JPRS-CAR-92-071

15 SEPTEMBER 1992

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JPRS-CAR-92-071 CONTENTS 15 September 1992

INTERNATIONAL

GENERAL

Justification for Claim to Paracel, Spratly Islands [BEIJING DAXUE XUEBAO 20 May] 1

POLITICAL

Ways Cadres Can Meet Test of Being in Power [QIUSHI16 May] 11

Article Urges Seeking Truth From Facts in Reform [GUANGMING RIBAO 13 Jul] 13

ECONOMIC

NATIONAL AFFAIRS, POLICY

On Scope for Market Economy Under Socialism [JINRONG SHIBAO 20 Jul] 17

Stockholding System Seen Solution to Contradiction [GAIGE 20 Jul] 21

PROVINCIAL

Greater Economic Sophistication Urged fJIEFANG RIBAO 27 Jul] 23

Large Increase in Business Concerns fJIEFANG RIBAO 31 Jul] 25

Shanghai Prepares To Set Up Coal Exchange [JIEFANG RIBAO 2 Aug] 25

FINANCE, BANKING

Study Support for Key Eighth Five-Year Plan Projects [GUANLISHIJIE 24 May] 25

FOREIGN TRADE, INVESTMENT

Vice Premier Zou Jiahua Briefs NPC on Foreign Trade [XINHUA] 29

Reforming Foreign Exchange Retention System [GUOJIMAOYI WENTI30 Jun] 30

ECONOMIC ZONES

Shanghai Customs Support for Pudong [GUOJI SHANGBAO 1 Aug] 33

Pudong: Hotbed for Domestic Investment [JIEFANG RIBAO 5 Jul] 34

POPULATION

Relationship Between Population Quality, Development

[Hong Kong CHING-CHI TAO-PAO 27 Jul] 36

TRANSPORTATION

Major Shipyards Strive To Improve Timely Deliveries

[ZHONGGUO CHUANBO BAO 31 Jul] 39

AGRICULTURE

Fertilizer Glut Choking Small Production Plants [JINGJI RIBAO 20 Jul] 40

Ministry Backs Farm Product Reform [JINGJI RIBAO 19 Jul] 41

Demand for Livestock Feed Unsatisfied [JINGJI RIBAO 17 Jul] 41

Article Hails Achievements in Agriculture [JINGJI RIBAO 17 Jul] 42
JPRS-CAR-92-071

15 September 1992 2

SOCIAL

Developments in Shanxi Socialist Literature, Art [QIUSHI16 Apr] 43

Openness in Research, Attitude Toward Sex Noted [XINHUA] 47

Development Rights Seen as Major Human Right [BEIJING SHIFAN DAXUE XUEBAO 20 May] 48

REGIONAL

EAST REGION

Anhui Economic Official Stresses Ideological Work [ANHUIRIBAO 2 Jun] 55

TAIWAN

Petrochemical Industry's Difficult Position on Taiwan [Hong Kong CHIU-SHIH NIEN-TAI1 Jul] 56
JPRS-CAR-92-071

15 September 1992 INTERNATIONAL

GENERAL

Justification for Claim to Paracel, Spratly Islands

92CM0359A Beijing BEIJING DAXUE XUEBAO

[JOURNAL OF BEIJING UNIVERSITY] in Chinese

No 3, 20 May 92 pp 30-40

[Article by Zhao Lihai (6392 3810 3189): "China's

Inalienable Sovereignty Over the South China Sea

Islands Viewed in Terms of International Law"]

[Text] The South China Sea is a semi-isolated ocean

region. ' To the north, it borders the Chinese mainland;

to the east it abuts the Philippine archipelago; and to the

west it is bounded by the Malaysian Peninsula. It

extends approximately 3,400 kilometers (1,800 nautical

miles) north to south and approximately 1,200 kilometers (650 nautical miles) east to west, and it covers an

area of 3.5 million square kilometers.

The islands of the South China Sea include the Spratly

Islands [Nansha Qundao], the Paracel Islands [Xisha

Qundao], the Pratas Islands [Dongsha Qundao], and

Macclesfield Bank [Zhongsha Qundao]. The Spratly

Islands, also known as Tuansha Archipelago, are located

at between 4 and 12 degrees north latitude and between

108 and 111 east longitude, and include more than 230

islands, reefs, sand bars, and shoals ofwhich 13 are fairly

large. The Taiwan authorities have consistently dispatched troops to occupy the largest—Taiping Island.

The Paracel Islands are located at 112 degrees east

longitude and between 16 and 17 degrees north latitude,

150 nautical miles southeast of China's Hainan Province. The archipelago consists of approximately 20 small

islands and sand bars, as well as numerous shoals and

hidden reefs. 2

The Pratas Islands are located in an area bounded by

China's Guangdong, Hainan, and Taiwan provinces, and

by Luzon Island in the Philippines. All the islands are

covered with coral. The Pratas Islands are located in a

key area of considerable strategic importance. They are

currently occupied by a Taiwan garrison administered

from Kaohsiung. A power plant, a hospital, a post office,

a wharf, an airfield, and a meteorological radar and a

fishermen's service station have been built on the

islands. The ocean in the vicinity ofthe Pratas Islands is

rich in aquatic products, and fishing boats from China

regularly travel there to fish.

Zhongsha Archipelago, or Macclesfield Bank, is actually

not an archipelago, but a vast ocean area ofsea-covered

atolls located southeast of the Pratas Islands on which

the water is 4 to 4.5 fathoms deep. Despite the low

elevation of the land, all around the banks rich oil, gas,

and fishing resources may be found, the economic value

of which cannot be disregarded. 3

It is common knowledge that the islands of the South

China Sea are located in China's southern coastal area

and territorial sea. This southern sea is also known as the

"South China Sea." Although China has never called its

southern sea by this name, this has become the common

name by which other countries, particularly western

countries, refer to the southern sea. The Chinese people

discovered the islands of the South China Sea nearly

2,000 years ago. The Paracel Islands have also appeared

on Chinese maps for the past several hundred years.

During that period, the countries ofsoutheast Asia were

still under the rule of the western colonialists. The

islands of the South China Sea have been Chinese

territory since ancient times. Not only do large quantities of references—both ancient and modern, Chinese

and foreign—attest to this, but the countries ofthe world

also recognize it.

However, some people who want to cause trouble for no

reason have initiated provocations against the Chinese

people, flagrantly encroaching upon China's sovereignty

over the islands of the South China Sea.

The main conflict over the islands of the South China

Sea at the present time concerns the Spratly Islands,

where the focus of contention is territorial sovereignty.

This article seeks through analysis ofinternational law to

defend China's sacred sovereignty over the islands ofthe

South China Sea.

I.

Can modern international law be applied to behavior

that occurred during a historical period between several

hundred and several thousand years ago such as discovery and first occupation? If not, what law should be

used to determine orjudge whether a nation has certain

rights or ownership? In examining China's inherent

sovereignty over the islands of the South China Sea,

clarification ofthese issues through some exploration of

intertemporal law is extremely necessary.

An official letter that American Secretary of State

Upshur wrote to a person named Everett on 9 October

1843 said that "a people's right to land discovered in the

16th century is determined on the basis of international

law as understood at that time and not on the basis of

improved upon or more enlightened views 300 years

later." 4

In the Island of Palmas case of 1928, the United States

claimed sovereignty over the islands on the basis of an

1898 treaty between the United States and Spain.

Reportedly, Spain had discovered the islands during the

early 16th century. However, at the time ofsuit, simple

discovery without occupation was not regarded as conferring sovereignty.

In describing the principle of intertemporal law, arbitrator Max Huber wrote: Both the United States and the

Netherlands both recognize that profound changes

occurred in international law between the end of the

Middle Ages and the end of the 19th century regarding

discovery rights and acquisition of places found to have

no trace of human habitation. Both parties also agree

that a legal fact must be judged in accordance with the
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JPRS-CAR-92-071

15 September 1992

laws at the same time, and not according to disputes that

arise concerning this fact or the laws that are in effect at

the time of resolution. Thus, the validity of Spain's

"discovery" was based on international law provisions

of the first half of the 16th century, i.e., when either

Portuguese or Spaniards first discovered the Sea of

Celebes. Huber also noted that "on the issue of the

applicability to specific cases of different legal systems

handed down from different periods, a distinction must

be made between the creation ofrights and the existence

of rights. Actions that create a right must be limited by

the laws in effect at the time the right occurred. In other

words, the continued expression of a right that exists

must meet certain conditions that the evolution of the

law requires."5 According to 19th century international

law, "in order to make a claim to sovereignty over

territory, first occupation must be effective." "Simple

discovery without any subsequent action is currently

insufficient to validate sovereignty over the Islands of

Palmas." Clearly, the existence of rights must be determined on the basis ofthe law at the critical date when the

right existed. The law not being ex post facto is the

quintessence of intertemporal law. 6

What is meant by intertemporal law? A resolution passed

at the annual meeting ofthe International Law Society at

Wiesbaden in 1975 provided an authoritative interpretation ofthis. The resolution explicitly provided that "1)

Unless separately indicated, the current sphere of applicability of any provision of international law requires

that any fact, act, or circumstance must be decided on

the general legal principle of making a judgment in

accordance with legal provisions in force at the same

time." "2) when applying this principle, (a) any provisions pertaining to a fact must be applied to the facts that

occurred during the period of validity of the provision;

(b) any provision pertaining to an actual circumstance

must be applied to the circumstances obtaining during

the period of validity ofthe provision even though these

circumstances occurred earlier; and (c) any legal or illegal

provision pertaining to a lawful act, or any provisions

pertaining to valid conditions must be applied to the

actions that occurred during the period of validity ofthe

provisions."7

Obviously, intertemporal law has become a generally

recognized international rule, and it is also a sharp

weapon that may be used to interpret China's inherent

right to the South China Sea islands. The renowned

British international law expert and International Court

justice Jennings said as follows: "The validity of an act

should be determined by the law at the time of the act

and not by the law at the time that a claim is made. This

principle is basic and important."8 Kittichaisaree of the

Thailand Ministry of Foreign Affairs also says coincidentally in his forthcoming book, Maritime Law and

Maritime Boundary Demarcation in Southeast Asia:

"The validity of action that invests authority..., such as

discovery and first occupation, is determined according

to the law at the time when authority was invested and

not by the law at the time a claim is made."9South

Korean maritime law expert Pak Chung Hwa [2883 0112

0735] said in explaining the Chinese discovery of the

Paracel and the Spratly Islands that he was profoundly

doubtful about "modern international law being completely applicable to actions that occurred before the

modern historical period." He said that international

law "required that the discovery of new territory exert

uninterrupted control over this land in order to become

the owner of the land." He said categorically about the

importance of discovering and using these two archipelagoes that "it must be based on specific circumstances at

the time when these events occurred and not be

explained in terms of the modern laws of each

country."10

II.

Some people say that "in the controversial course of all

countries of the world dealing with res nullius sovereignty, an international law principle for determining

territorial sovereignty has been fashioned, i.e., an effective principle." "This principle is one component of

today's international common law."

To be sure, the "effective principle" (effective occupation) is an important principle of international law

regarding territorial acquisition. China has consistently

followed this principle regarding the islands in the South

China Sea. The question is whether this principle of

international law can be applied to facts or behavior that

took place in the 15th to the 17th century or even several

thousand years ago. The answer is clearly negative. The

world renowned Oppenheim International Lawsays in an

extremely firm tone that "today, possession and administration are two effective conditions of occupation;

however, formerly, these two conditions were not recognized as occupation methods necessary for acquiring

territory."11 According to intertemporal law, the law is

not retroactive. The validity of an action such as discovery and first occupation can only be decided in

accordance with the law at that time and not in accordance with the law at the time controversy occurs or at

the time of solution.

In discussing methods of territorial acquisition, Oppenheim made a sharp distinction between the international

law of the 15th and 16th centuries and that of the 18th

and 19th centuries. It was only after the 18th century

that international law required "effective occupation,"

and during the great discovery era, symbolic acts could

satisfy this requirement. He said that "during the era of

great discoveries, no country advocated that the discovery ofland about which no one was previously aware

was tantamount to the country thatthe discoverer served

while engaged in exploration and had already employed

the occupation method to obtain that territory; nevertheless, occupation was frequently a symbolic act." "It

was only after that, that actually taking possession was

deemed necessary. It was not until the 18th century that

international lawyers required effective occupation, and

it was not until the 19th century that the practice of all

countries conformed to this rule."12
JPRS-CAR-92-071

IS September 1992 INTERNATIONAL

Likewise, in 1938, America's Simsarian also pointed out

in Obtaining Res Nullius Legal Sovereignty that one can

see from the diplomatic documents of various countries

that "during the period prior to 1900, the standpoint

adopted was obviously different from the attitude maintained during the last half of the 18th century and

thereafter." "At a fairly early time, all countries recognized that discovery with symbolic occupation constituted res nullius sovereignty over North America." However, during the last halfofthe 18th and the early part of

the 19th century, the United States, Great Britain, and

Russia decided that "effective occupation" was the

"standard for testing the limits of legal sovereignty

proposed for the area in controversy" along the northwest seacoast.13

The further citing below ofseveral authoritative treatises

is necessary for the further elucidation of 15th and 16th

century law regarding the acquisition of territory. In an

article titled, Discoveries, Annexations and Their Actual

Validity in International Law, Heydte did not mince

words. He said, "Eversince the 15th Century, the official

conduct and practical statements of officials of all countries have increasingly inclined toward recognizing that

the symbolic annexation of newly discovered places

serves as the right of possession."1*

In a book titled Territorial Claims Questions in International Law and International Relations, Norman Hill of

the United States said, "For numerous ordinary types of

islands whose occupation would be difficult or impossible, some symbolic act of occupation was proposed.

This has been the method followed since the discoveries

ofthe early 15th and 16th centuries. In recent times, the

United States and Great Britain most actively used this

as a basis for making territorial claims in the Pacific

Ocean area. Since simple discovery is recognized as a

sufficient basis for res nullius, the use of various practices that might possibly be regarded as actual occupation or symbolic acts has spread."15

In his Territorial Acquisition Problems in International

Law.British Oxford University Professor Jennings said:

"Simple discovery without occupation conferred sovereignty in the past." Here, the past clearly means prior to

the 16th century because he says, "Since the 16th century, there is no longer any controversy. Simple discovery, which ultimately connotes first occupation, is

sufficient to provide sovereignty."16

Oxford University Professor O'Connell also pointed out

that "During the great expansion period, discovery

might have been suggested as a basis for authority;

however, it was an effective basis only with regard to

other claimants."17

Furthermore, a look at the practice of various countries

shows that during the 15th and 16th centuries, the

acquisition of territory through discovery or the

founding of colonies abroad were common occurrences.

Diplomatic documents of Spain, Great Britain, France,

and Holland show that from the second half ofthe 15th

century until the end ofthe 19th century, these countries

maintained that discovery together with symbolic occupation was sufficient basis for res nullius sovereignty

over North America. 18 Spain laid claim to the entire

American coast north of Mexico Bay on grounds that

Spain discovered Florida in 1489 and landed there in

1513.19In an official letter to the United States in 1782,

Portugal used discovery as the basis for its claim to

Trinidad Island. 20 In the controversy between France

and Great Britain over Canada and neighboring islands,

France consistently advanced discovery with symbolic

occupation to make a res nullius claim to sovereignty. 21

On the issue of whether discovery confers sovereignty,

this principle is even more explicitly approved. 22 The

United States maintains that sovereignty based on previous discovery is valid beyond all doubt. 23

Clearly, on territorial acquisition questions, on what

period is the "effectiveness principle" of international

law based? Or during what period was "discovery creates

sovereignty" the law? Is the answer not all too clear?

III.

In trying to defend the invasion and occupation of

China's numerous South China Sea islands and reefs,

some people surprisingly term "first discovery rights,

first occupation rights and symbolic occupation" to be

an "outmoded and inappropriate concept" "that has

been discarded," and that "occupation by private individuals does not lead to territorial rights for his nation."

How can one maintain silence in the face ofsuch absurd

arguments? Clarifying concepts, and distinguishing

between right and wrong in order to safeguard the sacred

sovereignty of China's China Sea islands is entirely

necessary.

In his monumental work International Law of 1758,

Vatol first propounded discovery and symbolic actions.

He said, "Everyone has an equal right to things that have

not yet been occupied by anyone. These things belong to

the first person to occupy them. Therefore, when a

country discovers a land where no human trace can be

found or that has no owner, it may legally occupy it; and

once it fully signifies its intentions in this regard, no

other country may expropriate the territory. Carrying a

mandate from their sovereigns, those who sailed the seas

began voyages of discovery. When they happened on

islands or other inhabited lands, they occupied them in

the name oftheir country. Such sovereignty was usually

respected provided it was followed shortly thereafter by

actual occupation."24 The theory of "initial rights" of

acquisition through symbolic acts and actual occupation

within a suitable period of time was perfected, and it

now forms the basis for this famous judgment.25

The term "discovery" usually means "physical discovery

or simple visual apprehension." Some say that "discovery" means "visual apprehension," with or without

landing. 26
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JPRS-CAR-92-071

15 September 1992

The object being discovered must be res nullius. Res

nullius may apply to a land showing no human habitation, land that has never been occupied or belongs to no

country, or land owned and previously occupied by a

country that has since been abandoned. 27

Even though discovery does not constitute acquisition of

territory through first occupation, its importance cannot

be ignored. Discovery confers "initial rights" or "inchoate title" on the discovering country. Until such time as

the discovering country "effectively occupies" within a

reasonable period oftime, these rights, to use a phrase of

Huoer [transliteration] "act temporarily to inhibit

another country from occupation."*8

On the nature of "initial rights," Heydte made an

incisive exposition. He said, "Never has there been an

instance in which simple discovery was regarded as a

right that transcends subsequent occupation." "Discovery confers only jus ad rem. No one can provide convincing proof that at any time the discoverer was

regarded as being able to establish minimum jus in re."

In his view, "symbolic acts may be explained as a means

ofshowing the world the acquisition ofinitial rights over

the land discovered. For other countries, this makes the

discovered land terra prohibita. However, it does not

confer on the country erecting the sign either complete

rights of control or jurisdiction over the land."29

Symbolic acts are of all kinds and descriptions, each of

them different from the other. Under certain circumstances, the landing party fires a salute, raises his

national flag, and declares the land occupied in the name

of his country. He may plant a cross or set up a

memorial, or he may leave an inscription. For example,

in the 15th century, the king of Portugal, Henry the

Seafarer, implanted a cross or boundary marker in all the

lands that his ships discovered to indicate that they were

Portugal's domains. Both the Spaniards and the Portuguese used carefully prepared religious ceremonies in

staking claims. Other European nations raised the flag,

read a declaration, or nailed a sign to a tree to show their

symbolic action. 30 Great Britain and the United States

usually augmented theirsymbolic ceremonies with leases

or the settling of private individuals.31 For the symbolic

occupation of uninhibited islands, the raising of the

country's flag sufficed. 32 However, except in specific

instances, discoverers do not explain the territorial

limits of the symbolically claimed land.33 [No reference

provided among list of references].

If no other country expresses "prior claim," in many

cases involving uninhibited or desolate places the courts

are content with the slight exercise ofrights. In the 1865

Aves Island case, the Queen of Spain used the fact that

no one lived on or could live on the island and that it had

been discovered and symbolically annexed by Spaniards

to annex it. 34

In the 1924 Palmas Island case, the arbitrators noted

that "actually sovereignty cannot be enforced at every

place every hour and every minute on a piece of land.

Intermittence and interruption are bound to differ in

places that are habitable and those where no human

habitation is found.35

In the 1933 Eastern Greenland arbitration case, the

Permanent International Court stated that in numerous

cases concerned with territorial sovereignty, "the court is

satisfied with slight exercise of rights provided no other

country can validate a prior claim. This is particularly

true in circumstances where a sovereignty claim is made

for sparsely inhabited or uninhabited areas." The Court

also declared that "in view of actions in sparsely inhabited or uninhabited places from the 10th through the

16th century, the establishment of legal res nullius legal

rights during that period requires testing against less

rigorous standards than in the modern area and for more

densely populated areas."36

In addition, the decision rendered in the 1931 Clipperton Island arbitration case noted with regard to a

place "not suitable for habitation, that if a piece of land

is completely uninhabited, from the advent of the first

occupying country there, it is under that country's absolute and incontestible control. From that time forward,

ownership must be regarded as being completed; thus

such ownership constitutes complete occupation."37

It is extremely clear that the contention that a country's

"earliest discovery rights, earliest occupation rights, and

symbolic ownership principle" are "outmoded," or

"abandoned," is completely without foundation. On the

contrary, rules pertaining to discovery and first occupation remain important to this day, because it is previous

discovery that frequently leads to current territorial

controversies.

In the course of their long period of navigation and

production, the Chinese people discovered the islands of

the South China Sea, and they went there continuously

to engage in fishing, mining, and reclamation. This offers

powerful proofto China's ownership ofthe South China

Sea islands. However, some people state that "occupation by private individuals does not lead to territorial

sovereignty on the part of the country to which the

private individuals belong. Only a state can be an

ownership entity." On this issue, international practice

and authoritative writings provide a clear-cut answer.

Permanent International Courtjustice J.B. Moore made

a profound statement regarding the importance of discovery by a private individual. He said, "The position

that the British government takes is that discoveries that

private individuals make while going about their private

affairs do not confer any rights cannot be entertained.

Nothing in the reasoning of this case or in international

law or practice supports this contention. If such discoveries do not confer rights, at least one can say that they

impede the acquisition of rights through subsequent

discovery by any other country. Even if acting on government mandate, they possess the clear intention of

attaining this goal (i.e., discovery)" "If its existence is

determined by visual apprehension....one might say that
JPRS-CAR-92-071

15 September 1992 INTERNATIONAL

a piece ofland has been discovered. This is nothing more

than a question of fact; either private individuals or

public representatives may open up lands."38

In discussing this issue, O'Connell said straightforwardly

that "the actions of private individuals per se do not

constitute first occupation; however, without the actions

of private individuals, there can be no first

occupation."39

In defining "symbolic annexation," Brounlie also fully

affirmed "actions of private individuals." He wrote:

"Symbolic annexation may be defined as a declaration of

sovereignty or other act, or as a nation's formal mandating or subsequent endorsement of a private individual's actions aimed at providing explicit proof of acquisition of sovereignty over a piece of territory or an

island."40

History has also verified the correctness ofthe foregoing

argument. Spain's claim to the entire coast of American

north of Mexico Bay was based on Amerigo Vespucci's

1498 discovery of Florida, and Ponce de Leon's 1513

landing on this coast.

In the 1953 Minquiers and Ecrekos case, the International Court also openly stated: "The existence of a

private individual who is a citizen of a country may

signify or having a bearing on that country's first occupancy." For land located on the border oftwo countries,

"the actions of such a private individual are especially

important in both parties claims ofsovereignty over that

area."

Doubtlessly, discovery of a place or an island is a matter

offact. Either a private individual or a public representative can do it. To ignore the role that mariners or

private individuals play is inadmissible. Even though the

discovery is by a private individual, at least this can

prevent another country's subsequent acquisition ofsovereignty by discovery. Certain country's contention that

"private action does not lead to the territorial sovereignty of his country" runs contrary to both theory and

practice on territorial acquisition in international law;

consequently it is not tenable.

IV.

It is not necessary to go into detail here about Chinese

historians exhaustive exposition of China' earliest discovery earliest development, and earliest exercise of

jurisdiction over the islands of the South China Sea.

Here only some brief historical facts will be cited as

proof. Whether judged in terms of the international

practice and international law of the 15th and 16th

centuries or the contemporary international law of the

18th and 19th century, China's sacred sovereignty over

the Paracel and Spratly archipelagoes is indisputable.

At the time of Han Wudi—during the second century

BC—the Chinese people began to sale in the South

China Sea. As a result oflong practice in navigation, they

discovered first the Paracel Islands and then the Spratly

Islands. Later on, the Chinese people steadily visited

these archipelagoes, which they developed. At least from

the time of the Tang and Song dynasties, the Chinese

people were engaged in production activities such as

fishing and reclamation work in the Paracel and Spratly

islands. The histories of the Song, the Yuan, the Ming,

and the Qing all carry accounts of how the Chinese

people sailed to and explored the Paracel and Spratly

islands for countless years, and information about the

location and the position ofislands and reefs in these two

archipelagoes. Numerous historical accounts have

termed the Paracel and the Spratly archipelagoes "Jiuruluo Zhou," "Shihtang," "Qianli Shitang," "Wanli Shitang," "Changsha," "Qianli Changsha," and "Wanli

Changsha." Historical relics including Ming and Qing

dynasty houses, temples, and wells have also been discovered in the Paracel Islands. In a word, as long ago as

the 15th century the Paracel Islands were Chinese territory, and the Spratly Islands were also part of China's

domain. In accordance with international law and international practice prior to the 17th century, China had

acquired ownership of the two archipelagoes through

discovery and actual occupation.

The methods that the Chinese people employed in the

exercise of jurisdiction over the Paracel and Spratly

archipelagoes were varied. In ancient times, first, flotillas were sent out to patrol coastal areas and the

territorial seas. A flotilla during the reign ofChao Yan of

the Song Dynasty (960-1127), and the Guangdong flotilla under Deputy Commander Wu Yan during the

years 49 - 51 (1710 - 1712) of the reign of the Kangxi

emperor of the Qing Dynasty conducted patrols of the

area ofthe Paracels. Owing to the limitations of ancient

means of transportation and the geographical environment of the Paracels and Spratlys, the dispatch of

flotillas on patrol became a major way in which ancient

China exercised sovereignty over the islands beyond the

seas. Second was making them a part of the Chinese

domain and exercising jurisdiction over them. During

Ming and Qing times, the Spratly Islands were placed

under administration ofWanzhou in Hainan Prefecture,

Guangdong Province. Third was astronomical surveys.

Khubulai Khan (AD 1279) of the Yuan dynasty sent

astronomers to the Paracel to conduct such surveys.

In recent times, the Chinese government has administered the Paracel and Spratly islands mostly by dispatching important military and civil officials there to

set up stone monuments, by raising the flag and firing

guns, by reiterating sovereignty, by dispatching garrison

forces, by opposing and counterattacking foreign aggression, building lighthouses and meteorology stations, permitting the operation of certain enterprises, and establishing administrative organs for the local inhabitants

and their activities. For example, in 1883, Germany

proposed to conduct soundings around the Paracel and

Spratly islands, but after the Qing government protested,

Germany had no choice but to halt the soundings. As

another example, in 1909, the viceroy ofGuangdong and

Guangxi provinces sent flotilla commander Li Zhun on
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15 September 1992

patrol ofthe Paracel where he inscribed stones with the

names of places and raised the flag to reiterate sovereignty. As yet another example, during World War II,

both the Paracels and the Spratlys fell into the hands of

the Japanese in 1939. Following the Japanese surrender,

both islands were returned to China. Acting in the spirit

of the 1943 Cairo Declaration and the 1945 Potsdam

Declaration, in November 1946 the Chinese Government appointed a high ranking official to command a

ship that formally accepted the Paracel and Spratly with

an acceptance ceremony being conducted at the islands.

On the two largest islands of the Paracels and the

Spratlys—Shuixing Island and Taiping Islandmonuments were erected anew and troops sent to garrison them. Subsequently, surveying and mapping was

carried out, with each ofthe islands, reefs, sandbars, and

shoals being renamed. Meteorology stations and radio

stations were also established. For many years following

accession no country raised any objection to China's

acceptance of the two island archipelagoes.

Furthermore, many countries of the world, as well as

international opinion recognized the Paracel and Spratly

islands as Chinese territory. Maps and encyclopedias

that numerous countries published also acknowledged

this objectively existing fact. Chinese diplomatic statements in this regard have been fulsome, obviating the

need for extensive detail here. However, it must be

emphasized that third country attitudes are also of

crucial importance. As international law authority Jennings said, "Even in issues that are strictly between the

two countries posing claims, the attitude of third countries has a direct bearing, ...if the process involved may

be termed age-old possession rather than contrary possession." He also said: "In order to show that a sovereign

has had possession for a long time, various kinds of

proof, particularly the attitude ofthird countries has an

important bearing."41 Kittichaisaree also maintained

that "third country recognition or tacit recognition does

not serve as a source of authority, but it does serve as

valuable support for the country that actually demonstrates this authority."42

It must be noted here that in order to give itself a pretext

for occupying China numbers South China sea islands

and reefs, a certain country went so far as to act on behalf

of its colonialists to take advantage of the Japanese

instigation ofthe September 18th Incident [the Japanese

seizure of Shenyang in 1931] in which they brazenly

invading and occupying China's South China Sea

islands. This is still talked about with great relish. They

regarded China's South China Sea islands as "res

nullius," and France's aggression was portrayed as a

"first occupation act." This was an out-and-out distortion of international law.

On 4 December 1931, the French Government presented

a note to the Chinese ambassador to France declaring

that the Annam Empire held so-called "primary rights"

to the Paracel Islands, openly raising a territorial claim

on these Chinese islands. The Chinese Government

immediately issued a serious denunciation that pointed

out that the Paracel Islands have long been under Chinese suzerainty. Not long thereafter, the French colonialists further invaded and occupied nine small islands in

China's Spratly Islands.

The nine small islands that the French occupied were

among a group of coral reefs in the southern part of the

South China Sea, most of which were drowned at high

tide, hidden reefs appearing at low tide. The nine islands

were fairly large islands among the reefs that extended

above surface ofthe sea. In addition to guano, these nine

islands ofthe South China Sea are rich in fish, shellfish,

and turtles. In 1867, when the British channel marker

ship Riflemanv/as taking soundings here, the crew said

that each of the islands of the South China Sea were

filled with Hainan fishermen who made a living from

catches of beche-de-mer and shells. Quite a few fishermen also lived here year-round. Junks from Hainan

carrying rice and other necessities visited each of the

islands each year to trade supplies with the fishermen for

their beche-de-mer and shells. When France invaded the

nine islands in 1933, only Chinese lived on each of the

islands. There were no people from other countries.

Temples, rush huts, reed huts and wells remained on

some of the islands. All these things provide irrefutable

proofthat the people of China have long been operating

in these islands. Both China Sea Pilot, which is published

in the United Kingdom, and Asiatic Pilot, which is

published in the United States carried accounts that

provide proof. Even the French Navy discovered that

Chinese fishermen lived on at least two of the nine

islands that France invaded and occupied.

Objects for first occupation must be places that have no

owners and where sovereignty can be established. As was

said earlier, the nine islands ofthe South China Sea have

had Chinese fishermen living on them at least for the

period 1867 -1933. These lands where people have lived

for a long time have nothing whatever in common with

the so-called "res nullius" of international law. No

country could regard them as objects for "first occupation." Japanese international law scholar, Fusinats [sic]

made the following proposal at the 1933 conference of

L'Institut de Droit International: "Any land that is not

under sovereignty or protection of a nation should be

regarded as 'res nullius' whether or not it has

inhabitants."43 This proposal is clearly unsatisfactory;

thus, it was never passed.

A certain country stated that when France occupied the

nine islands of the South China Sea, the Chinese Government never lodged a protest because France enjoyed

"first occupation rights." This is a distortion of history.

The fact is that France's aggression was met immediately

by strong resistance from the Chinese people, particularly the fishermen of Hainan, to the point where the

French flag and flag pole were cut down. On 4 August

1933, the Chinese Government presented a note to the

French Government reserving the right to make representations to France on the occupation of the islands

pending full investigation ofthe facts. On 16 August, the
JPRS-CAR-92-071

15 September 1992 INTERNATIONAL

Southwest Political Affairs Committee, which was under

orders to handle the nine islands case, lodged a protest

with France.44

In April 1909, The viceroy of Guangdong and Guangxi

provinces, Zhang Renjun, appointed Guangdong flotilla

commandeer Li Zhun to lead navy officers and men on

a patrol of the Paracel Islands. The group charted 15

islands on which it inscribed their names on stone. At

Yongxing Island, they fired their guns and raised the flag

in reiteration of China's sovereignty over the Paracel

Islands. In 1920 when the Japanese planned to mine the

guano on the Paracel Islands, they first sent an official

dispatch to the French naval headquarters in Saigon

inquiring whether the islands belonged to France. The

headquarters replied that they did not. In 1921, the

governor general ofTaiwan used the fishing industry, the

reclamation, and the guano mining in the islands

belonging to the Paracel Islands Industrial Company that

He Ruinian had set up there. Actually, the company was

a branch ofthe Japanese Nanko Enterprise Company. It

was subsequently learned that He Ruinian had transferred the company operating rights to the Japanese, but

had immediately cancelled the operating rights in the

face of opposition from his countrymen. 45

History long ago testified that "Changsha" and "Shitang," i.e., the Spratly Islands and the Paracel Islands in

the South China Sea were ocean lands underjurisdiction

of Wanzhou. During the 15th Century, the South China

Sea Islands were a part of Wanzhou in Hainan Prefecture, Guangdong Province.46 At least several hundred

years ago the islands of the South China Sea were

incorporated into the Chinese domain, and were not any

"res nullius." The French gunboat Mallceuse's occupation of the islands of the South China Sea on 13 April

1930 claiming "first occupation" was totally untenable.

In the early 19th century, the noted authority on international law, Wheaton, said: "The enduring practice that

all countries have approved shows that no matter how

termed, a nation's uninterrupted occupation ofterritory

or other assets over a long period of time eradicates the

claim of all other nations. As with physical law and the

internal laws of every country, similar individual ownership eliminates the claim of every other person pertaining to assets or property."47

In his work on international law standards, Heydte said

straightaway that when a nation "seeks to acquire an

area that an adversary has occupied for a long time, this

action inevitably demonstrates that meddling with

existing sovereignty rights is wrong from the outset."48

On the basis of the foregoing, the islands of the South

China Sea have been Chinese territory since ancient

times. Encroachment on them by any country on any

pretext and employing any means is absolutely inadmissible. "Illegal actions do not create rights." (Ex imperia

jus non oritur). During the 1930's, the French colonialists' flagrant occupation of China's South China Sea

islands was entirely aggression. It cannot change the fact

thatthese islands belong to China. For any country to try

to use the brief occupation ofthe Paracel Islands and the

Spratly Islands by the French colonial authorities to

defend its invasion and occupation ofthe Spratly Islands

is completely futile.

V.

The Paracel Islands and the Spratly Islands have been

Chinese territory since ancient times. In the Sino-French

SpecialProvisions For Continued Discussion ofBoundary

Matters that China concluded with Annam, which was a

dependency of France at that time, the islands of the

South China Sea were not placed under administration

of the French dependency of Annam. The Paracel

Islands and the Spratly Islands were acknowledged to

belong to China. The islands that treaty divided up were

only offshore islands along the coast of Guangdong

Province at that time without reference to the islands of

the South China Sea. On the issue ofsovereignty over the

islands of the South China Sea, no controversy has ever

existed between China and Vietnam. For an appreciable

period of time, the Vietnamese authorities have more

than once recognized these islands to belong to China in

government announcements or notes.

In a meeting with China's charge d'affaires ad interim to

Vietnam on 15 June 1956, Vietnam's deputy minister of

foreign affairs, Ung Van Khiem [7167 2429 6197] stated

solemnly that "historically, the Paracel Islands and the

Spratly Islands have been territories that should belong

to China."

The statement that the Chinese Government issued on 4

September 1958 on China's territorial seas explicitly

noted that the territory ofthe People's Republic ofChina

includes the Paracel and the Spratly Islands. On 14

September of the same year, Vietnam's Premier Pham

Van Dong said in a note to Premier Zhou Enlai that the

government of "Vietnam recognizes and approves" this

announcement, and "respects this decision."

The 9 May 1965 Vietnamese Government announcement about the American Government's declaration on

the "combat zone" of the American forces in Vietnam

and nearby areas also clearly recognized that the Paracel

Islands belong to China. The announcement said: "U.S.

President Johnson has ruled that all of Vietnam as well

as its neighboring waters—an area approximately 100

nautical miles offthe coast of Vietnam and a part ofthe

territorial sea ofthe People's Republic of China Paracel

Islands—is a combat zone of the armed forces of the

United States."

However, Vietnam overturned its previous recognition

ofthe Paracel Islands and the Spratly Islands as territory

belonging to China. In 1975, it illegally occupied some of

the islands in China's Spratly Islands archipelago, and

brazenly lodged a territorial claim against both the

Paracel and Spratly islands. This is in contravention of

the pertinent international law principle of estoppel.
INTERNATIONAL JPRS-CAR-92-071

15 September 1992

The world-renowned Black's Law Dictionary defines

"estoppel" as "a party not being able to claim a right that

hurts another party because of some action that he

himself has taken. The other party has a right to rely on

the first party's action, thereby causing the turn of

events. When the law forbids actions and words that are

at variance, estoppel occurs." Black also believed that

"an inconsistent standpoint, attitude, or line ofbehavior

may not be adopted that causes loss or damage to

another party."49

The abovementioned concept has gained the support of

numerous international law authorities. In discussing

"estoppel" or the "principle of preclusion," International Court justice Jennings said categorically that

"International Court acceptance ofthis principle is now

affirmed beyond doubt."50 Justice McNair also said that

"it is sensible to hope that any legal system will include

such a provision." "It is aimed at eliminating the expression or approval of a statement and another person

relying on a person with whom he has a tacit agreement,

only to have that person advocate a materially different

condition later on."51 Brounlie praised "estoppel" as an

international law norm based on "good faith" and the

principle of consistency.52

Cambridge University international law chair professor

Bowett said that going back on one's word is not permitted, including "acquiescence." In civil law, "estoppel" is also termed the principle ofexclusion, i.e., a party

holding special position who acquiesces may not later

take actions at variance with his words. In Bowett's view,

"estoppel has three elements as follows: (1) a clear-cut

and unambiguous statement regarding a fact; (2) the

statement must be voluntary, unconditional, and authorized; and (3) sincere reliance must be placed on the

statement, a party being injured by relying on the statement or a party benefitting from making the

statement."53

Maintenance of a nation's territorial integrity is the

sacred duty of every state. The clear-cut and unambiguous expressions ofthe top leaders or senior officials of

a country regarding a reality, particularly a territorial

issue, on behalf oftheir own country such as a statement

or a note, has binding force on that country. The

responsibilities promised may not be evaded on pretext

of a so-called war climate.

In view of "estoppel" or the "principle of exclusion" in

international law, since the government of Vietnam

formally recognized China's sovereignty over the Paracel

and Spratly islands, there should be no subsequent

controversy over these two island groups. This principle

has been upheld in numerous international law decisions.

In the 1933 East Greenland case, for example, Denmark

also quoted the "estoppel" principle, declaring that

Norway had itself recognized by treaty or other means

Denmark's sovereignty over all of Greenland. It could

not now raise objections. The Permanent International

Court held that in international relations a country must

be bound by the statements ofits representatives (diplomatic ministers). Oral statement were also regarded as

binding on Norway, because Aihelun [transliteration],

who represented the government ofNorway on a matter

within the purview ofhis status as a diplomatic minister,

had issued a statement in reply to issues that the Denmark diplomatic representative had raised with him.54

Another example was the following remarks of International Court Justice Sir Gerald Fitzmaurice in the 1962

Temple case: "In a case in which a party is bound by his

conduct or other duties that he discharges, or becomes

bound by a duty, strictly speaking, the quoting of any

rule of preclusion or estoppel is not required." "Consequently, it may be said that once party A accepts the

restrictions of certain duties or becomes restricted by a

document, he cannot now become erratic... or deny this

fact. Certainly, one cannot hear of Party A denying it.

Just what does this mean? It means simply that Party A

is under restrictions and is now under restriction; he may

not escape his responsibilities simply by denying their

existence. This is to say that if one can demonstrate that

a denial is false, there is no room Ar or need to

contradict preclusion or estoppel." Sir Gerald's

remarks are concise and comprehensive. How incisive

and profound!

The principles of international law will brook no trampling. Vietnam must bear legal responsibility for its

promises, and it must sincerely observe its legal obligations. It may not raise objections about these two Chinese island groups, must less will it be permitted to take

it upon itselfto invade and occupy the numerous islands

and reefs in China's Spratly Islands.

VI.

To summarize, (1) the South Sea, is also termed the

South China Sea in translation. Even though China has

never used the term South China Sea, this has become

the term by which the South Sea is known in other

countries, particularly Western countries. The Chinese

people discovered the Paracel and the Spratly Islands in

the course of nearly 2,000 years ofsailing the seas. Since

the 15th century at least, these two archipelagoes have

been incorporated into the Chinese domain. All of the

islands of the South China Sea have been Chinese

territory since ancient times. Not only does a large

quantity of references—both ancient and modern,

domestic and foreign—attest to this, but it is generally

recognized by all the countries ofthe world. As the name

implies, this beautiful term "South China Sea" was not

bestowed by the colonialists out of great love for China,

but rather is the formal recognition of objectively

existing historical fact.

(2) Intertemporal law has become a generally recognized

norm of international law, and it is also a keen weapon

that can be used to interpret China's inherent sovereignty over the islands of the South China Sea. The
JPRS-CAR-92-071

15 September 1992 INTERNATIONAL

means by which a territory is acquired, such as by

discovery or first occupancy, should be determined by

applying international laws in effect at the time when

authority is obtained, and not by applying laws in

existence at the time that a claim is made or a controversy arises.

(3) In accordance with the principles of international

law, whenever international law authorities discuss the

issue ofterritorial acquisition, most of them distinguish

between the international law of the 15th and 16th

centuries and that of the 18th and 19th centuries. Only

during the last half of the 18th and the early 19th

centuries did international law require "effective occupation." During 15th and 16th century era of great

discoveries, symbolic acts sufficed to provide res nullius

legal rights. The practice of various countries shows that

during the 15th and 16th centuries, acquisition of territory through discovery or overseas colonization was a

common occurrence. By both international law and

international custom during the 15th and 16th centuries,

and by the recent international law ofthe 18th and 19th

centuries, China was the earliest to discover, the earliest

to develop, and the earliest to exercise jurisdiction over

the Paracel Islands and the Spratly Islands; therefore,

China's sacred sovereignty over the islands ofthe South

China Sea is incontestible.

(4) Even though "discovery" does not constitute the

acquisition of territory through first occupation, it does

give the discovering country "initial rights" or "incomplete rights." For other nations, this means that the

discovered land becomes "prohibited territory." Until

the discovering country exercises "effective occupation"

within a reasonable period oftime, it "serves to prevent

other countries from occupying it." In barren or uninhabited lands, courts have been content with the slight

exercise of rights in numerous cases so long as no other

country has expressed a "prior claim." Vietnam's contention that China's "earliest discovery right, earliest

occupation right, and symbolic occupation principle" is

"out of date" or has been "abandoned" is without

foundation.

Discovery of a place or island is a factual act that either

a private individual or a public agent may perform. To

ignore the role that mariners or private individuals play

in discovery and not to confer any rights as a result is

inadmissible. Discovery by a private person, particularly

when subsequent events provide confirmation can at

least prevent other countries from acquiring rights

through subsequent discovery. Vietnam's contention

that "private person occupation does not lead to territorial rights on the part ofthe country to which he belongs"

runs counter to the theory and practice of territorial

acquisition, and it is basically untenable.

(5) The object first occupied must be res nullius. During

the period 1867-1933, at least, Chinese fishermen lived

on nine small islands in the South China Sea. This long

period of habitation shares nothing in common with the

"res nullius" of international law. No country may

regard them as "first occupancy" objects. During the

15th century, the islands of the South China Sea were

already a part of Wanzhou, in Hainan Prefecture,

Guangdong Province and had been incorporated into the

Chinese domain. "Illegal acts do not confer rights." The

French colonialists brazen occupation of nine ofChina's

islands in the South China Sea during the early 1930's

was an act of pure aggression that cannot change the fact

that the islands belong to China. Vietnam has absolutely

no reason for prettifying this act as "primary occupation."

(6) Originally no controversy existed between China and

Vietnam about sovereignty over the islands ofthe South

China Sea. For a considerable period of time, the

Vietnam authorities acknowledged in announcements

and official notes that the Paracel and Spratly islands

belonged to China. Since 1975, however, Vietnam has

reversed it position and occupied some ofthe islands in

China's Spratly Islands archipelago illegally, and brazenly placed claim to both the Paracel and the Spratly

islands. This runs counter to the estoppel principle in

international law. The clear-cut statements or notes of a

head of state or senior leaders of a nation made as a

representative of that government are binding on that

country, which cannot escape responsibility for its

promise under any pretext.

Footnotes

1). See "United Nations Marine Law Convention,"

Article 122.

2), 9), 42). (Thai) Kittichaisaree: "Marine Law and

Delimiting the Boundaries of the Southeast Asia Sea,"

Oxford, 1987, p 142, p 141, and p 14.

3). Daniel J. Dzurek: "The Dispute Over the Borders and

Resources ofthe South China Sea," OCEAN ANNUAL,

1985, pp 271-272.

4), 38). Moore, International Law Excerpts, Washington,

1906, Vol IV, p 259 and p 165.

5), 35). Sikete [transliteration, possibly Scott]: "Hague

Court Report," Part 2, 1932, p 83, p 82.

6), 20), 48). See Heydte, "The International Law That

the United States Applies and Expounds," Boston, 1947,

Vol 2, pp 323, 325, and 326.

7). "Yearbook ofthe International Law Society," 1975, p

537.

8), 16), 41), 50). Jennings: "Territorial Acquisition Problems in International Law," 1963, p 28, p 43, pp 23 and

40, and p 41.

10). Pak Chung Hwa: "East Asia and Maritime Law,"

1979, p 183.

11), 12). Oppenheim International Law,, Laotepaite

[transliteration], editor-in-chief, 1979, p 183.
10 INTERNATIONAL

JPRS-CAR-92-071

15 September 1992

13), 18). Simsarian, "Obtaining Res Nullius Legal Sovereignty," Political Science Quarterly, Vol 53, 1st

quarter, 1938, p 128 and p 111.

14), 25), 29), 34). Heydte: "Discoveries, Symbolic

Annexations and Their Actual Validity in International

Law," American International Law Magazine, 1935, Vol

29, p 453.

15). Hill: "Territorial Claims Questions in International

Law and International Relations," 1945, p 149.

17), 30), 39). O'Connell: International Law, 1970,

second edition, Vol 1, pp 408 and 418.

19). Luolunsi [transliteration, possibly Rollins]: Principles ofInternational Law, 1923, p 146.

21), 22). Evans, MajorInternational Law Cases, 1922, p

119,p283.

23). Jiesaipu [transliteration, possibly Jessup], The

Palmas Island Arbitration Case, 1928, Vol 22, p 739.

24). Vatol, International LawWashington 1916, p 207.

26), 31). Orent and Qeinch: "Pacific Ocean Islands

Sovereignty," American International Law Magazine,

Vol 35, Issue 3, 1941, p 443.

27), 47). Wheaton, Principles of International Law, 1906,

p264.

28). Huoer, International Law, 1924, p 127.

32). Feideluosi [phonetic] International Law, Vol 1,

Chinese edition 1981, p 342.

36). Permanent International Court Publications, Series

A/B, No 53, p 46.

37). American International Law Magazine, 1932, p 390.

40), 52). Brounlie, Principles ofInternational Law, 1979,

pp 151 and 163.

43). Quoted from Xu Gongxiao, "The Nine Small

Islands French Occupation Incident," DIPLOMATIC

REVIEW, 1933, Vol 2, Issue 9, p 20.

44). Zhuo Min, "The Triangular Relationship Among

China, Japan, and France on the South China Sea Nine

Islands Issue", WAIJIAO RIBAO [FOREIGN AFFAIRS

DAILY], 1933, Vol 3, Issue 3, p 76.

45). Hu Huanyong, "The South China Sea Islands That

France and Japan Covet," DIPLOMATIC REVIEW,

Vol 3, Issue 5, 1934, pp 70 - 71; Zhuo Min, "The

Triangular Relationship Among China, Japan, and

France on the South China Sea Nine Islands Issue,"

WAIJIAO RIBAO [FOREIGN AFFAIRS DAILY],

1933, Vol 3, Issue 3, 1933, p 81.

46). Han Zhenhua [7281 2182 5478], Editor: Collation of

Foreign Historical Data on the South China Sea Islands,

Orient Press, 1988, p 50.

49). Black's Legal Dictionary, 1979, Fifth Edition, p 494.

51). McNair. "Law on Treaties," 1961 Edition, p 485.

53). Bowett. "Correlation Between Estoppel and Acquiescence that International Courts Face," BRITISH

INTERNATIONAL LAW YEAR, 1957, No. 176, p 202.

54). PERMANENT INTERNATIONAL COURT PUBLICATION, Series A/B, No 53.

55). International Court Report 1962, p 63.
JPRS-CAR-92-071

15 September 1992 POLITICAL 11

Ways Cadres Can Meet Test of Being in Power

HK2907054392 Beijing QIUSHI in Chinese No 10,

16 May 92 pp 46-48

[Article by Tang Bingren (0781 4426 0088) ofthe Hunan

Provincial CPC Committee Party School: "Communist

Party Members Must Withstand the Test of Being in

Power"]

[Text] The greatest test which the CPC faces after having

wrested state power in the entire country and becoming

the party in power, is the test of being in power. In the

current situation, if the party is to withstand the test of

being in power, it must do a good job in party building.

Requiring Communist Party members to withstand the

test of being in power is a requirement for consolidating

the ruling position ofthe party. The holding of power by

the CPC is the holding of power by the entire party,

representing the working class and the broad masses. It is

not the holding ofpower by some people within the party

seeking benefits for a minority. This is the essential

difference between a Communist Party holding power

and a bourgeois political party holding power. Consolidating the ruling position of the party is an unshirkable

duty of party organizations at all levels and the whole

body of Communist Party members, and is also a longterm task for the working class and the people of the

whole country under the leadership ofthe party. Only if

the entire body ofCommunist Party members can withstand the test ofbeing in power and can unify the people

of the whole country to safeguard the ruling position of

the party will it be possible to consolidate the ruling

position of the party.

Holding power, as a basic aspect ofthe political practice

ofthe party, serves the realization of the party's overall

goal ofstruggle. At present, whether or not we can finally

create a labor productivity that is higher than that of

capitalism is the most important test for the party in

terms of its ability to hold onto power and is also a

crucial issue in whether or not the party's position as the

incumbent party will have a reliable material base. Since

the Third Plenary Session of the 11th CPC Central

Committee, our party has summed up the experiences

and lessons since the establishment of the PRC and of

the international communist movement, gradually

formed a basic line of "one center and two basic points"

and formulated strategic goals by which our country's

national economic and social development is "divided

into three steps." The current task is to accomplish the

second-step strategic goal by the end of the century, so

that GNP is again doubled and the people's lives reach a

comfortably-off level. Only if the entire body of Communist Party members firmly establish in their work the

idea of "taking economic development as the center," so

that their work is subordinate to and serves this center,

and they use their own actions to influence, unify, and

lead the broad masses to struggle to develop the economy

and realize the four modernizations, will it be possible

for us to realize the overall tasks and strategic goals ofthe

party at the present stage.

Requiring Communist Party members to withstand the

test of being in power is also intended as a reliable

guarantee in guarding against and resisting peaceful

evolution. At present, the Communist Party's hold on

power faces a real threat, and that is the strategy of

peaceful evolution being waged by international hostile

forces. Whether or not the plot by the international

hostile forces will succeed will be determined by the

situation within the communist parties that are in power

in socialist countries. Only ifthe entire body ofCommunist Party members and especially leading cares of the

party are able to soberly recognize this danger and

consciously consolidate and safeguard the ruling position ofthe party and make a contribution to building the

party will it be possible to provide a reliable political

guarantee by which to withstand peaceful evolution.

What tests does the party's hold on power present to

Communist Party members?

—The tests presented by changes in environment and

social position. The Communist Party's hold on power

is the work ofthe people of the whole country, led by

the party, engaging in long-term revolutionary struggle

and obtaining victory. Thus, in terms of the entire

nation, the establishment ofthe ruling position of the

party means that the domestic revolutionary struggle

period has finished and the peaceful construction

period has begun. However, in a peaceful environment, a small number of party members may experience inflated individualism and gradually lose their

links with the masses, and the practices ofbureaucracy

may spread. These practices may even spread to where

these persons seek easiness and comfort, do not think

about progress, and are unwilling to undergo any more

arduousness in life. They thus have gradually lost the

fine tradition and work style of arduous struggle and

therefore, on the ideological level, have lost the screen

by which to withstand decadent capitalist ideas and

lifestyles. Their political sensitivity may also gradually

decline, they will lose their vigilance against the infiltration and subversion by hostile international forces

and the plot of peaceful evolution, and they will be

unable to consciously uphold the four cardinal principles or oppose bourgeois liberalization and, on basic

issues such as leadership by the party and the socialist

road, they will be apathetic and unable to distinguish

right from wrong. It is also possible that organizational

discipline will be weakened and that liberalism, anarchism, and extreme individualism will make use of

this opportunity to raise their heads. These are important reasons why negative and corrupt phenomena can

spread within the party and cannot be effectively

controlled.

—The tests of power and responsibility. Members ofthe

party in power and particularly leading cadres, hold

varying degrees of power in their hands. Learning how
12 POLITICAL

JPRS-CAR-92-071

15 September 1992

to treat power and how to use power is a basic element

in having Communist Party members withstand the

test of being in power. The nature of the Communist

Party and the socialist state determines that all power

of the state belongs to the people. Communist Party

members are public servants of the people and also

overall servants ofthe people. Power which belongs to

the people should be used to benefit the people.

However, if a small number of party members and

leading cadres are decadent and degenerate or there

are some unhealthy trends within the party, the power

of socialist countries may be misused and become a

tool of a few people or of a small group of people to

seek private benefits. Thus, whether or not Communist Party members can withstand the test presented

by power will affect whether or not they can maintain

the hue of vanguard fighters of the working class,

whether or not Communist Party members can maintain tight links with the masses, and thereby, whether

or not the nature ofthe party and the state will change.

We must not treat lightly or be indifferent to such a

major life-or-death issue.

In using power properly, the most important thing is to

formulate a correct line, principles and policies and

realistic measures to implement them. The party, as the

political party holding power, has directly shouldered a

major historical responsibility regarding the life or death

ofthe Chinese nation. Ifthe line, principles, and policies

are correct and the leadership is firm and powerful, the

development of the socialist cause will be promoted

throughout the whole country and social progress will be

promoted. This will benefit strengthening the state and

enriching the nation and will bring real benefits to the

people of all nationalities throughout the country. If

there are mistakes in decision-making, it will bring great

losses to the broad masses. If the mistakes are serious

and they long remain uncorrected, they will provide

opportunities for domestic and foreign hostile forces to

subvert the socialist system. Also, since this will directly

harm the interests of the masses, the party will become

divorced from the masses and will lose the hearts of the

people. Whether or not the party's leadership is correct

and whether or not decision-making is in accordance

with our country's realities and the basic interests ofthe

people, first directly involves the party members who

shoulder leadership tasks and especially those who

shoulder central leadership tasks. It also involves organizations at every level of the party and every single

Communist Party member. Ordinary Communist Party

members live among the masses and have the greatest

understanding ofthe aspirations, opinions, and demands

ofthe masses. They also personally experience the benefits or damage of party policies when they are implemented. They can thus, in a timely way, reflect rich and

truthful information to the higher leadership organs

through organizational channels and other channels.

This will provide a reliable base for correct decisionmaking by the Central Committee. After the party Central Committee formulates the correct line, principles,

policies, and plans, it also requires the party organizations at all levels and the broad number of party members to implement them. As far as individual Communist Party members are concerned, whether or not they

have a strong party spirit, strong sense of historical

responsibility, ardent spirit of enterprise, a spirit of

serving the people's interests and upholding truth

without considering one's own interests or safety, in

brief, whether or not they are willing, brave enough, and

able to be responsible to the people and responsible to

history, is certainly an important yardstick for assessing

whether, under conditions in which the party holds

power, individual Communist Party members can withstand the test.

—The test of material interests. In the initial stage of

socialism, the party as the imcumbent party, must take

the liberation and development of the productive

forces as its basic task, and to this end it is now putting

great efforts into developing a planned socialist commodity economy and implementing reform and

opening up. Under these new historical conditions,

every Communist Party member faces the test of

material interests. Communist Party members must

respond to the party's call and seriously implement the

party's basic line of one center and two basic points,"

actively throw themselves into developing the socialist

commodity economy and struggle for the common

prosperity ofthe masses. However, it should be recognized that leading cadres are spread out in major work

posts in various sectors and industries and hold power

over personnel, finances and materials. If they are

subject to negative influences, some party members

may forget the party's aim and may see their own

material benefits as being extremely important. Some

may be unable not only to lead the masses to common

prosperity, but may not hesitate to harm public interests in order to benefit private interests, and harm

other people to benefit themselves. This will greatly

harm and weaken the ruling position ofthe party. The

practice over the last 10-odd years has proven that

Communist Party members ability to withstand the

lure of material gain has become a major aspect in

being able to withstand the test of being in power.

IfCommunist Party members are to withstand the test of

being in power, they need to put forth unremitting

efforts in all areas, and there are three points which

particularly need to be stressed:

First, there is a need to continually strengthen the

consciousness of being in power. Withstanding the test

of being in power is a major issue faced by the entire

body of Communist Party members. First, partymember leading cadres must treat this issue in a serious

way. This is because leading cadres have a more major

responsibility when the party is in power and they they

must have a higher consciousness for withstanding more

rigorous tests. However, this does not mean that ordinary party members can weaken their consciousness of

being in power. Some comrades believe that being in

power is a matter for leading party cadres and that
JPRS-CAR-92-071

IS September 1992 POLITICAL 13

because they themselves are ordinary party members

and have no post and power, there is no need for them to

concern themselves about the test of being in power.

This is a one-sided understanding. Every Communist

Party member, as a member ofthe party holding power,

participates in the practice by which the party holds

power and has a responsibility to struggle to consolidate

the party's ruling position. Whether or not an individual

party member can withstand the test ofbeing in power is

not equivalent to and does not determine whether or not

the entire party can withstand the test ofbeing in power.

However, itis not without effect in whether the party can

withstand the test of being in power or can consolidate

its ruling position. This is because the party is, in fact,

composed ofmillions ofordinary party members and the

advanced nature of the party is manifested in the vanguard role of every ordinary party member. Ordinary

party members are, in the eyes of the people, representatives of the Communist Party (although strictly

speaking individuals cannot represent the party), or

represent the party incarnate. The masses always see the

party and appraise it on the basis ofthe ideas, words and

actions of ordinary party members with whom they

regularly come into contact, and this determines their

attitude toward the party. The party also, in the end,

maintains its links with the broad masses through SO

million ordinary party members who are distributed in

over 3 million grass-roots organizations throughout the

country, and who live and work among the masses. It is

these members who implement at the grass-roots levels

the party line, principles and policies and carry out the

various tasks. They also carry out at the grass-roots level

the party's leading role in the socialist cause. Thus,

although ordinary party members are party members

without official posts, they are certainly not unconnected

with being in power and are in fact very closely connected. Practice has proven that if the party is vibrant,

we are honored; if the party is in decline, we are

disgraced. Thus, if one is a Communist Party member,

one must consciously safeguard the ruling position ofthe

party and must bring into play the role of one who is a

member of the party in power.

Second, it is necessary to consciously improve the skills

necessary to hold power. If Communist Party members

are to withstand the test of being in power, besides

having a strong consciousness about being in power,

there is also a need to have the skills necessary when

holding power. That is to say, as a member of the party

in power, one needs to have the knowledge and abilities

necessary to complete the party's historical mission. One

must be good at examining and handling problems from

the political angle and be good at correctly understanding and completely implementing the basic line of

the party, atthe political level, one must maintain a high

degree of uniformity with the party Central Committee.

One must also do well in one's own work, proceeding

from the high plane of consolidating the party's position

in power. One certainly must not be a political bumbler.

It is necessary to work at studying science, culture and

technology, and improve one's ability to do well in one's

own post. One must improve one's ability to plan for the

overall situation and to coordinate the various interests

relationships among individuals, the collective, and the

state. It is also necessary to set an example for the broad

masses in subordinating partial interests to overall interests and subordinating personal interests to collective

and state interests. It is necessary to improve one's skills

in closely linking up with the masses, travelling the mass

line and fully mobilizing the enthusiasm ofthe masses. It

is necessary to constantly think of the masses, become

one with the masses in all respects, attentively listen to

the calls of the masses and reflect these in a timely and

truthful way to the upper levels or directly to the central

committee, wholeheartedly do real and good things for

the masses, have the broad masses unite around the

party and, with one heart and mind, join with the party

in building socialism with Chinese characteristics.

Third, it is necessary to painstakingly engage in the

tempering ofparty spirit. Ifone is to withstand the test of

being in power, the most basic aspect is to firmly and

unwaveringly strengthen the tempering of party spirit,

and seriously transforming one's world view. The

firmest, purest, most complete, and most thoroughgoing

proletarian party spirit is the unity ofthe class nature of

the proletariat and the scientific nature of Marxism. If

one has a proletarian, scientific world view and a firm

party spirit, one is able to correctly deal with power and

responsibility. With the complex situation internationally and domestically, in the unprecedentedly complex

tasks ofsocialist modernization and reform and opening

up, the various difficulties we have met on the road

forward have been unable to defeat us. Instead, they

have tempered us and made us more mature and more

firm. A firm and pure proletarian party spirit is not and

can not be formed spontaneously. Rather, it can only

established through the unwavering tempering and cultivation of party spirit. Only if we seriously study

Marxism and Mao Zedong Thought and painstakingly

transform our world view through practice will we be

able to become Communist Party members with a firm

party spirit, will we be able to withstand the various

harsh tests which being the incumbent party presents us,

and will we be able to make contributions worthy of a

Communist Party member to both the country and the

nation.

Article Urges Seeking Truth From Facts in Reform

HK0608141392 Beijing GUANGMING RIBAO

in Chinese 13 Jul 92 p 3

[Article by Ye Guangrong (0673 0342 2837): "Reform,

Opening Up, and Seeking Truth From Facts"]

[Text] Comrade Deng Xiaoping indicated: Just as in the

past we relied on seeking truth from facts in fighting a

war, so today we must rely on it construction and reform.

Seeking truth from facts is our party's ideological line,

and it fully embodies the basic views and approaches of

Marxist philosophical thinking. It requires us to start
14 POLITICAL

JPRS-CAR-92-071

15 September 1992

with the actual conditions in everything we do, to link

the subjective with the objective, to link theory with

practice, and to act according to objective law. Practice

over dozens of years has shown that whenever we

consciously adhered to seeking truth from facts, our

cause developed and our work was characterized by

marked results. In other cases, our cause suffered setbacks, and mistakes surfaced in our work.

Both the proposal and development of reform are the

progeny ofseeking truth from facts. It was precisely due

to our party's study of China's socialist modernization,

which was undertaken in a truth-seeking manner, that

the party's basic line of "one center, two basic points"

was formulated. In the remarks Comrade Deng Xiaoping

made during his southern inspection tour—at a critical

moment in building socialism with Chinese characteristics—he profoundly discussed how to resolutely implement this basic line in a truth-seeking manner; his

remarks are an important weapon for guiding the new

undertakings of reform and opening up and have universal significance for guidance. However, under our

national conditions of a vast territory, huge population,

and great imbalance in economic, political, and cultural

development, failing to take into consideration the differences between various localities, simply copying

others' experiences without making changes and

demanding uniformity in everything, "with everybody

wearing a hat and a pair of shoes in the same size," is

likely to cause us to become divorced from various

localities' actual level of development. This being the

case, Comrade Jiang Zemin has emphatically pointed

out: In implementing the spirit ofComrade Deng Xiaoping's remarks and organizing the implementation of

various central work arrangements, it is imperative that

we bring implementation in line with the actual conditions of one's locality, while making such implementation concrete. Quickening the pace of reform and

opening up must comply with the actual conditions of

one's locality. Every locality or unit must proceed from

its own actual conditions and must seek its own law of

development that accords with its reality. For example,

on the issue ofhinterland development, when consulting

with some coastal provinces and cities, the hinterland

should take their experiences into consideration but

should refrain from copying the special economic zones'

experiences wholesale, while showing respect to the

objective law governing the local economy, politics, and

culture, and seeking the inherent links and bestjuncture

in local development in order to blaze a new trail that

falls in line with local characteristics.

II.

Practice is the source of knowledge, the criterion for

testing truth, and knowledge's ultimate goal. This is

precisely the reason why adhering to practice, boldly

conducting experiments, and blazing new trails constitutes an extremely important work method which our

party has advocated all along, in addition to the basic

task ofseeking truth from facts. In his remarks during his

southern inspection tour, Comrade Deng Xiaoping

pointed out: The successes ofreform and opening do not

rely on books, but on practice and seeking truth from

facts. New conditions, issues, and contradictions have

continuously surfaced, and they urgently await answers

through practice—not retrogression in an effort to seek

steadiness and to avoid contradictions, loss of opportunity, and failure while striding toward progress. For this

reason, it is necessary for us to grasp firmly the favorable

opportunity, go all out, and be bold in practice. For

things that we have become certain of through observation, we must be bold in conducting experiments and in

blazing new trails. Observation means understanding.

Being sure of something through observation is the law

of knowledge. Both knowledge and grasping the law are

inseparable from practice; they constitute the "seeking"

in seeking truth from facts. Here, it also includes boldly

absorbing and referring to all achievements of civilization created by human society, as well as the advanced

operational ways and managerial methods of all countries including developed capitalist countries. Through

practice, boldly conducting experiments, blazing new

trails, and exploring the new characteristics of various

localities and units in development, a new road ofreform

will be found by deeper exploration of a law governing

reform in compliance with one's own locality or unit.

Any other situation—which lacks the spirit of blazing

new trials and "taking risks," lacks energy and vigor, and

is characterized by sitting around indulging in theoretical discussions and not moving even an inch forward—

will not help in exploring the law and making progress

according to the law, but will only miss the opportunity,

impede progress, and even bury the socialist cause.

Ill

The people are the makers of history, the decisive force

in realizing social change, and the subject of reform and

opening up. The mass line "from the masses, to the

masses," which our party has created and developed in

long-term revolution and construction, is the basic line

and work method for realizing the party's cause, and the

basic channel ofseeking truth from facts; thus our party's

fine tradition and political advantages have taken shape.

Comrade Deng Xiaoping pointed out in his talks during

his southern inspection tour that many elements ofrural

reform were created at the grass-roots level, and that

these have been processed into guidance for the entire

country. The system of contracted responsibilities on a

household basis with remuneration linked to output was

precisely the peasants' creation. The system went

through three phases in its development: In the first

stage, the system was forbidden in terms of policy. The

initial stage ofrural reform set out to restore the responsibility system with agricultural production; however,

contracting output quotas to households with the production team conducting unified accounting was not

allowed, while it was believed that this practice meant

restoration, going it alone, retrogression, and capitalism.

Under such circumstances, peasants in some localities
JPRS-CAR-92-071

15 September 1992 POLITICAL 15

pursued the output-related system of contracted responsibilities all the same, and, consequently, the development of agricultural productive forces was promoted.

The second stage was the relaxation in policy, with the

rapid development in contracting output quotas to

households, with the production team conducting unified accounting. And the third stage was one of actively

spreading the system, which pushed reform nationwide

and elevated agricultural production to a higher plane.

Therefore, we can see that the criterion for judging the

correctness of rural reform—the system of contracted

responsibilities on the household basis with remuneration linked to output—should be whether it is conducive

to developing the productive force of socialist society,

augmenting the comprehensive national strength of the

socialist country, and improving the people's standard of

living. This being the case, at a crucial point when reform

and opening up are moving from a shallow to a deeper

level, it is necessary to be adept at discovering the new

path, which is consciously created by the masses in great

social practice and complies with reform and opening up

in various localities and units. It is also necessary to

study and guide the new path discovered by the masses,

change it into mass conscious action, test it in practice,

and achieve its enrichment, completion, and perfection.

Furthermore, this is the essential requirement ofseeking

truth from facts.

rv

Back during the democratic revolution, Comrade Mao

Zedong profoundly stated that according to the people's

way of thinking, subjectivism and seeking truth from

facts are opposites; to govern one's own conduct by

subjectivism that runs counter to science and Marxism is

a style by which to harm oneself; teaching it to others is

to harm others, and using it to direct the revolution is to

harm the revolution. What is worth our vigilance and

thought is the fact that subjectivism, as oftoday, has not

been weeded out ofthe people's way ofthinking, and has

become the greatest ideological hurdle seriously

impeding the deepening of reform and opening up.

Comrade Jiang Zemin has indicated that both "leftism"

and rightism are characterized by onesidedness and find

their roots in subjective materialism. Real life shows that

"leftism" finds expression in "putting above all else

instruction from higher-up as well as book knowledge"

and copying them intact; this chiefly refers to standing

by some unscientific—and even completely distorted—

past understanding of socialism, a dogmatic interpretation of some Marxist principles, or incorrect ideas and

policies which go beyond the initial stage ofsocialism in

advance ofreform and opening up, all the while failing to

take the Marxist stand, viewpoint, and approach in order

to analyze the changed objective realities; consequently,

it is difficult for them to accept the policy ofreform and

opening up, which is even be doubted and negated

among them, while taking—and even pushing—

economic construction as the center in the train of

thought of "taking class struggle as the key." Rightism,

meanwhile, mainly finds expression in doubting and

negating the four cardinal principles, pursuing bourgeois

liberalization, and even creating political turmoil in an

attempt to change our socialist system and the correct

orientation of reform and opening up. On this point,

Comrade Deng Xiaoping pointed out in his remarks,

"leftism" bears some revolutionary colors, and it seems

the more "leftist" one gets, the more revolutionary one

will become. Rightism can bury socialism, but so can

"leftism." China should be vigilant against rightism but

should mainly guard against "leftism." This being the

case, we are required to emancipate the mind and

overcome subjectivism. To emancipate the mind means

precisely to be bold at breaking through the bonds of

backward traditional concepts, be good at proceeding

from actual conditions, and work hard to blaze new trails

to make progress; furthermore, it means to make one's

thinking break through the shackles ofsubjectivism, face

reality, reflect the law governing the objective law,

absorb the positive factors in objective things, and set

out the theoretical principle to promote social development while implementing it in practice.

V.

Seeking truth from facts is also a topic of materialism,

the theory of cognition, and dialectics. It calls for us to

view matter objectively, comprehensively, and dialectically. Presently, in the course of quickening the pace

ofreform and opening up, seeking truth from facts calls

for adhering to the dialectical unity ofbuilding the two

civilizations and developing the social productive

forces. Comrade Deng Xiaoping has on several occasions indicated that the modernization we are pursuing

is socialist modernization. If we attach importance

only to economic results, while looking to monetary

returns from everything, we will inevitably be led

astray and will deviate from the socialist track. As we

all know, socialist material and spiritual civilizations

supplement and promote one another. It is correct that

we have attached importance to building a material

civilization since reform and opening up; meanwhile,

we have somewhat neglected building a spiritual civilization. To make money for their own economic

interests, some units have disregarded the greater society's interests. The phenomenon of selling phony,

imitation, counterfeit, and inferior commodities often

takes place in the marketplace, while the consumer's

interests are seriously harmed. Unhealthy and even

pornographic pictures, books, audio, and video products surface in the culture market, and these have

gravely poisoned the people's minds. Consequently,

ideological confusion has surfaced, and bourgeois liberalization has run amok, with a corresponding degradation in social ethics. The ugly social phenomena that

widely existed in Old China and the dregs of society

that were wiped out in the early days of New China's

founding have floated up again. This being the case,

Comrade Jiang Zemin is requiring us to adhere to

"grasping work with two hands," grasping reform and

opening with one hand and cracking down on all sorts

of criminal activities with the other. In the wake of
16 POLITICAL

JPRS-CAR-92-071

15 September 1992

implementing reform and opening up, we opened the

gate and some good things have entered from abroad,

while at the same time, some negative and decadent

things were also brought in, perniciously affecting

people's minds, especially those of teenagers. To

implement "grasping work with both hands" means

precisely to effectively guard against and reduce the

occurrences of various ugly phenomena. On the other

hand, our various undertakings in socialist modernization

are in a period of comprehensive development and coordination with each other. Economic construction should

develop; at the same time, a good job must also be done

regarding people's ideology, ethics, and scientific and cultural qualities as well as social atmosphere. Only then will it

be possible to promote comprehensive social progress and

civilization throughout society.
JPRS-CAR-92-071

15 September 1992 ECONOMIC 17

NATIONAL AFFAIRS, POLICY

On Scope for Market Economy Under Socialism

92CE0597A Beijing JINRONG SHIBAO in Chinese

20M92ppl,2

[Staff special article by Zhong Pengrong (6988 2590

2837): "How Socialism Will Run a Market Economy"]

[Text] Editor's note: On 11 July an article by comrades

Chen Jinyu [7115 651 3768] and Zhong Pengrong in

JINGJI RIBAO entitled "Socialism Should Also Run a

Market Economy," which was afterward carried in

excerptform on the Press Excerpt Program ofthe Central

People's Broadcasting Station and which was also carried

by RENMINRIBAO and other newspapers, has evoked a

very big response in society. Today this newspaper has

invited Comrade ZhongPengrong to express his opinions,

with regard to socialism's development of a market

economy, at a deeper level and on more realistic policy

questions, as well as the question ofhow to run a socialist

market economy, in the expectation ofopening a discussion on this question, prompting thought, and changing

minds, and of further giving impetus to the emancipation

ofthe mind and to thepromotion ofthe acceleration ofthe

pace ofreform and opening up to the outside world.

On the 11th day ofthis month, the article by Chen Jinyu

and myself published in JINGJI RIBAO entitled

"Socialism Should Also Run a Market Economy"

explored some questions of universal concern by people

with regard to developing a market economy. The

present article tries to discuss the views on the development of a market economy on theoretical questions at a

deeper level and on more realistic policy questions.

Questions of interests and dissemination of information:

the two basic preconditions for development of a market

economy

There are two basic preconditions for the establishment

of a highly centralized planned economic system: The

first precondition is that the producers in a socialist

society be selfless. Therefore, the production goal of

every producer (including the basic production unit in

the enterprise and in the rural areas) is to directly meet

the demands of society. There is no need for society to

take into account the interests of every producer, and

whatever society needs a producer must produce. The

second precondition is that society, in a centralized

manner, is able at any time to get information on all of

society's resources and demands, and thus is able to

distribute society's resources in line with society's

demands.

However, the practice ofseveral decades has proved that

even if the system of public ownership of the means of

production is established, the abovementioned two conditions for establishing a highly centralized planned

economic system do not exist.

First, every production unit wants to pursue its own

interests, and there is none that does not hope tht its own

labor will not, without going through an exchange process, directly constitute part ofsociety's total labor. The

direct objective of their productive activity is not to

satisfy society's demands but rather to make money.

Making use of value to satisfy society's demands is only

the material undertaking produced by them in pursuit of

value. Over the past several decades, enterprises have

always been criticized for the practice of "going all out

when there are big profits, doing little when there are

little profits, and doing nothing when there are no

profits," but the enterprises still engage in this practice.

The critics say that the enterprises lack a socialist consciousness, but actually the critics are divorced from the

reality of the enterprises.

Next, because there are tens of thousand kinds of society's demands and because people's demands are fast

changing, society's center basically cannot grasp the

changes in resources and in demands at every time and

occasion in society, and thus cannot distribute society's

resources in line with society's demands. For a country

as large as China, where both the information media and

the communication facilities are underdeveloped, the

possibility is even less for a social center to distribute

resources in line with the changes in demand of the

entire society, gearing the distribution to actual circumstances.

How can the abovementioned two actual circumstances

be brought in line? By developing the market economy

from the market prices—the prices following the changes

in the production prices and in the relationship between

the supply and demand of all kinds of products—taking

into consideration the interests of every producer, and

from the changes in market prices, providing resource

information and supply-demand information to the producers and managers, so that society's production better

meets society's demands.

Compared with a highly centralized planned economic

system, the market economy system has the following

characteristics:

First, from a look at the main part of economic policy

making, a market economy is a mass economy. In a

market economy the main part of policy making is not

done by a small number ofplanning officials, but is done

by the great number of enterprise managers on the first

line of economic activity and by the great number of

workers and peasants. They are both the policymakers of

economic activity and the collectors and arrangers of

information on society's resources and demands. Thus,

many people collect and arrange information and make

policy, and it is not the case that a small number of

individuals do so. It is the people on the first line of

production and economic activity who collect and

arrange information and make policy, and it is not the

people who are remote from reality who do so. It is

people whose own interests are closely interrelated who

collect and arrange information and make policy, and it
18 ECONOMIC

JPRS-CAR-92-071

15 September 1992

is not people who have no ties of direct interest in the

consequences of economic activity who collect and

arrange information and make policy. This kind of

policy making is more suited to circumstances.

Second, looking at the way of promoting producers and

managersto engage in production and business, a market

economy is an economy driven by interests. It does not,

by issuing commands, force the producer to produce

something or not produce something, force the businessman to engage in a certain kind of business or not

engage in a certain kind of business, but it, through

adjusting their interests, lets them voluntarily choose the

scale and specification of the variety of commodities

produced and done business with, etc. The way to adjust

interests lies in price fluctuations. This way ofpromoting

interests is for China's existing enterprises—objectively

the enterprises that go all out when there are big profits,

do little when there are little profits, and do nothing

when there are no profits—an effective way.

Third, from a look at the way society's resources are

distributed, a market economy is an auction economy.

With regard to the limited materials, funds, foreign

exchange, labor, land, and other essential production

factors, it does not adopt the method of "cutting the

cake" in its distribution between the enterprises, and

even less does it distribute by the method of "opening

the back door," but rather distributes by the auction

method. Does the supply of materials not meet the

demand? In this kind of distribution, priority in distribution of the limited resources of society is given to

enterprises with good economic returns, because only

these enterprises dare to come up with high prices. All of

the resources for which this kind of distribution is

adopted are resources that can obtain the maximum

utilization, so that there is truly realized a situation in

which "all ofthe people's talents are used, and all ofthe

materials are utilized."

Productive force criterion and practice criterion: the two

deep-level bases for development of a market economy

A question over the past several years on which there has

been a very big difference is whether it is better in China

to have a little more or a little less component parts in

market regulation, and whether China should develop a

market economy. This difference, in the final analysis, is

a philosophical one.

First, there is the difference between the practice criterion and the book criterion. Comrades who uphold the

book criterion judge whether an economic system is right

or wrong, acceptable or unacceptable, on the basis ofthe

conclusions of the authors of the Marxist-Leninist classics. The basic way that they analyze problems is, taking

the quotations of Marx, Engels, Lenin, Stalin, and Mao

as the premises, they draw conclusions from these premises. If their conclusions are said to be good, they are

good; iftheir conclusions are said to be bad, they are bad.

There is little concern for how the results of their

conclusions would be in practice. Marx, Engels, Lenin,

and Stalin stressed that in a socialist society there must

be established a highly centralized planned economy.

Thus, we must uphold this system.

In the 1978 discussion on the practice criterion, the "two

whatevers" way ofthinking was eradicated, and the line

of thinking that practice is the sole criterion for testing

truth was established. In accordance with this line of

thinking, in judging whether a certain system is right or

wrong and in deciding whether it is acceptable or unacceptable, one does not look at how a book is written but

rather at what its results are in practice.

For more than 40 years China has experienced two kinds

of practice: one kind is the practice of a highly centralized planned economic system; the other kinds if the

practice of being drawn into the market mechanisms

since reform and opening up to the outside world. What

did the highly centralized planned economic system

bring to the Chinese people? A commodity shortage, a

ration ticket supply, and a extended periods of fluctuations to very low levels for people. The main line of

reform since 1979 has been, through devolution of power

to the peasants and entrepreneurs amd through the

bringing of market mechanisms into the traditional

system, to bring close to two-thirds of the entire economic activity under market regulation. It was precisely

the introduction of market mechanisms that put an end

to the era of ration book supply in China. Now, commodities are abundant, markets are brisk, and provided

one has money in hand it seems that there is nothing that

one cannot buy. The Chinese people have already tasted

the sweetness of market mechanisms. Obviously, provided we do not uphold the book criterion and the "two

whatevers," but rather uphold the practice criterion, we

will draw, without the least hesitation, the conclusion

that in China market mechanisms should be further

introduced to develop a market economy.

As to whether something develops the market economy

or not, besides the difference between the practice criterion and the book criterion, there is the difference

between the productive forces criterion on the one hand

and the nonproductive forces criterion and the production relationships criterion.

The results of practice have answered the question of

whether China will develop a market economy. However, because ofthe difference between the people using

the productive forces criterion and the people not using

the productive forces criterion, the conclusions they

draw are not the same. In the early eighties, everybody

admitted the fact that the agricultural production

responsibility system promoted a great bumper harvest

in agricultural production. But there were two completely different attitudes toward this fact: Some people,

who wept bitterly because the idea of "large in size and

collective in nature" had been attacked, said that practicing the agricultural production responsibility system

was a case of "working hard for several decades and then

returning overnight to the situation before liberation,"

and thus vigorously opposed it. That there were two
JPRS-CAR-92-071

15 September 1992 ECONOMIC 19

opposing attitudes on the same fact is because the former

handled this fact with the productive forces criterion and

the latter handled this fact with the production relationships criterion. Upholding the productive forces criterion or upholding the production relationships criterion,

in the final analysis, is a case ofputting productive forces

first or putting production relationships first. In accord

with the basic tenets of historical materialism, productive forces are primary, and production relationships

emerge because of the demand of productive forces and

they serve as a counterreaction to productive forces.

Putting productive forces first also means putting the

interests of the broad masses of people first. The broad

masses ofpeople want food, clothing, and housing. What

they are more interested in is being able to eat a little

better, dress a little better, and live in a little more

spacious dwelling. The only way for this to come true is

to develop the productive forces. Putting productive

forces in a position that is not essential means putting

the vital interests ofthe broad masses ofthe people in a

position that is not essential.

The master designer of reform and opening up to the

outside world—Comrade Deng Xiaoping—from first to

last has put productive forces first. Recently, in talks at

Nanxun, he emphatically pointed out: In the criterion

for judging whether something is "capitalist" or "socialist," we should look mainly at whether it is advantageous

for the development of the productive forces of a

socialist society, whether it is advantageous for the

enhancement of the total national strength ofsocialism,

and whether it is advantageous for the improvement of

the people's living standard. Here, in reality, is reaffirmed the primary norm of productive forces.

Whether one upholds the productive forces criterion or

upholds the primary norm of productive forces, one will

naturally draw the conclusion that China should also

develop a market economy, because the practice of

several decades has already proved that whatever is

relaxed relaxes more. To invigorate China's economy as

a whole, we should expand the partial relaxation into an

overall relaxation, and then put China's micro-economic

activity under the regulation of market mechanisms.

Mold the main part and perfect the regulations: the two

great tasks in developing a market economy

There are many tasks to perform in China's development

of a market economy, but there are two main tasks: The

first task is to mold the market's main part, and the

second task is to perfect the market's regulations. To

mold the main part we must transform a large number of

state-owned and state-run enterprises and collective

enterprises into commodity producers and commodity

businesses that do business on their own initiative and

that are responsible for their own profits and losses. To

this end there are three main things that we must do:

The first thing is to further reduce, and even basically do

away with, plans of a command nature. With regard to

consumer products, besides retaining some food supplies

and their prices fixed by the state for city and town

residents, the production, circulation, and prices of the

remaining products should be relaxed. The command

production plans and command prices for all means of

production should be abolished, and for the materials

needed for the state's key construction projects priority

in supply can be demanded from the enterprises, but the

prices should follow the market. To reduce the repercussions, in abolishing the command plans for the means of

production, they can be abolished in several batches,

e.g., one or two batches a year. With regard to labor

wages, the state will, mainly through the tax lever, the

total scale ofthe enterprises' wages, and there will be no

need to send down command plans. With regard to

investment in capital construction, after the government

switches the main part of its profitable project investment to enterprises, and switches its fund resources in

the main to making direct blending offunds primary, the

command plans should also be abolished.

The second thing is to greatly reduce the number of

official seals for examination and approval. Now, every

time an enterprise does something it must have, at the

least, several dozen official seals affixed and, at the most,

several hundreds. With this many examinations and

approvals, and this many official seals, how can one talk

about market mechanisms? If it is said that at the

beginning of reform we mainly expanded markets by

reducing command plans, then, looking at the situation

now, we are making a turn to official seals for markets.

Behind the excessively many examinations and

approvals, and official seals, there is organizational

expansion. To reduce the examinations and approvals,

and the official seals, we must first streamline the

administrative structure and change the government's

functions.

The third thing is to change the state of affairs in which

the enterprise is responsible for its profits but not for its

losses, and make the enterprise truly responsible for both

its profits and losses. There are three conditions needed

for the enterprise to be responsible for its own profits

and losses. The first condition is that it take the initiative

in its business operations. Only by doing so can the

enterprise be responsible for its profits and losses with

regard to the consequences of its business operations.

The second condition is to standardize distribution

between enterprise and government: when the enterprise

makes profit, the government does not "flog the fast

cows"; and when the enterprise shows a loss, the government does not reduce taxes and make concessions on

profits, and even less does it give subsidies. The third

condition is that to have the capability to be responsible

for losses one must have one's own assets. Now, in the

state-owned enterprises all the assets are owned by the

state. If there are profits the enterprise can issue more

bonuses; if there are losses then naturally the state will

take the responsibility. When there are no funds to repay

a debt, only the state's assets can be taken because the

enterprise has no assets to be taken. Of these three

conditions, through the two tasks of reducing and even
20 ECONOMIC

JPRS-CAR-92-071

IS September 1992

abolishing command plans and ofstrealining the administrative structure and reducing official seals, the enterprise possesses the first condition of being responsible

for its own profits and losses. To possess the second

condition we must change the contract system to a

standard divided flow oftaxes and profits, i.e., the state

on the one hand is a social manager, and in all taxes

collected from the enterprise, no matter what ownership

an enterprise is under, the kind oftax and the rate oftax

are uniform. In another aspect, as the owner of the

state-owned assets, the state, in line with the way it owns

the assets, will either take part in the enterprise's sharing

out of bonuses (when it holds the assets in the form of

stocks) or will collect debt interest from the enterprise

(when it holds the assets in the form of bonds). To

possess the third condition, we must reform the property

rights system, and in state-owned enterprises universally

practice the stock system, so that the enterprises have the

capability to be responsible for their own losses.

Ofthe abovementioned three things, if the first two are

done well the enterprises will be able to truly take the

initiative in their business operations; if the last thing is

done well the enterprises will be able to be responsible

for their own profits and losses, and also must be

responsible for them. With this kind of mutual bargaining and mutual commodity buying and selling by the

enterprises, a true market economy can be formed.

Developing a market economy is like organizing a ball

game: first, there must be athletes who fight and keep

forging ahead and who dare to hit and charge; and

second, there must be scientific, clear rules as well as

referees who strictly enforce these rules. In developing a

market economy, while molding its main part, we must

set up and perfect regulations for all kinds of markets.

Only in this way will the enterprises on the markets be

able to engage in competition on the basis of equality

and be able to be lively but not disorded.

Stabilizing the currency and increasing the "rice bowls":

the two important conditions for developing a market

economy

To make a stable transfer from the dual-track economy

to the market economy, we need to create conditions on

many sides, among them the two main conditions are:

one condition is to have a stable currency environment,

and the other is to have a benign employment environment.

A stable currency and a stable popular feeling are a main

condition for successfully making the transition to a

market economy. Otherwise, if the people are full of

anxiety and draw money from banks to rush to buy

thing, the side issues that crop up unexpectedly will bring

many problems. Not to mention the market economy,

the stability of society could also become a problem.

To stabilize the currency we must start by stabilizing the

amount of deposits and controlling the amount ofincrements. To stabilize the amount of deposited currency,

the following measures can be taken: return to guaranteeing savings deposits; reform the housing system by

making the acceleration of selling public housing and

withdrawing currency from circulation the main points;

through reducing the scope ofthe banks' direct blending

of funds, and expanding the issuance of stock, the

pressure that can be put on banks by the withdrawal of

deposits for the purpose of rushing to buy things will be

reduced; and further relaxing the two-level financial and

asset market, and increasing the circulation amount of

financial commodities, so that there are divided flows of

the amount of currency on the material commodities

market.

In controlling the incremental amount of currency, there

are now three main things to check on well: the first is to

check on the deficit, and through controlling the deficit

prevent an excessive issuance of currency; the second is

to check on the Central Bank's credit with regard to the

specialized banks, and ensure the total scale ofit in line

with the regular need for expansion of economic growth

on the credit (including discounts) of the specialized

banks; and third, check on the direct blending of funds,

and prevent the excessive expansion of the direct

blending of funds from causing inflation. On this point

theoretical circles now have different views. Some

people think that the issuance ofstocks and bonds has no

bearing on the circulation of currency. Actually, permitting certain enterprises to issue stocks valued at 1 million

yuan, and the specialized banks' extending 1 million

yuan in credit to these enterprises, have a completely

identical effect on increasing the currency circulation

and on increasing society's total demand. Speaking of

this, through expanding the issuance ofstock to stablilize

the currency deposit amount, this only changes part of

the the specialized banks' deposits and loans into stocks,

so this part of the funds cannot be duplicate-purchased

(after the banks loan this part of the funds to the

enterprises for use in buying the means of production,

the individual can draw funds from the banks for use in

buying consumer goods). But this means that there must

be a condition that there is a corresponding contraction

in the scale ofthe specialized banks' credit. By how much

the "domain" of the indirect blending of funds by

specialized banks contracts, the "domain" of the direct

blending offunds expands. Only in this way will the total

demand of society caused by the two ways of blending

funds not inflate.

Increasing the employment posts is another important

condition for the successful growth of a market

economy, because developing a market economy means

that many organizations must be streamlined and many

enterprises must be eliminated through disuse, and in

the organizations and enterprises that continue to be

retained many staff and workers must be cut. In this way

a large number of people will be squeezed out of the

existing system. Whether fairly good placements can be

obtained by these people relates to the stability of

society, and this relates to the destiny of running a

market economy.

Of course, we could let all of these people return home

and draw unemployment reliuf money. But this would
JPRS-CAR-92-071

15 September 1992 ECONOMIC 21

not be the fundamental way to solve the problem. The

fundamental way is to create employment posts, and let

these people become reemployed at new employment

posts. The creation of employmnent posts requires

investment, i.e., it requires the expansion ofthe scale of

investment. With this expansion, if consumption is not

kept down there will be an expansion of the total

demand, and thus the previous important condition for

developing a market economy will be destroyed.

In both appropriately expanding the scale ofinvestment

and not allowing an expansion in total demand, the main

thing is to keep down consumption. First, there is the

keeping down ofthe consumption ofthe great number of

urban and rural residents. The way to do this is not to

reduce their income, but is, through expanding the

issuance of stock, to encourage private persons to run

enterprises, and in other ways increase the appeal of

investment, so that the great number of residents consciously increase investment and reduce consumption.

Second, hold down the consumption of private entrepreneurs, individual households, and other wealthy households. The way to do this is not mainly increasing taxes,

and even less is it "egalitarianism and indiscriminate

transfer of resources," but is, politically and legally,

eliminating the fear ofdisturbance in the rear about their

expansion of investment, so that they boldly expand

investment and boldly run the enterprises on a large

scale. Third, hold down consumption by groups. In this

respect it must be realized through the construction of

honest government; the increase of consumer taxes; the

strengthening of public opinion, propaganda, and supervision; and other controls and orders.

Besides holding down consumption by expanding the

scale of investment, accelerating development of the

tertiary industry, and increasing employment posts, and

not causing inflation in total demand, another important

way is to expand opening up to the outside world, absorb

more foreign investment, and through foreign business

investment, absorb the surplus labor power squeezed out

in the course of developing a market economy.

Stockholding System Seen Solution to Contradiction

92CE0603A Chongqing GAIGE [REFORM] in Chinese

No 4, 20 Jul 92 pp 27-29

[Article by Sun Xiaoliang (1327 2400 5328): "A Contradiction in Continuing Enterprise Reform"]

[Text] 1) The purpose ofour efforts to reform enterprises

owned by the whole people is to achieve selfmanagement and self-responsibility for profits and losses

in the true sense ofthese terms. Not only has this become

common knowledge in all quarters ofsociety, it has also

been included in the "CPC Central Committee's Resolution Regarding Structural Reform."

2) Self-management and responsibility for an enterprise's own profits and losses are a composite entity in

mutual control and balance; neither one nor the other

can be missing in this entity. An enterprise that is not

allowed self-management cannot possibly be required to

assume responsibility for its own profits and losses; an

enterprise that has not instituted responsibility for its

own profits and losses cannot possibly be expected to

truly exercise its self-management right. Reform in both

these respects must proceed simultaneously. It would not

only be lopsided to merely emphasize self-management

without equal emphasis on self-responsibility for profits

and losses, but it would even be dangerous. In many

respects the reform toward self-responsibility for profits

and losses is of an even more fundamental character, is

even more important, and also more difficult. This has

been true in China for the last three, four years. However, there has never before been anything like this one

facet of having enterprises assume full responsibility for

own profits and losses, and we may well say that it is a

completely unprecedented practice.

3) The reason why assumption of full responsibility for

profits and losses by enterprises owned by the whole

people is so particularly difficult is that there is here an

inherent contradiction. With the continued intensification of enterprise reform, the need arises to transform

assumption of full responsibility for profits and losses

from a mere slogan into real action; there is a contradiction that is becoming more and more evident.

Basically, assumption of full responsibility for profits

and losses is a demand directed at the owner. The term

"self-responsibility for profits" refers to gains in "proprietary assets," which are obviously rights that only an

owner can have. The term "self-responsibility for losses"

refers to the responsibility of having to make up for

business losses with assets, which is obviously a responsibility that only the owner can assume. It is therefore a

fundamental requirement in both cases that there be

ownership rights over assets.

Do the Chinese enterprises owned by the whole people

have ownership rights to their assets? Do they have these

rights as owners or as managers? These questions cannot

be decided on by a the comments of one person or

document, but by the state of the entire system. First,

when dealing with the separation of the two rights,

official documents made it clear that the ownership right

belongs to the government (representing the whole

people) and the management right belongs to the enterprise. Second, over 90 percent of all enterprises owned

by the whole people have adopted the contract system,

which clearly prescribes that enterprises in their role of

managers have entered into a contract with a representative of the owner, namely with governments at their

various levels. Third, whenever an enterprise owned by

the whole people takes out a loan, it is clearly prescribed

that the assets of the enterprise may not serve as collateral for the reason that the enterprise's assets are not

owned by the enterprise. Fourth, in enterprises owned by

the whole people, there are workers and managerial staff,

but there is no representative of the ownership. The

government, representing the ownership, is not inside
22 ECONOMIC

JPRS-CAR-92-071

IS September 1992

but rather outside the enterprises. All these circumstances give a clear answer to the question, the answer

being that the various systems currently practiced in

China show the fact that enterprises have only the status

of managers. Therefore, even if in recent years it is

inevitably discussed on every occasion that enterprises

assume full responsibility for profits and losses, and even

if articles inevitably write about it, this amounts in

reality to only a demand and a slogan without reality.

To transform this slogan that the enterprises assume full

responsibility for their profits and losses into reality, it is

therefore necessary to transform the status of enterprises

from that ofmanagers to that of owners. However, since

we they have ownership by the whole people, how can

these enterprises become owners? This constitutes a

contradiction, even a very profound contradiction.

Without its resolution, it will be impossible to realize

assumption offull responsibility for profits and losses by

our enterprises.

4) How can this contradiction be resolved? Adopting the

principles and forms of the shareholding system may

perhaps be an effective alternative.

Emergence ofjoint-stock companies has allowed enterprises to gain the status oflegal persons, independent of

those who contribute the capital. The ownership right in

such cases no longer belongs completely to one entity,

the proprietor ofthe enterprise, but is divided in two: in

the final analysis the ownership right belongs to those

who invest capital (to those who hold shares, i.e. the

stockholders), and legal person ownership belongs to the

enterprise. The enterprise, as legal person, is responsible

for all profits and losses, while the investors ofcapital are

responsible only to the extent of their investments. The

reasons for the emergence ofthis situation is that under

the conditions of joint-stock companies, an enterprise

has a large number ofshareholders, and has the rights of

control, use, and disposition of the physical assets, i.e.

the rights that the shareholders can no longer exercise.

Finally, all these powers and functions ofthe ownership

right are transferred to representatives of the shareholders, namely the board of directors. The board of

directors bears the responsibility of "entrustment"; on

the one hand they exercise a part of the ownership right

by representing the shareholders, and on the other hand,

they safeguard the interests of the shareholders, without

consideration for individual interests or for reason of

any other criteria of action.

It is definitely possible for us to adopt these principles in

order to resolve the contradiction between ownership by

the whole people in our enterprises and their assumption

offull responsibility for profits and losses. Since ultimate

ownership rests with the whole people, they may still be

represented by the government, while legal person ownership belongs to the enterprise. By enacting enterprise

responsibility for profits and losses on this basis, the

government, owning all or part ofthe shares, will have a

responsibility limited to its investment in the enterprise.

In this way, we will preserve the system of ownership by

the whole people, while also enabling the enterprise to

have responsibility for its profits and losses.

There are now many who propose introduction of the

shareholding system, but their points of departure differ.

Most see its purpose in the need for pooling resources.

The shareholding system has indeed many functions,

and pooling resources is one of its important functions.

However, why I suggest the shareholding system is to

resolve the contradiction of having enterprises owned by

the whole people, yet assume responsibility for profits

and losses, i.e. to achieve the objective of enterprise

reform.

5) To have enterprises assume full responsibility for

profits and losses requires reorganizing most of enterprises owned by the whole people into joint-stock companies. A few of them will operate under the "public

ownership system" as the main component and will also

be "companies limited by shares" that issue shares to the

general public. Most of them will probably be "companies with limited responsibility," holding shares of public-owned legal persons. Shareholders of this type of

joint-stock companies are not private persons or privately-owned enterprises, but are instead various kinds

oflegal persons ofthe public ownership system, such as

enterprises ofthe whole people, or collective enterprises,

controlling companies managing national assets, holding

companies of enterprise groups, and also various kinds

ofsocial insurance fund and investment funds of private

investors. There may also be a certain number of companies owned by the whole people that are organized as

Chinese-foreign joint venture companies with limited

liability.

6) When compared with enterprises owned by the whole

people, these three types of joint-stock companies display the following main features:

First, their internal organization is comprised ofnot only

workers and managerial staff, but also representatives of

the ownership, thereby creating a perfect enterprise

pattern, laying the foundation for the implementation of

a mechanism of mutual control and balance between the

three parties within the enterprises, and also gaining for

the enterprises the "status" of owners, and, furthermore,

laying the foundation for the implementation of responsibility for one's own profits and losses.

Second, they have changed an enterprise owned by the

whole people by subordinating it to a representative of

the ownership, by having every joint-stock company

have a certain number of shareholders, and by having

their appointed representatives constitute a board of

directors. This makes it impossible for a government at

any level and for any department to interfere again—as

they do in enterprises owned by the whole people—in the

production and business operations of the joint-stock

companies. This also achieves the separation of responsibilities between government administration and enterprise management, and as a consequence it also tears
JPRS-CAR-92-071

15 September 1992 ECONOMIC 23

down the barriers between higher and lower levels, and

between different departments and regions.

Third, the government, as a shareholder of the jointstock company, will bear responsibility only to the extent

of its investment, and will no longer bear unlimited

liability, as in the case of enterprises owned by the whole

people. As a stockholder, the government bears a limited

responsibility and does not act as it does in the case of

enterprises owned by the whole people, in which they

bear unlimited liability. Under the premise that the

government bears limited responsiblity, enterprises will

then be allowed to go backrupt, and only then can

survival of the fittest be possible.

7) Some fear that turning enterprises owned by the whole

people into joint-stock companies in which publicowned legal persons are stockholders might result only in

a change in form but not in substance, i.e. without

substantial change in the system and in mechanisms. A

mere look at the actual operational processes in our

enterprises after they have incurred losses will easily

provide an answer to this question:

An optical instruments plant in a certain municipality

had originally been an enterprise owned by the whole

people. When it began to incur losses, it first reported its

losses to the municipal government and demanded a

solution to its problems. This procedure was quite

rational and legal; it was the way that absolutely had to

be taken because the government was the owner of the

enterprise. Ifthe enterprise did not bring its problems to

the owner, to whom else should its losses be reported? If

not the owner, who else was responsible for a solution?

This was all the more true because the enterprise's past

profits had been turned over to the government, and it

was the government that represented its ownership. The

government, quite naturally, officially concerned itself

with the matter, and its action unfailingly consisted in

deferring repayment of bank loans, tax reductions and

exemptions, subsidies for goods returned to warehouses

for storage, and many other such measures. Moreover, in

the case ofrepeated losses, this was done year after year

according to law, an action that was the start of "eating

from the big pot." There have been some changes in

recent years in that staff and workers were denied

bonuses in unprofitable enterprises, in some cases, salaries and wages were reduced, but this was actually a

system of dependency on profits or losses, not a system

offull enterprise responsibility for all profits and losses.

Later, this instrument plant imported foreign capital and

became a Chinese-foreign joint venture and limitedliability company. If further losses are incurred and the

government approached for a solution, the government

should not officially concern itself, and could not concern itself with the case because the enterprise was

owned by two parties, a Chinese and a foreign party, If

the government on the Chinese side were to again adopt

such measures as deferring repayment ofbank loans, tax

reductions and exemptions, and even subsidies,

wouldn't that be unfair in light of the responsibility of

the foreign shareholders and wouldn't that allow foreign

shareholders to gain an unfair advantage over Chinese

shareholders! What then should be done? The board of

directors appointed by the shareholders of both parties

should study the problem and provide a solution, either

by taking out a loan against the security of its assets, or

by disposing of some of its stocks and admitting new

shareholders, or by declaring bankruptcy. Even if bankruptcy might entail losses for the Chinese shareholders,

their liability would only be limited to the amount of

their investments and would not be an unlimited liability. Furthermore, since the board of directors is a

component of the enterprise, the way the situation is

handled would distinguish it more as an enterprise

assuming full responsibility for its own profits and

losses.

8) Others fear that instituting a shareholding system will

result in privatization. Actually, instituting a public

ownership system or private ownership system is completely a matter of policy, without relevance to the

instituting of a shareholding system. The shareholding

system is a kind of organizational system applied to

enterprise property; it may be used in a privateownership system and also in a public-ownership system.

Our policy is clear and definite in its objective of

preserving the public-ownership system as the main

component of the economy. The shareholding system

that we propose seeks to institute therefore a shareholding system in which mainly public-owned legal persons are the shareholders. It may also be possible for

some enterprises to issue shares to the general public,

putting private capital to use. However, issues that can

be completely controlled through the state's political

policy include which enterprises may be allowed to do

so, and which enterprises may not be allowed to do so,

what proportion of the total capital may be private

capital, etc.

It has to be pointed out that there are truly some pople

who scheme to use the stockholding system to carry out

privatization. Their error is in their "reality" and not in

the "name." What we must resolutely oppose is "carrying out privatization" and not deny the stockholding

system because of this.

PROVINCIAL

Greater Economic Sophistication Urged

92CE0665B Shanghai JIEFANG RIBAO in Chinese

27Jul92p5

[Article by Xu Wenlong (2776 2429 7893), Bao Xin

(7637 2450), and Yan Jialin (7051 0502 2651): "Boldly

Institute a Market Economy To Accelerate Economic

Development"]

[Excerpt] [passage omitted] Effect on Shanghai and New

Actions That Must Be Taken
24 ECONOMIC

JPRS-CAR-92-071

15 September 1992

The high speed development of the economy of the

whole country, particularly the high-speed development

of neighboring provinces, is an opportunity and an

impetus as well as a challenge and a spur for Shanghai.

By opportunity and impetus is meant that the emphasis

ofinvestment on basic facilities, energy and transportation, and the building of housing during the second

round ofgrowth helps Shanghai play a "turnkey" role as

a key city. By challenge and spur is meant that the

shortages of raw and processed materials, energy, and

transportation, the trend toward a rise in prices, plus the

across-the-board relaxation of policy restrictions,

"exports through multiple channels," and the diverse

ways in which foreign capital is used" narrow somewhat

the gap that different policies toward Shanghai and the

new Pudong District create.

Thus, various new actions are urgently required as

follows:

First is changed ideas and ways of thinking, constantly

overcoming "leftist" influence. The strategic significance of adjusting speed of development to the international growth rate to accelerate expansion ofthe material

foundation for socialism is of far-reaching importance;

therefore, whatever can be done should be done to speed

it up a little. A market economy must be boldly instituted as an operating mechanism so that enterprises are

directly informed about consumption through the

market, and will thus be able to make full use of the

market mechanism and market prices to stimulate and

regulate production. In handling the correlation between

consumption and production, the former trend of

"emphasizing production while slighting consumption"

must be corrected. Consumption must be used adroitly

to guide production, and a new stimulus mechanism

must be established in which a close relationship exists

between the labor and the enjoyments ofstaff members

and workers. In this way, expansion of demand rather

than curtailment of consumption can be used to switch

on the market so that the economy moves ahead at the

fastest speed.

Second is the earliest possible establishment and development ofa market system. Shanghai's high-speed development during the 1990's does not depend primarily on

preferential policies but on the enormous vitality of the

market economy that perfection of the market system

engenders. Financial, materials, labor, science and technology, and human resources markets must be established to provide the key elements of production, and

consumer goods markets and real estate markets must

also be established. Both spot trading markets and

futures markets are needed. An overwhelming majority

of market prices must be free from control to track the

market, prices thereby becoming a "barometer" for

gauging surpluses and shortages of resources and the

relationship between supply and demand. Shanghai and

Pudong must become the domestic and foreign junction

for linking the "two kinds of capital, the two kinds of

resources, and the two markets," thereby spurring the

economic development of all provinces and cities in the

Chang Jiang Basin.

Third is energetic development of tertiary industries to

make fullest use of the diverse functions of key cities.

The contribution of Shanghai to the second round of

high speed economic development is notjust to continue

to provide the whole country with high technology,

precision, sophisticated, and new products, but more

importantly it is to provide various premium services.

Therefore, vigorous efforts must be made to develop

tertiary industries including finance and insurance, business and trade, real estate, tourism, information, and

consulting. A million surplus staffmembers and workers

in "primary production," and "secondary production"

must be organized for a transfer into "tertiary production." Policy restrictions must be relaxed and active

support provided for the adoption of a policy in which

individuals, collectives, and the state all rise together, a

good job being done in providing services for the Chang

Jiang Delta, the Chang Jiang Basin, and the entire

country. At the same time, this work must help develop

the economy, make Shanghai prosper, and bring about a

thriving situation in which "all commerce is centered in

one place, and customers come from near and far."

Fourth is expansion of the area of operation opened to

the outside world to accelerate the speed of development. We must continue to accelerate the leasing of

parcels of land and the application of foreign capital to

the transformation ofold areas. We can also use business

and leasing to induce renowned international corporations to come to Shanghai to undertake the construction

ofmunicipal government basic facilities, public utilities,

and communications and transportation for Shanghai

and the new Pudong area. Examples include the Pudong

new zones water supply, electricity supply, gas supply,

heating supply, handling of garbage from all over the

city, construction of a second subway, a new airfield, and

new amusement centers, signing cooperation or leasing

agreements on the basis ofthe amount ofinvestment and

the length of the capital recovery period, all assets

reverting to the Shanghai municipal government upon

expiration of the contracts.

Fifth is the earliest formation of a full service, multifunctional, open national financial center. Development

of a commodity economy, and the exchange of commodities is just the primary school stage; and the establishment of a market system is just the middle school stage.

It is establishment of a highly developed financial system

and securities market that is the college stage. Shanghai

must accelerate development of securities markets now

to make fullest use ofShanghai's stock share system pilot

projects and favorable conditions for the marketing of

stocks. It must expand the volume of securities trading

and the kinds of securities marketed. It must widely

attract to Shanghai the trading ofstocks and debentures

from all over the country, more than 70 percent of all

securities trading volume being conducted in Shanghai.

It must also open share accounts with residents all over
JPRS-CAR-92-071

15 September 1992 ECONOMIC 25

the country. Securities companies must locate business

places and set up agencies all over the country, and they

must enhance contacts with the international securities

business through the issuance of B-shares in China and

securities abroad. In addition, they must establish a

Pudong Development Bank to take in capital from all

over for the joint development ofPudong. The foregoing

kinds ofoperations can increase local fiscal revenues and

also solve needs for capital for developing Pudong and

for the vigorous growth of Shanghai.

Large Increase in Business Concerns

92CE0665C Shanghai JIEFANG RIBAO in Chinese

31M 92 pi

[Article by Xiang Mingsheng (0686 2494 3932) and

Chen Yonghu (7115 3941 3337): "Shanghai Business

Enterprises Number More Than 130,000. Enormous

Increase in Tertiary Industries; Make-up Diverse"]

[Text] Statistics from the Municipal Industrial and

Trade Administration show that 12,364 new enterprises

opened for business during the first half of 1992, an

all-time high for the same period in previous years. This

upsurge in the operation of business enterprises suggests

that Shanghai's vigorous economic development has

entered a new stage of development. Shanghai's collective enterprises under ownership ofthe whole people and

jointly operated enterprises total 131,961 in number, up

6.9 percent since the end of 1991. Privately operated

enterprises number 2,700; and the three kinds of partially or wholly foreign-owned enterprises number 1,725

bringing the grand total to 136,376.

Development of Shanghai's enterprises shows three

characteristics as follows: 1) An enormous increase in

tertiary enterprises, the number rising from 79,514 at the

end of 1991 to 85,484 now, and the number of conventional businesses and food and beverage businesses

increasing to 67,233 in a 76.2 percent rise. New real

estate businesses have increased rapidly, and financial

and insurance businesses also number 1,233. Scientific

research and complete technical services enterprises

number 1,574. Employed personnel also number

9,700,268, up 14.2 percent. 2) The number of companies

has risen in a straight line, 870 companies being added

during the first half of the year. 3) Business enterprises

have become more diversified in form, fifty registering

as limited liability corporations, and 68 registering as

group or central enterprises. Other jointly-run enterprises number 8,516.

Shanghai Prepares To Set Up Coal Exchange

92CE0665A Shanghai JIEFANG RIBAO in Chinese

2Aug92p 1

[Article: "National Departments and Commissions Concerned Decide in Conjunction With Municipal Government To Establish the Shanghai Coal Exchange Control

Commission To Speed Up Preparations for Founding of

Coal Exchange"]

[Text] Yesterday, the national departments and commissions concerned, and the municipal people's government

decided to establish the Shanghai Coal Exchange Control

Commission to speed up preparations for founding of a

coal exchange, which is to go into operation within the

year.

Between 31 July and 1 August, The Chinese StateControlled Coal Mines Corporation and the Shanghai

Municipal government jointly convened the Shanghai

coal exchange forum. Following full consideration, the

meeting unanimously approved the founding of a a coal

exchange in Shanghai, and it decided that the statecontrolled Coal Mines Corporation, the Ministry of

Materials, the Ministry of Railways, the Ministry of

Communications, the State Industrial and Commercial

Bureau, the Ministry of Materials, and the Shanghai

Municipal Government would sit on the Coal Exchange

Control Commission, and that State-Controlled Coal

Mines Corporation, Ministry ofMaterials, and Shanghai

Municipal government leaders would serve as chairman

and deputy chairmen of the commission.

Deputy mayor Gu Chuanshun [7357 0278 7311]

expressed gratitude to the national ministries and commission leaders on behalf ofthe municipal government.

He said that in building a coal exchange in Shanghai the

central government provides vigorous support for the

city that will give powerful impetus to Shanghai's reform

and opening to the outside world, and to economic

construction. Shanghai is determined to work actively in

providing service; it will make concerted efforts to do a

good job of building this large exchange market. State

Planning Commission Vice Minister Ye Qing [0673

7230], Vice Minister ofEconomic Relations and Foreign

Trade Zhao Weichen [6392 4850 5256], Chinese StateControlled Coal Mines Chairman Hu Jiaguo [5170 1367

0948] and Deputy Chairman Pu Hongjiu [3450 3163

0046], Vice Minister of Railways Shi Shiyu [4258 1585

3768], Deputy Minister of Communications Lin Zuyi

[2651 4371 0044], and other comrades from State

Council ministries and commissions attended the forum.

09432

FINANCE, BANKING

Study Support for Key Eighth Five-Year Plan

Projects

92CE0640A Beijing GUANLISHIJIE

[MANAGEMENT WORLD] in Chinese No 3,

24 May 92 pp 66-69

[Article by Xie Ping (6200 1627) and Xia Bin (1115

2430), Chinese People's Bank Head Office: "Study on

the Coordination of Bank and Government Financial

Support for Key Construction During the Eighth FiveYear Plan"]

[Text] In accordance with the Eighth Five-Year Plan,

840 billion yuan is to be invested in capital construction
26 ECONOMIC

JPRS-CAR-92-071

15 September 1992

and 550 billion yuan is to be invested in technological

transformation of units under ownership of the whole

people from 1991 through 1995. This investment will lay

a foundation for the country's long-term economic

growth. Facts show that during the present period of

relative decline in labor costs and prices, construction

should be done earlier rather than later. Even so, the

actual investment needed to complete the work will be

greater than the 840 billion yuan for capital construction

calculated at current prices. The shortfall includes 100

billion yuan resulting from an increase in prices, another

100 billion yuan needed for start up funds and working

capital, and an investment of approximately 50 billion

yuan for incidentals. Actual requirements always exceed

the amount of funds provided, but even more so during

the Eighth Five-Year Plan. Therefore, early consideration and early planning is needed.

Overall, four sources offunds exists: central government

disbursements, funds that local governments and enterprises themselves raise, bank loans, and securities. In

reality, however, in view ofthe many problems that exist

including the large number of channels and methods that

must be used to raise funds, the need to lower fund

raising costs, scientific planning of the period when

funds must be repaid and interest rates, making

financing more efficient, planning financing in an

overall way, and general overall balance, obtaining funds

is a complex piece of systems engineering requiring

coordination between the banks and the national treasury.

1. Analysis of Premises

1. Limiting Conditions. Central government funding of

the above investment during the Eighth Five-Year Plan

calls for the disbursement of 35 billion yuan annually.

The government is unable to increase funding by an

additional 2 billion yuan each year. This is because

central government subsidies of 100 billion yuan for

price increases and enterprise losses already amount to

one-third ofbudget; internal and external debt requires a

payment of 187 billion yuan in capital and interest; and

expenditures for science and technology, education,

administration, and national defense also increase proportionally. This means that in the foregoing investment

plan, a total of only 208 billion yuan comes out of

national budget funds. Nongovernmental fund raising

has become the basic pattern for investment during the

Eighth Five-Year Plan, mostly because of the need to

avoid provoking currency inflation. This dictates the

need for policy coordination between the banks and the

central government treasury.

2. Funds potential. On the basis of actual performance

during the Seventh Five-Year Plan, China has a very

great funds raising potential. During the Seventh FiveYear Plan, investment in capital construction and the

technological transformation of units under ownership

ofthe whole people totaled 776 billion yuan, but 1.1067

trillion yuan was actually raised. This included bank

credit of 81.5 billion yuan more than was called for in

plan, or 25 percent; 200 billion yuan more than was

called for in plan from local government and business

enterprise subscriptions, or 60 percent; and 23 billion

yuan more foreign capital than was called for in plan, or

8 percent. It is to be expected that this inherent potential

for raising funds will likewise exist during the Eighth

Five-Year Plan.

First is the swift increase in individual financing of

assets. During the Seventh Five-Year Plan, individual

financing of assets in China increased approximately

eight fold to total approximately 934 billion yuan as of

the end of 1990. This included 703 billion yuan from

savings account, 130 billion from cash on hand, 93

billion yuan from various kinds of securities, and 8

billion from individual insurance. Extrapolations based

on the Seventh Five-Year Plan rate of increase in individual financing of assets and cash income, national

income, and percentage ofincrease in GNP show that if

GNP increases 40 percent during the Eighth Five-Year

Plan, the immediate balance of individual financing of

assets may reached 1.75 trillion yuan (including 1.3

trillion from savings, 200 billion yuan from securities,

and 250 billion yuan from cash on hand), a net increase

of 816 billion yuan.

Second, the extrabudgetary funds of local governments,

business enterprises, and units in charge became the

main source of funds for incidental expenses in investment in units under ownership of the whole people

during the Seventh Five-Year Plan, totaling 200 billion

yuan. This was approximately one-fourth of the total

amount of extrabudgetary income. During the Seventh

Five-Year Plan, extrabudgetary income amounted to

approximately 80 percent of budgeted national income.

Extrapolations from this figure show extrabudgetary

income during the Eighth Five-Year Plan totaling

approximately 1.4 trillion of which approximately 350

billion yuan is available for investment in fixed assets.

Third is a rise in returns from working capital. During

the Seventh Five-Year Plan, the various indicators for

judging returns on working capital (amount used per 100

yuan ofoutput value, amount used per 100 yuan ofsales,

number of days required for funds to circulate in industrial enterprises, and the interest rate per 100 yuan of

working capital) all gradually fell, taking up a large

amount ofworking capital. Rough calculations show that

ifthe foregoing indicators for industrial and commercial

enterprises reach the 1987 level rather than the 1990

level during the Eighth Five-Year Plan, a saving of

approximately 190 billion yuan can be realized. This will

greatly relieve pressures on the banks, freeing more

funds for investment in fixed assets.

The foregoing analysis shows that by comparison with

other developing countries, China has a large amount of

funds available from internal savings. Relatively

speaking, availability of capital in China is superior.

Nevertheless, funds potential must be tapped to the full,
JPRS-CAR-92-071

15 September 1992 ECONOMIC 27

and savings effectively converted into investment. This

requires concerted cooperation between the government

and the banks.

3. Cost ofRaising Capital. During the last three years of

the Seventh Five-Year Plan, a marked change occurred

in the principal ownership of capital in China. The

percentage of capital owned by individuals and business

enterprises rose tremendously, while the percentage of

state-owned capital fell. This resulted from a change in

the primary national income distribution pattern in

which no change is in prospect during the Eighth FiveYear Plan. Therefore, in the current circumstances of a

decline in the percentage of gratis national government

appropriations, and a rise in the percentage of capital

raised through subscriptions, constraints resulting from

costs in raising capital are becoming greater and greater.

Since 1989, the interest that banks pay individuals and

the interest that business enterprises pay banks each year

amounted to approximately 8 percent of national

income each year.

Because of the rise in the percentage of credit used for

investment in capital construction since 1988, most

capital construction enterprises feel the interest burden

is hard to bear; however, unless banks have sufficient

interest income, they cannot pay interest on individual

savings accounts. This conflict will become more intense

during the Eighth Five-Year Plan. Therefore, both the

national government and banks must work together in

calculating the total cost of raising capital in China.

Actually, since the state monopolizes the finance business and completely controls securities markets in

China, it can reduce the cost of raising capital to the

maximum extent. The upward creep in the cost (interest

rates) of raising capital throughout society during the

two last years of the Seventh Five-Year Plan resulted

both from currency inflation and the failure of government and bank coordination.

Not only interest costs, but lowering fund raising management costs also require bank and government coordination. How to fashion an effective system for government raising of finance capital, national bank raising of

capital, nonbanking financial organ raising of capital,

and raising of capital through enterprise securities that

makes institutions and the number of personnel in them

as scientific as possible, how to get monopoly finance

interest to revert to the state, and how to improve

management of noninterest costs in the fund raising

process are matters that must be worked out through

specific policies that are coordinated between banks and

the government. Of even greater importance is how these

problems can be solved during the Eighth Five-Year

Plan to lay a fine foundation for prescribing China's

future fund raising system.

2. Methods of Raising Capital

The general line of thinking about methods for raising

capital is as follows:

First is a change from government supplied finance

capital to finance capital for which other than government takes responsibility. During the Seventh Five-Year

Plan, investment in units under ownership of the whole

people (for capital construction as well as technological

transformation, and the same applies hereinafter)

increased 20.5 percent each year. Sources offunds came

from a 3.4 percent annual increase in state investment, a

28 percent annual increase in domestic loans, a 52

percent annual increase in foreign capital, and a 22

percent increase per year in the amount of selfsubscribed investment. Finance capital was obtained

mostly from the transformation of savings into investment. This pattern will not change during the Eighth

Five-Year Plan; instead it will intensify.

Second, in providing finance capital, particularly in

obtaining funds for investment in fixed assets, the percentage ofindirect financing (credit) will decline moderately, while the percentage ofdirect financing (securities)

will rise relatively. This situation became marked after

1988. Securities in China consisted mostly of treasury

bonds, but the percentage of investment securities

(national key construction bonds, and business enterprise stocks and bonds) increased from 20 percent in

1986 to 42 percent in 1990. At the same time, the

amount ofinvestment securities issued as a percentage of

total bank credit for fixed assets during the same year

rose from 28 percent in 1987 to 63 percent in 1990.

Third, in providing finance capital indirectly, a certain

amount ofseparation will occur in the current mixture of

national bank financing for policy reasons and for general commercial purposes. In order to support key

national construction, a specialized national development investment bank will have to be established (or the

Construction Bank converted to one).

Fourth, the task of indirectly financing investment in

state plan will no longer be borne by national banks but

by national banks and other financial institutions in

common.

Fifth is the established of a nationally unified securities

market made up primarily ofnational bonds and various

kinds of investment bonds. The securities market will

include both issuing markets and transfer markets.

Specific ideas about ways ofraising capital based on this

general line of thought are as follows:

1. Increase financial trust investment corporation's

responsibility for financing of investment within state

plan. This should be done because during the Seventh

Five-Year Plan the savings ofthese kind of corporations

increased, large amounts of extrabudgetary funds

flowing into trust corporations. The specific methods to

be used are as follows:

First is an increase in the savings reserve rates of these

corporations, or collection of a certain ratio of special

construction savings to be held in a special government

financial account.
28 ECONOMIC

JPRS-CAR-92-071

15 September 1992

Second is an increase in the amount ofnational construction bonds that such corporations purchase, but permitting the corporations to use the bonds in applying for

discounted loans from the central bank. The advantages

ofthis method are: corporations will have to retain some

bonds as reserve assets, and the negative difference in

interest between the bond interest rate and discounted

loans will reduce the state's burden.

Third, inasmuch as such corporations can currently

obtain interest from monopoly financing, in cases where

regulation ofthese corporation has gradually been standardized, a special financing tax payable directly to the

central government may be levied on them. This would

reduce both the flow into local government treasuries of

these profits in the form of income taxes and the

corporations' retention of profits for distribution.

2. A general holding down of interest rates on savings

and loans. This will bring bank interest rates on loans for

the purchase of fixed assets for projects within plan in

line with interest rates on other loans during the same

period. This can make the specialized banks more interested in providing loans for projects within plan inasmuch as the creditworthiness of projects within plan is

somewhat higher than for projects in general. In cases

where a project simply cannot pay the normal interest

rate, policy should be changed for the payment of a

differential interest rate whereby interest is discounted

as completion of the project progresses. In this way,

credit plans could provide for command style plans for a

certain percentage of banks' key construction loans.

Under today's differential interest rates policy, the more

banks lend the greater their losses, and ultimately the

interest differential requires the central bank to provide

relief with haggling back and forth that makes banks

disinterested in lending. The foregoing measures could

stimulate the specialized banks themselves to enforce a

policy of "soft-pedaling loans for ordinary projects while

assuring loans for key projects" making the mechanism

work extremely well.

3. Increasing the amount of construction bonds purchased by insurance companies, local government centrally controlled old-age pension organs, and social security organs, the bonds serving as reserve assets. With the

establishment of a social security system during the

Eighth Five-Year Plan, such funds will increase rapidly,

and the portion of these funds from enterprises and

individuals can be translated into investment. Were a

secondary transfer market to exist, the potential in this

regard would be tremendous.

4. For some exceptionally large national projects (such as

the Three Gorges power station), national stock corporations could be set up to permit other state-owned

enterprises, financial institutions, collective enterprises,

social groups, and individuals to subscribe to shares,

control over shares exercised by the State Administration ofState Property. Such shares could be marketed in

designated exchanges (such as Shanghai and Shenzhen).

Technically, such a method is fairly complex, but it

could be simplified by permitting the marketing of

individual shares but not public shares. In short, the

technical problems can be readily solved.

5. Construction bonds for some key national projects

could be marketed in the Shanghai and Shenzhen

exchanges, on the one hand, while securities company

and trust company organized joint trust funds in every

jurisdiction could take in small amounts from individuals for investment in such bonds, thereby invigorating

the country's securities market.

In reason years there has been lingering apprehension

that the development ofsecurities markets might cause a

decline in savings, but this would only amount to "savings moving elsewhere." There is no real evidence for

such fears. Diverse financial assets can greatly tap individual potential to provide finance capital. Furthermore,

since the securities and credit mechanisms are different,

and affect business enterprises in different ways, securities markets can increase the efficiency of finance capital.

6. Abolition of the specialized investment corporations

under jurisdiction of the Planning Committee, placing

their functions under the Construction Bank. These

corporations have no branches or sub-branches at the

present time (and ifthey did have, they would duplicate

those of the Construction Bank thereby damaging the

wealth of working people), nor can they directly manage

project progress. Every year they only commission banks

to issue high interest bonds, and also commission banks

to make loans. When government appropriations or

credit changes go through these corporations, this adds

one additional link. Abolition of these corporations

could reduce the cost of raising money, particularly

non-interest costs.

3. Problems in Coordination Between Government Financial Institutions and the Banks

1. Coordination ofinterest rate reform. Once the method

for figuring interest on individual time deposits in China

is changed, national bonds will be more attractive than

savings accounts in terms offluidity and returns, and the

special character of business enterprise bonds will no

longer exist. Thus, the former interest rate structure for

social financial assets in which interest was less on

savings accounts than on national bonds, less on national

bonds than on business enterprise bonds, and less on

business enterprise bonds than on stock shares and from

the pooling of funds will change.

First, savings and loan interest rate readjustments will be

much simpler (because ofthe cancellation ofthe periodic

figuring of interest); thus the number of annual interest

rate readjustments will increase making adjustments

upward and downward more lively. In view of this, the

system whereby treasury bond interest rates trail preissuance interest rates on savings by several percentage

points will no longer apply. In 1990, as soon as the

interest rate on treasury bonds (14 percent) was

announced, banks lowered interest rates twice, resulting
JPRS-CAR-92-071

15 September 1992 ECONOMIC 29

in a strange situation in which the interest rate on

treasury bonds was far higher than the interest rate on

loans during the same period. Consequently, corporations benefitted greatly from arbitrage dealings causing

serious losses to the state. During the Eighth Five-Year

Plan, the country's basic interest rate must be changed

from the interest rate on one year time deposits now in

use to the interest rate on treasury bonds.

Second is the enterprise bond interest rate problem.

During the Eighth Five-Year Plan, the country's business

enterprises will issue a very large quantity of bonds.

According to current regulations, income tax must be

paid on enterprise bond interest; thus, the interest rate

on business enterprise bonds is 40 percent higher than

the interest rate on savings accounts for the same period.

In reality, however, income taxes are hard to collect.

Neither business concerns nor securities corporations

want to act as agents for their collection, and individuals

are even less willing to take the initiative in making

payment. As a result, an interest rate on enterprise bonds

that is higher than the interest rate on loans works

against the lowering ofthe cost ofraising capital. Therefore, enterprise bonds should be exempted from the

collection of an income tax and the interest rate on such

bonds should be lowered, the interest rate on savings

accounts for the same period being maintained as they

are or slightly higher.

Third, under the prevailing fiscal and banking system in

China, two banks can cooperate to hold down the overall

interest rate throughout society. Figured in terms of a net

increase of 740 billion yuan on individual interestbearing financial assets during the Eighth Five-Year

Plan, holding down the interest rate by 1 percentage

point can yield approximately 7.4 billion yuan in savings

on the payment ofinterest, and reduce interest payments

by 37 billion yuan in a five year period.

Fourth, after cancelling preferential differential interest

rates, the special fund for policy discounts on property

jointly built by the treasury and banks should authorize

the Construction Bank to provide a discount as the

investment project moves ahead.

2. Coordination ofsecurities market policies. Securities

markets involve the banking, fiscal revenue, industrial

and commercial, auditing, and system reform sectors. Of

greatest important in securities issuance and trading,

and in enterprise examination and verification is effective bank and government management. The current

situation in which government speaks with many conflicting voices hurts rapid development ofthe country's

securities markets. This also means no standards and

fragmentation that are bound to hurt plans for raising

capital during the Eighth Five-Year Plan. Government

and banks should cooperate with all possible speed in the

formulation of unified, detailed plans ever part ofwhich

advance the healthy development ofsecurities markets.

3. Coordination ofworking capital policies. The working

capital quota for all existing enterprises (which the

treasury formerly disbursed) should henceforth be supplied through bank loans, which serve as a loan fund that

the state disburses to banks; and newly built enterprises

should depend entirely on enterprise bonds or bank

loans for their working capital, all state-owned enterprises thus being treated equally without discrimination

between old and new. Use oftreasury loans as a source of

working capital should be cancelled, this would also

straighten out management ofstate-owned assets in this

regard.

4. Noninterest on government savings should also be

changed, channels opened up for interest-bearing savings

and loans on government funds among local treasuries,

the national treasury, the central bank, specialized

banks, and other financial institutions. Currently, large

amounts of government savings funds drain away. The

tendency for them to be converted into interest-bearing

savings, or commission and trust savings cannot be

reversed. Administrative measures cannot plug the

holes.

5. Policy for coordinating pertinent fiscal credit policies.

The treasury and banks must acknowledge the objective

role that government credit plays, making government

credit a part ofstandard financial management.

6. Specialized banks are becoming less efficient in the

raising of capital, bad debts have increased, costs have

risen; and a bloating of personnel has occurred. During

the Eighth Five-Year Plan, both the central bank and the

Ministry of Finance must set up a enterprise style

management system in the specialized banks; otherwise,

the specialized banks will become more indifferent

causing a huge waste of capital. The following is required

in this connection: First central bank credit plans must

be combined with the tax and interest payment plans

that the Ministry of Finance formulates for the specialized banks. They cannot remain unrelated. Second is a

clear-cut quantitative dividing line between the tasks

that banks perform for policy reasons and the tasks they

perform for operating reasons so as to prevent specialized banks from using policy reasons as a pretext for

increasing costs. Proper emphasis must be given to the

need for specialized banks to make a profit in order to

arouse their zeal and increase the overall rate of return

from the use of capital.

FOREIGN TRADE, INVESTMENT

Vice Premier Zou Jiahua Briefs NPC on Foreign

Trade

OW0109130792 Beijing XINHUA in English

1254 GMT 1 Sep 92

[Text] Beijing, September 1 (XINHUA)—China's total

exports exceeded 39.87 billion U.S. dollars between

January and July this year, up 19.2 percent over last

year's same period, while imports surpassed 23.59 billion U.S. dollars, a 33.8 percent rise.
30 ECONOMIC

JPRS-CAR-92-071

15 September 1992

The figures were announced by Zou Jiahua, vice-premier

and minister of the State Planning Commission, during

the on-going session of the Standing Committee of the

Seventh National People's Congress.

The increases in exports were most evident in coastal

and border provinces and regions, including Guangdong,

Fujian, Jiangsu, Guangxi, Heilongjiang and Yunnan

Provinces and the Xinjiang Uygur Autonomous Region.

Zou said China has steadily increased exports to traditional international markets, and has cultivated new

markets since early this year.

"Along with the rise of domestic demand, and the

increase offoreign exchange earnings, the import ofraw

materials, turn-key facilities and technology has also

increased drastically," according to the vice-premier.

Zou not only pointed out that foreign investment has

reached new heights this year during China's further

opening effort, but added that the country also enjoyed

political stability, promising economic development,

and an improved investment environment.

The Ministry of Foreign Economic Relations and Trade

recently released statistics showing that total foreign

investment rose by 43.3 percent between January and

July, while direct foreign investment had increased by

102 percent.

The vice-premier said that China has established a new

pattern of comprehensive opening to the outside.

"This opportunity should be seized upon and flexible

trade methods currently in use throughout the world

should be adopted, while at the same time new markets,

especially foreign markets beneficial to the Chinese

economy, must be tapped," said Zou.

Zou requested that concerned departments organize

imports to meet the requirements necessary for the

development of the domestic economy and structural

adjustment, and that they maintain an international

balance of income and expenditures.

Zou concluded by saying that "foreign investment

should be geared towards building projects related to

energy and transportation, as well as to the development

of new and high technology."

Reforming Foreign Exchange Retention System

92CE0582A Beijing GUOJIMAOYI WENTI

[INTERNATIONAL TRADE JOURNAL] in Chinese

No 6, 30 Jun 92 pp 25-27

[Article by Tao Shigui (7118 1102 6311): "On

Reforming Current Foreign Exchange Retention

System"]

[Text] As China's open policy improves steadily and

foreign trade reform is further intensified, the existing

foreign exchange retention system no longer meets the

need ofthe development of international trade. There is

an urgent need to replace quota retention with spot

exchange retention. Many conditions in the current

situation favor the reform ofthe foreign exchange retention system.

1. Conditions Favoring the Reform of the Foreign

Exchange Retention System

1) The new foreign trade system is working well and has

achieved some success.

Since 1991, China has been following a new foreign trade

system. State subsidies for export enterprises were abolished to make them responsible for their own profits and

losses. This is the first step toward putting foreign trade

under a unified policy and on a level playing field.

Foreign trade enterprises should be given decisionmaking authority in their operations and held accountable for their own profits and losses. Trade and industry

should be integrated. The agent system should be popularized. A united front should be presented to the outside

world. Now thatthe new foreign trade system has been in

operation for more than a year, there has been a broad

increase in the capacity for self-development and selfrestraint among foreign trade export enterprises. Substantial gains also have been made in the quality of

export commodities, the contract compliance rate, and

export-generated profits. Export enterprises are now

better able to take care of their own profits and losses.

The rectification offoreign trade enterprises is beginning

to pay off. The Ministry of Foreign Economic Relations

and Trade has revoked the foreign trade authority of

1,083 enterprises which previously accounted for 36.6

percent of local foreign trade enterprises. The exportgenerated foreign exchange cancellationafter-verification system, introduced in 1991, has significantly boosted the export earnings rate. Imports and

exports have risen by a wide margin. According to

customs statistics, China's imports and exports totaled

$135.7 billion in 1991, an increase of 17.5 percent over

1990, including $71.91 billion in exports, up 15.8 percent, and $63.79 billion in imports, up 19.5 percent. The

nation's foreign exchange balance continued to increase

steadily; as of late September 1991, China's foreign

exchange reserves stood at $39.96 billion, including

$19.9 billion in foreign exchange balance, $8.81 billion

more than the preceding year. China's debt remained on

a reasonable scale, with all indicators under the alarm

levels. The overall foreign trade environment and economic situation have improved considerably. The foreign trade system has begun to operate in a healthy way.

This shows that a sound economic base and external

environment already exist for the implementation of a

spot exchange retention system.

2) Changes in ratios of the distribution of foreign

exchange favor the implementation of a spot exchange

retention system.

Under the foreign trade system introduced in 1991, 10

percent oflocal foreign exchange retained is to be turned
JPRS-CAR-92-071

15 September 1992 ECONOMIC 31

over to the central government and governments at all

levels, and 40 percent ofthe remainder is to be retained

by foreign trade export enterprises to help offset export

losses. As for the numerous enterprises that manufacture

exports, they can only obtain renminbi and not retained

foreign exchange. That way foreign exchange is increasingly concentrated in the hands of foreign trade export

enterprises and local governments. The concentration of

retained foreign exchange facilitates regulation and control by the appropriate government departments and

greatly reduces the burden and difficulty of reforming

the foreign exchange retention system.

3) The existing renminbi exchange rate is favorable to

the switch from foreign exchange quota retention to spot

exchange retention.

The exchange rate of the renminbi was adjusted downward sharply twice, on 16 December 1989 and 17

November 1990. This was followed by yet another round

ofsmall adjustments beginning in April 1991, usually by

less than 10 percent. The result is that the renminbi's

foreign exchange quoted price is gradually closing its gap

with the foreign exchange regulated price and is

approaching the average cost ofearning foreign exchange

in foreign trade. The steady decline in the foreign

exchange quota regulated price makes it possible for it to

become a simple target for the use of foreign exchange.

That way the conditions for replacing quota retention

with spot exchange retention are gradually maturing.

4) The foreign exchange regulatory market has been

further improved.

Some people worry that spot exchange retention would

put additional pressure on the treasury to increase the

money supply, leading to inflation. Actually such worries

are unfounded. Spot exchange retention amounts to

setting aside part ofthe renminbi obtained from account

settlement involving foreign exchange derived from

exports and turning it into spot exchange. Since it does

not require an increase in the scale of renminbi credit

funds, it will not cause inflation. The key question here is

whether or not we can ensure that foreign exchange is

promptly made available for account settlement and

then converted into renminbi through the foreign

exchange regulating center in time. Currently there are

over 90 foreign exchange regulating centers and nine

foreign exchange open regulating markets across the

nation. Their scope of operations is gradually widening

and the market mechanism is constantly improving.

Major improvements have been made in their personnel,

organization, market openness, operational efficiency,

and access to information. The volumn of business in

markets are rising steadily. In 1991, foreign exchange

regulatory markets nationwide did a total of

$20,451,000,000 in business, up 55 percent from the

year before. A foreign exchange market with Chinese

characteristics is gradually taking shape. Turning to the

speed ofretained foreign exchange transfers, after enterprises are held responsible for their own profits and

losses, people have generally become efficiency-minded.

In some provinces, retained foreign exchange is being

transferred via the telephone or even through a computer

network, making the transaction significantly faster.

After foreign exchange quota retention gives way to spot

exchange retention, the methods for calculating retention would be simpler and quicker, the number of

intermediate stages would be reduced, and transfers

would be even quicker. This will set the stage for spot

retention.

Moreover, opened coastal cities like Shenzhen and

Hainan have carried out spot exchange retention to

various extents. Lessons may be drawn from their experience to help work out the best development plan for

spot exchange retention.

2. Advantages of Spot Exchange Retention

1) It meets the need offoreign trade development today.

These days the trends in international trade are regionalization and integration, with protectionism worsening

and competition on the international market becoming

more ferocious each day. All this requires that we face up

to the challenges seriously. Besides working hard to open

up the global marketplace, it is essential that an incentive

mechanism be created within China that would help

develop foreign trade. Foreign exchange retention

reform has always been a major stumbling block in

China's foreign trade reform. It involves a broad area

and reform measures are hard to carry out. Since foreign

exchange quotas are not reflected in the amount offunds

taken up by an enterprise or the system of economic

efficiency targets, the enterprise considers it a fringe

benefit. Moreover, foreign exchange quota retention is

still plagued by such problems as overelaborate procedures, complicated formalities, the lack of interest, and

the risk associated with exchange rates. Thus the replacement of quota retention by spot exchange retention is

better suited to the needs of foreign trade development

and better able to help foreign trade enterprises speed up

fund turnover, heighten efficiency-mindedness, and spur

the enthusiasm for exporting, thus creating a favorable

external environment to help enterprises assume responsibility for their own profits and losses. Moreover, when

export enterprises can enjoy spot exchange retention just

like foreign-funded enterprises, that will help create a

new foreign trade environment featuring a level playing

field.

2) It would help solve the problem of "one daughter, too

many suitors" in foreign exchange and facilitate foreign

exchange control.

The unspent balance of local retained foreign exchange

and the foreign exchange balance of the central government together make up the nation's foreign exchange

reserves. But now that "cooking is done in separate

stoves," local retained foreign exchange is no longer at

the disposal ofthe state. It is up to the local governments

to decide how to spend it on their own. As a result, state

foreign exchange quota balance will exceed spot
32 ECONOMIC JPRS-CAR-92-071

15 September 1992

exchange balance, which will necessarily lead to competing demands on a limited amount ofretained foreign

exchange. After spot exchange retention is introduced,

we can sort out the relations between local retained

foreign exchange balance and state foreign exchange

balance, accurately determine the contents of China's

foreign exchange reserves, and further improve foreign

exchange reserves management.

3) It would help the transition toward a single renminbi

exchange rate.

Currently the renminbi foreign exchange quoted price,

which is made public, exists side by side with the

domestic foreign exchange regulated market price. The

difference between the two takes the form ofthe foreign

exchange quota regulated price, which determines the

magnitude of the difference between the two. Thus

replacing quota retention with spot exchange retention

will make it easier to eliminate the price differential and

combine the two into one, ultimately effecting the transition to a managed floating exchange rate system for the

currency. This too will accelerate the restoration of

China's status as a signatory to the General Agreement

on Tariffs and Trade.

4) It would help the development of China's foreign

exchange regulating market.

Right now there are two kinds oftransactions on China's

foreign exchange regulating market: those involving foreign exchange quota and those involving spot exchange.

Foreign exchange quota regulated prices are influenced

not only by spot exchange regulated prices, but also by

the official foreign exchange quoted prices. With the two

influencing one another, regulated prices on the foreign

exchange market are distorted and do not reflect a

reasonable exchanger ate for the renminbi, to the detriment of both our drive to adjust the exchange rate and

the development of foreign trade enterprises. Following

the introduction ofspot exchange retention, there will be

one single type of transactions and one single trading

price, which would help nurture a large foreign exchange

market in China in which only true foreign exchange

(and not foreign exchange use rights) takes part in

trading.

5) It would help prevent foreign exchange risk and

improve business accounting.

Since foreign exchange retained quota carries no

interest, it usually sits idle in the hands of enterprise,

thus slowing down fund turnover. Also foreign exchange

quotas come in only one currency, the dollar. Besides,

before the enterprise fills in the import form, it is not

allowed to convert it into spot exchange in advance. This

increases the foreign exchange risk and makes such risk

harder to prevent. After the introduction of spot

exchange retention, foreign trade enterprises can take a

host ofsteps to prevent foreign exchange risk, cut down

on the amount of funds tied up, accelerate fund turnover, and improve business accounting and economic

results.

The above analysis shows that spot exchange retention

can eliminate the various drawbacks associated with

quota retention, meets the needs of the new system

under which enterprises assume responsibility for their

own profits and losses, and serve China's foreign trade.

3. Proposed Measures

Because foreign exchange retention reform involves a

broad area, we need full cooperation and support from

all quarters to ensure the successful implementation of

the spot exchange retention system.

1) Gradually reduce the difference between the official

foreign exchange quoted price and foreign exchange

regulated price.

Provided there is a stable spot exchange regulated price,

we should adjust the exchange rate of the renminbi

slightly downward again as appropriate. (See my work

"How Egypt Merged Its Dual Exchange Rates Into One

and What We Can Learn from it," WAIHUI SHICHANG, 1992 No 1). Taking a leaf from Egypt's book, we

may begin by narrowing the difference between the two

from the current 10 percent or so to 5 percent and then

to 1 percent within a set period of time. The idea is to

bring the official foreign exchange quoted price and

foreign exchange regulated price in line with each other

and reduce foreign exchange quota into simply a use of

foreign exchange target with no value.

2) Further improve the foreign exchange regulating

market.

First, formulate and promulgate as soon as possible a set

of nationally applicable rules and regulations to manage

the foreign exchange regulating market. Use legal tools to

restrain market behavior and protect the rights and

interests ofplayers on the market, thus further standardizing and institutionalizing the foreign exchange regulating market. Second, depending on the nation's industrial policy at a specific point in time, adjust and regulate

the foreign exchange direction guidance series and

import policy so as to guide and control the foreign

exchange regulating market through policy adjustments.

Third, the central bank must set up a foreign exchange

balancing fund that can really regulate and control the

market in order to keep the foreign exchange market

stable to put an end to the difficulties we used to

experience in regulating or converting foreign exchange.

In addition, the monetary policy, exchange rates, interest

rates, and other economic tools should be used to influence the market indirectly and keep the regulated price

at a reasonable level. Fourth, set up regional opened

foreign exchange markets to solve such problems as

regional separatism and market blockades. Fifth, ease

restrictions on the uses of regulated foreign exchange as

appropriate. By vitalizing the foreign exchange regulating market, we can turn retained foreign exchange into

renminbi promptly.

3) Speed up verification and appropriation and retention; simplify formalities.
JPRS-CAR-92-071

15 September 1992 ECONOMIC 33

Further improve the existing method of calculating foreign exchange retention. Reduce the intermediate stages

in verifying and appropriating retained foreign

exchange. Use the telephone, electronic transfer, and

other modern tools to transfer foreign exchange into the

accounts of enterprise without delay in the interest of

efficiency.

4) Tighten spot exchange account income and expenditure management.

Following the introduction ofspot exchange retention, if

spot exchange account management fails to keep pace

and numerous loopholes appear, the result will be chaos,

which will militate against the supervision and control of

spot exchange accounts. Accordingly, we may introduce

dual account management with regard to spot exchange

retention accounts, which means that retained foreign

exchange will be deposited into the income account. At

the same time, depending on the needs ofthe enterprise

in question, the foreign exchange control department

will authorize a specified percentage offoreign exchange

to be transferred into an expenditure account which can

then be used by the enterprise on its own in accordance

with the appropriate regulations. That way control,'

inspection, and supervision is easier, on the one hand,

and enterprises also end up with expanded authority in

the use of foreign exchange, on the other.

5) Offer spot exchange secured loans and adopt a policy

of preferential credit to export enterprises.

The state may set aside a portion of funds to be used

exclusively as spot exchange secured renminbi loans to

export enterprises so as to solve the problem of conversion from foreign exchange to renminbi. In addition,

foreign exchange banks should adopt a policy of preferential credit toward export enterprises and handle export

credit as a major part of their business, actively supporting the earning of foreign exchange through

exporting.

6) Implement spot exchange retention systematically in

accordance with a plan.

It can be phased in during two stages. The first stage

would convert quotas into spot exchange based on the

official foreign exchange quoted price. Alternatively, the

government may buy up all quotas through the foreign

exchange regulating market and then retire them in full.

In the second stage, all newly earned foreign exchange

would come under the spot exchange retention system to

prevent chaos.

ECONOMIC ZONES

Shanghai Customs Support for Pudong

92CE0609B Beijing GUOJISHANGBAO in Chinese

lAug92pl

[Editor Li Hongmei (2621 4767 2734): "Shanghai Customs Does Many Things To Support Pudong Development"]

[Text] Exclusive Dispatch This year Shanghai Customs'

support has been the major factor promoting Pudong's

development and opening up, increasing its efforts and

fully supporting an accelerated pace for Pudong's economic development.

—They organized forces to publicize their policy on

Pudong development with more than 400 consultations and conducted ten customs policy symposia and

one exhibition in Pudong, and made numerous visits

to relevant departments to publicize customs policy to

not only inform the people of Shanghai, but also to

make companies and businesses throughout the

country and even in foreign country aware of preferential policies regarding Pudong development and

encurage them to decide to invest in Pudong. The

Japanese JVC Company sent a person to Shanghai to

investigate. After having heard Shanghai Customs

introduce a series of preferential policies for Pudong's

development and opening up, he applauded and the

next day signed a US$12.5 million investment contract with the Chinese people concerned.

—Actively support the Outer High Bridge Bonded Zone.

Through the efforts of Shanghai Customs, the General

Administration ofCustoms officially accepted the first

bonded zone in the entire country, the Outer High

Bridge Bonded Zone, on 9 March of this year.

Shanghai Customs actively helps enterprises in the

zone to properly and adequately use the preferential

policies and approved two joint investment enterprise

leases of bonded zone development company warehouses as temporary factories to help these enterprises

begin production at an early date. They put forth a

great deal of effort for the convenience of the six

projects already in operation in the zone and the three

soon-to-be opened automobile transshipment trade

enterprises, receiving praise from the enterprises.

—Make it more convenient for the enterprises in the

Pudong New Territory to handle customs procedures.

They have practiced the "three preferences," preferential handling of reduced or tax-free approval procedures, preferential clearances, and preferential

training of enterprise customs declarers, for import

and export goods of enterprises in the Pudong New

Territory. Before the Pudong customs organization

was officially established and personnel and offices

were lacking, they served the enterprises in overcoming various difficulties. From the time that customs stationed an office in Pudong in mid-April until

now, they have accepted registrations from 171 enterprises and handled 21 reduced or tax-free procedures,

amounting to 4.83 million yuan, and received 313

consultations with more than 650 people and trained

two groups of declarers.

It is understood that Shanghai Customs since April 1990,

when the central government decided to develop Pudong, has handled 761 registrations of enterprises in the

Pudong New Territory and 1,420 reduced or tax-free
34 ECONOMIC

JPRS-CAR-92-071

15 September 1992

customs, for a total of 233 million renminbi, achieving

good socioeconomic results.

Pudong: Hotbed for Domestic Investment

92CE0609A Shanghai JIEFANG RIBAO in Chinese

5JUL92p6

[Article by Shen Bogen (3088 0130 2704) and Li Songqing (2621 2646 7230): "The Whole Nation Takes a

Good Look at 'Eastern Shanghai'; A 'Rage for Domestic

Investment' Surges Everywhere in the Precious Land"]

[Text] The Tide of Eastern Shanghai

Pudong by no means belongs only to Shanghai. Pudong

also is a "geomantic precious land" ofthe republic and a

"leading player" in China's omnidirectional development for the 1990's. So, "attaching the China label" is an

essential choice in the development and opening up of

Pudong.

On 10 March of this year, after Mayor Huang Ju

announced that the State Council was conferring five

preferential policies on Pudong, Pudong's development

experienced an unprecedented upsurge in the "rage for

domestic investment." By the end of May, the domestic

investment enterprises approved this year had reached

104, with a total investment of 450 million yuan, more

than doubling the domestic investment attracted by the

Pudong New Territory in all of last year. Of that, all

together 50 projects with a total investment of 210

million yuan were approved in May. In only one month,

investment exceeded the total domestic investment

attracted by the Pudong New Territory in all oflast year.

• According to recent statistics, through the end of

May, the total domestic investment of 450 million

yuan in the 104 enterprises approved for domestic

investment in Pudong New Territory this year more

than doubled total domestic investment attracted to

the new territory in all of last year.

According to preliminary estimates, this city's enterprises' investments in Pudong in the next five years will

exceed 10 billion yuan. One group of key projects will

start to be implemented this year.

Pudong's "Domestic Investment Rage" Has Reached a

High Tide With the Enthusiastic Participation of Central

Ministries, Commissions, and Offices

More than thirty central ministries, commissions, and

offices have now decided to participate in Pudong's

developmental intentions. The Ministry of Aerospace

Industry, the China Petrochemical Corporation, the

China Centralized Coal Mining Corporation, and the

Ministry of Electrical Machinery and the Ministry of

Materials are contending to take the lead in raising

funds. One after another, they have signed formal agreements with the Shanghai Municipal Government,

thereby becoming the point men in the large army of

"domestic investors" in Pudong development.

-The Ministry ofAerospace Industry in three years will

complete an aerospace foreign trade base in the Outer

High Bridge bonded zone and they are setting about to

construct the multistory China Spaceflight Building in

the Lujiazui Finance and Trade District. During the

Eighth Five-Year Plan, interest deductions on interest

deduction loans provided to Pudong projects by the

Ministry of Aerospace Industry will range from 10 to

15 percent. At the same time, they will make priority

allocation of foreign exchange belonging to the

projects. Pudong also will become an "experimental

zone" for mechanism conversion of Ministry ofAerospace Industry enterprises, and three kinds of investment model enterprises, stock system forms, joint

industry and trade types, and joint ministry enterprise, and local enterprise types can all boldly experiment in the "experimental zone." This year the Ministry of Aerospace Industry will be constructing and

beginning operation on fifteen key projects in Pudong.

Of these five will be aerospace projects, four will be

automobile parts projects, and the rest will be in such

areas as precision instruments and electronic technology. These actions will certainly have far-reaching

effects accelerating the Chinese aerospace industry to

world rates of production.

-The Chinese Petrochemical Industry Corporation,

China's largest jointly managed entity, has already

entered the "fast track" ofPudong development and is

engaged in omnidirectional investment. In the

Lujiazui Finance and Trade District, they will raise

funds to construct the China Petrochemical Building

to act as a financial, administrative, office, and service

center for petrochemical enterprises in Pudong. They

have obtained right of use to 22,000 square meters of

land in the Outer High Bridge Bonded Zone and they

will build the Shanghai Peigao Enterprise Limited in

which the corporation's defense enterprise company

owns controlling stock and the Shanghai Fudehua

High Technology Enterprise Limited in which the

corporation's materials and equipment company owns

controlling stock. In the Golden Bridge Export Zone

they will open a petrochemical industry processing

zone and establish such export, low-pollution, high

value added industries as carbon petroleum resin and

special imitation feather down fiber.

-The China Centralized Coal Mining Corporation will

establish the Shanghai Coal Exchange Market in the

Lujiazui Finance and Trade District and set up spot

trading in coal and medium and long term contract

exchanges, introduce short term spot trading control

mechanisms, and gradually improve market operations. The corporation also will construct a coal

building in the Lujiazui Finance and Trade District to

be used as a coal trading market, a base for the coal

system to participate in Pudong's development, and a

window for the development of coal high technology,

import and export trade, and the display and sale of

products from many types of businesses.
JPRS-CAR-92-071

15 September 1992 ECONOMIC 35

—The Ministry of Materials will establish "the Far

East's first" wholesale market and futures market for

production materials in the Lujiazui Finance and

Trade District, joining up with international financial

markets and grain and agricultural byproducts markets to become a main force in promoting Pudong's

development. The Ministry of Materials also has

established a large group of modern materials circulation bases such as steel trimming centers, material

distribution centers, and standing warehouses and

containerized shipping centers in the Golden Bridge

Processing Zone and in such places as Bailianjing and

Zhangjiabang, and in addition has established the

Oriental Materials Conglomerate in Pudong through a

stock system linking the materials and related enterprises of the ministry, the municipality, and the

county to undertake the new method of relying on

trade backed by finances to start enterprises and

conduct domestic and foreign trade, link technology,

industry, and trade, and coordinate with the real estate

and tourist industries.

Provinces and municipalities from all over the country

look favorably on Pudong and are striving to gain a

foothold. This year actual investment in Pudong by

provinces and municipalities has greatly increased.

Anhui and Shandong's investments have been the

greatest of these and got the earliest start. Anhui Province collected funds to raise 150 million yuan to purchase 6,000 square meters of land and is building the

thirty story 38,000 square meter Yu'an Building in the

Lujiazui financial district. Construction officially started

in March ofthis year and it will be made available for use

in 1994. Anhui also purchased land in the Golden Bridge

Export Processing Zone and will build standard factory

buildings that can contain twenty factories and use the

Golden Bridge Export Processing Zone as a springboard

to the entry ofthe province's products into the international market. It addition, they also will invest 40

million yuan to develop a port that will berth a total of

4,000 tons and put an end to the situation where other

provinces have not had piers in Shanghai.

Presently the Changjiang Joint Development Company,

Ltd., is being established. The company, headed by the

Bank of Commerce and jointly invested in by the cities

along the river, by developing material, commerce and

trade, information, and consulting businesses and

starting "stores in the front and factories in the back"

will promote the joint economic development of the

Changjiang basin.

Accelerated Introduction and Sustained Heating Up ofthe

Pudong "Domestic Investment Rage" Because of the

City's "Group Army"

This year Shanghai's major industries are more rapidly

extending into Pudong like a "group army." According

to preliminary estimates, the city's enterprises will invest

in excess of 10 billion yuan in Pudong in the next five

years and a group of key projects will begin to be

implemented this year.

The Pharmaceutical Control Administration, in the

Eighth Five-Year Plan, will concentrate 80 percent ofthe

administration's investment in developing high starting

point, high level, high efficiency, and economy of scale

pharmaceutical enterprises in Golden Bridge,

Changjiang, and Gong Lu in the Pudong New Territory.

Development of the Pudong pharmaceutical industry

group is geared toward the future and geared toward the

world and forms a new situation unifying science and

technology, production, and circulation. At the same

time, the Municipal Pharmaceutical Administration will

accelerate the development of Pudong's scientific

research and educational institutions and multifunctional pharmaceutical commercial centers. Ground will

be broken at Golden Bridge for a Pharmaceutical Trade

Exhibition Hall as a window to display renown new

Chinese medicine products from throughout the country—The Shanghai Pudong Chinese Medicine Trading

Commercial Building also will tower over the Zhangyang

Lu Commercial Center.

The city's instrument industry also is extending into

Pudong. The Shanghai Instrument Conglomerate that

ranked first in the whole country in that industry last

year will open an instrument industry section in the

Golden Bridge Export Processing Industrial Zone and is

presently seeking 10,000 square meters ofland and plans

to set up ten high technology Chinese and foreign joint

investment enterprises with a total investment ofUS$20

million.

The Shanghai Cultural Educational and Sports Goods

Import and Export Company, called a "tide setter" in

reform and opening up, has more than once broken the

waves in developing Pudong. The Municipal Foreign

Economy and Trade Commission has approved the

company as the first foreign trade company to establish

a subsidiary in the Outer High Bridge Bonded Zone. Its

subsidiary, the Shanghai Advanced (Pudong) Import and

Export Company, has formally requested land in the

Outer High Bridge Bonded Zone and will strive to seek

out a new path to develop international trade in the

bonded zone and will actively explore such issues as

foreign trade enterprises conducting a stock system.

The Light Industry Administration has invested 320

million yuan in the Golden Bridge Export Processing

Zone and will set up the Meilin Food Industry City,

occupying nearly 200,000 square meters of land and

containing the country's largest baby food processing

center and a newly constructed beverage processing

center. In addition, the Meilin Food (Conglomerate)

Company also is attempting to establish a "central

kitchen" combining various types of fast food production and open a succession of fast food chain stores and

self-service supermarkets at Golden Bridge. As of now,

the light industry system has obtained permission for

more than twenty new projects in Pudong and will

gradually form several light industry processing districts

in Pudong.
36 ECONOMIC JPRS-CAR-92-071

15 September 1992

Shanghai's first mainstay industry, the automobile

industry also will invest in Pudong's development. The

industry's three key enterprises—The Heavy Automotive Factory, the Automobile Chassis Factory, and the

Second Automobile Chassis Factory—will join up the

automobile manufacturing companies in the Pudong

New Territory, thereby opening up a "second campaign"

for the Shanghai automobile manufacturing industry.

The China papermaking industry's largest production

and business base, the Shanghai Papermaking Company,

recently made a "big move" in transferring its general

headquarters to the Lujiazui Financial and Trade Zone.

The company will have a succession of nine new projects

go into production in Pudong this year.

The information and consulting industry also is quietly

springing up in Pudong. The Shanghai Fudan Pudong

Developmental Consulting Company has become the

first comprehensive consulting firm oriented toward

foreign and domestic [clients] in the Pudong New Territory and the first knowledge industry to be established in

Pudong by the municipality's higher education system.

The company can join up experts and scholars from such

disciplines as social science, natural science, technical

science, and engineering and offer omnidirectional, multilevel, high quality consulting services with outstanding

talent and knowledge to all sectors of society. In addition, the company also is setting out to research establishing and operating models for the Pudong New Territory to deal with fund raising and new administrative

and management systems. In addition, through its foreign branch organizations and cooperation with foreign

consulting firms, it encourages foreign firms to invest in

Pudong.

If we want to attach the "China label" to Pudong's'

development, we can predict that we only need to

seriously study the preferential policies that the central

government has given to Pudong New Territory and do

a good, and adequate, and an active job of using the

Pudong New Territory's preferential policies and the

"China label" ofPudong's development will certainly be

more brilliant and more beautiful.

POPULATION

Relationship Between Population Quality,

Development

92CE0625B Hong Kong CHING-CHI TAO-PAO

[ECONOMIC REPORTER] in Chinese

No 29, 27 Jul 92 pp 34-35

[Article by Chen Zhixian (7115 2535 6343), assistant

professor, Jinan University: "A Look at the Relationship

Between Population Quality and Economic Development From the Viewpoint of Guangzhou"]

[Text] Disparities Between Shanghai and Guangzhou

Since the spring of this year, following the rush for the

Pudong development, Shanghai newspapers have continuously been publishing articles that have revealed

faults and problems in Shanghai's social and economic

construction. Not only did they themselves rake up their

own faults, but they also solicited the help of others,

reprinting foreign commentaries to help in these revelations. For instance, the JIEFANG RIBAO of 12 April

1992 contained, under heading "Where are the Differences Between Shanghai and Guangdong?" excerpts

from a special report of the Japan Credit Bank, which

praised the "opened-up attitude" and "serious work

spirit" of the Guangdong cadres. The subtitle of the

article reads: "Forging Courageously Ahead With

Reform and Opening-up, in Singular Cultural Excellence

Ranking Best Among Southern Countries." Based on

this kind of a perception, there have been endless discussions, even up to now, that Shanghai should take

Guangdong as an example, from cookie production to

the design of jewelry, from the production target for

electric rice cookers to the market share of car audio

components, from the economic growth rate to the GNP,

from brain drain to attracting foreign investments, comparisons are made one after another with Guangdong

and differences sought out. Economic development in

Guangdong has indeed achieved many successes,

thereby attracting attention in China and abroad. To say

that Guangdong is "courageously forging ahead" is close

to the truth, but as to the "cultural excellence" that is

really exaggerated praise. One has to say, though, that in

serious self-criticism and courageous liberation ofminds

from old ideas, Shanghai is well ahead of Guangdong.

Analyzing the historical development, it is a fact that

since the beginning of opening-up and reform, Guangdong was one step ahead and somewhat faster than

Shanghai. Prior to the 1980's, Shanghai's industrial

output accounted for one-sixth ofthe national industrial

output value, its remittances to the central government's

finances also made up one-sixth ofthe national revenue,

while the total national output value of Guangdong

ranked only seventh place nationwide among all provinces and municipalities. However, by 1991, when

Guangdong's national output value had risen to 168.9

billion yuan, it was the highest among all provinces and

municipalities, while Shanghai's was only 82.5 billion

yuan, ranking eighth. Guangdong's exports were 13.54

billion yuan, while Shanghai's were 5.73 billion yuan,

lagging behind Guangdong and Liaoning. Then again, if

the situation is viewed in a realistic comparison, Guangdong must actually ask itselfthe question: Where indeed

are the differences between Guangdong and Shanghai?

In 1991, Guangdong had a population of 64.39 million,

which amounted to 5.4 percent of China's total population. Shanghai's was only 12.87 million, or 1.1 percent of

the total population, i.e. only about one-fifth of Guangdong's. If national output value, total industrial output

value, and export value are taken per head of the

population, Shanghai is by far ahead ofGuangdong. This

huge difference results from the difference in population

quality.
JPRS-CAR-92-071

15 September 1992 ECONOMIC 37

In Guangdong Province, Guangzhou is the region ofthe

highest population quality, where most of its best qualified personnel is located, but the disparity of even that

region to Shanghai is very large. According to a 1988

census, Shanghai has somewhat over 840,000 people

with special professional skills, who make up 6.4 percent

ofthe total population. Among these, 46.98 percent are

of university or higher educational level. In Guangzhou

Municipality, there are only 202,300 persons with special professional skills, who make up only 3.3 percent of

the population of Guangzhou, and among these only

16.13 percent are of university or higher educational

level. Not long ago, the two largest newspapers in

Shanghai used several pages to introduce natives of

Shanghai who had been newly appointed to membership

in various institutes ofthe Chinese Academy ofSciences,

and what did Guangdong have to show? In numbers and

quality ofwell-qualified professional talents Guangdong

is very far behind Shanghai. In last year's survey by the

Chinese Academy of Social Sciences, the nationwide

average of population quality was marked as 9.9. In this

survey, Shanghai scored highest with 17.1 marks, next

came Beijing and Tianjin with 16.8 and 15.3 marks,

respectively. Places scoring 10 or more marks were

Liaoning, Jilin, Shaanxi, Jiangsu, Heilongjiang, and Zhejiang, while Guangdong was below the nationwide

average! Excellent population quality was not only to the

benefit of Shanghai, Guangdong too benefited from it to

no small measure. The economic success of Guangdong

comprises huge contributions by people originating from

Shanghai.

Outstanding Achievement in Guangzhou by Shanghai

Natives

Cantonese cookies have an 80 percent share of the

Shanghai market. The people of Shanghai first attributed

that to the fact that the Cantonese may have been using

"foreign rifles and guns" (imported equipment) to gain

this excellent achievement. Investigation showed, however, that the entire production line had been manufactured in Shanghai, and that the technical staff operating

the cookie production line had to 80 percent come from

Shanghai. China's first electric rice cookers were generated in Shanghai, but today Shanghai's annual production of electric rice cookers amounts to only one week's

production ofthe "Ai De" brand cooker made in Guangdong. However, the head of Ai De's public relations

department is a native of Shanghai. Guangzhou's "Hua

Bao" brand low-noise composite air conditioner,

because of its novel design, excellent quality, and reasonable price, has conquered the Shanghai market. However, the head of Hua Pao's sales department is from

Shanghai. The highly successful "Fu Shen" T-shirts were

helped along to success and growth, it is said, by some

disloyal personnel who changed over to the Guangdong

manufacturer from the Shanghai factories that had made

the nationwide famous "Conch" and "Green Leaf

brand shirts. According to Shanghai statistics, since the

reform and opening-up, the Zhujiang Delta region has

absorbed over 12,000 engineers and technical personnel

from Shanghai. Last year, among the more than 10,000

persons flowing into Guangdong Province from all over

the country, there were over 1,500 who came from

Shanghai! To my mind, ifthere had not been these many

people with exceptional skills, could the socioeconomic

development of Guangdong have reached today's proportions? History must not be mere conjecture, let us

then look at the stern realities.

High Quality Talents Ensure Rapid Economic Growth

History of the present economic development in the

world shows that land and natural resources are by far

less important for modernization than human resources.

Holland, Sweden, Denmark, Norway, Japan, Israel,

Hong Kong, Singapore, Korea, and Taiwan Province

have little cultivated land, few natural resources, and

also no extended territories. Because their primary consideration had been to raise the quality of their populations, it is their high-quality populations that not only

allowed them to efficiently bring their particular advantages into play, but also to use their advantages to

achieve rapid economic advances so that they, in due

course or immediately, joined the ranks of developed

countries or territories. Looking at the economic development in the interior, the statistics of 1987 show that

Shanghai's industrial equipment was more or less the

same as the average nationwide, but labor efficiency of

all staff and workers, the rate of profit-tax per 100 yuan

ofassets in the industrial sector, and the output value per

head were all more than double that of the nationwide

average. In this kind of a competition, the quality of

Shanghai's population played a decisive role. Looking at

such indices as admissions to middle schools and elementary schools, rate ofstudents at institutions ofhigher

learning, the school ages of citizens, and rate of workers

in the natural sciences per 10,000 ofthe population, we

see that the average educational standard of Shanghai

citizens and their educational development is somewhat

higher than that ofHong Kong and Singapore, and close

to that of Korea and Taiwan. It is very obvious that the

high quality of the population has resulted in the economic benefit of technological and managerial superiority.

Merciless reality tells us that capital funds are important,

but much more critical is how these capital funds are

used. In other words, only with a large-scale development of human resources, raising of population quality,

and accomplishing an optimum combination of human

resources and economic resources, will there be a possibility ofpromoting a sustained, steady, well-coordinated,

rapid, and highly efficient development ofthe economy,

and a possibility ofachieving an upsurge in the economy.

Economic and Technological Competition; Talent Competition

The domestic and international competition in today's

world is, in its final analysis, a competition of humans,

particularly a competition oftalents ofthe higher levels.

The focal point of the competition is the effort to raise
38 ECONOMIC

JPRS-CAR-92-071

15 September 1992

population quality and to develop resources of human

talents. In order to nurture talents ofmedium and higher

levels, Shanghai has already determined its policy and

adopted certain measures. This year's extension by

Shanghai of admissions of students studying at own

expenses is a reform measure that will have a farreaching impact. Comparing Shanghai's plan quota for

admissions with the total number of students having

preregistered for the entrance examination, the ratio to

those ultimately admitted is as high as 1 to 1.93. To

extend quotas for enrollment, Shanghai will raise the

proportion ofstudents studying at own expense from the

former total quota of 3 percent to around 7 percent. The

special fields ofstudy for which students at own expense

will be admitted will all be specializations urgently

needed for socioeconomic development, where there is a

critical shortage ofspecialists. Shanghai will also change

the former method according to which, by special favor,

some students are recruited who fall below the boundary

line of the entrance examination requirements for institutions of higher learning. Candidates for the entrance

examinations will be allowed to choose whether to take

the examination for studies at public expense or at own

expense, allowing students with excellent school records

to make study at own expense their first choice. In

respect of one's student status and in administrative

respects, both systems work out basically the same as in

both cases the students can enjoy scholarships and study

loans. The students on own expense can freely choose

their vocations and are not subject to time restrictions

when serving abroad after graduation. If China's education is to be greatly improved, it is essential to achieve a

breakthrough in the matter of the forbidden zone of

paid-for education, and to resolve the present situation

of only the government alone monopolizing all education. In this respect, the people of Guangdong themselves have amply commented and have held many

discussions, and loud voices have been raised,

demanding a more thorough reform of higher education,

but actual measures have so far not yet been taken.

The ratio between those sitting for entrance examinations to institutions ofhigher learning and those actually

enrolled was this year 1 to 3.7, which is far below the

Shanghai figure. The figures for university students per

10,000 heads of the population was: for Shanghai 90

persons, nationwide average 17.6 persons, for Guangdong only 14.6 persons. The figures for persons having

graduated from universities and colleges per 10,000

heads of the population was in Guangdong 84 persons

less than the nationwide average. Higher education in

Guangdong is in urgent need of development. Furthermore, the enrollment ofstudents in institutions ofhigher

learning in Guangdong is basically done in the unitary

way of plan enrollment, admissions of substitute students [dai pei sheng 0108 1014 3932] and students

studying on own expense are also completely incorporated in the plan. In this way, the system can neither play

a regulatory role with respect to the talent market, nor

does it have any regard for the future needs oftalents in

Guangdong; it also does not consider how it can serve

Guangdong in its efforts to catch up with the "four small

dragons" of Asia.

Education and Reform To Lead in Efforts To Catch up

with the "Four Small Dragons"

Guangdong plans to catch up in its economic development with the "four small dragons" of Asia within the

next 20 years. Korea's per capita average output value,

which is the lowest among the "four small dragons," is

still three times that of Guangdong. If the average

economic growth rate in Korea in the next 20 years is

around 8 percent, Guangdong will only be able to realize

its objective of catching up if it can maintain a growth

rate of 14.2 percent. In other words, Guangdong's reservoir of specialized talents must annually increase progressively by 10 percent, and within this century must

add 40,000 to 60,000 persons, only then can the social

and economic needs of development ofthis province be

met. How to solve this huge demand for talents? In the

1980's, Guangdong used the method of "much money

and great courtesy" to grab talents from other provinces

and thus was able to resolve a situation of extreme

urgency. But siphoning off for Guangdong's benefit

talents from the economically less developed regions

isn't that as good as adding to the economic distress of

those regions. At the same time, continuously widening

the disparity between Guangdong and the economically

underdeveloped provinces is not at all good news for the

nation and for Guangdong. The interflow oftalents is an

indication of social progress, but the socialist construction must also give consideration to the interests of the

whole and to the social mode ofoperation. In solving the

problem of needed specialized talents, Guangdong must

still rely on itself to energetically nurture such talents.

With the restraints on state educational expenditure, the

plan state-supported students must be enrolled

according to plan, that is something people will understand. What people will also understand is that education is not consumption but is rather a family's and the

state's investment, and an investment with the highest

rate of returns. Guangdong's economy has already

achieved very great improvements, great changes have

also occurred in the people's living standard, and the

hope that children will in future enjoy more and better

education has become the fervent desire of all the many

heads of households. If only economic construction is

upheld as focal undertaking, there will be no problem

about the distribution of university students. As long as

there is urgent need for and great shortage of specialists

in society and in the economy, there would be no need to

worry about unemployment for graduates of universities. The state is now about to reform the system of

employment oflabor; educational development must be

at the head of these efforts. Because schools are nurturing the future talents, educational reform must have

primary consideration. Guangdong's economic development and social environment has all the preconditions to

take the first steps in the reform of higher education.

Based on the above analysis, the following three suggestions are put forward:
40 ECONOMIC

JPRS-CAR-92-071

15 September 1992

meet quality standards. In addition, they must further

strictly guarantee quality of parts and auxiliary equipment from outside the plant that are used in products.

All units must also do a betterjob of providing technical

services, paying attention to customer feedback information. They must guard against and overcome the tendency to overlook technical services when production

climbs and work becomes fairly heavy, providing customers with better service.

3. Attention to technological preparations for production and business developmental work to ensure sustained production in the coming year.

While paying attention to fulfillment of current year

plan, corporations and (groups) in all jurisdictions must

work with enterprises to improve overall balance, to do

overall planning, and to pay attention to technological

preparations for production in an effort to lay a solid

foundation for breaking the 1.2 million ton mark in

shipbuilding during the coming year. Right now, both

designing units and materials supply units are coordinating with business enterprises on placing orders for the

materials and equipment needed for ships for which

contracts have been signed. At the same time, they are

further developing domestic and foreign markets. Enterprises that do not have sufficient work to do, in particular, must do more to organize main forces to drum up

business.

4. Attention to safety, making work safety routine and

standard.

While further improving the safe production responsibility system and building a body of rules and regulations, the main task today is to guard against harm from

heat, flooding, and the wind, promptly eliminating

hidden dangers and unsafe practices to ensure safety in

production.

5. Attention to reform, positively transforming the enterprise operating mechanism.

At the present time, several ofthe major shipyards have

orders on hand for a fairly large number ofship models;

thus, conditions are good for improving shipbuilding

production plans for adjusting the organization oflabor,

and for integrating hull building, [words indistinct], and

painting according to regional work location. Therefore,

shipbuilding concerns, particularly large shipyards in

which conditions are better than elsewhere, must concentrate on reforms that shorten the period required to

build a ship, and move ahead with shipbuilding production systems in a planned way.

AGRICULTURE

Fertilizer Glut Choking Small Production Plants

92CE0642D Beijing JINGJIRIBAO in Chinese

20 Jul 92 p3

[Article by Wang Ke (3769 4430): "Serious Oversupply

in Small Chemical Fertilizer Plants Nationwide, Production and Marketing Policies in Serious Need of Adjustment"]

[Text] Authorities concerned in the Ministry of Chemical Industry have revealed a serious oversupply of

chemical fertilizer in small manufacturing plants

throughout the country since 1990. Currently chemical

fertilizer in inventory in small plants throughout the

country totals 3.993 million tons—2.582 tons of nitrogenous fertilizer and 1.411 million tons of phosphate

fertilizer. In Hebei, Shanxi, Anhui, and Jiangsu provinces, the oversupply is particularly serious. This is the

third serious occurrence since 1980 ofslack sales and the

accumulation in inventory of chemical fertilizer.

Lack of coordination between production and marketing, and lack of chemical fertilizer enterprise operating and sales authority are the main reasons for this

overstocking of fertilizer in small plants. The large

inventory of chemical fertilizer at the Qidong County

Chemical Fertilizer Plant in Hunan results from huge

cutbacks in Agricultural Means of Production Corporation purchases. During 1991 and 1992, the county government held 40 meetings without being able to bring

production and marketing into line. The plant manager

headed a group that went into the countryside to push

sales, but using the fertilizer "monopoly" as the reason,

the Agricultural Means of Production Corporation put

roadblocks in their way, and vehicles that the peasants

drove to the chemical fertilizer plant for the purchase of

fertilizer were also intercepted. As of 10 April, this plant

had more than 3,100 tons of chemical fertilizer in

inventory. Yet another reason for the oversupply of

small plant chemical fertilizer is the fall in grain prices,

which has caused the peasants to use less fertilizer.

Fertilizer imports in excess ofplan also seriously hurt the

domestic small plant fertilizer market. In addition, no

unified control mechanism has been formed to plan,

produce, import, sell, and use chemical fertilizer. Ability

to respond to emergencies is lacking.

The extremely sluggish sales and accumulation in inventory of chemical fertilizer from small plants pose a

serious threat to the survival and development of small

chemical fertilizer enterprises. Reportedly 490 ofthe 983

small nitrogenous fertilizer plants in the country as ofthe

end of 1991, i.e., 49.8 percent of them, were losing

money, their losses amounting to 4.18 million yuan. As a

result the authorities concerned have called for effective

actions to solve the problem ofsmall chemical fertilizer

plant slack sales and overstocking. They asked that

chemical fertilizer enterprises be given authority to make

their own operating decisions in accordance with state

requirements for moving enterprises in the direction of

the market. The chemical fertilizer monopoly policy

currently in force causes suffering for both production

enterprises and the means of agricultural production

supply and marketing sector. Production enterprises

complain that their "hands and feet are bound too

tightly"; they have no operating or sales decision making

authority. Meanwhile, because ofthe inversion between

chemical fertilizer purchase and sales prices, the agricultural means of production sector's economic returns

have declined, and it has even sustained serious losses.
JPRS-CAR-92-071

15 September 1992 ECONOMIC 39

1. Starting from this year, large increases in Guangdong's

admissions of students studying at their own expense.

Next year's enrollment rate for those taking the entrance

examinations to institutions of higher learning to be at

the same level as in Shanghai.

2. To assure nurturing such talents that are in critical

short supply, it is necessary to avoid filling up the

available positions with incompetent people. It is necessary to increase specializations and length of schooling

for students on own expenses. In matters of status of

students and management, one may follow the example

ofShanghai, with a proper integration with Guangdong's

special conditions, and with further perfections and

substantial improvements.

3. Students studying their own expense should be offered

low interest study loans, to be repaid after graduation.

Appropriate care and financial inducements shall be

offered in certain specialized lines (e.g. teachers training,

forestry, geology, etc.) to students who voluntarily wish

to return to their places of origin in economically backward regions.

TRANSPORTATION

Major Shipyards Strive To Improve Timely Deliveries

92CE0669A Beijing ZHONGGUO CHUANBO BAO

in Chinese 31 Jul 92 p 1

[Article: "Shipping Corporation Production Rises

Steadily During First Half of Year. To Continue Efforts

During Second HalfofYear To Ensure Delivery ofMore

Than 1 Million Tons for the Whole Year"]

[Text] Encouraged by the spirit ofComrade Deng Xiaoping's remarks during his travels in south China, production in the shipping corporation system rose steadily

during the first halfofthe year thanks to the joint efforts

of the rank and file of staff members and workers.

Enterprises fulfilled 61.2 percent of gross industrial

output value called for in plan, up 20.8 percent over the

same period in 1991. This included a 64.75 percent

fulfillment of the ship repair output value called for in

plan, and a nearly 40 percent rise over the same period in

foreign exchange earnings from ship repair. During the

first half of the year, the system handled domestic and

foreign shipping orders totaling 1.313 million tons, an all

time high for the same period. The number ofships built

and their tonnage fulfilled 39.3 and 37.2 percent of plan

respectively; and the number ofcompleted diesel engines

produced and their horsepower amounted to 29.1 and

38.6 percent of plan respectively. Among nonship products produced were hydraulic supports, railroad gondola

cars, shipping containers, B-chao [6389], duplicating

machines, electric refrigerators, and oil pumps, all of

which fulfilled plan for the first half of the year rather

well.

Checking was completed during the first half ofthe year

on ninety-two, or 44.7 percent, ofthe 206 critical points

for testing on military and civilian ships and associated

products that the shipping corporation listed in 1992.

Profits for the first halfofthe year increased 93.2 percent

over the same period in 1991; and the number offailing

enterprises and the amounts of their losses were fewer

than for the same period in 1991, economic returns

rising markedly.

Quality standards were met rather well during the first

half of the year, no major quality shortfalls occurring.

The qualifying rate for first X-ray inspection of ship

welds, the first class product rate among ship particulars

evaluated, and the qualifying rate for the first inspection

preliminary to acceptance of ship products were all

substantially higher than evaluation standards require.

The main problem in production during the first half of

the year was failure to fulfill shipbuilding plans on time,

which will increase difficulties in increasing shipbuilding

production during the last half of the year. In addition,

failure to deliver needed equipment on time was also a

fairly serious problem.

Reportedly, in order to ensure fulfillment and overfulfillment of 1992 production plan, and to ensure that

the tonnage of newly built ships completed and turned

over will break the 1 million mark, during the last halfof

this year, the shipping corporation system will emphasize work in the following ways:

1. Attention to further implementation of plan for the

last half of the year.

In shipbuilding, attention will focus on the building of

the 4,200 cubic meter LPG No. 2, the 68,000 ton tanker

No 2, and the 65,700 freighter No 9 at the Jiangnan

Shipyard; on the 62,000 twin-hull tanker No 1 at the new

Dalian Shipyard; and on the 35,000 ton freighter No 1 at

the Guangzhou Shipyard. The emphasis in providing

shipboard equipment will be on the Sichuan Diesel

Engine Plant's 12V230 diesel engine, the Dalian Shipboard Diesel Engine Plant's, and the Yichang Ship

Diesel Engine Plant's low speed diesel engines, as well as

on the Anqing Shipboard Diesel Engine Plant's power

plant, the Wuhan Shipboard Machinery Plant's deck

engines, and the Dalian Shipboard Valve Plant's valves.

In the ship repair and nonship products fields, further

emphasis will be given to business management, opening

up of markets, and getting more work to do.

2. Attention to quality in order to gain greater customer

confidence.

Leaders at all levels in all units must devote more

attention to quality. Not only must those responsible for

leading production and for inspecting products do better

inspection and quality analysis work, but they must

concentrate on problems in their units, taking actions to

solve them within a certain period of time. They must

refuse to let out of the plant any product that fails to
JPRS-CAR-92-071

IS September 1992 ECONOMIC 41

There is no interest in either buying or selling. To get out

ofthis predicament, quite a few places in Henan, Anhui,

and Shandong provinces have actively explored direct

supply and sales. Ever since 1987 the Tancheng County

Chemical Fertilizer Plant in Shandong has directly supplied chemical fertilizer throughout the county, producers and users dealing directly with each other to the

satisfaction of both.

Ministry Backs Farm Product Reform

92CE0642C Beijing JINGJIRIBAO in Chinese

19 M 92 pi

[Article by Peng Xiaoyuan (1756 2556 0337) and Zhang

Ziehen (1728 1311 5256): "Ministry of Agriculture Proposes Gradual Removal of Price Restrictions; Integration of Agriculture, Industry, and Trade"]

[Text] The Ministry of Agriculture held an enlarged

meeting of the ministry party organization a few days

ago where several ideas were proposed for the intensification of reform and greater opening to the outside

world.

It called for adoption of a positive policy toward farm

product prices, gradually removing restrictions. As a

result oftwo huge price readjustments, the procurement

price and the sale price ofgrain is virtually the same. The

pace ofreform ofother farm prices must also be properly

speeded up.

Development and perfection of the integration of agriculture, industry, and trade. Agriculture must use development of productivity as a basis for fanning out in all

directions to break the pattern of disjunction and separation of production, exchange, distribution, and consumption.

Need to raise funds through numerous channels to

develop the rural economy. Various kinds of development funds must be tried out, and farm-operated enterprises must form groups, operate a stock share system,

and sell bonds.

Efforts to expand foreign trade must be in two regards.

One is for farm-operated enterprises to have a certain

amount offoreign exchange retention authority to make

fullest use ofthe ability of agriculture and township and

town enterprises to earn foreign exchange through

exports. Second is support for the development ofborder

trade and joint venture enterprises.

Active participation in commodity circulation. Guidance must be provided for the development of rural

country fair trade. Commodity bases must be used to

develop premium agricultural products as a means of

breaking new ground, a number of agricultural byproducts wholesale markets being established in a

planned way.

The Ministry of Agriculture emphasized the need to

experiment boldly, to suit actions to local conditions, to

provide tailored guidance, and to guard against rushing

headlong into action in the course ofintensifying reform

and expanding the opening to the outside world. Rural

villages must call a strict halt to assessments, the destruction of resources, violations of economic laws, and

criminal offenses.

Demand for Livestock Feed Unsatisfied

92CE0642B Beijing JINGJI RIBAO in Chinese

17Jul92p3

[Article by Jiang Qi (3068 7871): "China's Livestock

Feed Industry Shows Steady Rise, Third in World in

Gross Output of Blended Feed"]

[Text] Recent data from the Chinese Livestock Feed

Industry Association show that China's livestock feed

industry has now gone from the stage of laying a foundation to the stage of steady rise, showing heartening

achievements.

The country's output of blended livestock feed stands at

more than 30 million tons a year for third place in the

world. Quality ofblended chicken and hog livestock feed

was demonstrated in a random sampling conducted in

six southern provinces in 1991 in which the pass rate was

91.2 percent. This was much higher than during the

previous year. Among the various kinds of products

available, output of readily saleable concentrated livestock feeds, pre-blended livestock feeds, and pellet livestock feeds increased most rapidly. Poultry feed, from

which the payback is fairly high, amounted to 40 percent

of the total. In recent years, livestock feed processing

plants throughout the country have improved management and done more scientific research for an increase in

economic returns. At the recent "All-China Livestock

Feed Industry Exchange Meeting on New Techniques

and New Products" held in Shenyang, nearly 1,000

different products were displayed. This was an unprecedented number. Thirty eight ofthe products won special

class prize, and 98 won first prize.

According to authoritative persons, some problems also

exist in China's livestock feed industry, principal of

which are as follows: 1) Insufficient output. Output of

blended livestock feed accounts for only one-fourth of

enriched livestock feed consumption. In addition, distribution is very uneven from place to place, production

developing rapidly in south China and coastal areas, and

slowly in some parts of north and northwest China. 2)

Uneven quality. The certification rate in some places

and for some products (such as hog feed) in north China

is not high. Third, markets have not been opened up in

some places and for some products; livestock feed processing capacity is not used to the full, economic returns

suffering as a result. Fourth, basic industries such as

sources of supply for protein and for livestock feed

additives have not developed rapidly; consequently,

many livestock feed additives still must be imported.

Authoritative persons believe that solution to these
42 ECONOMIC

JPRS-CAR-92-071

15 September 1992

problems lies in further intensification of macroregulatioii and control, better management, adherence to a

policy of everyone running livestock feed industries, and

linking development ofthe livestock feed industry to the

livestock raising industry, vigorous attention to scientific

and technical progress, continuous readjustment of the

product mix, and improvement of product quality.

Article Hails Achievements in Agriculture

92CE0642A Beijing JINGJIRIBAO in Chinese

16M92p2

[Article by Wang Xinjian (3769 0207 1696) and Zhang

Ziehen (1728 1311 5256): "Marked First Phase Achievements in Overall Development of Agriculture. Henan,

Shandong, Heilongjiang, and Jiangsu Make Fairly Good

Showing"]

[Text] Five ministries and commissions including the

State Comprehensive Agricultural Development Office

and the Ministry of Agriculture recently examined and

accepted first phase comprehensive development

projects in 10 of the country's provinces and autonomous regions. They acknowledged remarkable achievements in the development of agriculture that were fully

accepted by the public. Provinces making a fairly good

showing were Henan, Shandong, Heilongjiang, and

Jiangsu, with Liaoning, Hebei, Zhejiang, and Anhui

doing well, and Jilin and Xinjiang performing passably.

In addition, they pointed out problems that should be

looked at and methods for solving them.

According to a briefing, the 10 projects were as follows:

The Sanjiang Plain project, the Songliao Plain project,

the Liao He Delta project, the Hebei-HenanShandong-Anhui-Jiangsu Huang-Huai-Hai river basin

project, the Xinjiang cotton and sugar base project, and

the Hangjia Hu and the Jinqu Basin project. Results of

the examination preliminary to acceptance show near

fulfillment or over-fulfillment of the main norms of the

foregoing development projects that the state has prescribed since 1988 were nearly fulfilled or over-fulfilled,

state prescribed acceptance standards being substantially

met. The amount of low and intermediate fields transformed, barren land reclaimed for agriculture, area afforested, and grasslands improved totaled approximately

65.13 million mu. Investment totaled nearly 7.5 billion

yuan, the central government agricultural development

fund and local matching funds (including public subscriptions) providing 1.9 billion and 4.22 billion yuan

respectively. Publicly raised funds totaled 2.45 billion,

and the peasants contributed 886 million man hours in

full expression of the principles of civilian action with

public assistance and self-reliance.

Not only did comprehensive development improve basic

conditions for agricultural production, improve ability

to withstand disasters, raise the level of agricultural

modernization, and improve the ecological environment, but even more heartening was the marked increase

in peasant income. For example, over a period of three

years, peasants in the Henan project area saw a 51.9

percent increase in their net per capital income. In

Jiangsu, the increase was 42 percent. Farmland development at Baoqingling in Heilongjiang Province removed

the hardship label that the area has carried for many

years. As a result of comprehensive development, Jilin

Province achieved self sufficiency with some surplus in

the production of rice and pork, thereby bringing to an

end a long period of outside deliveries.

In examining the projects preliminary to acceptance, the

five ministries and commissions also noted problems.

Examples included too many development tasks in some

jurisdictions resulting in too little investment in each

one. They emphasized the need for higher standards in

the future, "fewer but better" projects being preferable.
JPRS-CAR-92-071

15 September 1992 SOCIAL 43

Developments in Shanxi Socialist Literature, Art

HK1508061192 Beijing QIUSHI in Chinese No 8,

16 Apr 92 pp 8-13

[Articleby Zhang Weiqing( 1728 4850 1987): "Adhere to

the Orientation Pointed Out by the 'Talks,' Promote the

Flowering of Socialist Literature and Art"]

[Text] It is now the 50th anniversary of the issuance of

Comrade Mao Zedong's article "Talks" at the "Yan'an

Forum on Literature and Art." Looking back on the

half-century history of the development of the revolutionary literary and art movements and socialist literary

and art undertakings in Shanxi, we distinctly noticed

that it was the spirit of the "Talks" that had nurtured

generations of writers and artists in Shanxi and had

borne rich fruit in literary and artistic creation. Especially after the Third Plenary Session of the 11th CPC

Central Committee, Shanxi literature and art entered a

period of prosperity with a galaxy oftalent and a plenty

of excellent creations. This is one ofthe best times in its

literary and artistic history. In promoting both the material and the cultural and ideological progress, the literary

and art circle is one of the fruitful branches. However,

these achievements are all results of our efforts in

adhering to Mao Zedong's literary and artistic thinking

under new historic conditions as well as in adhering to

the basic orientation pointed out by the "Talks." The

spirit of the "Talks," as we understand it, is still of

instructive significance in the practice oftoday's socialist

literature and art.

I. The "Talks" Guides Us To Have a Correct

Understanding of the Superiority of Shanxi Literature

and Art, and To Make Great Efforts and Yield Good

Results in Carrying Forward the Two Traditions.

Shanxi is an inland province. The general standard ofits

economy and culture is rather backward. To make its

socialist literature and art prosper, we first of all met

with the problem ofwhether we could clearly understand

our own advantages and establish our own confidence.

In literary and artistic fields, Shanxi has two valuable

legacies, i.e., the fine tradition of the national and folk

culture and the tradition of revolutionary literature and

art cultivated in the revolutionary base areas during the

war. It was just because we followed the spirit of the

"Talks" that we came to understand that there is plenty

of room for us in the literary and art fields in Shanxi to

fully develop our talents as long as we carry on and

develop these two traditions.

Shanxi Province, located in the Huang He valley, is one

ofthe Chinese nation's birthplaces. Its national culture is

of ancient origin and long development and its folk

culture and art is particularly colorful. Shanxi is wellknown as the birthplace of folk song and dance and the

cradle oftraditional opera. The history ofliterature and

art and the law of its development tell us that literature

and art can be separated from neither its people's customs, feelings, or language, nor from the nation's developing history. Only with its own national form and style

can literature and art possess real vitality. The greater

the nationalism, the greater the globalism. The fine

literature and art with national or folk characteristics

handed down to the present is not only the reflection and

description of peoples' lives at that time but even an

indispensable part ofpeoples' lives today as well. Writers

and artists not only can gather materials for their creation and derive literary and art nourishment from it but

also sense the people's vigorous spirit in making history.

Today, we must continue adhering to the orientation of

"serving the people and socialism," inherit the legacy of

all fine literature and art, and critically assimilate all that

is useful for reference in our literary and artistic creation.

This is not only the way for making socialist literature

and art prosper but also an important principle

expounded by Comrade Mao Zedong in his "Talks."

Inheritance is for innovation. Inheritance and reference

can never be a substitution for our own creation. This is

also an important idea forwarded by the "Talks." Therefore, we have been encouraging our writers and artists to

carry on and develop the fine tradition of our national

culture while fully reflecting the spirit ofthe socialist era

and to have our feet firmly planted in our own land while

unhesitatingly assimilating the fine results of the world

literature and art. This should become the common

objective in our endeavor to bring out excellent literary

and artistic works. These literary and artistic works

should be characteristic ofthe inheritance and transcend

tradition, and be recognized and welcomed by the new

masses and the new era of today. Large numbers of

talented writers and artists with high aspirations have

deep-founded roots in this yellow land, cultivated assiduously on the fertile land of literature and art with rich

national and folk traditions, and thus achieved a

splendid harvest. The folk song and dance drama "The

Sons and Daughters of the Huang He" and the fulllength folk dance series "Huang He! Oh, This Land"

created and performed by the Shanxi Song and Dance

Troupe were generally acknowledged as the best works in

carrying forward our national culture of excellence.

The two literary and artistic works with their pronounced national style and local gracefulness as well as

the distinctive features of the age were well received by

the audience and became famous both at home and

abroad. In the national folk song and dance contest of

1986, our province's 12 shows, such as "The Eve of the

Lantern Festival," "The River Water" and "Grind Rice

With a Pestle and Mortar," were all awarded a prize.

Shanxi's local operas continued their development in

innovation and a large number of new operas were

staged. The creation and performance of the modern

opera has, in particular, brought new life to this old

artistic form. In the last few years, more than 150

modern local operas were created and performed in

Shanxi. Among them, operas such as "The Veteran

Eighth Route Army Man," "Tears of Suona," "The

Dissolute Father and Son," and "Two Women and One

Man," were popularly welcomed by urban and rural

audiences and even selected to be performed in Beijing.

Nine of our actors or actresses were granted the "Plum
44 SOCIAL

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15 September 1992

Blossom Award" for their performance in the national

local opera contest, and three other performers and

directors were awarded the "Wenhua Prize" by the

Ministry of Culture, thus showing the real strength of

Shanxi's traditional opera circles. The television drama

series "Yang Jia Jiang" produced by the Shanxi Television Station was equally well received when shown on

the Central Television Station. What is particularly

exciting is that these achievements by professional literary and art circles have greatly stimulated and promoted the popularization and raising of standards of

mass literature and art. Folk arts such as folk songs and

folk music, painting and paper-cutting, gongs and drums,

stilts and yangko dances, puppet shows and shadow

plays, colored lanterns and other local dramas, all have a

long history and profound foundation among the masses.

All these folk arts have reappeared in their elegance in

recent years while the mass creating and performing

activities are very colorful and active. These activities

were shown on TV programs, performed in cities or even

staged as an international cultural exchange. The Shanxi

Folk Art Ensemble first visited Japan, then Belgium and

Holland. The folk Qingmiao music, puppet show and

shadow play, gongs and drums, traditional operas and

cultural relics, colored lanterns and modeled dough were

time and again invited to be performed or displayed in

countries and regions such as Britain, the United States,

Canada, France, Germany, Japan, Singapore, and Hong

Kong. During the 1990 Asian Games held in Beijing, the

performance of the Taiyuan Gong and Drum, Jinnan

Weifeng Gong and Drum, Jiangxian Flying Dragon

Troupes at the opening ceremony, as well as the Shanxi

colored lantern show "The Light of the Coal Mines,"

were all highly praised for their dazzling brilliance. Since

1987, we have successfully held three folk art festivals in

Shanxi. In 1991, we held an international gong and drum

festival, spreading Shanxi folk art's influence both at

home and abroad.

Shanxi is a red land with a glorious revolutionary history. When the anti-Japanese war broke out, the General

Headquarters of the Eighth Route Army and its three

main divisions crossed the Huang He and marched to

the front. They penetrated the enemy's rear area and

established base areas behind enemy lines. The three

main base areas—the Shanxi-Chahar-Hebei, the ShanxiSui, and the Shanxi-Hebei-Shangtong-Henan base

areas—took up more than 70 percent of Shanxi's land.

The base areas not only made great contributions to the

victory in the anti-Japanese war and the Chinese revolution but also nurtured large numbers of revolutionary

writers and artists and initiated a new custom in the

history of Chinese literature and art. The writers and

artists of the base areas took up their revolutionary

literary and artistic work under the direct guidance and

the edifying influence of the "Talks." They conscientiously adhered to the orientation that "literature and art

should serve the masses ofthe people and, above all, the

workers, peasants, and soldiers." They maintained a

flesh-and-blood tie with the masses of the people and

resolutely plunged into real life. They kept the national

and popular styles in their creative work and brought

revolutionary changes in both form and content to our

literature and art, thus forming a unique style and

creating a new atmosphere in the literary and artistic

circles. Writers in Shanxi, such as Zhao Shuli, Ma Feng,

and Xi Rong, all made outstanding achievements. They

wrote lots offine works that are very popular among the

masses and were very well received by the readers. Their

works profoundly influenced Shanxi writers for generations. We believe that it is another great advantage in the

development of our literature and art to carry forward

and develop the fine tradition of the base areas' revolutionary literature and art. We expect our writers and

artists of the younger generation to firmly adhere to the

orientation pointed out by the "Talks," to follow the

correct road of the old generation, and to take as their

required course plunging into the thick of life and

obtaining a deep understanding of our society. They

should take nationalization and popularization as their

conscious pursuits and steadfastly serve the needs ofthe

masses of the people and of the new era. They should

also pay attention to the social function ofliterature and

art as well as the social impact oftheir work and strive to

express the spirit ofthe socialist era. In the last 10 years

or more, a large number of veteran writers have been as

talented and energetic as before and great works kept

appearing in succession from their productive hands

while a great army of young and middle-aged writers

appeared as the new stars in the literary sky, and profound writings came from their gifted minds. They have

now formed a world oftheir own with enormous creative

potential, and were thus honored by the literary and

artistic circles as "the rising of the Shanxi Army." Most

of their works are a reflection of real life, especially the

life of the countryside, showing that they have a profound understanding of real life and a great concern for

the reform and opening up ofChina to the outside world,

today's trend. Over 60 literary works from Shanxi have

been granted national awards, making Shanxi one ofthe

provinces whose literature has a nationwide influence. In

film and TV drama, there are also many good works with

reform and real life as their themes. Films, such as "Our

Ex-Servicemen" and "Women ofthe Yellow Land"; and

TV dramas, such as "New Star," "The Sun Rises From

Here," "Ge, the Shop-Keeper," "There Is Such a Policeman," and "Good Man Yan Juqian," have made a great

impact on the audience and some ofthem have even won

national prizes. In traditional opera circles, there are

such outstanding literary and art organizations as the

Meihu Opera Troupe in Linyi and the Xiangyuan

Yangko Opera Troupe that have been writing and performing for the masses in rural areas for decades. In the

literary and artistic leading posts at the grass-roots level,

there are such good cadres as Comrade Pengyi, the

chairman ofthe Modern Drama Troupe in Shanxi, who

was honored as "Jiao Yulu" on the literary and art front

for his great success. The party and government praised

and rewarded them for their work. What should be

particularly mentioned here are the 18 TV dramas. We

took Shanxi's glorious revolutionary history as the main

topic of our creation and gathered all our strength in
JPRS-CAR-92-071

15 September 1992 SOCIAL 45

personnel, material, and finances to accomplish 18

dramas of 117 series. They epically reproduced on the

screen scenes of the Chinese revolution led by the party

within Shanxi. Among them, dramas, such as "The

Shangdang Campaign," "Madame Mei," "In the Face of

a Formidable Enemy," "The Xinkou Campaign," and

"The Great Victory in Central Shanxi," won national or

Northern China awards for TV dramas. All these literary

and artistic works have served as a vivid education for

the masses ofthe people in learning revolutionary tradition, patriotism, and historical materialism, and had

very good social results.

II. "Talks" Guide Us in Following the Law of the

Development of Socialist Literature and Art and in

Properly Handling Some Important Relations in Our

Literary and Artistic Work.

In his "Talks", Comrade Mao Zedong not only pointed

out the orientation that "literature and art should serve

the masses of the people, and above all the workers,

peasants, and soldiers," but also expounded, on the

question ofhow to serve, some important characteristics

and laws in developing revolutionary literature and art,

with the real situation ofliterary and art work in Yan'an

and other base areas at that time. His teaching is still

important in guiding the literary and artistic workers of

today.

Literature and art is the reflection of our social life and

life is the only source for literary and artistic creation—

this is the famous thesis Comrade Mao Zedong forwarded in his "Talks." The relationship between this

creation and life is always of great importance concerning the prosperity of literature and art. From my

point of view as a leader in literary and artistic work,

whenever we helped our writers and artists appropriately

solve this problem, a lot oftalented and profound works

appeared in the literary and artistic fields. Whenever this

problem was not properly handled, there was bound to

be a deep silence in the literary and artistic world. As far

as the writers and artists are concerned, this problem is

even more directly related to their professional lives. In

the last few years, we experienced this problem's challenge. For a time, the literary and artistic circles were

affected by the Western trend of thoughts such as irrationalism and formalism. Under this influence, some

literary works were enthusiastic in expressing "ego" or

the so-called "subjective reality" and in depicting "subconsciousness" or the so-called "life impulse." They

simply went for the art's form, structure, and rhetoric,

paying little attention to content of thought and the

social function of literary works. This trend of thought

did lead some of our writers to such drawbacks as

idealism and dogmatism, unrealistic thinking and empty

talk, looking down upon practice and becoming distant

from the masses, etc., which were criticized by Comrade

Mao Zedong in his "Talks." This trend also hindered our

efforts to encourage writers to go deep into the realities

of life. In view of this, we repeatedly stressed the

importance of teaching that writers must go deep into

the realities of life and paid much attention to the

veteran writers' leading role in teaching and helping the

young writers. We also proceeded to create conditions

for the writers to go deep into real life. We arranged for

young and middle-aged writers to go in separate batches

to take leading posts at the grass-root levels to observe

and learn from real life. A great majority of Shanxi

writers were able to stand up against the interference and

adhere to the principle of realism in their literary creations. They took pride in learning from real life and

based their writing on life—this has become a very

important reason for the achievements in Shanxi literature and art.

How to properly handle the relationship between the

main theme and diversification is also an important

issue in our current literary and artistic work. To reflect

our socialist era's spirit is the main theme in our literary

and artistic creation, which is decided by the basic

orientation that literature and art should serve the

people and serve socialism. Our people are now, under

the party's leadership, engaging in the lofty cause of

building socialism with Chinese characteristics. To fully

portray the masses of the people in the thick of their

struggle as well as their attitudes, to praise their brilliant

achievements and kindle their enthusiasm for socialism,

to depict and cultivate the socialist new man, and to

promote the masses of the people in making history are

not only the unshirkable duty of our literature and art

but also the most important and urgent demand of the

broad masses for our literature and art. If we fail to do

this, what are we going to say to the people? That is why

we placed special emphasis all these years on the creation

of literary and artistic works with the main theme. A

great number of influential works created by our province's literary and artistic circle are mostly the depiction

of real lives. We also believe that we should emphasize

works depicting major revolutionary and historical

events, as they are of direct and unique importance in

educating the people today and in cultivating the

socialist new man. Naturally, the spiritual demands of

the masses is diverse. To this end, any literary or artistic

work that educates, enlightens, entertains, or pleases the

people should have their respective places in the socialist

literary and artistic camp. We not only need diversification in art form orstyle but also diversification in subject

matter or main topic. Instead of conflicting with each

other, the emphasis on the main theme and the encouragement in diversification should jointly contribute to

the prosperity of literature and art.

The relationship between the popularization and the

raising of standards is still a basic problem for the

prosperity of socialist literature and art. By popularization, we mean familiarizing the masses with literature

and art that suits the people's needs and is easy for them

to understand. By the raising of standards, we mean to

raise standards in the direction that the people are

advancing. The raising of standards should be at the

foundation ofpopularization, and popularization should

occur under the guidance of the raising of standards.

Popularization and the raising ofstandards are a dialectical unity in which they condition and improve each
46 SOCIAL

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IS September 1992

other. These fundamental principles expounded in the

"Talks" are what we must continue adhering to today.

Meanwhile, it should be noticed that the cultural level of

the masses of the people and their ability to take in art

are much higher than that during the war in the base

areas. Naturally, the people have a high demand for the

popularization and raising of standards. From this new

reality, on the one hand, we encouraged writers and

artists to produce fine works and fostered the talented as

vanguards in literary and artistic creation. This is not

only a basic sign but also an important guarantee for the

prosperity ofliterature and art. In recent years, Shanxi's

literary and artistic circles have brought forth a large

number of influential literary works and fine arts. In

some of the branches, literary and artistic workers are

now beginning to have their own leaders in professional

pursuits and some talented groups have emerged. All

these show a clear raising ofstandards ofthe province's

professional literary and art circles. On the other hand,

we organized the literary and artistic workers to go deep

into the countryside, factories, mines, school campuses,

and military camps to help and guide the masses to

develop their own literary and art activities. Some professional achievements such as "The Sons and Daughters

ofthe Huang He" and "Huang He! Oh, This Land" not

only elevated and helped refine the public "taste" but

also became a model imitated enthusiastically by the

masses in their own literary and artistic activities. At the

same time, we created conditions for fine works of mass

literature and art to be shown on TV or performed in

Beijing and other provinces or countries. This has played

a noticeable function in making mass literature and art

flourish. The mutual promotion between professional

and mass literature and arts thus formed a benevolent

circle for the development ofliterature and art. Stressing

both rectification and prosperity in literature and art is

an important policy forwarded by the Central Committee since the Fourth Plenary Session ofthe 13th CPC

Central Committee. We realized that this policy's implementation was not only made to bring about a radical

change in the abnormal situation that once appeared in

the cultural and ideological circles, but also the demand

ofobjective law in the development ofsocialist literature

and art. In the literary and artistic sphere, the expression

of the true, the good, and the beautiful can exist only

when compared with the false, the evil, and the ugly, and

can develop only in their mutual struggle. Without

contradiction and struggle, there can be no development.

Therefore, this struggle will never end—this is the law of

the development of literature and art. Our task in the

days to come is to strengthen our control over the

cultural market while developing and promoting the

prosperity of our socialist literature and art. We should

not allow things that could poison the people, pollute

society, and oppose socialism to run rampant. Socialist

literature and art should take firm control ofthe literary

and artistic front and promote prosperity in our cultural

affairs. While emphasizing rectification and prosperity,

we must always focus on literary and artistic creation

and on prosperity and thus achieved noticeable results.

As for bourgeois liberalism's influence on literary and

artistic circles, we eliminated it mainly through ideological rectification. We took a firm stand in clearing out

cultural and ideological filth.

III. Fully Implement the Party's Policies Concerning

Literature and Art, and Strive To Create a Favorable

Social Environment for the Prosperity of Literature and

Art.

Since the Third Plenary Session ofthe 11th CPC Central

Committee, the party Central Committee has taken firm

steps to bring order out of chaos and to realistically sum

up both the positive and negative historical experiences

in developing socialist literature and art. According to

the reality of literary and artistic work in the historical

period, the Central Committee has also emphatically

pointed out the orientation that "literature and art must

serve the people and socialism" and formulated a series

of general and specific policies. Having adhered to and

developed the fundamental spirit of the "Talks," these

policies gave a more accurate expression of the people's

demand today for literature and art. They faithfully

embodied the objective law of the development of literature and art in maintaining and improving the party's

leadership of literary and artistic work. More than a

decade's practice has fully proved that our party's literature and art policies are correct and effective. We owe

all our achievements to the overall implementation of

the party's literature and art policies. A very important

problem in fully implementing the party's literature and

art policies is to keep the stability and continuity of our

policies. In the last 10 or more years, supported and

protected by these policies, vast numbers ofliterary and

artistic workers freed themselves from old ideas and gave

full play to their intelligence and wisdom, thus liberating

once again the productive force in literature and art. The

road for us in literary and artistic creation is become

broader, so we should value this hard-won situation very

greatly. However, the bourgeois liberalism rampant a

few years ago did inflict much damage to our literary and

artistic work. A handful of people set the policy of

"letting a hundred flowers bloom and a hundred schools

of thought contend" against the Four Cardinal Principles in an attempt to deviate from the orientation of

serving the people and serving socialism. After the

Fourth Plenary Session of the 13th CPC Central Committee, in line with the important plan drawn by the

Central Committee, we earnestly and systematically

eliminated the influence of bourgeois liberalism in literary and artistic circles. We thought it was absolutely

necessary for us to figure out what was right and wrong,

sum up experience, and draw our own lessons through

criticism and self-criticism. Our purpose was to further

promote the prosperity of literature and art. We should

never give people the false impression that we are

changing our policies concerning literature and art or

taking the road back. Shortly after the political disturbance in 1989, we held a forum with young and middleaged writers. Provincial leaders came to the meeting,

exchanging ideas and holding heart-to-heart talks with

us. Proceeding from the province's actual conditions, the
JPRS-CAR-92-071

15 September 1992 SOCIAL 47

provincial party committee comprehensively and realistically analyzed and evaluated Shanxi's literary and

artistic work. The provincial party committee fully

affirmed the achievements and principal aspects of our

literary and artistic work and said that it was not allowed

to totally negate previous literary achievements and the

great majority of writers simply because one or two

people in our ranks committed mistakes during the

political disturbance. At the same time, the provincial

party committee pointed out in all earnestness the

existing problems, leading us to bear firmly in mind the

lesson, dispel our worries, and unite while marching

ahead. The writers were greatly moved by the provincial

party committee's sincerity, which not only helped some

of our comrades get rid of unnecessary worries and

heightened their spirit but also played a very important

role in uniting our comrades and arousing their enthusiasm. It is generally believed that the provincial party

committee took a firm stand in implementing the party's

literature and art policies, thus avoiding instability and

deviation in implementing the policies and achieving a

good result.

The party's literature and art policies have expressed

that we should obey the law and value talent in developing literature and art and try our best to create a social

environment favorable to the production oftalent and to

fine works. Comrade Deng Xiaoping once said, "Literature and art, as a complicated mental labor, very much

needs our writers and artists to give full play of their

creative spirit. What to write and how to write can only

be explored and solved gradually by our writers and

artists in their own practice. In this aspect, there should

be no unreasonable interference." As we understand it, a

very important point in his words is that we should

properly handle the relationship between the leaders and

the writers and artists. We maintained that leaders

should exchange their views with writers and artists on

an equal footing instead ofonly giving orders. It is wrong

for a leader to recklessly say which piece ofwork is good

or is not, simply because he likes or dislikes it. It is even

more wrong for a leader to say who should be supported

and who should not in terms of his relationship with the

writers or artists. Leaders may have their own views on

literature and art, but their views should not be used to

settle differences or disputes in literary and artistic

circles. Leading cadres should avoid becoming involved

in old resentments or parochial prejudice, which is

principle. Instead, they should improve coordination

and unity among writers and artists and help them seek

the common ground while holding their differences. We

think highly of famous writers or artists, but we have

given more attention to cultivating and supporting our

new writers and artists. We give honors and awards

equally to all who have made outstanding achievements.

A piece of literary and artistic work does not make the

success or failure of a writer or an artist. One mistake

about one thing at one time should not be used to negate

a writer's achievements. Anyone can make mistakes; if

he is willing to correct them, we should show our love for

and have great faith in him. Anyone anxious to make

achievements is eager to have a good environment and

our task is to create an environment and atmosphere of

unity, stability, democracy, and harmony so that writers

and artists can concentrate on their creative work with

an easy heart. Of course, we do not advocate "governing

by doing nothing that goes against nature." We believe it

is still very important to strengthen the overall guidance

in developing literature and art by making plans and

implementing them, etc.

We should also try our best to provide the indispensable

material conditions for the development of literature

and art. This is also a very important aspect in fully

implementing the party's literature and art policies. In

recent years, Shanxi's cultural and artistic undertakings

have made considerable progress in capital construction.

We owe this progress to the right policy, the contributed

capital, and the realistic attitude of party committees

and governments at different levels in the province. The

provincial government, while facing financial difficulties

of its own, allocated funds to encourage literary and

artistic creation and to award outstanding achievements.

The provincial government also invested in building up

the provincial cultural union's office complex and

granted financial support for the production of important literary and artistic works. The construction of

culture facilities in cities or towns also has made much

progress. Especially in rural areas that have become rich,

investment in culture establishments is very active.

Urban theaters have achieved remarkable success in

raising funds by themselves for renovation and updating.

We also coordinated with departments concerned in

studying and formulating economic policies that would

favor the development of our cultural undertakings. We

supported some units in developing their own study and

practice in the reform, thus helping them increase their

own capability in self-development. This has brought

about both fine social results and good economic performance. We are confident of further adhering to the

orientation pointed out in the "Talks" and doing a better

job in implementing the party's policies concerning

literature and art. We should help our literary and art

workers prepare themselves for the constant prosperity

of our literature and art and raise their own literary and

artistic level to produce literary and art works of excellence and to achieve better results in the performing arts.

These literary and art works and results in the performing arts should live up to the great expectations of

our great people, great nation, and great era, and thereby

help Shanxi's literature and art make still greater contributions to the development of the socialist culture edifice with Chinese characteristics.

Openness in Research, Attitude Toward Sex Noted

OW0108140692 Beijing XINHUA in English

1314 GMT 1 Aug 92

[Text] Nanjing, August 1 (XINHUA)—In the past,

talking about sex in public could be considered as being

mad or even being a hooligan.
48 SOCIAL

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15 September 1992

The ice was not broken until the early 1980s when some

Chinese researchers dared to ride the reform and

opening wave by publishing a number ofacademic works

on sex.

In the past decade, China's academic circle has made

marked academic achievements in the field, according to

some officials who are preparing to set up a national

society on the study ofsex.

The officials disclosed that currently the country has

almost 1,000 scientists specially working on the research

that covers sex-medicine, sex-psychology, sex-sociology

and venereal disease.

On the other hand, they said, more and more ordinary

people are eager to know the once-mysterious subject,

and in 1985, when the country's first lecture course on

sex was held in Shanghai, several thousand people

flocked to the classroom.

Since then numerous classes and exhibitions on the same

topic have been held across the country.

Liu Dalin, an expert on the study, recently told

XINHUA that as the age of being mysterious and

innocent about sex has passed, Chinese people are now

seeking a more healthy and civilized sex.

At present, academic research organs on the subject have

been established in eight provinces and municipalities

including Shanghai, Beijing, Heilongjiang, Guangdong,

Jiangxi and Anhui. Meanwhile, a couple of specialized

magazines have been published.

From 1989-1990, two nationwide surveys on "sex civilization," which were conducted in 15 big cities and on

240 items, have largely turned the country's research on

sex into a mature stage.

The results ofthe surveys will be made public in the book

"On the Sex ofChinese people" which will be published

within this year, according to the professor.

In the past few years, a number ofbooks including "The

Grand Dictionary on China's Study ofSex" and "Sex in

Ancient China" were published.

Since the mid-1980s, China has made great efforts to

popularize concerned knowledge among its people and it

has been expanded from the cities to rural areas.

Special classes on sex have been opened in 26.7 percent

of colleges in the country, while a survey shows that

87.93 percent of college students want to take such a

course.

The education on sex for middle-school students has also

been started since 1988 on a trial basis and now over

7,000 middle schools have taken part in the experiment.

In the future, all middle schools will open the same class

as a training program to train enough teachers. Such a

class has been underway in Shanghai and some other big

cities. In the meantime, related textbooks have been

compiled.

Professor Liu noted that the rapid development of

China's academic study on sex is related to the emergence of a large amount ofsocial problems regarding sex

education for children and youngsters, love and marriage, husbands and wives, premarital sex, venereal

diseases and sex-related crimes.

According to Liu, in China, the study originated from

sex-medicine, then went forward along with the development of family-planning, and has finally mounted a

new stage through the formation of sex-sociology in the

country.

Now, China has approached the world level in this field,

the professor said.

By September this year, Shanghai will host an international meeting on the study of sex.

Development Rights Seen as Major Human Right

92CM0358B Beijing BEIJING SHIFAN DAXUE

XUEBAO [JOURNAL OF BEIJING NORMAL

UNIVERSITY] in Chinese No 3, 20 May 92

pp 94-99, 52

[Article by Lian Baojun (3353 0202 0689) and Meng

Mingqi (1322 7686 2978): "On Development Rights

Problems in Human Rights"]

[Text] Human rights are the totality ofman's rights in all

regards and cover an extremely broad area. The right to

develop is a major aspect of human rights. This article

takes up some basic problems in the right to develop,

offering some cursory views.

1. The Right to Develop Is Rooted in History

Human rights concepts and theories are an outgrowth of

contemporary capitalist economic relationships. From

the time they emerged until the present day, they have

gone through a historical process of constant development and constant perfection. As a major aspect of

human rights, the right to develop has been recognized in

law. This was an outgrowth ofthe constant development

of human rights.

History recognizes the human rights view that John

Locke explained in his Two Treatises ofGovernment, as

being the first fairly completely systematic theory of

human rights. For the first time, he explicitly put forth

the proposition that liberty, equality, and property rights

are sacred and inviolate "human rights," and that the

democratic principle of sovereignty reposes in the citizenry, thereby laying the groundwork for the human

rights theories ofthe bourgeoisie. Jean Jacques Rousseau

took the theory of human nature as his point of departure for the preparation of a great compendium of
JPRS-CAR-92-071

15 September 1992 SOCIAL 49

bourgeois human rights doctrines, which completely and

systematically set forth "God-given human rights" and

social contract theories.

Locke's and Rousseau's human rights theories reflect in

a concentrated way the needs of the newly emerging

bourgeoisie's development of a capitalist commodity

economy. They embodied the efforts of the bourgeoisie

to overturn completely feudal autocratic rule, and its

strong desire to win an independent political status and

authority. After the bourgeoisie achieved victory in

revolution, it acknowledged and consolidated these

human rights concepts and theories in law, making them

into legal principles of the bourgeoisie.

After capitalism entered the final stage of imperialism

during the late 19th and early 20th centuries, the high

tide ofthe world proletarian revolution and the national

emancipation movement gradually demolished and

developed traditional human rights concepts. On 10

December 1948, the United Nations Assembly passed

the World Human Rights Declaration, which not only

included the content usually set forth in the constitutions

of bourgeois states, such as the political and economic

rights of individuals, but also added social and cultural

rights. This symbolized the emergence of the human

rights issue as a world issue and an international issue. In

1960, the UN General Assembly passed the Declaration

ofIndependence ofPeople in Colonial Countries, which

listed the right to national self determination as a basic

right. This marked a major advance in human rights

concepts in that collective human rights were explicitly

acknowledged. In 1966, the UN General Assembly

passed the Civil Rights and Political Rights Convention,

and the International Convention on Economic, Social,

and Cultural Rights. While affirming traditional individual rights, the aforementioned declarations and conventions emphasized and developed the content of collective human rights such as the rights of nationalities.

China's government believes that these conventions

"enriched the economic, social, and cultural content of

human rights, and had a major influence on the safeguarding of national sovereignty, realization ofthe right

to expression, and the establishment of a new international economic order, becoming the main current in

contemporary human rights theory and practice."

Since the end of the 1960's, development rights have

gradually been placed on the human rights agenda, and

have become the topic of numerous proposals. Freedom

of development has been largely an outgrowth of the

opposition ofsocialist countries' and other Third World

countries' to colonialism and racism, and opposition to

developed capitalist countries' looting, meddling in,

blockading, and issuing sanctions against developing

countries. Out oftheir own self-interest, developed capitalist countries use their political, economic, and and

cultural power to commit aggression against, meddle in,

and exploit small, and weak countries. The international

political and economic systems that they have built

seriously hamper the development of developing countries. Thus, developing countries have waged much

arduous struggle in which they have won preliminary

victories. Consequently, the process of obtaining the

recognition that the right to develop is a basic human

right is closely associated with national selfdetermination. On 11 December 1969, the UN General

Assembly passed the Declaration on Social Progress and

Development, which explicitly declared that "national

independence based on the people's self-determination"

is a primary requirement for social progress and development. At the opening ceremonies of the Strasbourg

International Association on Human Rights in 1972,

Kaiba Mubeiye [transliteration], the first chiefjustice of

the Senegal Supreme Court, the deputy chairman of the

International Association on Human Rights, and

member ofthe United Nations Human Rights Commission made a speech that set forth in a systematic way for

the first time the right to develop as a human right. On

16 December 1977, the UN General Assembly passed

the "Resolution on New Human Rights Concepts,"

which explicitly proposed the ideal of "the right to

develop." The resolution said that "long-term progress

in the realization of human rights requires a sound and

effective national and international economic and social

development policy." (Shijie Renquan Yue Fa Zonglan

[Overview of World Human Rights Conventions and

Laws], Sichuan People's Press, 1990, p 991). The

unequal positions ofdeveloped and developing countries

in the international economic field, particularly the

continued existence of an unequal international economic order in which the latter has been economically

exploited by the former, "creates the main barrier to

developing countries' realization of economic, social,

and cultural rights." (idem, p 990). Therefore "a new

international economic order is a necessity for the effective promotion of human rights and basic freedoms; it

must be given priority." (idem, p 991). Resolution on

Development Rights, which the UN General Assembly

passed on 23 November 1979 regarded the right to

develop as an inalienable human right. It maintained

that equal development opportunities are the special

right of all nations and individuals. Since 1981, China

has participated in all meetings of the government

experts group of the United Nations Human Rights

Committee for the drafting of the Declaration on the

Right to Develop, which has done much work in establishing the right to develop. On 4 December 1986, the

"Declaration on the Right to Develop" was formally

passed by the UN General Assembly the right to develop

becoming a sacred collective and individual right.

2. Basic Substance of Development Rights

Article 1 of the "Declaration on Development Rights"

says that "the right to develop is an inalienable human

right. As a result of this right, every individual and the

people of all countries have the right to take part in,

promote, and enjoy economic, social, cultural, and political development. In the course of this development, all

human rights and basic freedoms can be fully realized."

(idem, p 1365). It also says that "people's right to
50 SOCIAL

JPRS-CAR-92-071

15 September 1992

develop means full exercise of national selfdetermination, including... inalienable, complete sovereignty over all their natural resources and wealth."

(idem). It makes clear that the right to develop "is a right

of the individual to benefit from and take part in the

development process and is based on the satisfaction of

mankind's material and non-material needs, and also a

collective right of developing countries (as well as of all

peoples who have not yet realized self-determination) for

the successful development of a new international order

that both eradicates inherent structural barriers in

modern international economic relations that obstruct

their development." ("Declaration of Human Rights,"

Qiushi Press, April Edition 1989, pp 168-169). Obviously, the right to develop applies to both individual

human rights and the collective human rights of nations

and peoples. On a global scale, the right to develop is

first of all a collective right, the individual right to

develop depends on obtaining the collective right to

develop. When a nation is occupied by an aggressor,

when the people's self-determination is usurped, the

nation's sovereignty is trampled upon, the people are

placed in the position of slaves, and the sovereignty of

both the people and the nation is lost, what individual

freedom and rights are there to talk about! When a

nation is deprived of its right to allocate its natural

resources independently and freely and develop its

national economy independently, and when it is subject

to economic exploitation and looting from outside, the

development of the individual can also be only an

illusion. Only when a nation and a people first attain

political sovereignty and the sovereignty to develop their

economy, culture and society independently can the

prerequisites and conditions for development of the

individual exist, and it is also only on this basis that

individual active participation can serve as an impetus

to the development of his or her own nation and people.

The contrast between the new and the old China provides the best testimony of this.

The individual's right to develop may be understood to

be the sum total ofinternationally recognized individual

rights, particularly the right of individual participation

in economic, cultural, and social development as well as

the right to enjoy the fruits of this development. As a

collective human right, the right to develop consists

mainly of each people's right to economic selfdetermination, particularly the right of developing countries and, peoples who have not yet attained selfdetermination to rid themselves of an international

economic order that poses a stumbling block to their

people's economic development and the right to build a

new international economic order. During the 1950's

and 1960's, progress in de-colonization was concentrated largely on the winning of political sovereignty, the

right to economic, social, and cultural self-determination

being relatively ignored. Actually, unless political sovereignty is linked to the independence of economic development, it will become a false sovereignty. Therefore,

the concept of development rights must be embodied in

a people's full realization of the right to develop in the

political, economic, social, and cultural realms.

Concretely speaking, the right to develop includes primarily the following several aspects:

1. Right to Life (Existence) and Development. This

includes the right ofindividuals to exist and to develop,

and a nation's and a people's right to exist and develop.

Every people has the right to continue to exist and to

constantly develop his or her own physical form and

spiritual form; all nations and people likewise have the

right to develop their nation's and people's ability to

exist and the quality of existence within their own

space-time continuum. The "Declaration ofthe Right to

Develop" explicitly states that "People are the active

element in development; therefore, people must become

active participants and beneficiaries of the right to

develop." (Shijie Renquan YueFa Zonglan, p 1365). No

distinction of people on the basis of race, sex, language,

religion, and political belief exists here, and in the right

to develop, every nation is equal without regard to size

or strength. The conventions that the UN General

Assembly passed regarding the prohibition and elimination of slavery, as well as the selling of slaves, and the

declarations and conventions it passed on the protection

of women, children, and youth, etc. are affirmations of

the right of people to exist and develop. Human rights

conventions and laws regarding a people's right to selfdetermination, sovereignty over natural wealth, and the

right to develop are also an affirmation of a people's

right to exist and develop. Therefore, any form ofracism

is not permitted and is a contravention of the basic

principles ofhuman rights, and no country may carry out

aggression against, loot, or interfere in the internal

affairs of another country on any pretext or for any

reason.

2. The Right to Political Development. For the collective,

the right to political development means that a nation or

a people has the right, as specific circumstances in its

own nation or among its own people warrant, to elect the

political system and political institutions that suit its

own national circumstances; and it has the right to select

its own future course of political development. It means,

in addition, that no other country has the right to force

its own political concepts, institutions, or social system

on another country. The Development Rights Declaration specifically states that the right to selfdetermination ofthe people of all nations permits them

"the right to freely decide their political position."

(idem, p 1,365). For the individual, the right to political

development means the political right to develop as legal

citizens, including the right to elect or be elected, and the

right to freedom of speech, to form organizations, to

assemble, freedom of the press, and of political persuasion.

3. The Right to Economic Development. The right to

economic development is the key ingredient in the right

to develop. For people in the majority of developing

countries, this is also the most urgent human rights issue.
JPRS-CAR-92-071

IS September 1992 SOCIAL SI

The gap between rich and poor in the developed and

developing countries is growing ever wider, and even

though some countries have won national selfdetermination, their economic development remains

slow. One third of the population of developing countries still lives below the poverty line. China pays exceptionally close attention to development rights problems,

and calls upon the international society to pay attention

to and be concerned about the development rights issue

in developing countries. It calls for active and effective

measures to be taken in an effort to eradicate unfairness

and unreasonableness in the world economic order, to

take effective measures to improve the international

economic environment, to moderate and gradually eliminate elements unfavorable to the development of developing countries, and to build a new international economic order. It calls for the eradication of factors

interfering with the right to development such as racism,

colonialism, hegemony, foreign aggression, occupation,

and meddling to create a favorable international climate

for the realization of development rights.

As an individual right, economic development confers

on every individual the right to take an active part

through his or her own labors in the internal economic

activities of his or her own nation, people, and on a

world scale. It also confers the right of each individual to

enjoy the benefits of economic development. This is a

basic material prerequisite for satisfying the needs ofthe

individuals' material life and supporting the development of the individual. Individuals' economic development rights are both the right to work and the right to

enjoy the fruits oflabor. They are a unity of creation and

enjoyment.

4. The Right to Cultural Development Every people and

nation has its own distinctive cultural and historical

traditions. The right to cultural development confers on

them the right to carry on, transform and develop the

culture of their own people and their own nation. They

have the right to develop their own distinctive cultural

forms and cultural framework by carrying them to

greater heights, strengthening, absorption, disintegration, substitution, loss, or conjugation. They have the

right, on the basis of their own national cultural traditions and actual choices, to take whatever actions are

necessary to preserve, develop, and preserve scientific

and cultural knowledge; they have the responsibility to

provide indispensable freedom for scientific research

and creative activities; and they have the duty to

encourage and support international scientific and cultural contacts and cooperation, and to insure that

everyone in their own country has the right to be

educated.

5. The Right to Social Development. The right to social

development is extraordinarily broad in content. It

includes labor employment, sanitation and health, environmental protection, protection ofthe rights ofwomen,

children, and young people, religious beliefs, etc. The

state has a responsibility for taking proper steps to

ensure its citizens the right to the opportunity to make a

living in freely selected and accepted work. These steps

include technical and vocational guidance and training,

as well as ensuring the attainment of economic, social,

and cultural development, and full production employment plans, policies, and skills, while ensuring basic

political and economic freedom for the individual. Every

individual hasthe right to fair and good work conditions;

the rights and benefits of women, children, and young

people must be protected; people have the right to enjoy

a sanitary environment; the state must take actions to

prevent various diseases, and to create conditions that

will insure thatthe people receive medical treatment and

care when they are ill.

All of the content of the abovementioned development

rights are inseparably linked; no single aspect can be

emphasized at the expense of another. Naturally, under

different historical conditions, it is all right to emphasize

some components as battle objectives for a historical

period; however, the content ofdevelopment rights must

be viewed as a totality and attention must be paid to the

limiting role among all aspects.

During the past decade or more, the development rights

concept has permeated every realm ofsocial life, and has

gained widespread international approval. It has done

away with the narrow framework oftraditional Western

human rights concepts with the result that human rights

are no longer purely individual human rights, but are

increasingly collective rights. This development fits in

with requirements and the present state of international

socio-political and economic development. From one

angle, it reflects the mainstream of progress and the

historical features ofthis age; thus, it merits affirmation.

In the right to develop, China has made great accomplishmentsthat have attracted the attention ofthe world.

Tremendous development has occurred in politics, economics, society, and culture. These are great achievements that all can see and that every Chinese deserves to

be proud of.

3. Adherence to the Marxist View of the Right to

Develop

On the development rights issued as on other human

rights issues, only adherence to the Marxist point ofview

can product a correct understanding.

Marx said: "Legal rights relationships are relationships

of will that reflect economic relationships. The content

ofthese legal rights relationships or will relationships are

decided by these economic relations themselves." (Complete Works ofMarx and Engels, Vol 23, p 102) The rise

of development rights are inherent requirements and a

reflection of the socio-economic development of the

modern world, and these are the "natural human rights"

that science cannot explain. The bourgeoisie is accustomed to being the spokesman for all mankind in

preaching human rights that transcend class, nations,

and peoples, and they even raise this banner to meddle in

the internal affairs and human rights of other countries,

thereby exposing the falseness of their human rights. In

contrast, the Marxist human rights concept happens to
52 SOCIAL

JPRS-CAR-92-071

15 September 1992

discuss human rights issues in terms of recognizing that

political, economic, and cultural factors in society

(meaning economic relationships in the final analysis)

play a role in limiting human rights. In his Criticism of

the Gotha Program, Marx said that "rights can never

transcend a society's economic structure as well as the

social and cultural development that the economic structure imposes." (Selected Works ofMarx and Engels, Vol

3, p 12), meaning that one cannot talk glibly about

human rights without regard for economic development,

the cultural state, and the historical traditions ofsociety.

On the issue of the development of rights, there can be

no doubt for the need to adhere to this basic view of

Marxism.

It cannot be denied that quite a few problems remain in

China's human rights concepts and in assuring their

realization, and that some problems are still rather

serious. Both the party and the government are devoting

much attention to this matter, and they are striving to

take effective measures to solve them. At the same time,

however, we must proceed from reality; we cannot

abstractly call for human rights without regard for

China's present economic strength and cultural circumstances. In the development rights aspect, for example,

no one disagrees that everyone possesses the right to an

education. In many out-of-the-way and backward places,

however, where neither the economy nor culture is well

developed, the people's right to receive an education is

limited. China's modernization, enhancing the quality of

its people, and the complete development of the individual are all major matters that will brook no delay, but

this absolutely does not mean that abstractly shouting

several human rights slogans can solve these problems.

Anyone who thinks, will usually admit that swift development ofthe country's economy and an increase in the

overall strength of society is needed in order to do this.

The right to develop is intertwined, interdependent, and

mutually restricted by political rights and economic,

social, and cultural rights. National political independence and national self-determination are prerequisites

for the realization of rights in these several regards, and

the development of the economy, society, and culture

are, in turn, supports for the full realization of national

self-determination. Together, they constitute the concrete content of the development rights of a country, a

nation, and its people.

On the development rights issue, adherence to the unity

of collective human rights and individual human rights

must be the emphasis, because this is actually a reflection

of the relationship between the individual and the collective on the human rights issue. On this issue, Marxism

adheres to the unity of collective human rights and

individual human rights based on a scientific understanding of man and his nature. Marx said: "Man does

not dwell abstractly outside the world. People live in a

human world, which is their nation and society."

(Selected Works ofMarx and Engels, Vol 1, p 1) This is

because "man is an animal in fact as well as in name. Not

only is he a gregarious animal, but an animal that can be

independent only in society." (Selected Works ofMarx

and Engels, Vol 2, p 87). Thus, "man's nature is by no

means an abstraction that is innate in an individual. In

reality, it is the sum total of all social relationships."

(Selected Works ofMarx and Engels, Vol 1, p 1) Therefore, without social development, individual development is bereft of support. The substance and nature of

collective rights prescribes the content and character of

individual rights. Man's social character determines that

only in society can the individual obtain all that he or she

needs. Without collective development rights, individual

development rights can only be illusory and fictitious

rights. At the same time, so long as collective development rights find expression, only when individual development rights are assured can the collective be fully

infused with vim and vigor, and the animus exist for

development. Therefore, it is wrong to juxtapose collective human rights against individual human rights.

On the development rights issue, it is also necessary to

adhere to the Marxist class analysis standpoint. In a class

society, human rights possess a pronounced class character; human rights that transcend class cannot exist.

Lenin said: "Until classes have been wiped out, any

discussion of freedom and equality must pose the following questions: Freedom for what class? Just how is

this freedom to be used? What classes are equal with

which classes? In what regards are they equal?" (Complete Works of Lenin, Vol 31, pp 354-355). Thus, we

must raise the following questions about development

rights: Development rights for which class? Obviously,

we advocate that rights be given to the oppressed and

exploited proletariat and to the free development of

far-flung peoples of the Third World. In preceding

human rights with the terms "natural" and "Godgiven," the bourgeoisie's intention is simply to proclaim

that human rights transcend class as a means of covering

up their class nature, thereby revealing the falseness of

its human rights. Since its birth, Marxism has taken a

clear-cut stand in defending the rights of the proletariat

and the broad masses of working people. It has clearly

proclaimed to the public the class nature of its own

doctrines. Marx said: "All past movements have been

movements to gain benefits by a minority or on behalfof

a minority. The proletarian movement is an independent

movement in which the overwhelming majority seeks

benefits for the overwhelming majority." (Selected

Works ofMarx and Engels, Vol 1, p 262) The socialist

society that the victory ofthe proletarian revolution has

built has made the broad masses of working people the

true masters in their own house, for the first time

enjoying human rights of true equality and freedom. Of

course, the ultimate goal ofsocialism is to realize human

rights for all of mankind; however, so long as imperialism exists, only by winning human rights for the

oppressed and gaining victory in class struggle can this

ultimate goal be attained. Therefore, our emphasis on

development rights is, first of all, development rights for

the proletariat, and for Third World nations that have

suffered imperialist aggression, looting, and exploitation. The international communist movement and the
JPRS-CAR-92-071

15 September 1992 SOCIAL 53

struggle of Third World nations against imperialism,

colonialism, and hegemonism have shaken the international monopoly ofimperialism politically and economically. Following World War II, in particular, spurred by

the socialist countries, including China, peace and development became the two main themes and the two major

human rights of the modern world. This posed a basic

threat to the imperialists who rely on warfare and

exploitation to maintain their rule. Consequently, they

unfurled the "human rights" banner internationally,

pretending to be concerned about the development of

the people in other countries, but actually engaging in

internal meddling to advance their power politics,

sparing no effort to protect bourgeois rule and to thwart

the independent development of developing countries.

Their so-called human rights is nothing more than "special rights" for imperialism and the bourgeoisie.

Today, a restudy of the class analysis viewpoint of the

Marxist human rights concepts holds special, real significance for our clear appreciation ofthe substance of the

development rights issue.

4. Development Rights and Man's Complete and Free

Development

The renowned American human rights scholar, Steven P.

Marx summarized the creative process regarding the

international human rights norms of another renowned

American human rights scholar, Richard Beard, as follows: "The eternal characteristic of human existence is

the existence of human needs. In order to satisfy these

needs, we frequently employ the self-help method. If we

adopt social restrictions to satisfy these needs, these

needs may become a demand for rights. ...legislation is a

qualitative social institution tor all societies (including

international society). Only when the espousal, the

value, or the benefits of certain rights are rooted in

legislation are they formally recognized." (Declaration of

Human Rights, p 159). He personally believed that

"international human rights are mankind's needs formally acknowledged through grounding in international

law." Needs affirmed through legal rights are an important feature of modern society. Of course, to explain the

establishment of legal rights relationships solely on the

basis of needs is not completely scientific; however,

explaining them from this angle can provide us with a

very great inspiration. As a result of social practice,

human needs develop and change as society develops.

They are extremely rich in content. Survival, enjoyment,

and development are both three different components of

human needs and also express the process of development of human needs from a low to a high level.

Examination of the history of development of human

rights concepts shows that human rights have gone

through a process of transformation from individual

human rights to collective human rights, and from

political human rights to economic, social, and cultural

human rights. This process reflects the trend of change in

the development of human society's as well as people's

needs. Development rights establish both collective and

individual development needs in law as inalienable

rights, thereby providing both collective and individual

development with a basis and support in law. Without

doubt, this marks an enormous historical advance.

Development rights are collective human rights first of

all. The important significance ofthis proposition lies in

its being premised on guaranteeing individual human

rights. In other words, the value ofdevelopment rights as

collective human rights lies in providing the social

climate, the social conditions and the social support

required for the completely free development of the

individual. Thus, collective human rights are not an

appendage to individual human rights; they possess

relative independence. This is because "only in the

collective can the individual find full development of his

or hertalents. This is to say that only in the collective can

the individual be free." (Selected Words of Marx and

Engels, Vol 1, p 82). Both Marx and Engels believed that

the goal of communism is for people's completely free

development; consequently, they characterized communism as being a "social form based on the complete and

free development of every individual." (Selected Works

of Marx andEngels, Vol 23, p 49). They stated explicitly:

"What will replace the old existing bourgeois society

made up of various classes as well as class antagonisms

will be a partnership in which the free development of

each individual provides conditions for the free development of all." (Complete Works ofMarx and Engels,

Vol 23, p 491) In this partnership, "each will be able to

develop his her own talents completely without contention." (Complete Works ofMarx and Engels, Vol 2, p

614). The completely free development of communism

and people is the most ambition and finest ideal of

mankind. Every advance in human society propels the

advance of mankind toward this ideal. The significance

of the acknowledgement in law of development rights

vis-a-vis the needs of collective and individual development lies in this.

Nevertheless, it must be noted that Marx's theory of

man's completely free development proceeded from the

criticism and unmasking ofthe lopsided development of

man that the capitalist private ownership system causes;

thus, the historical character ofman's complete development cannot be ignored. Marx said: "Completely developed individuals, whose social relations serve as their

common bond, ... are not natural outgrowths but outgrowths of history." (Complete Works of Marx and

Engels, Vol 46 (Section 1), p 109), meaning its advent is

a historical process. In primitive society, individuals

exhibited a kind of primitive completeness because

people's production capacity developed only within

narrow limits, and because social relationships were

extremely simple. They were still a long way from

becoming a social power independent ofthemselves and

social relationships in opposition to them. Therefore,

"during this stage ofsocial development, rights in a legal

sense cannot be discussed."

During this period, people' completeness was primitive,

natural, and simple. They were commensurate with
54 SOCIAL

JPRS-CAR-92-071

15 September 1992

mankind's ignorance and barbarism; they were an indication ofthe low level of productivity. Furthermore, the

self-awareness ofprimitive man had not yet matured and

awakened. They were in no position to make complete

development a conscious pursuit, so it was even less

possible to talk about the right of development's as a

human right in legal rights relationships. Legal rights

relationships developed as an adjunct of private ownership, the state, and classes. They are a reflection in the

ideological realm of economic relationships determined

by the development of productivity. With the entry of

human society into the capitalist stage, the bourgeoisie

won political emancipation from the shackles of the

feudal social system; however, at the same time, the

broad masses ofthe proletariat remained oppressed and

exploited. Therefore, Marxism believes that the complete emancipation ofman requires the full realization of

man's right to freedom, and and that the only way in

which mankind's completely free development can

become possible is to escape from both human subordination to gain political emancipation and to escape from

material dependency to gain social emancipation and

freedom. Therefore, even though development rights

were first won during the 1980's and in developing

countries, they are extremely limited in their application

to the completely free development of man.

Man's completely free development cannot be truly

realized solely through the protection of development

rights. As a legal rights relationship, development rights

themselves are limited by economic, political, and cultural factors. In addition, the historical nature of man's

completely free development also means that they rely

on the development of human society that production

methods propel. Therefore, it is necessary to proceed

from reality, seek truth in facts, and concretely analysize

concrete problems for a correct understanding of the

significance of development rights on man's free and

complete development.

One may firmly believe that communism is bound to

occur. "It will provide everyone with healthy and beneficial work; it will provide everyone with an abundant

material life and leisure time; and it will give everyone

genuinely complete freedom." (Complete Works of Marx

and Engels, Vol 21, p 570). In this society, "the development of individual creativity and freedom will no

longer be an empty phrase." Everyone will "finally

become the master ofhis or own social links, thereby also

becoming the master ofthe natural world, and becoming

the master of himself or herself—a free person." Only

when that time comes will the rights that development

rights confer be completely and genuinely realized.
JPRS-CAR-92-071

15 September 1992 REGIONAL 55

EAST REGION

Anhui Economic Official Stresses Ideological

Work

OW0906092292 Hefei ANHUI RIBAO in Chinese

2Jun92p3

[Article by Xu Qing (1776 0615), chairman ofthe Anhui

Provincial Economic Commission: "The Deepening of

Reform Calls for Ideological and Political Work"]

[Text] Today reform has become an irresistible and

surging historical current in China.

The deepening of reform, transformation of management mechanisms, and the readjustment ofthe relationship of interests will inevitably affect the personal interests of some individuals. Although the mainstream

popular feeling is a yearning for reform, there are some

problems in ideology and understanding—problems that

need to be addressed immediately. The new situation in

reform calls for ideological and political work.

In strengthening ideological and political work on

reform, it is essential that leaders at all levels correctly

understand and handle the relationship between reform

and ideological and political work. A small handful of

comrades worry that ideological and political work will

"come under attack" again. Such misgivings are

unfounded. Ideological and political work is a fine

tradition of the party, as well as a guarantee for reform

and it cannot be weakened or "attacked" at any time. If

we pay attention only to reform and slacken or weaken in

ideological and political work, reform and opening up

will be deprived of a relaxed ideological and political

environment, and it could even be impeded or aborted.

This is what we should guard against.

In strengthening ideological and political work during

the course ofreform, we should work hard to change the

people's thinking and ideas, and we should enhance their

awareness regarding reform. Almost all ideological problems having to do with reform concern the people's

thinking, ideas, and consciousness regarding reform.

Emancipation ofthe mind and updating of the people's

thinking must come before the deepening of reform.

Through studying Comrade Deng Xiaoping's speeches

intensively and understanding their essence in the light

ofideology and reality, we should get rid ofthe idea that

a planned economy is tantamount to socialism and

understand that both planning and the market are economic means. We should do away with the practice of

"everyone eating from the same big pot" and the "iron

armchair," [guaranteed rank] neither of which manifestations of the superiority of socialism, and foster the

concept that the deepening of reform is aimed at harnessing the people's enthusiasm, realizing the principle

ofto each according to his work, and bring into play the

superiority of socialism. We should also eliminate the

ideas of following the beaten path and seeking stability

out of a fear of chaos, and we should develop the courage

to try new things, innovate, and take risks.

In strengthening ideological and political work during

the course of reform, we should conduct patient and

meticulous education and guidance based on the

thinking of different periods and at different levels, and

we should guard against oversimplification and generalization. Because of differences in people's position and

circumstances, their ability to cope with reform, and the

mentality of people in various sectors with regard to

reform, we should make painstaking efforts to dispel the

misgivings existing in people's minds and understanding. In conducting ideological work, it is necessary

to show ample concern for the people, and, especially, to

go all out in conducting conscientious ideological work

among the elderly and among female workers, as well as

among cadres and other personnel who are relieved of

work, and to show solicitude for their hardships and

helping them solve practical problems.

We must rely on the working class wholeheartedly in

reform, in opening to the outside world, and in developing the economy. This is a key factor in determining

the success of reform and the extent of the liberation of

the productive forces. It is a principle to be upheld in our

ideological-political work. Reform and opening to the

outside world is the cause of China's working class as

well as the cause of its entire people. It is where the

fundamental interests of China's working class and its

entire people lie. No reform can proceed without the

support and participation of the broad masses. Leaders

of an enterprise should not regard the masses ofworkers

as targets of reform or as obstacles to reform. Instead,

they should view them as the principal players and

motivating force behind reform. They should trust the

wisdom and strength ofthe masses, let them know about

the goals, targets, and measures ofreform, and give them

the "key" to carrying out reform. They should uphold

the method ofwork of "from the masses, to the masses"

and make reform a conscious act of the broad masses.

To successfully cany out ideological and political work

during the course ofreform, the most important thing is to

strengthen the party's leadership over reform, step up the

construction ofthe party's work style and its leading bodies,

and ensure that reform will proceed soundly and positively.

We must not regard reform as a job for factory directors and

managers alone. Party organizations of an enterprise should

participate in and exercise leadership over reform. The

three requirements for the leadership structure ofthe enterprise^—namely, bringing into full play the role of the party

organization as the core of the political process, upholding

and perfecting the factory director responsibility system,

and relying on the working class wholeheartedly—must be

fully met during the course of deepening reform. We should

strengthen the construction ofthe leading bodies, raise their

overall standards, transform them into a unified force in

leading the reform, and strengthen their ability to stand the

test ofreform. We should acquire a correct party work style,

insist on handling matters impartially, and guard against the

obstruction of reform because of unhealthy practices. In

addition to this, we should also enhance our sense of our

reform, enact and implement correct policies, and guard

against doing things blindly, one-sidedly, or arbitrarily.
56 TAIWAN

JPRS-CAR-92-071

15 September 1992

Petrochemical Industry's Difficult Position on

Taiwan

92CE0596B Hong Kong CHIU-SHIH NIEN-TAI[THE

NINETIES] in Chinese No 7, 1 Jul 92 pp 62-63

[Article by Ch'i Jen (2630 0086): "Can Taiwan's Industrial World Keep Its Key Base?—The Tenuous Position

of Taiwan's Petrochemicals Industry"]

[Text] While it was finally announced in late May 1992

that ground would be broken and construction would

begin very soon on the mainland Chinese factories to

which Taiwan Plastics' six light industries are moving,

which plan has been creating an uproar for over three

years now, Taiwan Plastics does not seem very elated

about it, at least not outwardly. Meanwhile, it was

reported in Hong Kong in early June that the PRC has

approved the feasibility studies for the Haicang Project.

According to Mainland Chinese practice, once feasibility

studies are approved, application can be made for official "project establishment." Wang Yung-ch'ing's [3769

3057 1987] response to this is that the approval of both

governments should be obtained first, and that waiting a

little longer would cause no particular problems. This

does not sound like any particular elation on boss

Wang's part either. This article will first briefly describe

the background of Taiwan's petrochemicals industry

development, and then discuss its current macroclimate,

to explain the predicament that it is facing.

Taiwan's Industrial Development Pattern

Taiwan's industrial development pattern was a bottomup one, in which downstream manufacturers were developed first, and after which their necessary raw materials

industries were developed. While Taiwan's manufacturing industry began to take shape in the late 1950's and

early 1960's, its petrochemicals industry only began to

enter its growth stage in the early 1970's.

To promote the petrochemicals industry, which takes a

huge investment that is recoverd slowly, Taiwan's government provided it with the needed raw materials at

U.S. prices through the China Petroleum Company. This

was a form of subsidization that will be explained in

detail later in this article. On the other hand, it provided

a preferential investment climate, including high tariff

protection for domestic sales. This means that Taiwan's

petrochemicals industry development is based on two

foundations, one being a customer complex of mostly

downstream manufacturers, and the other being government subsidization and protection, both of which are

currently in trouble.

Faced With International Competition

The first problem is that the opening up of trade has

lowered tariff protection. Taiwan's petrochemical products are currently taxed at an average rate of no more

than 3 percent, so that the opening up oftrade is forcing

producers to deal with real international competition.

Taiwan's petrochemicals industry's international competitors have long been in America, including the U.S.

and Canada, and the Middle East, whose petrochemical

products are all basically derivatives of natural gas.

Whereas its mid- and short-term competition is coming

from South Korea, which expanded its petrochemicals

industry 300 percent in the three years from 1989 to

1992, to make it twice as large as domestic need, creating

great export pressure. While the most optimistic prediction is that South Korea's petrochemical product export

pressure is likely to begin to ease by 1995, the long-range

view is that the major pressure on the petrochemicals

industry in the Asian Free Trade Zone will come from

producers in America and the Middle East whose basic

raw material is natural gas. This will be explained below.

Petrochemicals Derived From Natural Gas Are Cheaper

The petrochemicals industry's key raw material is ethylene, which is derived from the two raw materials oflight

oil (naphtha), which is refined from crude oil, and

natural gas. Natural gas's major hydrocarbon components are butane, propane, ethane, and methane. Butane

and propane burn at higher temperatures, so are generally used for fuels, being the generally so-called liquefied

natural gases (LNG), whose commercial value is basically linked to that of crude oil; while ethane burns at a

lower temperature, and is not easily transported due to

liquefaction difficulties, so is not usable except in the

vicinity ofits producing area, and is necessarily lower in

price than crude. But naphtha is refined from and

necessarily higher in price than crude, so that natural gas

is much cheaper than naphtha as a raw material for

ethylene. This is the first point.

Second, naphtha's chemical composition is much more

complex than ethane's, producing many other chemical

compounds in the refining process, so that an average of

3 tons ofnaphtha are required to produce the same 1 ton

of ethylene that can be produced with only 1.1 tons of

ethane. This means that for the same amount of ethylene

output, plants that use natural gas as a raw material are

smaller and simpler, so require smaller investments.

In short, as ethylene made from natural gas requires less

investment and comes from a cheaper raw material, it is

far more competitive than that made from naphtha.

Producers in natural gas producing areas of ethylene

derivatives, such as polyethylene and styrene, are also

bound to be able to determine the international market

prices ofthese derivative products. This is why, despite

the general U.S. trade deficit, U.S. petrochemical products have been able to achieve a trade surplus of more

than $10 billion a year. Meanwhile, Asia's petrochemicals industry uses naphtha as a raw material almost

exclusively, which means that for the foreseeable future,

it will be faced with pressure from producers in Canada,

the United States, and the Middle East. (This is the

reason why Taiwan's China Petroleum Company supplying petrochemical raw materials at U.S. prices is

subsidization.)
JPRS-CAR-92-071

IS September 1992 TAIWAN 57

Downstream Customers Are Moving to Mainland China

Taiwan's petrochemicals producers are faced with a

greater problem oftheir downstream customers moving

to Mainland China than are other places in Asia. The

severity of this problem might be explained by the

following example. If a certain petrochemical product in

Asia has a cost, insurance and freight (C.I.F.) at $ 1,000 a

ton, and Taiwan's import duty is 3 percent, Taiwanese

petrochemical producers can take advantage of favorable factors, such as spot supply and no need for credit

customers, to sell their product at a price that is 5-7

percent higher than the C.I.F., for an income of$ 1,050 to

$1,070 a ton. Ifthese producers sell the same product to

downstream customers who have moved to Mainland

China, they can deduct freight costs of about $50 a ton

from the international C.I.F., for an actual income of

about $950 a ton, or a price difference of $ 100 to $ 120 a

ton, which is generally equivalent to the profit of a

petrochemical producer. Unless they can increase the

usage of local customers in Taiwan, petrochemical producers have no reason for further investment in Taiwan.

Will Taiwanese manufacturers be able to stop or slow the

move to Mainland China? Unless the PRC changes its

policy, the answer to this question is no. For instance,

the Zhu Jiang (river) Delta has well-developed infrastructures, such as water, power, and transportation, plus

the two uniquely favorable conditions of a shortageproof and cheap labor supply, and a more convenient

administrative system, due to the devolution of

authority to lower levels. Ordinary investments there of

millions of U.S. dollars require dealings only at the

township level, which would be impossible in other

places. While this can lead to other abuses, the area is

still overall an attractive place in which to invest. This

can be regarded as a footnote to the shift of Taiwanese

investment from its initial flow to Southeast Asia to its

current one to Mainland China.

Petrochemicals producers who invest in Mainland China

can expect favorable land conditions and the advantage

of selling to export customers at prices slightly higher

than the international C.I.F. Moreover, high tariffs will

enable them to earn very high profits from domestic

sales, so that their overall profits will be much higher

than those offactories in Taiwan. At question is whether

the Taiwan government will allow the petrochemicals

industry to invest in Mainland China.

Will Taiwan Be Able To Keep Its Key Petrochemicals

Industrial Base?

Taiwan's economic base is manufacturing, so that due to

the macroclimate, while the government cannot control

the move abroad ofdownstream manufacturers, it is still

demanding that the industrial "base" remain in Taiwan.

As the petrochemials industry is a "key base," what will

Taiwan's industrial world have left ifit cannot keep this

base? And how would it change the whole society? This

March, Taiwanese banksjointly loaned Taiwan Plastics'

U.S. plants over 2 billion yuan, which should be one way

for the Taiwanese government to meet Wang Yungch'ing's demand to keep the "base" in Taiwan.

On a deeper level, the most basic safeguard for Taiwanese firms on Mainland China is an independent

Taiwan. Will most of the industry having moved to the

PRC speed up "reunification"? And how will Taiwanese

firms maintain their independence after reunification?

All such questions must be asked by those who care

about Taiwan. What actually is a "base"? How is Taiwan

qualified to keep which "bases"? And what will be the

state of Taiwan's industrial and social structures five

years from now? These may be the biggest issues facing

Taiwan at present.
HT1S

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