Economic Reform and State-Owned Enterprises in China, 1979-1987

Economic Reform and State-Owned Enterprises in China, 1979-1987

Economic Reform and State-Owned Enterprises in China, 1979-1987

Economic Reform and State-Owned Enterprises in China, 1979-1987

Synopsis

This book is the result of a large-scale investigation through detailed questionnaires of China's reform process over the years 1979-87. It analyzes China's gradualist transition to a market economy, and concludes that, although the reform program has been a qualified success, further progress requires the introduction of private ownership. Both D.A. Hay and D.J. Morris approach this subject from a strong industrial organization perspective.

Excerpt

Reform of the economic system in China has two aspects, operational reform and ownership reform. Operational reform refers to the substitution of the mandatory planning system by a market-orientated system. Ownership reform includes two elements. The first element is to reform the existing ownership structure where public ownership predominates. A multi-ownership system may be established in which the public sector still plays a key role but other forms of ownership are encouraged. The second element is to reform state (public) ownership itself and establish a new form of public ownership in order to stimulate economic growth. The two aspects of economic reform are interdependent. The formation and successful operation of a market system, which depends on other reforms such as price reform to allow the market instead of government to determine prices, should permit state-owned enterprises to operate in the market. So it is necessary to reform their ownership because without reform they are unlikely to become a major force in the market. Of the two aspects of reform, ownership reform, especially in state-owned enterprises, is the more critical. This is because state-owned enterprises still play an important role in the national economy despite the fact that the collective and private sectors have grown rapidly in recent years, and that the share of industrial output produced by such enterprises as a proportion of total industrial output declined from 77.6% in 1978 to 54.6% in 1990 (in current prices).

Reform in state-owned enterprises in China started in October 1978 when six state-owned enterprises in Sichuan were selected for an experiment in increasing enterprise autonomy. Since then, enterprise reform has experienced four different stages: (1) 1978-80, reform was focused on increasing enterprise autonomy; (2) 1981-82, reform was focused on contract profit delivered to the state; (3) 1983-86, reform was focused on the substitution of profit delivery with taxes; and (4) from 1987, reform has been focused on the contract-responsibility system. In 1992, reform in state-owned enterprises has entered a new stage, i.e. the share system. Although there are many different opinions about their reform, it is generally agreed that they should become entirely responsible for their own management, profits, and losses.

State-owned enterprises require reform to become independent. If they are not independent, they cannot participate actively in market . . .

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