approached Li Deyi with high humane and social systems, and large complex systems, paying job offers and helped complete the formalities for

as well as for simulating human thought and processing his wife to further her studies abroad; however, all these

natural languages. Consequently, this has given rise to a have been duly declined by Li Deyi. He insisted that he

revolutionary idea to study the technology relating to the would like to assiduously carry on his work in this land,

structure for analog information computer systems and to which he has been firmly attached. What are his

fuzzy information processing technology, viewpoints on this matter?

The reason why the book "The Fuzzy Deductive Digital Li Deyi said: I have looked at the matter in this way:

Database" has attracted much attention is that Li Deyi Science and technology have no national boundaries.

has, by using a fuzzy language system as a nucleus, However, every scientist has his or her own motherland.

integrated artificial intelligence technology with digital I studied abroad for several years, and received training

database technology. This comprised a breakthrough in to upgrade my capability, but when I thought of my establishing a complete set of language processing sys- motherland, which is growing stronger and developing

tems and a method for fuzzy deduction. The 47-year-old fast, I was seized with a sense of responsibility. I wanted

Li Deyi is among the first batch of visiting scholars sent to return to the motherland; I wanted to tie my own

abroad by China after the Third Plenum of the 11 th CPC future with the destiny of my motherland. In this way, I

Central Committee. While stationed overseas, he created would live a fuller life, just like a drop of water returning

an auxiliary design system for a computer structure with to the sea. It will never dry up.
JPRS-CAR-91-052

84 TAIWAN 23 September 1991

Abuses in Taiwan Military Procurement condition management system" used in the Ministry of

91CM0470C Hong Kong CHIU-SHIH NIEN-TAI [THE Economic Affairs to the "Military Ordnance ProcureNINETIES] in Chinese No 256, 1 May 91 pp 59-61 ment Regulations." However, for lack of supporting

conditions, he found the going difficult.

[Article by Hsu Chun-ch'eng (1776 2689 6134): "Taiwan According to one Ministry of National Defense official,

Military Ordnance Procurement and Its Shortcomings"] inasmuch as legislators are rather unforgiving about

[Text] In order to get a piece of the military procurement "military ordnance procurement" projects, Ch'en Lu-an cake to eat, more than 6,000 firms, agents, and middlemen desires to abolish outmoded "military ordnance procurewho depend on military procurement projects for their ment" regulations. However, a study that aides and staff

whovival de mpend o itheach pocuremernth parojets fo eirg concerned in the General Staff Headquarters performed

survival compete with each other in the market, causing overruled Ch'en Lu-an's proposal leaving Ch'en Lu-an in

numerous difficulties in military procurement work. All a somewhat embarrassing position. In addition, Ch'en

the behind-the-scenes maneuvering in military ordnance Lu-an's desires to take in hand budgeting and equipment

procurement is the inevitable result of "military secrecy" matters also met with repeated reverses. Senior military

that protects a small number of "special interest groups." statesmen such as Liu An-ch'i [0491 1344 4388] and Kao

Guided by Premier Hao Po-ts'un since 1982, procure- K'uei-yuan [7599 7608 0337] phoned Ch'en Lu-an to ask

ment for "military investment," and for "weapons and whether he wanted senior military statesmen to come

equipment" to support war preparations, as well as forward to coordinate relations with military units. Submaintenance of "logistical supply" have become three sequently, Liu An-ch'i and the others also took the

items in the national defense budget to which the Min- initiative in telling Ch'en Lu-an that they would jointly

istry of National Defense gives extremely serious atten- "go to bat" for him with the Ministry of National

tion. Ministry of National Defense investment in these Defense. To their surprise, Ch'en Lu-an refused the

three items since 1987 is estimated at more than 400 offer. His reason was that he did not want the senior

billion yuan (new Taiwan [NT] dollars, and the same military statesmen to intercede in order to avoid a

applies hereinafter). By rights, the effect on Taiwan's backlash from the military on some subsequent matter.

economy of such a large expenditure should be "very

beneficial," but actually this is not the case. Of the Ch'en Lu-an's feeling that he is skating on thin ice shows

NT$400 billion investment in military ordnance, that if he tries to change the national defense budget and

approximately somewhat more than NT$250 billion is military procurement standards, many problems may

spent on procurement from abroad, and another some- arise. In the past, no one but Yu Ta-wei, Chiang Chingwhat more than NT$50 billion is taken up by the Chung kuo, and Hao Po-ts'un were able to get control of the

Shan Scientific Research Institute. Of the remaining budget and military procurement during their terms as

somewhat more than NT$100 billion, somewhat more minister of national defense. The power of all the others

than NT$50 billion is earned by firms in Taiwan and has been limited.

abroad, and the remaining NT$50 billion becomes a

target on which all arms agents or middlemen in Taiwan Overly High Foreign Procurement Ratio

cast covetous eyes. Take, for example, the 1992 budget that Ch'en Lu-an

Building a Military Ordnance Procurement System presented as minister of national defense. This budget

This situation shows that whether Taiwan has a clear-cut totals NT$264.5 billion, and its percentages (see table)

military ordnance policy after all is a matter that merits differ little from the national defense budget for 1991.

discussion. Since all of Taiwan's weaponry was supplied Although funds for matters related to military procureby the United States prior to the 1990's, whether Taiwan ment such as for major weapons and equipment predid or did not didor have a clear-cut ordnance procurement paredness, war preparations support, scientific research, av a id lea-cu ot ornace rocremnt and supply and maintenance amount to more than

policy was seemingly unimportant. However, as a result NT$100 billion, there is no marked difference from the

of American limitations on military sales to Taiwan after 1991 budget in the tasks to be performed. This shows

1990, Taiwan had to face realities. Only then did Hao t hn budget ' i s till pursuin Thesameoas

Po-ts'un issue orders to units concerned in the Ministry that Ch'en Lu-an's budget is still pursuing the same as

of National Defense to study revision of the "Military Hao Po-ts'un had for building the armed forces.

Ordnance Procurement Regulations" in order to build a

military ordnance procurement system. Simplified Table Showing Taiwan National Defense

From the time that the "Military Ordnance Procurement Budget Items and Expenditures

Regulations" were revised in 1985 until after Ch'en Category Particulars Money Percentage

Lu-an succeeded to the position of minister of national (NT$1,000)

defense in 1991, no further revisions were made until 25 Military Weapons and 57,044,640 21.56

January. These revisions included clarification of Investment Equipment

"secret" and "urgent" procurement, and the setting of

standards. Ch'en Lu-an intended to eliminate abuses in War Prepared- 13,544,736 5.12

military ordnance procurement, applying the "market ness Support
JPRS-CAR-91-052

23 September 1991 TAIWAN 85

Simplified Table Showing Taiwan National Defense' of more than 1,500 items of military ordnance abroad

accounting for 17.6 percent of total purchases. Thus, it Budget Items and Expenditures (Continued) purchased 82.4 percent internally. In terms of money

Category Particulars Money Percentage spent, the percentage of foreign procurement was 87

(N1$1,000) _ percent, while the percentage of internal procurement

Ordnance R & 2,188,500 0.83 was only 13 percent showing an overly high percentage D of foreign procurement.

Military Facil- 4,199,660 1.59 ities Domestic and Foreign Scramble for Military Procurement

Construction 14,839,526 5.62 Projects

and Equipment Statistics show more than 3,200 Taiwan firms among

Non-operating 4,319,889 1.63 those seeking to get a piece of the military procurement Circulating cake, and more than 3,200 agents or middlemen, as well,

Funds for a total of somewhat more than 6,000 firms who are

Military Edu- 709,870 0.27 dependent on military procurement projects for their

cation Facili- survival. The overly large number of firms involved in

ties mutual market competition causes very many difficulScientific 11,596,150 4.38 ties for military procurement. An official in the military

Research procurement group stationed in the United States said

Scientific 817,700 0.31 that because of the huge sums spent each year on the

Research procurement of military goods in the United States, Equipment approximately $620 million to be used in military purOperational Military 2,084,624 0.79 chases from the United States is deposited in a special

Support Administra- savings account in an American bank, thereby earning

20.79% tion high interest. However, this interest does not become a

Political War- 1,363,652 0.52 part of Ministry of National Defense budgeted expendi- fare tures. Instead, it is tapped for special expenses incurred

Intelligence 7,265,990 2.75 by the high-ranking military officers responsible for

Work military procurement in the United States. Additionally,

Combat 2,267,585 0.86 in order to avoid trouble, the Ministry of National

Training Defense regularly transfers prickly military procurement M 6cases out of Taiwan, having its military procurement group call for tenders abroad. This makes arms agents in

Supply and 33,809,572 12.78 Taiwan somewhat unhappy, and it creates a headache

Maintenance for the military procurement group. Take some elecLogistical Sup- 5,781,980 2.16 tronic equipment for which the T'ai-i Company was port acting as the agent. Because T'ai-i, the Swiss Overseas

Military Edu- 1,034,990 0.39 Company and the K'ang-ti Company were all competing

cation for the bid, each of them relying on retired high-ranking

First Reserve 800,0000.30 0.30 military officers resident in Taiwan to broker the deal,

Fund they ended up suing each other. This caused the unit

Personnel Sup- Military Per- 92,435,460 34.94 letting the tender no end of irritation, and it finally

port 20.79% sonnel dumped the case on the military procurement group for

Insurance and 5,591,140 2.12 solution. As a result, the firms that these three agents

Pensions for represented became involved in the imbroglio, so now

the Disabled competitive bidding is still going on.

and Families

of the The More Secret the Work, the Greater the BehindDeceased _the-Scenes Maneuvering

Maintenance 2,210,830 0.84

of Military The fact is that all three agents- T'ai-i, the Swiss

Dependents _ Overseas Company, and K'ang-ti- had all previously

Total 264,531,815 100 sold military ordnance to the Ministry of National

Source of Data: "'Central Government General Budget," Vol 3. Defense. T'ai-i, for example, had imported Swedish

Bofors rapid fire guns; the Swedish Overseas CorporaGiven the absolute influence of Hao Po-ts'un, at most tion was the sole contractor of some electrical products;

Ch'en Lu-an will be able to shift sums of money in the and the K'ang-ti Company was the representative of the "military procurement flow." Its essential structure and BR Corporation in Taiwan, involved in the sale of "data

supervision will remain in the hands of military units, processing equipment" (a kind of computer equipment.) however. Take military ordnance procurement for The behind-the-scenes backers of these three firms were

example. From 1990 to 1991, Taiwan purchased a total retired high-ranking military officers, and since each of
JPRS-CAR-91-052

86 TAIWAN 23 September 1991

them had connections, they were a headache for the of students joining the party been dwindling, but even

Ministry of National Defense. Seemingly, all the behind- more members have been alienated as they "lose touch

the-scenes maneuvering in military ordnance procure- with the party." On 24 April, 28 college professors

ment is the inevitable result of "military secrecy" that announced their withdrawal from the KMT. Perhaps the

protects a small number of "special interest groups." KMT does not care about these members who have not

Although the abuses in military procurement cannot be been on good terms with the party, but the incident still

allayed by a few laws, out of consideration for "commer- sounds an alarm.

cial interests" and "cost benefits," the Ministry of

National Defense should make procurement more trans- After the 1989 general election, a self-examination conparent in order to guard against abuses. Otherwise, when ducted by high-level KMT members suggested that cerprocurement is held in the hands of a small number of tain members of the academia were hostile to the party.

high-ranking officers who make the decisions, proce- In fact, it has become a popular trend for members of the

dures will not be open and shady deals will be difficult to academia to be critical of the KMT. The professors' mass

avoid. Take the incident involving Taiwan's procure- resignation from the party is but the final expression of

ment of submarines from RSV in which Taiwan's pur- their disppointment in the party.

chase from that company of spare parts sufficient for 10

years was an example. Separate agreements were signed Most professors who resigned are members of the Unifor each instance in which parts were needed for main- versity Reform Committee, the Cheng She, the Taiwan

tenance rather than having a single agreement to assure University Professors Association, and other organizathe supply of parts. With each successive agreement, tions. Some had been party members for 30 years. It was

costs rose steadily. This generated many rumors that only after the list was made public that people realized

created misunderstandings. that many professors who had been critical of the KMT

had been long-standing, staunch, and responsible memActually, the more secret the military procurement work, bers of the KMT.

the greater is the behind-the-scenes maneuvering. The

main reason behind-the-scenes maneuvering raises sus- Each professor who resigned had his own emotional

picions is the grievances among the arms dealers. Take experience and reasons for joining the party, and each

the purchase of the 500MD helicopter for example, used a different method and expressed different feelings

Because a high-ranking officer named Liang [2733] did when announcing his withdrawal from the party. Some

not take into consideration commercial grievances, accu- were filled with righteous indignation; some were filled

sations were lodged against him, and he was placed with sorrow and disappointment. On the evening of 24

under arrest under the military policy. Thanks to the April, in the square in front of Taiwan University,

strong support of Sung Ch'ang-chih [1345 7033 1807], he Normal University's Professor Lin Yu-ti [2651 3768

was able to avoid imprisonment. Clearly, the perils of 7555] was originally scheduled to lead the others in the

military procurement are impossible to guard against, party membership card-burning ceremony but was

However, since it is a perilous profession, why do unable to attend because he was away at a Taiwan

officials desire to do military procurement work? To put Preservation Society meeting. He was replaced by Chen

it bluntly, it is because of the rich profits in it. Take, for Shih-meng [7115 1597 1322], economics professor at

example, the case in which a deputy department chief Taiwan University. Originally, the ceremony was

named Lin [2651], an official named Chiang [3068], and intended to be a symbolic gesture, but because of Chen

an official named Chu [2612] joined together on the Shih-meng's family background, the incident took on

"106 (communications equipment) deal" for the mili- new meaning.

tary purchase of more than NT$120 million worth of

equipment. Had the Swedish Overseas Corporation At dusk, in the candle-lit Tai Da Square, Chen Shihobtained the contract, these three people would have meng spoke in his not-very-fluent Taiwanese, "I teach

split a profit of more than NT$20 million. No wonder Economics at Taiwan University. I am not a native

they dared to band together to perpetrate fraud, thereby Taiwanese. I have been a party member for 25 years. I

attracting the attention of the General Political Depart- am holding my membership card in my hand. This card

ment [tsung cheng chan bu 4920 2398 2069 6752]. has been with me for 25 years. Burning it expresses my disappointment in the party. Three generations of my

family have been KMT members. If my grandfather and Professors Withdraw From KMT 'en Masse' my father knew that the KMT has turned into such a

91CMO450A Taipei HSIN HSIN WEN [THE shameless party, they would approve of my action. The

JOURNAL] in Chinese No 216, 5 May 91 pp 75-76 KMT is called the citizen's party, but is it really the

citizen's party? I love Taiwan, but I do not want to be a

[Article by Weng Wen-ching (5040 2429 7234): KMT stooge. Our card burning is a demonstration of our

"Twenty-eight KMT Membership Cards Go Up In loss of all hopes in the KMT." Those in the square gave

Smoke-Professors Announce Their Withdrawal From this non-native whose family has deep roots in the KMT

the KMT En Masse"] a round of enthusiastic applause.

[Text] In recent years, the KMT [Kuomintang] has been Ever since Chen Shih-meng's return to this country and

losing ground on the campuses. Not only has the number his emergence as a rising star among the many professors
JPRS-CAR-91-052

23 September 1991 TAIWAN 87

who take part in the social reform movement, people conservatism. It was a rare feat. When Taiwan Univerhave associated him with his grandfather, Chen Bu-lei sity students sat silently in front of the campus and went

[7115 1580 7191]. Chen Bu-lei served Chiang Kai-shek on their hunger strike, these Zhongxing University math

for many years. Many of Chiang's essays were written by professors sat alongside the students and protested in

Chen Bu-lei; he was Chiang's right-hand man. But even- silence. It might not have been a major event, but it

tually Chen committed suicide, and rumors abounded sowed the seeds in the conservative central Taiwan

about the cause of his death. Such family background campus.

makes the emotional experience behind Chen Shihmeng's critical stance against the KMT even more inter- Several Zhongxing University applied math graduates

esting. have returned from their overseas studies in recent years.

They tend to be more liberal, and among them, Professor

Chen Shih-meng still remembers when he was young. Liao I-en [1675 1355 1869] is especially so. He has

His father was a KMT small group leader. Each time become a key figure in motivating a series of events.

there was a group meeting at his house, the children Since the ratification of the reform of the university law,

would be chased out of the living room, and his mother these Zhongxing University applied math professors

would be busy fixing dinner for everyone. The young have been helping and guiding each other and voicing

Chen Shih-meng would peek through the cracks and support for each another. Liao I-en returned to Taiwan

watch the elders and uncles pay tribute to and quietly only last year, but he joined the KMT back when he was

recite the premier's last testimony. It was only after his a high school freshman or sophomore, which accounts

father retired and gave up his post as small group leader for his choosing to quit the KMT in protest. He said that

that he noticed the change in the KMT. The new small it was not a rash move but was the result of a series of

group leader never held small group meetings; he even disppointments over the last year or two; it was the

forged some minutes. Chen Shih-meng sighed, "Whom ultimate expression of his dissatisfaction with the KMT.

the degenerate KMT hurt most is not people like us but In the past, it was mostly the law and political science

staunch members like my father who have served the professors who showed an interest in politics, but this

party for decades." time, it was the professors from the colleges of science

and engineering, and there were quite a few of them.

Perhaps it is because of this kind of deep understanding Besides Liao I-en's and other's catalytic role, this change

that Chen Shih-meng believes that his family and elders by itself is well worth paying attention to.

would respect the choice of the younger generation,

although emotionally, his father is against his making Compared with the Zhongxing main campus, Taipei's

this kind of sharp criticism against the party. Chen Zhongxing law and business schools are even more

Shih-meng joined the party after he was accepted by the conservative. Public administration professor, Kuan Piuniversity and was on his way to Mount Chenggong for ling [4619 4310 3781], and law professor, Liu Hsing-i

basic training. He recalls that place with its strong sense [0491 1630 5030] pose the biggest obstacle. Young Kuan

of community. At that time, he was young and patriotic, Pi-ling's husband is a member of the Democratic Proand with his family background, he had no reason to gressive Party, but she herself joined the KMT when she

refuse to join the party. was a high school sophomore. To her, joining the party

was the starting point of the concrete act of serving her

Living and learning abroad changed the way Chen Shih- country. Until these last two years, she has been the

meng thought about many things. Gradually he got away college's party organization administrator. Although she

from the dogmatic thinkings about loyalty to the party was assigned the job by the party, she never refused.

and to the country, and he realized that he had been

fooled by too many lies that had been mixed in with the Despite her criticisms of the party, Kuan Pi-ling still had

facts. When his old friend Chang Ching-chi [1728 3237 deep feelings for the party, and she was far from ready to

3305] returned to Taiwan University to teach eco- embrace the Democratic Progressive Party. It was the

nomics, he told Chen that Taiwan's academic environ- KMT's poor showing at the interim assembly that

ment needed improvement and pursuaded him to return prompted her to make this final break.

to Taiwan to do battles together. Chen returned to

Taiwan in 1978 only to find that the campuses were Tanchiang University computer science professor,

steeped in politics and entangled in political concerns. Chuang Chi-ming [5445 3217 6900], who was named

This is also the reason why Chen Shih-meng, Chang KMT's distinguished overseas young man joined the

Ching-chi, Chu Ching-i [4281 2417 00011 and other party when he was in the service. In the student moveTaiwan University economics professors have been hard ment last March, he began to notice the KMT's lack of

at work to effect social reform in the last two years. sincerity in amending the constitution. He was disappointed by its failure to move forward. This year, he

In the past, the academia were slavishly dependent on accompanied the students who went on a hunger strike

the KMT, but in recent years, these 30- and 40-year-old and sat in silent protest for four days. When he saw that

scholars are no longer afraid to question the environ- the KMT was completely unmoved by the students, he

ment. In this round of mass resignation, there were six realized that the KMT had its own concerns, that all the

professors of applied mathematics from Zhongxing Uni- reforms had not been for the good of the country but for

versity, a campus which has long been the stronghold of the good of the party alone.
JPRS-CAR-91-052

88 TAIWAN 23 September 1991

Among those who took part in this mass resignation, capital from Taiwan compatriots. Taiwan-funded entersome were veterans who had participated in many other prises make up 4.8 percent of the mainland's "three

social reforms; others were newcomers. Ho Te-fen [6320 kinds of foreign-owned enterprises" [three kinds of par1795 5358] and Lin Yu-ti were trained by the Institute of tially or wholly foreign-owned enterprises] and the

Revolutionary Practice. Chang Chung-tung [1728 1813 agreed upon capital accounts for 3.2 percent of the

2767] had been with the party for a long time. Some foreign business investment in the "three kinds of forprofessors come from old KMT families. Hsia Chu- eign-owned enterprises."

chiu's [1115 6999 0046] and Chu Ching-i's [2612 2417

0001] fathers have close military and political ties. 2. Investment is primarily in labor-intensive manufacPeople of different status and background have chosen turing, while gradually developing towards capitalto sever their ties with the KMT. intensive and technology intensive industries. The

industries in which Taiwan businessmen invest are basi- This mass resignation from the party has been brewing cally the same as those in which foreign businessmen for some time. It has been something many people have invest, but there is still a certain gap between the

wanted to do since Ho Te-fen started the University Law th eve of stiestin whc twan bui

Reform Committee. Everybody has been waiting for the nessmen invest and the technological level of industries

right time. The process of amending the constitution at in which Western developed countries invest.

the interim assembly was the catalyst. Having planned

this at different ends, 28 professors formally quit the 3. Investments are centered in Fujian and Guangdong

KMT when Chen Shih-meng symbolically burned his and are spreading into the interior from the coast. Fujian

alone accounts for over one-half of the total of Taiwan

Subsequent to the professors' mass withdrawal from the investments on the mainland. The areas of Taiwan

party, Chuang Huai-i [5445 2037 5030], chairman of the investments happens to be much the same as the areas of

KMT's Department of Youth Activities, indicated that foreign investment. This is closely related to the advanthose who burnt their membership cards could face party tageous investment environment of the open zones on

discipline. The most severe form of party discipline is the coast.

dismissal from the party, but these people have already

quit the party, so who is going to worry about party 4. They are primarily medium- and small-scale wholly

discipline? However, Chuang also suggested that the owned enterprises that get quick results and that tend

campuses should reregister party membership. The toward the larger-scale. Single investments are generally KMT should have done so long time ago. It should find under $1 million, lower than the average investment

out for itself how many members it has already lost. ($1.5 million) of the mainland's "three kinds of foreignowned enterprises," and also lower than the average

Analysis of Investment on Mainland investment of Taiwan businessmen in other countries or

regions. The scale of Taiwan businessmen's investment 91CE065 7A Beijing G UOJI MA0YI [INTER TRADE] on the mainland will grow with economic development in Chinese No 5, 27 May 91 pp 13-16 and high technological level regions and industries.

[Article by Wu Xingdu (0124 2502 6757), International 5. Taiwan-funded enterprises mostly use the "both ends

Trade Institute, Ministry of Trade: "Analysis of Taiwan abroad" management method; the average foreign sales

Investment on the Mainland"] rate of the products is as high as 85 percent, much higher

[Text] I. The Basic Situation and Features of Taiwan than the 27 percent average foreign sales rate of the

Investment on the Mainland mainland's "three kinds of foreign-owned enterprises." In the long term, the mainland's 1.1 billion person

In view of the fact that Taiwan and the mainland have a market will undoubtedly become the focal point of

special relationship concerning politics, geography, lan- consideration for Taiwan's investment choices, thus the

guage and customs, and in yew of the features of Tai- foreign sales rate of goods produced by Taiwan-funded

wan's industry, investment by Taiwan businessmen in enterprises will tend to decline.

the mainland in scale of investment, selection of industries, geographical distribution, choice of technology,

and method of management has the following features II. Analysis of Existing Taiwan Investment on the

when compared with direct investment by other foreign Mainland

countries: The investment on the mainland by Taiwan compatriots

1. Taiwan investment on the mainland started late but differs both from domestic investment in general and

has developed quickly. Although it is a small proportion from direct investment on the mainland by other busiof direct foreign investment, it has tended to grow nessmen. Thus, when analyzing the advantages and

steadily. According to the Ministry of Foreign Trade disadvantages one needs both to consider the impact of

statistics, by the end of September 1990, the mainland Taiwan investment on the mainland's economic growth had approved a total of 1,738 Taiwan-invested enter- as well as look at the political and social effects of

prises involving $1.81 billion in agreed upon investment Taiwan investment on the mainland.
JPRS-CAR-91-052

23 September 1991 TAIWAN 89

1. Taiwan investment in the mainland benefits the early some unrest in the mainland economy. Taiwan's manarealization of the "Three Exchanges" on both sides of the gerial mode of small scale capital, low technology, indeStraits and accelerates the unification of the ancestral pendent financing, and "both ends abroad," along with

country. the problems that exist in the managerial process have

weakened the positive impact of Taiwan investment on

The political effect of Taiwan investment on the main- the mainland economy.

land on the one hand is manifested bringing about the (1) Increasing forms of capital and supply of foreign

urging the Taiwan authorities to abandon the "Three (Icrang fo

No's" policy at an early date and accelerate the process exchange.

of unification of the ancestral country through close Taiwan investment on the mainland has increased the

interpersonal and trade relations on both sides of the forms of mainland capital and the supply of foreign

Straits; on the other hand, the Taiwan authorities also exchange, and has also increased the competitive match

hope to take advantage of Taiwan businessmen investing of existing mainland enterprises in the international

on the mainland to realize their goal of a "political market. Yet the small scale of Taiwan investment on the

beachhead" by means of an "economic beachhead." mainland and Taiwan businessmen's choice of the "both

ends abroad" management mode have limited the posi- Because the scale of Taiwan investment on the mainland tive impact of Taiwan investment on the mainland's

is not large, Taiwan invests primarily in labor-intensive capital form, foreign exchange supply and investment

processing industries which are not key industries that structure.

the state must urgently develop, and Taiwan businessmen also for the most part choose the "both ends There has always been a shortage of savings and foreign

abroad" mode of management, industrial chain reaction exchange in the growth process of the mainland economy

is weak. Thus, in the near term, the clout of Taiwan and the influx of Taiwan investment has made up for the

investment on the mainland is limited. Even if Taiwan inadequacy of capital and foreign exchange on the Maininvestment further increases, Taiwan will account for land to some degree. By the end of 1989, Taiwan

only a small part of total investment on the mainland; investment accounted for 2.97 percent of the agreed

thus, it will be difficult for Taiwan authorities to realize upon capital of direct investment from abroad absorbed

their aim of influencing mainland politics through their by the mainland. The actual use of Taiwan investment

investment in the mainland economy. Yet Taiwan can accounted for 3.25 percent of actual used foreign direct

take the best advantage of circumstances and through investment. Although these two years Taiwan capital

investment on the mainland can realize the "three con- influx to the mainland doubled and redoubled, the

tacts" early, laying a foundation for unification of the proportion of mainland capital formation made up by

ancestral land. Taiwan investment was still very limited. Even if all

agreed upon Taiwan investment was used for investment

2. Taiwan investment on the mainland is good for in fixed assets, it would only account for 0.4 percent of

growth of the mainland economy. that year's 400 billion yuan in the fixed assets investment completed on the mainland. Even in Fujian ProvAn analysis of the impact of Taiwan investment on the ince, where Taiwan investment is concentrated, the

contribution of Taiwan investment to the fixed asset mainland economy should have the ultimate goal of investment in Fujian was no more than 5.12 percent. Taiwan investment making a contribution to growth

ofthe mainland economy. That is, it should both look at In terms of foreign exchange benefits, the influx of

the impact of Taiwan itself on the gross value of the Taiwan investment had a very positive effect, but not

mainland economy as well as consider the impact of much impact. In 1989, exports of Taiwan-funded enterTaiwan investment on the mainland on other mainland prises in Fujian were $150 million, accounting for 32.18 "three kinds of foreign-owned enterprises" enterprises percent of the exports of the "three kinds of foreignand existing mainland enterprises. owned enterprises" and 9.3 percent of Fujian's exports.

In 1989, exports of Taiwan-invested enterprises on the

Viewed from the angle of promoting mainland economic mainland were about $400 million, accounting for 0.76

development, the positive effects of Taiwan investment percent of mainland exports in that year. But since over

on the mainland are primarily manifested in: increasing 80 percent of Taiwan businessmen chose the "both ends

the mainland's capital accumulation and supply of for- abroad" management mode, after deducting the remiseign exchange, expanding employment, improving main- sion of Taiwan-invested enterprise profits and loss of

land enterprises, especially the technological level of taxes, the foreign exchange income and expenditure of

township enterprises, training talent, increasing tax rev- Taiwan-invested enterprises made very little contribuenue, and making the markets flourish. The primary tion to the mainland's international income and expendefects are primarily manifested in: Taiwan-invested diture.

enterprises and mainland original enterprises competing

for foreign sales markets, capital, and talent; mainland In addition, in the short term, competition between the

dependence on Taiwan for capital, employment, and products of Taiwan-invested enterprises and existing

products which under certain conditions can lead to mainland enterprises in the international market did not
JPRS-CAR-91-052

90 TAIWAN 23 September 1991

help exports of existing mainland enterprise products enterprises but will not have a major positive impact on

create foreign exchange. According to surveys, among the mainland production technological structure.

the types of products of Taiwan-invested enterprises on

the mainland and existing mainland enterprises that (3) The result is clearly increased employment. The

were competing in the international market, there were employment effect of Taiwan investment has increased

295 in the United States, 88 in Japan and 246 in Hong the number employed on the mainland, but it has also

Kong. Putting their capital in the coastal areas of Fujian changed the mainland's employment structure, particuand Guangdong and concentrating on export of such lady in some regions, introducing competition with

matched goods as fiber manufactures and shoes to the existing mainland enterprises for talent.

United States increased the mainland's trade gap with According to estimates, in 1989 the number of people

the United States. This "favorable shift" merits consid- employed in Taiwan-invested enterprises was about

eration since it not only influenced the issue of the most 240,000, the wages paid out was 686 million yuan,

favored nation treatment the United States granted totaling 16 percent of the number employed by "three

China in 1991 but also may endanger exports to the kinds of foreign-owned enterprises" on the mainland,

United States of textile and clothing by existing main- 0.17 percent of the total number of employees on the

land enterprises. mainland and 26 percent of the total wages in 1989. In

1989 Taiwan-invested enterprises in Fujian hired 92,400

In the present stage, although there are these problems, or 3.65 percent of those employed in industry provincethe contribution of Taiwan-invested enterprises to the wide. Relative to the effects created by Taiwan investmainland's international revenue and expenditure is still ment in such areas a foreign exchange, capital, industrial

favorable. However, in the long-term, whether or not linkages, the employment effect of the influx of Taiwan

Taiwan investment will be favorable for the mainland's investment is even greater, especially in terms of Fujian,

international revenue and expenditure will depend on and this effect is clear.

whether or not the mainland continues to attract Taiwan

investment and the competitive situation of products The effects of employment from Taiwan investment

from Taiwan-invested enterprises and original mainland means that the mainland relies a great deal on Taiwan

enterprises in the international market, investment, and, especially in areas where Taiwan

investment is concentrated, the potential danger is con- siderable.

(2) Technology transfers that reap quick results and are

of a fairly low level play a role in the technological The people employed in Taiwan-invested enterprises are

upgrading of township enterprises, but have a limited mostly females about 20 years of age. After a few years,

positive impact on the technological structure mainland when they get married and start families, the Taiwan

industry. businessmen will dismiss them. This will undoubtedly

create a series of social problems for the mainland which

Because the mainland industries that Taiwan busi- does not have a very strong unemployment security

nessmen select for technology transfer are primarily of system. In addition, because the work environment and

the labor-intensive processing type, the production tech- benefits of Taiwan-invested enterprises are better than

nology used is fairly simple and adaptable. For this existing mainland enterprises, this undoubtedly will

reason, the rate of technology transfer is very rapid and attract many trained workers and technological manthe mainland has the ability to absorb and digest the agers from mainland enterprises to Taiwan-invested

transferred technology so that frequently results are enterprises. With the reform of the mainland's personnel

obtained in a short time. A survey of 70 production-type system, the circulation of talented people becomes more

Taiwan-invested enterprises in Fujian shows that of the brisk daily. And, with the constant expansion of the scale

Taiwan-invested enterprises with equipment of a gener- of the influx of Taiwan investment, the threshold of the

ally higher level than domestic enterprises, 61 had technology that is transferred will get increasingly higher

imported technology but only 46 actually used it and 18 and the competition of Taiwan-invested enterprises with

imported patents and special processes. Although in the existing mainland enterprises for talented people will

near term after Taiwan imports production projects with become more pronounced. As long as Taiwan-invested

a highly intensive technology, such as precision digitally enterprises are more attractive than existing mainland

controlled machine tools, because the scale of Taiwan enterprises, the reallocation of employed personnel

investment is small and emphasizes cheap labor and caused by the influx of Taiwan investment in the short

land on the mainland; thus, the technological level terms will impact mainland existing enterprises' mana- imported by Taiwan investment is fairly low and the gerial benefits. From the angle of promoting economic

independently invested management is not favorable for development of the mainland, since the economic benethe absorption, digestion and dissemination on the fits of Taiwan-invested enterprises are generally better

mainland of the production technology brought in by than those of existing mainland enterprises, this redeTaiwan investment. This has determined that Taiwan- ployment of employed personnel will benefit the effecinvested enterprises at the present stage will play a role tive allocation of mainland resources and the growth of

in raising the technological level of mainland township the mainland economy.
JPRS-CAR-91-052

23 September 1991 TAIWAN 91

(4) The chain reactions are of varying strength. has also brought along the ideological and corrupt moral

concepts of money first, and the pursuit of enjoyment. In terms of the present stage, the industrial chain reac- These may have a long-term and profound impact on

tion of Taiwan-invested enterprises is very weak, the people's mode of thinking, their concepts of value, and

chain reaction of capital is somewhat stronger, and in the their ideological consciousness. Thus, the problem of

long-term, the industrial chain reaction may continue to how to get rid of the dross and assimilate the essence is

get stronger. one that merits serious study.

Since Taiwan-invested enterprises for the most part use In addition, such problems in Taiwan-invested enterthe "both ends abroad" managerial mode, their produc- prises as corporal punishment of workers, encroaching

tion and managerial activity does not have much impact on the lawful rights of workers, excessive pollution of the

on the supply and demand situation of the market for environment, and injuring the physical and mental

mainland goods. Thus, although the industrial chain health of the workers should be resolved as quickly as

reaction coefficient of Taiwan-invested enterprises is possible.

very strong, their industrial chain reaction is weak. This Synthesizing the impact of Taiwan investment on mainexplains why the influential role of Taiwan-funded enter- land politics, economy and society, one can hold that the

prises on mainland enterprises is very small but the advantages of Taiwan investment on the mainland are

potential for using Taiwan-funded enterprises to spur greater than the disadvantages. It not only can draw

mainland industrial development is considerable. As closer intercourse between the peoples on both sides of

Taiwan businessmen's interest in the mainland as a the Straits, increase their mutual understanding, and

market for products and as a source of raw materials, the accelerate the early unity of the ancestral land, but it can

scale of Taiwan investment will grow and the industrial also make up for the mainland's inadequacies in capital,

chain reaction of Taiwan-invested enterprises will defi- technology and foreign exchange, promote the upgrading

nitely increase constantly. of the mainland's industrial, technological, and importexport goods mix and help promote the development of

As far as the capital chain reaction is concerned, the the mainland economy. But one should note that

effect of current Taiwan-invested enterprises is better, because Taiwan businessmen started investing in the

relatively speaking, but the overall effect also may not be mainland late and suffer under various restrictions from

great. Ninety-five percent of Taiwan-funded enterprises Taiwan authorities, the scale of Taiwan investment on

that went into production in 1989 are profitable and the the mainland is not large and the impact of Taiwan

economic benefits are universally higher than "three investment on the mainland's politics, economy and

kinds of foreign-owned enterprises" enterprises, so that society is very limited at the present. With the Taiwan

the taxes and fees supplied to society by Taiwan-funded authorities announced an end to "mobilization to supenterprises units is higher than the average level of the press rebellion" in May of this year, economic relations

"three kinds of foreign-owned enterprises." Thus, the on both sides of the Straits will reach a new high tide, the

capital chain reaction of Taiwan-invested enterprises scale of Taiwan investment on the mainland will

currently is correspondingly stronger. In the long term, increase rapidly and Taiwan's impact on the mainland's

since the overall technological level of Taiwan-invested politics, economy and society may grow stronger. But

enterprises is lower than "three kinds of foreign-owned this will not lead to control of the Mainland's political

enterprises," the economic benefits may be relatively policymaking and economic pulse. Thus, the positive

lower. Thus, vis-a-vis the average degree of capital chain effect of Taiwan investment on the Mainland definitely

reaction of "three kinds of foreign-owned enterprises," may grow stronger.

the strength of the capital chain reaction of Taiwan- III. Measures To Improve the Positive Effect of Taiwan

funded enterprises may weaken. Because the current Investment on the Mainland

scale of Taiwan investment is small, the capital chain

reaction effect cannot be large. In addition, the problems On the basis of the goals of the mainland attracting

of balancing the books abroad and avoiding taxes that Taiwan investment and the problems in Taiwan investexist universally with Taiwan-invested enterprises, ment and combining this with the survey of the intengreatly weaken the contribution of Taiwan-invested tions of Taiwan businessmen, we should concentrate our

enterprises to society. According to statistics from Shishi future efforts on the following to improve the positive

City, in 1989, exports of enterprises invested in by effect of Taiwan investment on the mainland: (1) leadforeign businessmen were nearly $9 million, actual for- ership at all levels should make promoting unity of the

eign exchange taken in was $1.5 million, for an export ancestral land and speeding up economic growth the

foreign exchange earning rate of only 18 percent. ultimate goal of attracting Taiwan investment; (2) as

quickly as possible we should establish a strong and

3. Impact of Taiwan investment on mainland society. united authoritative management system, improve the

efficiency of executive organs, improve managerial and

Taiwan investment in the mainland, along with the service functions of Taiwan-invested enterprises, and

influx of capital and technology has also brought along ensure that the rights and interests of Taiwan-invested

Taiwan's enterprise management modes, concepts of enterprises and their corresponding contribution to

value and lifestyle. On the one hand this is the modem society are not diminished; (3) maintain stability, conticommercial morality of pursuit of the up-to-date, corn- nuity and effectiveness of policy, grant formal approval

petition first, and fair competition. On the other hand it in law of the policy of encouragement and priority
JPRS-CAR-91-052

92 TAIWAN 23 September 1991

through lawful procedures and formulate the relevant While these Taiwan studies groups at various colleges

implementing regulations and the necessary laws and and universities were established at different times,

stipulations; (4) further improve the financial environ- almost all of them were established in the years since

ment, simplify foreign exchange calculation procedures, martial law was lifted. Although the existence of martial

strengthen foreign exchange regulatory market and open law restricted the freedom of students to learn about

credit channels. Taiwan, with an 18-year history, the Taiwan Culture

Study Group [TCSG] at Wenhua University is the only

exception. Student members of TCSG say that when

'Taiwanization' of College Student Associations Wenhua University first established this group, it was

91CM0467A Taipei HSIN HSIN WEN [THE basically a subdivision in the department of history. One

JOURNALIST] in Chinese No 221, 9 Jun 91 pp 89-91 student said that the subjects that they studied at first

were mainly Taiwanese customs and human relationships because they were not allowed to touch on issues

[Article by Ts'ao Yi-hui (2580 0110 2585): "All Tai- that the authorities had made taboo. TCSG's first

wanese Youth Are Singing to the Tune of Taiwanization; chairman, Ts'ai Hsiang-hui [5591 4161 6540], who is

Taiwan Studies Groups on College Campuses"] also its current guidance counselor, is now also working

for the KMT [Kuomintang] party history committee. It

[Text] While Taiwan's government authorities have been is only because TSCG is entirely different in nature from

uniting behind the great cause of Chinese reunification, such groups in other colleges and universities that it was

increasing numbers of Taiwanese college students are able to exist during the closed period in the sixties.

beginning to show an interest in Taiwan's native culture.

Although those in power have been using various means Another of these groups that is rather special is the

to emphasize a consciousness of a unified China, many "Formosa Society" that was established at Central Unistudents of the younger generation growing up in Taiwan versity. This group, composed of reform students, has

are more interested in learning about the past, present, succeeded in "usurping" the name of the Three People's

and future of their small island homeland. Principles Study Group (TPPSG). While the TPPSG

used to be classified as a "party organization," a number

Since martial law was lifted, many taboos are gradually of "raging" students from underground organizations

being broken, and the time of being punished for infiltrated it two years ago in 1989, turning it into a

speaking Taiwanese or of being regarded as having a Taiwan interest group. When it applied to the university

divisive mentality for talking about Taiwan's history is for a change of name a year ago in 1990, the university

also gradually fading into the distant past. Growing out was forced to accede since the change-of-name resolution

of student self-reflection and the student movement, was passed at a general membership meeting. Wherestudent groups at various colleges and universities, such upon, the KMT's party organization at Central Univeras "Taiwan studies groups," "Taiwanese language study sity "was usurped by the enemy."

groups," and a host of others whose theme is the study of As the establishment of Taiwan studies groups in many

Taiwan, have been springing up one after another like colleges and universities is quite closely linked to the

bamboo shoots after a spring rain. This shows that the student movement, most college administrations are

seeds of Taiwanization have already sprouted among the showing particular "interest" in such groups, even to the

younger generation of students. point where some are refusing to permit their establishThese Taiwan studies groups at various colleges and ment, thus forcing them underground. For instance, These aiwanwhen the Taiwan studies group at Chunghsing Law and

universities can be roughly divided into those that were when th e wan studis t yearsin 1aw 9,

established before or after the student movement of Business College was established two years ago in 1989,

March 1990. Most of those established set- before the it asked to be registered with the college, but was turned

denth move.Ment of Marchos 1990tacollegeshnd u ereesi- down on the grounds that this would violate the consti- dent movement of March 1990 at colleges and universi- tution. But when the students established it anyway and ties such as Taiwan University, Ch'inghua University, carried out activities just the same, the administration

Futa University, and Chunghsing Law and Business turned a blind eye. When Huang K'e-jen [7806 0344

College developed spontaneously out of interest in 0088], director of the student counseling office, was

Taiwan. Most of the Taiwan studies groups at these interviewed, he would only reaffirm that the group had

colleges and universities have also taken a calmer and been established, but would not clarify the administramore pronounced academic research approach. tion's rationale for refusing to allow it to register as an

The Taiwan studies groups established after the March official group.

1990 student movement at colleges and universities, In addition, while Government University finally

such as Government University, Tungwu University, approved the establishment of the Taiwan culture

Chiaota University, Tanchiang University, and Marn- society six months after application, it gave the group no

time College, were organized mainly by members of the office space or activity expense allowance. When the estabstudent movement. While they basically favor move- lishment of the Taiwan studies group at Chiaota University

ment tactics, they avidly assimilate and study Taiwan's was approved, even though this group was actively suphistory and present conditions and think deeply about ported by Kuo Yi-hsiung [6753 5030 7160], Chiaota UniTaiwan's future when they are not actively involved in versity's director of student counseling, some professors in

the student movement. charge of extracurricular activities told Kuo Yi-hsiung to his
JPRS-CAR-91-052

23 September 1991 TAIWAN 93

face that he should be careful that certain people do not why not let them?" So the Taiwan studies group at

take advantage of the establishment of such a group. To Chiaota University was finally established successfully

which he replied, "If there are people who love Taiwan, with the support of Kuo Yi-hsiung.

Table 1. A Brief List of the Major Taiwan Studies Groups at Various Taiwan Colleges and Universities

School Name of Group Leader Guidance Number of Orientation Remarks

Group Counselor Members

Taiwan Uni- Taiwan Hsu Wei-te Ch'en Tung- Over 20 Academic collection of There are also many

versity Studies Group [6079 4850 sheng [7115 Taiwan history data other single-topic groups,

1795] 2639 2573] such as the Formal Language Study Group, the

Play-In-Hand Group, the

College News Agency, the

College Forum, and the

Mainland China Studies

Group.

The Hsieh Ming- Cheng Ch'in- Studies written Taiwanese

Taiwanese ch'eng [6200 jen [6774 and participates in the

Language and 2494 1004] 2953 0088] student movement

Culture Study

Group

Government Taiwan Cul- Ch'en Chih- The study of Taiwanese

University ture Society ming [7115 culture by all student

1807 6900] groups

Wenhua Uni- Taiwan Cul- Lin K'un- Ts'ai Hsiang- Over 40 A quite conservative cul- Established for 18 years

versity ture Study ch'ih [2651 hui tural orientation

Group 0981 3069]

Tungwu Uni- Taiwan Cul- Hou Chia- Chang Yen- Over 30 A student movement

versity ture Study hsiung [0196 hsien [1728 organization for the study

Group 0163 7160] 3508 2009] of Taiwanese culture

Chunghsing Taiwan Ting Yung- Lin Mei-jung Student movement orga- In the midst of reelecting

Law and Busi- Studies Group yen [0002 [2651 5019 nization for the study of a group leader

ness College 0516 6056] 1369] Taiwanese history and

current conditions

Central Uni- Formosa Ch'en Yung- Hung Wei-jen Over 30 Interested in Taiwanese

versity Society k'ang [7115 [3163 1919 culture, emphasizes

3057 1660] 0088] campus reform, and participates in the student

movement

Ch'inghua Taiwan Chang Chin- Hsu Cheng- 40 Provides an arena for the

University Studies Group piao [1728 kuang [1776 exchange of views on

6930 2871] 2973 0342] Taiwan studies

Chiaota Uni- Taiwan Ch'ueh He- Ch'u Te-san 40 Began with an interest in

versity Studies Group ming [7076 [5969 1795 Taiwan, but understands

3109 7686] 0005] movement principles

Ch'engta Uni- Taiwanese Ts'ai Ch'eng- Chien Chin- 10 Promotes Taiwanese lanversity Language wei [5591 shu [4675 guage and studies

Study Group 2110 4850] 6930 2885]

Tanchiang The Lin Chau- Ch'ien Over 20 Focused on Taiwan

University Tanchiang kung [2651 Ch'uan-jen studies, and grew out of

Forum 3564 1872] [6929 0278 the Tanshui historic site

0088]

Futa Univer- Taiwan Social Chuo Yu-mei Wang Chen- Over 20 Concerned with problems

sity Issues Study [0587 3768 wu [3769 of Taiwan's irrational

Group 2734] 7201 2976] political and economic

structures

Tunghai Uni- Taiwan Cul- Ch'en Chien- Wang Chen- Over 10 Concerned mostly with Organized by Freshmen

versity ture Study hau [7115 huan [3679 Taiwan culture studies and Sophmores

Group 1696 6275] 2182 1403]

Maritime Col- Local Culture Huang Ch'i- Over 20

lege Studies Group chang [7806

7496 3361]

Northern The Harlow K'e Ch'ang- Kuo Hsien- Over 20 Interested in practical

Medical Col- Society hung [2688 shou [6753 Taiwan studies issues,

lege 2490 1347] 2009 1108] and indirectly involved in

the student movement
JPRS-CAR-91-052

94 TAIWAN 23 September 1991

The Taiwan studies groups in the various colleges and him aware that some people could not stand professors

universities can be roughly classified by activity as: 1) teaching the Taiwanese language on campus.

small study and discussion groups, 2) those that invite

guest lecturers; and 3) those that take rural field trips. Not only Lin Chi-hsiung, but members of many other

Taiwan studies groups, have also suffered such indigniThe subjects of the study and lecture groups include ties. For instance, a member of the Taiwan studies group

Taiwan history, Taiwan folkways, Taiwan studies, and at Ch'inghua University said that when this group was

practice in speaking and writing Taiwanese. The texts first founded three years ago in 1988, no students even

most used for the study of Taiwan history are Shih dared to ask whether it was a "Taiwanese independence

Ming's [0670 2494] "400 Years of Taiwanese History" group," and that it was only recently that anyone had

and Yang Pi-ch'uan's [2799 4310 1557] "A Brief History asked this question. A member of the "Harlow Society"

of Taiwan." at Northern Medical College noted that some students

have always treated his group as a Taiwanese indepenStudents are also greatly interested in Taiwanese folk dence group.

arts, such as folk songs and puppet plays. Many colleges

vie to invite the singer Ch'en Ming-chang [7115 2494 The number of people who equate Taiwan studies groups

4545], and students generally receive the courses in the with Taiwanese independence has been gradually

teaching and performance of puppet plays very well. decreasing along with Taiwan's quickening pace of social

progress. Except for certain diehards, most people are

Rural field trips are another specialty of these student treating these Taiwan studies groups as an ordinary

groups. The establishment of the Taiwan social issues thing. However, there is a growing tendency for the

study group at Futa University was the outcome of a Taiwan student movement and the Taiwanization of

1988 rural field trip by a group of students three years campus culture to join forces. A member of the Taiwan

ago. In order to better understand the lives of the studies group at Ch'inghua University who is enthusicommon people and study social issues, this group has astic about the student movement remarked that every

taken a rural field trip focused on a different topic almost wave of the student movement clearly increases its

every summer and winter vacation since then. membership.

The Taiwan studies groups at various colleges and uni- The seeds of Taiwanization have now been planted in

versities often also run many kinds of study or living almost every Taiwanese college and university. While

camps such as the "Taiwan Culture Camp" that is held such groups may have few members, they are growing

during the spring break by the Formosa Society at along with each wave of the student movement. For

Central University, the "Taiwan Culture Studies Camp" instance, as the ones at Taiwan University enjoy many

run by Tanchiang University, and the "Folk Art Studies exceptional advantages, they are growing faster and are

Camp" run by Wenhua University. gradually becoming established.

In addition, the Taiwanese language is a subject of As Taiwan University has a much longer history of

interest to the Taiwan studies groups at many colleges student movement than other schools and was considand universities. Some of these groups give courses in ered a comparatively free university even under the

the Taiwanese language. Others at schools like Ch'engta closed, conservative, social atmosphere of 10 or 20 years

University and Taiwan University even have indepen- ago, many of the Taiwan-oriented groups on its campus

dent Taiwanese language study groups, and the one at have become focused on the study of a single subject. For

Tanjiang University is also planning to set up a Tai- instance, in addition to the Taiwan studies group, it also

wanese language group next semester. The Taiwanese has groups, such as the play-in-hand group, the Tailanguage study group at Ch'engta University was the first wanese language and culture study group, the formal

Taiwanese language group set up on a Taiwan campus. It language study group, the muddy stream (dealing with

was founded about three years ago in 1988 and was agricultural issues), and the labor group, plus ones with

sponsored mostly by professors who organized it jointly longer histories, such as the college news agency, the

with certain interested students. Chemistry Professor college forum, and the mainland China studies group.

Lin Chi-hsiung [2651 4949 7160] is its major instructor. But as various types of groups are being established,

Since then, the Ch'engta University administration has Cheng Li-jun [6774 7787 0689], leader of the playbegun to offer formal courses in the Taiwanese language in-hand group, comments that there is a clear Taiwanfor students in its departments of medicine and nursing. ization trend in all of the groups at Taiwan University. She notes that many of the groups are considering

Lin Chi-hsiung said that after the Taiwanese language courses in Taiwanese history as mandatory ones for

study group was founded and he began to teach the modern-day students, even to the point where the music

Taiwanese language, he received many threatening society is beginning to study Taiwanese music, and the

phone calls demanding that he either stop teaching the film society is beginning to shoot Taiwanese documenTaiwanese language or not go out at night. This stopped taries. She remarks that Taiwanization, having gone

only after the administration offered a formal course in beyond the stage of being a slogan or a matter of

the subject. Lin Chi-hsiung said that while he did not recognition, has begun to take root among Taiwan Uniknow the source of these threatening calls, they made versity students,
JPRS-CAR-91-052

23 September 1991 TAIWAN 95

Those in charge of the Taiwan study groups at many In import share Asia has from the beginning been first,

schools are very envious of the extent of such groups at with North America's being next and Europe's bringing

Taiwan University. They express a determination to up the rear. For more than four years the rankings have

continue to promote Taiwan studies in their schools and not changed, and also there has not been a big change in

a desire to enhance the mood of Taiwanization on the shares of the former two, but Europe's import share

campus. is increasing. Contrasting the trade volumes of the three

continent, in 1986 we had a favorable balance with

While students are striving to learn about Taiwanese North America and Europe, respectively $14.365 billion

culture, the Ministry of Education is still publishing and $1.531 billion; we had an adverse balance with Asia

textbooks for all grades that are oriented toward Chinese of $454 million. By 1990 we had a favorable balance

reunification. There is a strong cultural generation gap. with all three continents, in order: North America,

The older generation has a deep-rooted consciousness of $9.854 billion; Europe, $2.647 billion; and Asia, $104

China, and the younger is increasingly interested in million.

Taiwan. This is causing increasing intergenerational

tension which can only become increasingly wider. There were many changes in these years in the trade

In the words of a student movement leader, as a new-age commodity structure. In export products, in 1986 the

culture is gradually evolving, the present campus culture three frontrunners were electronic products, textile

is a clue to the path that Taiwan is likely to be following goods (including yarn and cloth), and footwear. The

20 years from now. proportion of each one's export value in the total value

of trade was in order 17.3, 15.9, and 7.9 percent. By 1990

the three frontrunners were electronic products (includAnalysis of Foreign Trade Structure ing information and communications products), textile

goods, and machinery, their proportions inorder being 91CEO656A Taipei CHING-CHI JIH-PAO in Chinese 19.0, 15.3, and 8.6 percent. These simple data show that

1 Jul 91 p 3 there are signs of progress in Taiwan's export commodity

structure. The signs are that, in export proportion, [Article in special column by Hou Chiachu (0186 1367 technology-intensive and capital-intensive products are 7467): "Analysis of Taiwan's Foreign Trade Structure"] markedly increasing, especailly the latter, because the proportionof machinery export in 1986 was only 4.0

[Text] Since 1987 the value of the new Taiwan dollar has percent. In another aspect, in this period there have been

risen greatly, with the result that major changes have considerable changes in the three import commodities

occureed in Taiwan's foreign trade structure. These frontrunners. In 1986 the three frontrunners were elecchanges can be described in two aspects: 1) the evolution tronic products, chemical products, and machinery, and

in the proportion (total) of trade regions; and 2) the in order their proportions in the total import value were

change in import-export structure. 14.2, 2.4, and 10.0 percent. However, in 1990 the three

frontrunners were electronic products (including inforFirst, with regard to the former, for many years Taiwan's mation and communications products), mineral prodmain trade regions were: first, North America; second, ucts (including crude oil), and basic metals and the

Asia; and third, Europe-this is shown by ranking the products manufactured from them, their proportions in

import-export volumes of the three different regions by order being 13.7, 12.0, and 2.0 percent. This seems to

their share of the total volume of import-export trade. show that domestic manufacturing standards are rising,

Since 1987 there have been marked increases and and that there is an expansion of the use of primary

decreases in these shares, and they have affected the products and intermediate products, especially of minlisting in order of importance of these three regions. The eral products, because in 1986 the proportions of crude

table shows that export in 1986 North America's share oil and metallic ore were respectively 6.4 and 0.6 perwas 50.9 percent, Asia's was 25.9 percent, and Europe's cent, but in 1990 the proportion of imported mineral

was 12.0 percent. However, beginning in 1987 there were products was as high as 12.0 percent, of which crude oil

marked changes, i.e, the former fell year by year while alone accounted for 5.8 percentage points.

the latter two rose year by year. Speaking precisely,

North America's share in the first five months of this From a look at the trade commodities structure, we see

year was 30.1 percent, a decrease over four years and five that there is strong trade between industries, namely, in

months of 20.7 [figure as published] percentage points, these four years electronic products, both in import and

In the same period Asia's share rose to 41.1 percent and export, took first place. This can be shown not only in

Europe's to 20.6 percent, a total increase by the two of the demand aspect but also in the production aspect. It

23.8 percentage points. In other words, in this ranking shows the dependency of the domestic enterprises on

Asia has replaced North America as Taiwan's number foreign parts or intermediate parts, and also shows the

one export market. Although Europe's ranking has not division of work in international production, in which

yet changed, its market share has greatly increased; it has there are both advantages and disadvantages. Although

risen in importance compared with North America: in a an analysis by the relevant authorities is needed, it is

little more than four years ago, its share was less than clear that domestic research and development need to be

one-fourth of North America's, but now it is two-thirds. strengthened in this respect, and that the government
JPRS-CAR-91-052

96 TAIWAN 23 September 1991

and the public should really spare no effort. As for the big Taking another look at the changes in the trade regions,

increase in Taiwan's export of machinery, it is highly we see that Taiwan's trade with the Asian region has

probable that this did not mean an improvement in the greatly increased, and this is shown in exports to Hong

production technology of domestic machinery industry, and Kong and imports from Japan. Take the first five

it is also probable that this was the result of the domestic months of this year for example: exports to Hong Kong

enterprises' overseas investment--exporting old machinery, were worth $3.664 billion (higher than the $2.386 billion

However, in the last four years the position of imported to America), but the unfavorable balance of trade with

machinery has fallen behind the position of the three Japan was as high as $3.586 billion. Given the export

frontrunners, showing that the work by domestic industries average to Hong Kong and the favorable balance of trade

of discarding old machinery and replacing it with new with the mainland, the export overage to Asia and the

machinery is not yet completely ideal. import overage from it are a worrisome problem.

Evolution of Import-Export Share of Taiwan's Main Trade Regions

(1986 to May 1991) unit: percent

Year Asia Europe North America

export import export Import export import

1986 25.9 44.7 12.0 13.3 50.9 24.4

1987 28.0(46.4) 45.4(45.5 14.5(65.2) 15.5(50.9) 47.1(24.3) 24.0(40.3)

1988 32.8(39.6) 42.2(33.1) 16.3(25.2) 16.1(51.6) 41.3(-0.8) 28.1(68.5)

1989 35.3(17..5) 44.5(11.2) 15.5(10.7) 16.0(4.8) 38.9(3.0) 24.9(-6.9)

1990 38.2(10.0) 43.6(2.5) 18.2(11.8) 17.5(14.4) 34.7(-09.5) 24.6(3.5)

1991 (January to 41.1(21.4 45.1(22.6) 20.6(34.0) 16.8(0.1 30.1(-7.3 24.1(4.0)

May

Data source: Statistical Office, Ministry of Finance

Note: Figure within parentheses is the monetary growth rate.

Editorial Discusses Prospects for GATT organizations, which will give us a better pipeline for

Membership participation in international economic and trade

91CE0704A Taipei CHING-CHI JIH-PAO in Chinese affairs, so that we can display our capabilities and

22 Jul 91 p 2 sincerity in wishing to contribute to the joint welfare of

the world, and to the further development of disadvan-

[Editorial: "New Prospects for Taiwan's GATT Mem- taged countries. This is really a key piece of news coming

bership"] at just the right time, and may also be of the highest

significance for Taiwan's GATT membership.

[Text] As Taiwan is taking an increasingly active policy

initiative in our relations with the PRC, the CPC's use of Of course, GATT membership itself would bring Taiwan

its "one country, two systems" policy to belittle us as a economic benefits. Our foreign trade accounts for a very

local government, and its application of sharp pressure large percentage of our whole economy, and has always

on us in all areas, in order to weaken our international been the dominant and most important force in our

standing and reduce our basic overseas maneuvering economic development. Although our domestic sector is

space, is becoming increasingly obvious and hardline. gradually beginning to play a stronger role, the vitality of

We are helplessly watching the most important countries gr begn to has a direr ron our verall

with which we have established diplomatic relations, our foreign trade still has a direct impact on our overall

either having already shifted toward establishment of economic prosperity. But as we had regarded the U.S. as

diplomatic relations with the PRC, or in the process of our most important export market for many years, and

actively signalling such intentions to the CPC. Even had long enjoyed the most favored nation (MFN) status

though we are still maintaining or expanding substantive that was granted to us by the United States, our most

foreign economic and trade relations with many coun- important foreign trade task was to do all that we could

tries, there is no denying the increasingly stronger threat to increase our exports to the United States aimed at of diminishment of our diplomatic standing. U.S. market demand. Thus, we neglected to develop other markets, while bringing on ourselves the following

Coming at such as moment, the news that U.S. President reprisals for the excessive increase in our favorable

Bush is willing to support Taiwan's GATT membership balance of trade with the United States: the cancelling of

as the Customs Territory of Taiwan and the Penghu, our MFN status, a large rise in the value of the Taiwan

Quemoy, and Mazu Islands, is presenting us with the dollar in relation to the U.S. dollar, and the placing of

possibility of greatly strengthening our relations with harsh restrictions on exports of certain key products.

many countries with which we do not have diplomatic While we finally reacted to this pressure by beginning to

relations. It is also giving us greater hopes that we will be curb our exports to the United States and striving to

able to join one of today's most important international open up other markets, we discovered that our awkward
JPRS-CAR-91-052

23 September 1991 TAIWAN 97

political and diplomatic standing was making it impos- Taiwanese-Japanese foreign economic and trade relasible for us to acquire the same ideal trade standing with tions would be another difficult problem. As many

many countries that they had with each other, and that discriminatory and defensive trade practices are making

we lacked the force to improve this adverse situation it hard for us to contain our still sharply increasing trade

through conducting bilateral negotiations one by one deficit with Japan or penetrate Japanese economic

with our trading partners. Along with the continued might, it would be very hard to imagine what might

integration of the EC, the active development of the happen if these practices were eliminated one by one. As

North American Free Trade Zone (NAFTZ), and the to our Mainland China policy, since our most-embraced

increasingly closer cooperation among the ASEAN coun- "three no's" policy (no contacts, negotiations, or comtries, our increasingly isolated predicament has been promises) is almost impossible to maintain now, how

deteriorating steadily. This is making it hard for us to would we be able to keep any control once Taiwaneseachieve significant political or diplomatic break- PRC foreign economic, trade, and political relations

throughs, so that joining the GATT has become almost would inevitably begin to develop uncontrollably?

the only way to change the status quo. GATT membership would enable us to automatically enjoy MFN status We ought to be very happy that the rapid economic

among the 120 GATT member countries, join up with liberalization that we carried out in recent years, before

other countries to resist unfair pressure imposed on us by we were truly confronted with these difficult problems

certain trading partners, and reverse certain poor condi- that might come with GATT membership, has already

tions that we are now subject to. eliminated most of our protectionist policies in areas

such as tariffs and import restrictions, so that our overall

But the trade advantages of GATT membership would economy has begun to pass out of its more difficult

certainly not come without a price. In order to gain the phase. Thus, we can still face up to these harder new

support of two-thirds or even more of its members, we problems more tolerantly. We ought to be even happier

would have to exert all of our efforts to consult with that most of our many former economic structural

them one by one. In addition to the manpower and deviations and industrial development shortcomings

material resources required for this consultation process, were caused precisely by improper protectionism and

we would also likely have to concede many exchange interference. As we were under no outside pressure, we

terms. The vicissitudes of our current diplomatic predic- were complacent, conservative, and unable to make

ament mean that this price would certainly not be low. thorough adjustments or achieve correct guidance. Our

Many domestic dissidents who are in a bitter struggle farm, Mainland China, and foreign exchange control

with the government, attacking it for the diplomatic policies all basically fall into this category. That we are

crime of "cash diplomacy," would certainly have even now forced to use the maximum determination and

more opportunities to make loud, plausible, and at make maximum efforts, and that we still have plenty of

length criticisms. This is another part of the price that we time and economic might to do these things that should

would have to pay. have been done long ago, is not a price of GATT

membership, but rather an additional bonus.

An even greater price would be our longstanding key

policy measure of using trade terms to guide our eco- Thus, we could practically call the current possibility of

nomic development, industrial adjustment, trade bal- gaining GATT membership a major turning point for

ance, and even our diplomatic policy on Mainland our economic reform, which we could reasonably go all

China. Once we acquired GATT membership, or even out for. We should take active foreign policy steps to gain

during the premembership examination process, the the support of all GATT member nations, while focusing

GATT would certainly require us to conform to the our domestic policy on a thorough examination of the

member nation code of conduct, by giving up many of deep and far reaching interference in and controls over

our intervention measures in areas, such as tariffs, all aspects of our economic policies, industrial strucimport restrictions, price subsidies, and foreign tures, politics, and diplomacy that have tormented us

exchange controls. We must consider the great future like ulcers for almost four decades. Thus, even if we do

obstacles that giving up these key measures would not acquire GATT membership in the immediate future,

present to the enforcement of many key policies. Leaving we will still have benefited considerably.

aside for the moment the positive objectives that we had

hoped to achieve through the use of these measures, the

negative aspect of suspending these longstanding policies Editorial Views PRC Trade, Assistance for

would be immediately serious shocks, which would hit Businessmen

agriculture first. Once an agreement on farm subsidies is 91CE0704B Taipei CHUNG-YANG JIH-PAO

reached at the Uruguay Round, our lowest-key applica- in Chinese 24 Jul 91 p 3

tion for membership would be bound to bring the

strictest demands. As Taiwan's agriculture is already on

the verge of extinction from decades of wrenchingly [Editorial: "The Taiwan-PRC Foreign Economic Relapartial policies, it would be hard to calculate the harm tions and Trade Situation Should Be Acknowledged, By

that would be done by not planning as quickly as possible Drawing Up Appropriate Measures To Assist Taiwanese

a set of appropriate remedies to guide it. Businessmen on Mainland China"]
JPRS-CAR-91-052

98 TAIWAN 23 September 1991

[Text] Statistics released by the Ministry of Economic Mainland China's advantages are cheap land and labor,

Affairs on 20 July 1991 show that Taiwan's overseas while Taiwan's are money and technology, which has

orders increased steadily in June 1991, reaching $6.36 formed a mutually complementary investment climate

billion, or 14.5 percent more than those for June 1990. It for Taiwan-PRC foreign economic relations and trade.

is worth noting that Taiwan's June 1991 orders from But it is worth noting that Mainland China's land and

Hong Kong were 85.77 percent higher than those for labor advantages are stationary production factors, while

June 1990, surpassing those from Europe and Japan, and Taiwan's money and technology advantages are portable

making Hong Kong Taiwan's second largest source of ones. Their mutual complementarity means that Taiwan

export orders, next only to the United States. must "move" its portable money and technology to

Mainland China's stationary land and labor. While this

It is well known that this increase in exports to Hong is apparently a reciprocal reliance on each others' proKong really means an increase in exports to Mainland duction factors, it is actually nonreciprocal and slanted.

China, and that Hong Kong's becoming Taiwan's second Moreover, this nonreciprocal and slanted reliance is the

largest export zone shows a further development in cause of the next misgiving.

Taiwan-PRC foreign economic and trade relations.

3. It causes political and economic conflicts for TaiThe source of the development of Taiwan-PRC foreign wanese businessmen on Mainland China. As increasing

economic and trade relations in recent years can be numbers of Taiwanese businessmen must use Mainland

traced to the economic reforms carried out on mainland China as their production and even R&D base, their

China since the late 1970's. The record shows that while economic interests will obviously lead to closer Taiwanthe Taiwan-PRC indirect trade turnover amounted to PRC geopolitical and economic relations. Taiwan is

only some tens of millions of U.S. dollars in 1979, it had basically a democratic society, or, more specifically, one

rapidly increased to $4 billion by 1990. As far as trade in which political and economic forces affect each other

theory is concerned, such rapid growth of Taiwan-PRC frequently. Thus, whether the concurrent role that "Taitrade is certainly not surprising, as it was caused mainly wanese businessmen" are forced to play in Mainland

by the huge price differences between various Taiwan China's regional interests will have an impact on Taiand PRC resources, such as land, labor, commodities, wan's political climate, and thus on Taiwan's Mainland

and raw materials, which price differences are the major China policy, is a question that should cause great

inducement for trade. While Mainland China was a concern.

closed economic and social system before 1979, so could

not have mutual relations with any of the economies on In light of these misgivings, the Taiwan Government's

its periphery, mutual foreign economic and trade rela- foreign economic relations and trade policy toward

tions have become possible since it began to reform and Mainland China has always been very cautious, methodopen up to the outside world. Taiwan-PRC trade has ical, and orderly. This awareness has left nongoverndeveloped quickly due to the huge price differences, and mental causes invariably out in front of government

indirect investment has come on the heels of this trade. policy. In October 1990, the Taiwan Government

Therefore, Taiwan-PRC foreign economic and trade announced that Taiwanese businessmen could make

relations can be fully explained by market forces. indirect investments in Mainland China, giving them a

six-month deadline for reporting such investments. By

The current issue is that, while the bilateral economic the reporting cut-off date at the end of April 1991, 2,503

benefits from trade that is in keeping with market laws Taiwanese businessmen had reported such investments.

may be deceptive due to whether or not it is really This reporting has left the problem of how to assist and

mutuallly beneficial, economic benefits are obviously control those who have reported and those who have not.

not equivalent to national benefits. As far as Taiwan is It is understood that Taiwan's Ministry of Economic

concerned, even though the steady growth of Taiwan- Affairs and the departments concerned have set up a

PRC trade and investment is only indirect, it still causes group with the special responsibility of studying and

the following major misgivings: expediting this matter.

1. It causes a steady increase in export dependence. This will involve the following difficult policy planning

While Taiwan-PRC indirect trade accounted for less questions:

than 2 percent of Taiwan's exports up to 1988, this

percentage has been increasing rapidly in the last three or 1. Should those who have not reported be "penalized," if

four years, being 2.4 percent in 1989, 4.8 percent in so how, and can responsible materials and economic

1990, and already more than 5.5 percent for the first half departments fully control them?

of 1991. This increasing export dependence on Mainland

Chinese markets has recently been causing concern 2. Should those who have reported be "rewarded," and if

among all circles, so would it conflict with the current policy of not

encouraging (while not forbidding) indirect investment

2. It causes a nonreciprocal reliance on production in mainland China?

factors. It is understood that Taiwan and Mainland

China currently have different investment climate It may be precisely such difficult questions that have left

advantages for foreign economic relations and trade, responsible departments still unable to come up with a
JPRS-CAR-91-052

23 September 1991 TAIWAN 99

set of effective measures with which to assist and control private nerves, the sharp drop in our current trade

Taiwanese businessmen on Mainland China. surplus will naturally reduce such pressure.

We think that penalizing those who have not reported 2. The percentages of our import and export trade with

would certainly present technical difficulties, while Europe have both been increasing steadily, and that of

rewarding those who have would hardly be consistent our export trade in particular. Moreover, as Taiwan

with current policy. A more appropriate way would be to ranked first among Asia's four little dragons in exports to

provide certain "outside" services to those who have the EC in 1990, our Foreign Trade Office has been very

reported. While such services would not be equivalent to proud of itself. As it is predicted that in five years our

land tax reductions or exemptions or interest subsidies foreign trade turnover with Europe will be roughly equal

and thus, would not be of the nature of a reward, they to that with the United States, it is obvious that even if

could certainly be of substantive help to Taiwanese Europe cannot replace our U.S. markets, it will still be on businessmen on Mainland China. For instance, respon- a par with them, which will enable Taiwan to virtually

sible departments or nongovernmental specialists in pay equal attention to European and U.S. markets.

various fields, such as network law, accounting, and

financial management, could patrol Mainland Chinese 3. The changed percentages of our export merchandise

areas where Taiwanese businessmen are concentrated, also show that our industrial structure is changing in the

and provide various management and advisory services. desired direction. That is, technology-and capitalWe believe that this may be acceptable as the most intensive goods are accounting for an obviously

expeditious method in the current stage that would not increasing percentage of our exports, while laborviolate Taiwan's foreign economic relations and trade intensive ones are accounting for a progressively

policy toward Mainland China. As it could not only decreasing percentage of them.

resolve the operating difficulties of individual "Taiwanese businessmen," but also establish ties and pipelines These improvements show the response of Taiwanese

between "Taiwanese businessmen" and their responsible businessmen to the rise in the value of the New Taiwan

departments, as well as among "Taiwanese business- dollar, our increasing wages, and our competitive lag.

men," it is hoped that policymakers will give it active The first two improvements can be said to be a result of

consideration, the rise in the value of the New Taiwan dollar. While the

rise in the value of the new Taiwan dollar in relation to

the U.S. dollar has naturally reduced our exports to the Columnist Analyzes Trade Opportunities, United States, the smaller rise in the value of the new

Problems Taiwan dollar in relation to certain other strong curren91CE0717A Taipei CHING-CHI JIH-PAO in Chinese cies has decreased the percentage of our exports to the

29 Jul 91 p 3 United States, while increasing the percentages of our

exports to Europe and Asia. The third improvement was

[Article by Hou Hsieh-Wen (0186 1400 0795): "Foreign due to the dual pressure of rising wages and foreign

Trade Improvements and Crises"] competition, which forced us to look for ways to upgrade our industry. While these improvements have naturally

[Text] While I noted the great changes that have raised our hopes, they may also be concealing the foloccurred in the specific regional and commodity per- lowing crises:

centages of Taiwan's foreign trade in my special column

entitled "A Structural Analysis of Taiwan's Foreign 1. The drop in our percentage of trade with North

Trade" that was published in early July 1991, the space America has increased our dependence on Asia. In

limitations on that article prevented me from making a particular, it has made us too dependent on Hong Kong

thorough analysis of these changes, so I have written this for exports and trade surpluses, and too dependent on

article as a special supplement to it. These changes have Japan for imports. For instance, in the first half of 1991,

revealed the many improvements in Taiwan's foreign our trade surplus with Hong Kong reached a high of

trade, with such so-called "improvements" naturally $4.704 billion, or 18.3 percent of our overall trade

referring to the following encouraging phenomena that surplus. Moreover, as our trade with Hong Kong is

have appeared in Taiwan's foreign trade in recent years. mostly trade with Mainland China, our growing dependence on Hong Kong is naturally causing both public and

1. The sharp drop in the percentage of our exports to private concern in Taiwan. Thus, Premier Hao recently

North America in the last four years or so, actually shows directed the Ministry of Economic Affairs to study ways

Taiwan's decreasing dependence on the United States to prevent too much economic dependence on Mainland

for export markets. While Taiwan's exports to the China.

United States had always accounted for the biggest

percentage of our gross export value, reaching a high of 2. The European Free Trade Association, composed of

48.8 percent in 1984 and still being 47.1 percent in 1986, the 12 member nations of the EC and the seven Northern

this percentage has dropped to 28.1 percent for the first European countries, is going to sign an agreement soon half of 1991. While the United States had been making to establish a Pan-European free trade zone for permany demands on us in recent years, mostly about our sonnel, material, labor, and capital circulation, and

trade surplus, which had been rattling our public and Europe is going to become a single market in 1993. These
JPRS-CAR-91-052

100 TAIWAN 23 September 1991

actions are going to put a new face on things, and may process of making plans to join the GATT, we really

place certain economic restrictions on countries outside should not deliberately complicate the issue by trying to

of this regional organization. If Taiwan does not make save a little only to lose a lot. Moreover, if we are afraid

appropriate public and private responses to this, our of too much foreign economic relations and trade depencurrent European trade successes may be brief and dence on Mainland China, we might as well open up our

sharply reversed, markets to imports of certain mainland products, in

order to encourage Mainland Chinese economic depen- 3. As to our percentages of export merchandise, while dence on Taiwan.

machinery exports have won all of the medals in this

contest, this may be due to exports of old machinery

driven by foreign investment, which are certainly no Editorial Discusses BCCI Fraud

substitute for the vigorous development of Taiwan's 91CE0717B Taipei CHING-CHI JIH-PAO in Chinese

heavy industry. Moreover, as to our electronics products 31 Jul 91 p 2

that rank first as to both imports and exports (whose

orders have recently been surpassed by the textile indus- [Editorial: "The Impact of and Lessons Learned From

try), it should also be noted that Taiwan's electronics the BCCI Fraud Case"]

industry is still mostly in the assembly stage, and has not

made any genuine S&T breakthroughs. In other words, [Text] The Bank of Credit and Commerce International

this crisis may show that Taiwanese industry has not (BCCI), which ranked about 150th among world banks,

been truely upgraded, and may also be why nongovern- was closed down a few days ago by countries, such as

mental investment has been so sluggish in recent years. Britain, the United States, France, and Germany. As this

is a complex case involving a huge amount of money and However, we may be mistakenly overconcerned about dozens of countries, it is not only having an impact on

the first crisis. While our trade deficit with Japan has financial circles, but is also shocking banking authorities,

been increasing year after year, the percentage of our in all countries. While the real extent of Taiwan's losses

imports from Japan has been more or less decreasing. is yet to be investigated, this case of fraud is teaching

For instance, while this figure was 36.0 percent in 1986, valuable lessons to Taiwan's banking authorities, foreign

it was only 29.2 percent for the first half of 1991. There exchange banks, and export manufacturers and business

may also be another misconception as regards Taiwan- firms. The BCCI system was founded in 1983, with its

ese-Mainland China trade. For instance, while Taiwan general headquarters set up as an international bank in

statistics for the first quarter of 1991 show that our Hong Luxemburg. After it was founded, it expanded very

Kong exports and imports amounted to $2.394 billion quickly, so that by the time it was shut down by the

and $461 million, respectively, for increases of 48.7 above-named countries, it had assets of more than $20

percent and 41.7 percent, respectively, and an overall billion, ranked about 150th among the world's 500

trade turnover of $2.855 billion, Hong Kong government biggest banks, and had branches in 70 countries

statistics show the Taiwan-Mainland China trade turn- throughout the world, and also in Taipei. While the

over as $8.4875 billion HK, or less than $1 billion (less details of this case have not yet been announced offithan one-fourth of our trade with Hong Kong), i.e., cially, the U.S. Federal Reserve Council announced on

Taiwanese exports of $877 million and imports of $165 28 July 1991 that it was fining BCCI $200 million, and

million, for increases of 33.9 percent and 43.3 percent, the New York Regional Prosecutor's Office has brought

respectively. Therefore, the true state of Taiwan- suit against BCCI's two founders on charges, such as

Mainland China trade should be studied thoroughly, in money laundering, falsifying bank records, and bribing

hopes that the true statistics can be found and under- officials.

stood.

BCCI's Taiwan branches were responsible only for tasks

As to Premier Hao's directions, the Ministry of Eco- such as making business contacts and collecting infornomic Affairs should proceed only on the basis of giving mation, and certainly did not engage in international

advance warnings. It should persuade manufacturers business, such as savings and loans. Thus, when BCCI

and business firms that have exceeded upper import and was first closed down by various countries, as it had

export limits to exercise self-restraint on ethical grounds, certainly not caused many direct losses in Taiwan, it did

instead of taking stronger actions. This is because the not arouse much concern. But when BCCI's Hong Kong

current Taiwan-Mainland China trade is indirect, the operations were disciplined and suspended by the Hong

concerned authorities are having real trouble controlling Kong Government, which caused direct losses for Taiit, these so-called advance warnings would be actually wanese manufacturers, business firms, and certain

based on Hong Kong statistics alone and, as stated banks, concerned Taiwanese departments, including the

above, Taiwan-Hong Kong trade is certainly not equiv- banking authorities, began to pay serious attention to

alent to Taiwan-Mainland China trade. Even if the BCCI.

concerned authorities had all of the statistics under

control, they still should not place too many restrictions It is reported that the direct losses sustained by Taion Taiwan-Mainland China trade. This is because that wanese manufacturers and business firms from the

would violate the basic spirit of the GATT on free trade closing of BCCI involved about 400 savings accounts

and discriminatory trade practices. As Taiwan is in the amounting to more than $50 million, while most of the
JPRS-CAR-91-052

23 September 1991 TAIWAN 101

indirect losses involved mortgages or remittances. As far credit certifications presented by international banks as

as Taiwan's foreign exchange banks are concerned, absolutely reliable "payment guarantees." Even with

except for the Huanan Bank that suffered more because credit certifications presented by banks, it is still necesit had a savings account in the Hong Kong branch of sary to investigate the credit ratings of overseas

BCCI, other Taiwan banks sustained only slight losses in importers. Otherwise, it is hard to recoup goods paythe areas of mortgages and remittances. As our central ments when the certifying banks run into trouble. Even if

bank never had any foreign exchange reserves in BCCI, it there is no trouble with certifying banks, choosing forsuffered no direct losses. eign manufacturers and business firms with good credit

Since the BCCI fraud case was exposed, and since the ratings is still the key basis for steady business growth.

Hong Kong branch of BCCI was shut down in particular, In light of today's conditions in which all parties are

the reactions by various parties have been varied. The vigorously promoting banking liberalization and interMinistry of Finance's Banking Office has called on nationalization, even though the BCCI case is having a

manufacturers and business firms to set up systems to great impact on the banking authorities, foreign

determine the credit ratings of foreign manufacturers exchange banks, and export manufacturers and business

and business firms, when internationalizing their enter- firms, it is also teaching timely and very alarming

prise operations. The central bank has indicated that it lessons. It is deeply hoped that the banking authorities,

would take advantage of the lessons learned from this foreign exchange banks, and export manufacturers and

case of fraud by more closely supervising the business business firms will learn the lessons taught by this case of

operations of overseas branches of Taiwan banks and fraud by examining their respective operations. If defiforeign bank branches in Taiwan. Certain foreign ciencies are found, quick improvements should be

exchange banks have been shocked by the closing down planned.

of the world's 150th ranked bank. And many manufacturers and business firms have been even more alarmed Export-Processing Zones Show Growth

by the possibility of collapsing accounts due to fraudu- 0W1008174691 Taipei CHINA POST in English

lent credit certifications by such a large world-class bank. 7 Aug 91 p 6

But we think that the BCCI fraud case has really taught

banking authorities, foreign exchange banks, and manu- [Text] The first half of this year was a bonanza for the

facturers and business firms various lessons, the most three export processing zones under the Ministry of

noteworthy being as follows: Economic Affairs.

1. In addition to strengthening their control over both Investments in the island's three zones, in Taichung,

Taiwanese and foreign bank branches in Taiwan, the Nantze and Kaohsiung, went up US$61 million in the

banking authorities should also strengthen their control January-June period. As of now, the three zones have

over Taiwanese bank branches abroad. As the numbers courted ventures worth US$857 million, the Export

of foreign bank branches in Taiwan and Taiwanese bank Processing Zone Administration reported yesterday.

branches overseas have been increasing steadily in recent Four new firms were established in the Kaohsiung zone,

years, supervision of their operations must be strength- and two each registered in the Nantze and Taichung

ened. In particular, supervision and auditing must be zone administrations, though 15 plants shut down in the

enhanced for overseas branches of Taiwanese banks and

international bank branches that conduct external perod.

banking operations in Taiwan. External trade from the three zones amounted to

US$2.866 billion in the six-month period, a healthy 2. Taiwanese foreign exchange banks have always over- growth of 13.72 percent if compared with the correemphasized size of operation, such as banks in the top sponding period of 1990.

500 or top 100, in their selection of foreign banks with

which to do business. While this mehtod of selection Electronics products took 74 percent of the total exports.

may be simple and convenient, it is unable to distinguish Other major export items included garment, optical

quality. Even though BCCI was a large international products, machinery and metal products.

bank that was ranked as one of the 150th biggest banks in

the world, it was still shut down by the governments of More than US$800 million worth of products were

many countries because of its flagrant crimes. When shipped to the Asian region, making it the largest market

selecting foreign banks with which to do business, it is of the three zones. North America came in second and

absolutely necessary to anaylze their finances and oper- Europe ranked third.

ations and assess their credit ratings, instead of judging The zones were set up in the 1960s to woo investment

them simply by size. and expand exports with tariff exemptions and cheap

3. When conducting foreign trade, manufacturers and labor.

business firms must not rely 100 percent on the credit But the role of the zones are shifing in tandem with the

certifications presented by foreign banks. Most Tai- restructuring of Taiwan's industry. Under the current

wanese export manufacturers and business firms rely too policy, 50 percent of the products made in the zone are

much on credit certifications, especially by considering allowed access to the local market.
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