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Part2 Country Report : Reform Achievement, and Future Perspective

Chapter I Cambodia 1 Pre-Economic Reform 1-1 Under the Heng Samrin Administration

In 1975, the Democratic Kampuchea government (the Khmer Rouge) was formed, and an enforced communism based on agriculture was created. This regime had, on several occasions, provoked Vietnam with military actions ; the Khmer Rouge considered Vietnam to be its most serious threat.1

At the end of 1978, Vietnamese troops responded by attacking Kampuchea, and conquered Phnom Penh, the capital, in January 1979. They then established the People’s Republic of Kampuchea (the Heng Samrin Administration). This government followed a policy not of fanatical communism, which the former government had aimed, but of a centrally planned economy modeled after Vietnam, controlled through Vietnamese power. However, the control by the Heng Samrin Administration had not spread throughout the country, largely because of the former regime’s repeated attacks on the new administration. 1-1-1 The Political Situation

The Heng Samrin Administration rushed headlong into a civil war with the Khmer Rouge which has lasted for several decades. As the Khmer Rouge adopted guerrilla tactics, the civil war intensified.

The Heng Samrin Administration had not been able to gain complete reign of the country. Nor could it establish a centralized society, since the civil war has continued without interruption.

In Kampuchea (later Cambodia), control by a single communist party similar to other socialism countries has not emerged. 1-1-2 The Economic Situation

To reform the economy of Kampuchea, this administration decided to keep land, natural resources and all industries under state control. At the same time, all private property rights were extinguished, as were records of property. The regime had arranged some infrastructure development to stabilize their rule, using aid from the former Soviet Union. In 1984, most of factories in the provinces resumed their operations under the patronage of the Vietnamese army.2

However, as before, agricultural production was dominated by climate : they were not able to steadily supply foods for the provincial populations. Particularly from 1984 to 1985, the economic situation reached almost famine-like proportions because of continued bad harvests. Since the Democratic Kampuchea party changed their strategy to that of a guerrilla war, transportation of commodities and people between farm villages and towns was severely hindered, and caused much harm to agricultural production. Floods, damage from insects, and droughts worsened the situation still more.3 In short, natural phenomenon and a civil war brought the economy to the brisk of collapse.

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1-2 The First-Five-Year Socioeconomic Restoration and Development Programme (1986-1990)4

Heng Samrin published “The First-Five-Year Socioeconomic Restoration and Develop- ment Programme” to rehabilitate the economy in October, 1985.

The contents of plan were as follows: (1) The first priority of five years, between 1986 to 1990, is to maximize agricultural production. Foods, rubber, timber and fishery products will take precedence. (2) To accelerate the rehabilitation of rubber production (3) To rehabilitate existing industrial production, then to construct medium and small manufacture bases (4) To improve the actual imbalance of the national economy by exports and thrift (5) To consolidate the distribution and transport systems (6) Investment for infrastructure has to be distributed to waterways, the rehabilitation of transport and communication, development of rubber, the rehabilitation of basic enterprises and plans, etc. (7) To succeed the First-Five-Year Plan by fundamentally changing the group of leaders and control of the economy

As mentioned above, the shortage of foods had been a serious problem in the mid-1980s in Kampuchea. Rehabilitation of agriculture, particularly foods, was given top priority.

However, the plan failed. The government ignored actual conditions. Because this plan was made on the premise that 2.1 million tons of rice production should have been harvested from 1.7 million ha of cultivated areas in 1985, the beginning of the plan. In practice, only 1.04 million tons of rice, less than half the estimate, was harvested, due to unseasonable weather and the disturbances from war.5 1-3 Movement for Constitutional Reform

The Heng Samring Administration changed policies in an attempt to resolve the domestic disorder. The government tried to eliminate the socialistic character of Kampuchea, to put an end to the continuing civil war and to promote national reconciliation.6 They reformed part of the constitution in February 1989, and the following measures were enacted. (1) The citizens have the rights of property, use and inheritance of houses and land property, which is distributed for cultivation by the state. (2) The sale or rent of state-owned unused land is prohibited. Use of agricultural land and abandoned forest for agriculture is prohibited without permission of authorities.

The government then changed the name of the country from “People’s Republic of Kampuchea” to “Cambodia,” reforming the constitution in May 1989. They also recognized Buddhism as a state religion and abolished the death penalty. 1-4 Movement for Reform of the Economy

People could own land after an interval of about 15 years because of constitutional reform in February 1989. The government published “the policy of party and government for farmers” in April 1989, and recognized the right for farmers to keep cultivated land and to

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sell products freely at the market. This publication also said that the state had to fix prices that gave farmers a strong incentive to increase production. Therefore, at this time, price liberalization was not yet achieved. In addition, a foreign investment law was introduced in July 1989. (The government had previously announced in 1988 its intention to introduce this foreign investment law by mid-1989.7) The independence of the state enterprises’ accounts from the national budget began and some reforms were introduced in late 1989.

The state had attempted reforms prior to 1989. According to the First-Five-Year Plan in 1985, the administration recommended private commercial activities after paying tax to rehabilitate the Cambodian economy. Collective farm management was dismantled slowly, too, as will be discussed later.

However, socialistic commercial nets had not been sufficiently established, largely because socialism had been introduced very loosely in Cambodia. The government had not been able to supply fertilizer and commodities at low prices, and a free market continued to exist throughout.8

In July 1988, the state amended the constitution about trade from “trade is a national monopoly” to “trade set under the supervision and administration of the government.” The state also abolished the ministry of economic and cultural cooperation with other socialist countries, and installed a tourism general bureau under the cabinet in the next month.9 1-4-1 Outline of the Transition of Agricultural Sector

Though collective farm management had continued without having land and private property since 1979, this strict system had been loosened little by little from the mid-1980s. About 90 percent of farmers that possessed land became independent by 1989.

We cannot conclude definitely whether this change was made just as the government intended or if it happened naturally by the economic activities of farmers, since the socialism had not been firmly established.

We would like to explain the process of dismantling briefly. Since 1979, collective farm management had dominated rural society, as individual

farms were short of workers on account of the ravages of the 1970s. These collectives were known as “krom samaki.” In the early 1980s, about one third of the krom samaki had belonged to the group. There was no private property : they divided their harvests among members according to their finished work. By 1989, this group had vanished completely.

In place of this strict group, an intermediate group, of which members partitioned the land and equipment among them, (but important tasks such as harvesting were enforced jointly), and the loosest group, of which members were independent and owned the land, had increased gradually. By 1989, the latter group had expanded and accounted for 90 percent of all farmers.10 1-5 Assessing the Beginnings of Economic Reform

As mentioned above, some economic reform had taken place in Cambodia through the 1980s. The government adopted in the policy of reform twice since 1979.

The first was in 1985, when the administration introduced “the First-Five-Year Socio- economic Restoration and Development Programme.” At that time, the market economy had

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been developed slightly : the dismantling of the collective farm system was a result of that plan.

The second was in 1989, when the government amended the constitution drastically. It is also said that the amendment of the constitution was performed to solve political problems, though the economy was in dire straits. However, it was proper that the administration also intended to restore Cambodia’s exhausted economy by introducing basic essentials of a market economy like price liberalization and free competition. Therefore it is natural for us to think that the transition to the market economy of Cambodia began in 1989.

In 1992, the World Bank published the report, “Cambodia Agenda for Rehabilitation and Reconstruction.”11 In that report, they concluded that economic reform to the market economy started in 1989. We concur with this assessment. 2 Economic Reform

In this section, we explain the details of reforms after 1989. According to the World Bank’s report,12 economic reform is divided as follows. (1) Agrarian Reform (2) Reform in Commerce and Industry

(a) Reform of State Enterprises (excluding the transfer of ownership) (b) Privatization of State Enterprises (including the transfer of ownership) (c) Development of Private Sectors

2-1 Agrarian Reform

The major reforms in agriculture enforced in 1989 were: (1) private ownership of the land (2) improvements in pricing, taxation and marketing policies 2-1-1 Private Ownership of Land

The administration recognized “the rights” of land possession and inheritance by amend- ment of the constitution in February 1989. After that, (1) private ownership of land used for agriculture and sustenance of the people is transfer- able (2) concession (usually 10-15 years) of surplus land will be given to farmers who demon- strate its cultivation.

In November 1989, a new department, the Department of Land Reform and Titles, was established under the jurisdiction of the Ministry of Agriculture to support the issuance of usufruct rights and concessions to farmers at the provincial level. 2-1-2 Reform in Pricing, Taxation, and Marketing

Most reforms regarding pricing, taxation, and marketing have been enforced after 1989. Firstly, the government published the policy that “the administration guaranteed free

economic activities and preferential prices for farmers” in April 1989. However, the liberali- zation of prices were not achieved at this time, as they also said that “the administration had

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to decide the prices to raise farmers’ incentives for production” in the same policy. After that, the following modifications were added:

(1) Substantial price liberalization was achieved. As the Ministry of Agriculture regularly announced the public price of rice, it is used only as an index. Prices of most goods and services (with the exception of fertilizer) were to be decided by the market. (2) The land tax was eliminated completely in 1992. This tax had been continued since 1983, and various tax rates had been imposed based on classification of land used for rice. (3) Import taxes on agricultural inputs were eliminated for 1990/92. (4) As price liberalization was achieved in the market, there had also been a practice that farmers had to sell products to the government at below market price, but this practice was abolished in 1992. 2-2 Reform in Commerce and Industry 2-2-1 Reform of State Enterprises (1) Financial Autonomy

The government introduced a new system regarding the financial autonomy of state- owned enterprises (SOEs) in late 1989. SOEs were required to become independent finan- cially and the state suspended payment of subsidies by this system. Instead, they could keep after-tax profit and return only half the amortization to the state. They would look for commercial financing from the banks. They also had to pay taxes as private enterprises.

However, the state has maintained the strict control regarding SOEs’ investment and foreign exchange expenditures. SOEs have to get permission from authorities when they invest in or purchase equipment and spare parts, even if they use their own funds. They have also been required permission to borrow money from banks, even for small sums. Foreign money that SOEs earned has to be deposited, and they are required to use foreign money along the national plan even if they want to use foreign money for purchasing materials, parts and equipment.

Therefore, the financial autonomy of SOEs from the state have not yet been substantially achieved. (2) Pricing

The government has continued to regulate the pricing of SOEs. Even in the manufactur- ing sectors, administration approval is needed for the pricing of most products. Approval is also needed for the price of public utilities, freight and other important services. The procedure is so complicated that it takes more than six months to get permission. During the procedure, inflation made price-raising moot. (3) Other

The state attempts to assess the financial situation of SOEs because they want to transfer the excess funds to the budget. SOEs have to transfer the profit by selling at higher prices than the state approval prices. 2-2-2 Privatization of SOEs (1) Privatization

The administration started the new policy of partial sales and leases of SOEs in 1989 in

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the belief that privatization is an important alternative policy for rehabilitation. As for the process of privatization, the ministries in charge prepare enterprises for sale,

while they look for buyers. Large enterprises are decided by the National Committee, after receiving final permission by the Council of Ministries. At the provincial level, the authorities prepare, negotiate and decide the privatization, though they need advance approval by the National Committee for the privatizing plan. (2) Forms of Privatization

The leasing system has become one of privatization. In the main ministries, more than half of privatized enterprises have been leased. The fixed assets of enterprises are leased from 15 to 25 years. Initially the government thought that a leasing system was preferable in many cases since domestic investors who did not have enough money had a chance for purchase. But ultimately, many investors are foreigners. The government wants to restrict possession of the land that is most favored for investors as property. Besides, considering the economic and political situation of Cambodia, leasing is less risky for investors.

There were 69 state enterprises before the enforcement of the new policy. Currently, 35 factories have already been leased to private companies.13 2-2-3 Development of Private Sector (1) Banking Reform

The reform of the banking system happened toward the end of 1989. The Cambodian banking system is composed of the National Bank of Cambodia (NBC), its foreign trade subsidiary, its 19 provincial branches, and the Municipal of Phnom Penh. Up to May 1993, 22 joint venture banks and branches had already opened. The main investors are from Thailand, Malaysia, France and other countries.14 (2) Private Activities in Services and Manufacturing

The Ministry of Tourism was established in 198815, followed by the enactment of the Foreign Investment Law in July 1989. Many foreign investors have launched into Cambodia, buying or leasing privatized enterprises. Much capital, domestic and overseas, has been invested in the hotel sector. Investors have leased many hotels and guesthouses, and rapidly renovated them. Several four-star hotels were opened in 1990.16 (3) Others

The administration decided to use private power to exploit natural resources, disposing exploitation rights. In 1991, the authorities parted with six rights oil and gas production, and gave more than twenty rights to private investors in 1992. 2-3 The Second-Five-Year Socioeconomic Restoration and Development Programme (1991-1995)17

After implementation of the First-Five-Year Program, the state adopted the Second- Five-Year Socioeconomic Restoration and Development Programme in January 1991 to continue the rehabilitation of Cambodia’s economy. This program covers the period 1991- 1995.

The main features are: (1) To build a material and technical base in order to promote economic and social develop-

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ment (2) To establish all required regulations and laws necessary for increasing public manage- ment capacity, appropriate to the new stage of development (3) To broaden external relations Priorities are as follows:

(a) agriculture (b) industry and handicraft, especially energy and processing industries (c) transport (d) tourism The administration wrote clearly of the expedition of the private ownership of land and

the privatization of enterprises in this Second-Five-Year Program. The main thrust of the rehabilitation is by the enhancement of the role of the private sectors in the economy. They emphasize economic reform by the introduction of market economy by publishing a report entitled, “Improve economic management by introducing market-oriented principles with a view to benefit the potential of all economic sectors.” Prime minister Hun Sen also emphas- ized “the importance of market economy” for the rehabilitation of Cambodia in this program. 3 Economic Structure 3-1 Industrial Structure

Cambodia is an agrarian country. About 85 percent of the work force are employed in this sector. Though agricultural production accounted for more than 50 percent of real GDP, the share has been decreasing since 1991 (see Table 2-I-2). In particular, a decrease in rice production is the main cause because it has been negative growth since 1990 (see Table 2-I- 3).

Instead of Agriculture, the share of industrial and service sectors have been increasing respectively since 1991.

In the industrial sector, manufacturing has not yet developed. It has decreased its share of GDP little by little till 1990 (see Table 2-I-2). Construction has been developing since 1991, it has given a boost to this sector (see Table 2-I-3).

The service sector has grown steadily, and its share of GDP has also increased gradually (see Tables 2-I-2, 3). Hotels and restaurants have grown very rapidly since 1989, but accounted for only 0.5 percent in 1992, because the starting level was very low (see Table 2- I-2). 3-2 Trade Structure

From 1980 to 1987, foreign trade had been dominated by the state. Trade had been conducted through the Kampuchea Export and Import Corporation (KAMPEXIM).18 How- ever, the foreign trade was transferred to the control of the state from the monopoly of the state in 1988. Until the changed policy, the main partners had been the former Soviet Union and East European countries.

In 1989, exports to the Non-Convertible Area, the former Soviet Union and East European countries, accounted for 268.366 million thousand rubles, the highest ever. In 1990, however, it decreased by 25.1 percent, to 201.1 million rubles (see Table 2-I-4).

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Trade balance for Non-Convertible Area has run a deficit since 1985. However, it became a surplus in 1990 for the Convertible Area. 4 Macroeconomy

The GDP growth rate in real terms (1989 constant prices) had decreased yearly from 1988 to 1990 (see Table 2-I-3). In 1991 and 1992, it experienced 7.6 and 7.0 percent growth respectively, but it is estimated 5.7 percent in 1993, because the growth rate of industrial and service sectors were low comparing with those of 1992.

The per capita GNP of Cambodia was 200 dollars in 1991,19 less than one hundredth of that of Japan. Cambodia is one of the poorest countries in the world. 4-1 Economic Growth 4-1-1 Agriculture

Though the growth rate of agricultural production had remained steadily except in 1990, it experienced 1.9 percent, low growth rate, again in 1992 (see Table 2-I-6). In 1993, it is estimated at 3.2 percent, as it is not so high, and it appears recovery. The main cause is that rice production which accounted for more than 30 percent of agricultural production has continued negative growth for three years since 1990 (see Table 2-I-3). It was analyzed that the direct effect of weather affected the harvest because of ineffective management and shortage of fertilizer. The share of rice production in GDP decreased from 21.2 percent in 1989 to 16.6 percent in 1992 (see Table 2-I-2).

Rubber and timber are the main export goods. The growth rate of timber production has been satisfactory, while that of the rubber production has changed drastically every year. As for timber production, deforestation has increased gradually because it has export priority. Thus illegal exploitation has also increased. Afforestation has started since 1990 to preserve the forests, but the quantity has not been enough to balance out the destruction.20 4-1-2 Industry

Though the growth rate of industry was -2.1 percent in 1990, it grew 8.9, 15.6 percent in 1991, 1992. It is also estimated at 10.0 percent in 1993, so it is expected high growth for two years (see Table 2-I-6).

As manufacturing grew 6.8 percent in 1991 and 3.0 percent in 1992, its share of real GDP has decreased by 6.8 percent (7.0 percent in 1991). The growth rate of construction has been very high, so it has been pulling the industrial sector (see Tables 2-I-2,3). The growth rate of electric power has decreased since 1989. The electric power system of Cambodia is one of the least developed in the world.21 As these systems have been destroyed by civil war, they are in urgent need of repair. It is estimated that 34.9 percent of the growth of the electricity and water sector in 1992 will take place within the electric power system. 4-1-3 Services

This sector has developed very satisfactorily (see Table 2-I-6). The share of services in real GDP increased from 32.3 percent in 1989 to 34.8 percent in 1993 (see Table 2-I-2).

Hotels and restaurants have increased very rapidly since the start of the rehabilitation.

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But as the base was very low, the share in real GDP is estimated at only 0.5 percent in 1992. 4-2 Prices

Recently, money supply (M2) has grown at very high rates since 1988, appropriate to the expanding national budget (see Table 2-I-6) The expansion in money supply has also formed the sudden rise in consumer prices. The CPI grew at a rate of 145.8 percent in 1990, 171.5 percent in 1991, and was only 94.7 percent in 1992. The reduced rate of liquidity growth in 1991 might effect the decline in the CPI in 1992. However, the growth rate of money supply in 1992 was 214.1 percent. So the CPI in 1993 is estimated at 120.2 percent again. 4-3 Public Finance

The SOEs, as contributors for fiscal revenue and commodity assistance from the former Soviet Union and the Eastern European countries, had been very important under socialism.22 But national revenue has been decreasing since 1989 because privatization of the SOEs by liberalization of the economy. Additionally, assistance from the former Soviet Union and the Eastern European countries has dried up since 1990.23

Total revenue (including aid from the above countries) had covered about 95 percent of expenditure until 1989, with only 5 percent being financed by money creation. However, the decrease in revenue has caused the sharp increase in money creation after that. In 1991, total revenue achieved less than 60 percent of total expenditure.24

As it is difficult for the government to reduce expenditures, they have only one option : to borrow money from the Central Bank, thus causing inflation. The official exchange rate was devaluated from 148 riel to the dollar in 1988 to 2800 riel (estimated) in 1993 (see Table 2-I-5). ADB’s statistics, which was published recently, also revealed the same devaluation (see Table 2-I-6). 4-4 Trade Balance

Though the trade deficit of Cambodia had been covered by credits by the former Soviet Union, these credits were stopped in January 1991.25 In 1991 imports and exports grew at rates of 74.4 percent and 194.4 percent, respectively, so the deficit was 33 million dollars, the lowest level ever. However, though the growth rate of imports in 1993 is estimated at 12.0 percent, that of exports is expected -23.7 percent. As a result, balance of trade in 1993 is estimated at -185 million dollars, and a substantial increase of trade deficit is supposed. Trade deficit intends to increase on account of inactivity of the export trade (see Table 2-I-6). 4-5 Statistics

We wrote the above section of the “Macroeconomy” according to the Asian Development Outlook 1994. There is another set of statistics, published by the government of Cambodia (see Table 2-I-5). We can find many discrepancies between these two statistics. For example, though the growth rate of real GDP was 7.6 percent in 1991 on the statistics of ADB, it was 13.5 percent on those of Cambodia. There are notable differences about the growth rate of agricultural production and trade balance.

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It is difficult for us to judge which is correct. For example, we cannot estimate the trade value on the borders with Thailand and Vietnam.

It is very important for Cambodia to make accurate statistics as quickly as possible. They have to recognize the economic situation accurately to reform. 5 Fiscal Reform

As mentioned above, the most important problems that Cambodia faces are hyper- inflation and fiscal deficits. But a government that creates money to make up for fiscal deficits causes hyper-inflation, so we can say that the fiscal deficits are the main problem.

Recently, the state began fiscal reform. Since late 1992, the administration and United Nations Transitional Authority in

Cambodia (UNTAC) have tried some measures aimed at stabilizing the economy. 5-1 Tax Reform

The government of Cambodia and UNTAC have tried to arrange a system of import tariffs to broaden the budget revenue. They also introduced a 10 percent tax for hotel charges in October 1992. As for the import tariff, they created a system that imposed a 50 percent tax on luxury goods and a 7 percent tax on fundamental goods. They also introduced a sales tax of 2 percent tax on domestic goods and 4 percent on imported goods.

After the withdrawal of UNTAC, which began in September 1993, the government of Cambodia decided to tax the income of individuals earning more than 300 dollars per month from March 1994 and will introduce a 25 percent tax on corporate profit in the near future. 5-2 Expenditure Reform

As for annual expenditures, the government of Cambodia and UNTAC organized a system in which UNTAC supervised the outlay of the government, and the auditors of accounts were posted at the main ministries and agencies.26 (After the withdrawal of UNTAC, we cannot understand that how the system has been operated because of the lack of information.)

The administration also tried to restrain expenditures, as the average monthly salaries of about 290,000 public servants and soldiers have not exceeded 40,000 riel (about 15 dollars).27 6 Impact of UNTAC

UNTAC’s operation, with a total budget of 3 billion dollars, had been planned for 18 to 24 months. The full-scale activities took place from March 1992 to September 1993.

Some estimated that the operation of UNTAC caused the hyper-inflation and the distortion of the economy in Cambodia. Some papers said that dollars distributed by UNTAC produced brief prosperity in Cambodia, while food prices rose three or four times by cornering UNTAC personnel and other foreigners.28

In response to these charges, UNTAC issued a report entitled, “Impact of UNTAC on Cambodia’s Economy,”29 published in December 1992. They refute as follows.

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6-1 Impact on Prices UNTAC paid salary for staff and locally recruited employees in dollars. UNTAC’s staff,

who came from outside Cambodia, used money for rental of houses and hotel fees. They also bought foods, which were almost all imported, in dollars. Used dollars were deposited in foreign accounts, sent overseas and used for purposes such as buying gold. Payment to locally recruited employees was not more than 1 percent of UNTAC’s total local expenditure, and they used almost all their dollars to buy gold and jewellery. UNTAC purchased some goods and equipment, which were also almost imported. In the end, the dollars they earmarked to Cambodia added up to a small sum.

As for the rise of hotel fees and rental costs, the responsibility might rest with UNTAC. But this has little to do with local residents. UNTAC also concluded that the hyper-inflation was caused by money creation by the Cambodian government to cover expenditures. So the outlay of UNTAC did not affect the economy of Cambodia according to the report. 6-2 Impact on Others

In Cambodia, there was a shortage of trained labour with multilingual and artisanal skills. UNDP estimated that these people did not exceed 300 at the end of 1979. It’s difficult to conclude that the number of professionals has increased substantially until the develop- ment of UNTAC, considering the domestic situation after that. Therefore these people’s wages were very high, compared to other employees. So many people have become to learn foreign languages and operate computers, one good effect UNTAC has had.

Though Cambodia remains a high investment risk because of continuing civil war, many people have invested in hotels. It is said that they can invest because of the Peace Keeping Operation of UNTAC. UNTAC has contributed toward regained trust in Cambodia.

UNTAC expressed its innocence that it had not boosted Cambodia’s prices. However, it can be surmised that the wages of hotel employees where UNTAC had used rose with the jump in hotel fees. According to the data, the recent growth of service sector is remarkable. (see Table 2-I-3) It is undeniable that UNTAC was related to the prosperity of the service sector.

It may safely be said that the operation of UNTAC has not only influenced the economy of Cambodia directly but also affected prices indirectly. 7 Evaluation

The transition to a market economy in Cambodia began in 1989. This was began to rehabilitate the economy. Though the civil war between the state and Pol Pot’s regime has continued even today, the government has began to try fiscal reform, revival of agriculture, (a key industry in Cambodia) improvement in the social structure to attract foreign investment, etc., as the focus of economic rehabilitation.

We would like briefly to reiterate the main themes. 7-1 Agrarian Reform

The Heng Samrin Administration, established in 1979, aimed at reconstruction of the state by nationalizing property nationwide. Farm land was nationalized as a matter of

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course, and collective farm management began. However, collective farm management began to dismantle with the enactment of the First-Five-Year Plan. About 90 percent of farmers, by 1989, became independent farmers who had land. The administration recognized land ownership and inheritance for citizens officially in the constitutional reform of February 1989.

As for the price of agricultural products, price liberalization was permitted regarding farm surpluses, after supplying to the government at below market prices. As this regulation was abolished in 1992, price liberalization was achieved completely. Reform in the agricul- tural sector has been favorably promoted.

However, agrarian growth has not been good. In rice production, shortage of fertilizer, delay of mechanization, damage by civil war etc. are the main causes. In forestry, indiscrimi- nate deforestation has happened because of export priority, so natural destruction is an increasing big problem.

The realignment of institutions has begun. This is time when the administration has to think of how to raise agrarian output. They have to promote irrigation, and a steady supply of fertilizers. They also need to create a strategy which is compatible with the preservation of nature. 7-2 Price Reform

Though all prices were controlled under the Heng Samrin Administration, the free market (the black market) existed.30 The government published its “policy of party and government for farmers” in April 1989, in which they said “the administration had to decide the prices to raise the farmers’ incentives for production.” Therefore price liberalization was not yet achieved at this time. After that, though price liberalization of agricultural products was achieved completely by 1992, price liberalization in manufactured goods was not yet forthcoming. Whenever manufacturers want to raise the prices of their goods, they still have to get approval from the administration.

As price liberalization is insufficient, the government has to achieve complete price liberalization as fast as possible by eliminating state regulations. 7-3 SOEs’ Reform

The privatization of SOEs has been promoted since 1989, the year the Foreign Invest- ment Law was enacted. About a half of the 69 SOEs have been privatized. Most investors prefer leasing to purchasing because of instability of the political situation of Cambodia, so almost privatized enterprises have been leased. Most of the investors are foreigners.

The private sector has not been developed yet on account of flaws in infrastructure such as lack of electricity, communication and transport equipment,etc.

The reform of this sector has started, but effect of reform has not yet appeared. To promote further reform, the government has to achieve political stability to reduce

the risk that prevents most investors. The administration needs to arrange the circumstances to attract large-scale investment. The state also needs to improve both hard and soft- infrastructure to develop industries.

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7-4 Macroeconomy Economic data before 1989, when economic reform started, are scarce. The government

did not emphasize an improved economy because of the continuing civil war since the end of 1970s. Therefore, we cannot conclude that the economy had operated smoothly.

After 1989, judging from macroeconomic data (as there are differences according to the source), the agriculture and service sectors have been rehabilitating satisfactorily. We think that this phenomenon was brought about by the political stability and effect of UNTAC, though the economic reforms had an effect as well.

However, hyper-inflation (171.5 percent in 1991) and fiscal deficits (about 40 percent of annual expenditures in 1991 were money creation) are the most important problems, so the administration has to introduce a policy for macroeconomic stability immediately. 7-5 Fiscal Reform

The government began the fiscal reform to correct hyper-inflation and fiscal deficits. Since late 1992, the administration and UNTAC have tried some measures aimed at stabiliz- ing the economy. As the fiscal deficits caused hyper-inflation, they arranged a system of imported tariffs and introduced a 10 percent tax on hotel fees to broaden the budget revenue.

As for government expenditures, they organized a system in which UNTAC supervised the outlay of the government, and the auditors of accounts were posted at the main ministries and agencies.

After the withdrawal of UNTAC, the state decided to impose a tax on people in the upper income brackets, and will introduce 25 percent tax on corporate profit in the near future. Additionally, they are trying to restrain expenditures, as the average monthly salaries of about 290,000 public servants and soldiers have not exceeded 40,000 riel (about 15 dollars).

If the fiscal reform is improved satisfactorily, hyper-inflation will come under control. This reform has just started recently, so institutions are still in need of restructure. They need to create a modern system of taxes to rebuild finance. 7-6 Closing Remarks

Cambodia has begun to break out from the socialist-type economy to that of a market economy. As the government has tried to substitute institutions to suit to the new system, these are still far from complete. The market economy of Cambodia has not operated fully yet. The government of Cambodia has undertaken economic reforms only recently, and at present it is premature to evaluate the transition to a market economy. The administration has to persevere for several years until the market economy operates functionally.

To make the economic rehabilitation of Cambodia a success, the following are needed: (1) Political Stabilization

The achievement of political stabilization has to be given the highest priority for the rehabilitation of Cambodia’s economy. They have to end the civil-war as soon as possible. They have to build up the system so that the government can devote its attention to the rehabilitation of the economy. (2) Fiscal Reform for Macroeconomic Stabilization

Considering the situation that the government has not solved its continuing civil war

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against the Pol Pot regime, it is difficult for Cambodia to achieve the political stabilization alone. They have to strive for economic stabilization along with political stabilization. As for the economic stabilization, it is very important to stabilize the macroeconomy. Since 1992, the administration has embarked on fiscal reform - - the most crucial problem in Cambodia, aimed at the stabilization of the macroeconomy. However, inflation is not yet under control, and fiscal reform is also incomplete so far. They have to implement fiscal reform more thoroughly. (3) Development of Infrastructure

As we mentioned above, the electric power system of Cambodia is one of the least developed in the world. Most infrastructure like roads, ports and communications has not yet developed. These have arrested the growth of Cambodia’s economy. The administration has to build on infrastructure to stimulate the development of the private sector. They also have to develop soft-infrastructure concurrently with hard-infrastructure.

Cambodia has a peculiar feature, which is different from other socialist countries : control by a communism party was not firmly established. Centralization, which is one of the largest obstacles to the introduction of a market economy, has not spread nationwide. This imperfection of centralization may actually help the process of economic rehabilitation of Cambodia. (Uchikawa)

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FOOTNOTES 1/ AMAKAWA, [1990, p.80] 2/ IMAGAWA, [1985, p.211] 3/ TAKESHITA, [1986, p.202] , KIMURA, [1987, p.232] 4/ TAKESHITA, [1986, p.228] 5/ TAKESHITA, [1986, p.202] 6/ KIMURA, [1990, p.268] 7/ The Economist Intelligence Unit, [1988, p.27] 8/ KIMURA, [1987, p.232] 9/ KIMURA, [1989, p.263] 10/ The World Bank, [1992, p.17] 11/ The World Bank, [1992] 12/ The World Bank, [1992] 13/ Mr. Tuon THAVRAK, Bureau Chief of General Planning Department, Ministry of Planning of Cambodia (Economic Report on Cambodia) [1993] p.11 14/ Chhieng YANARA, Director of General Planning Department, Minstry of Planning of Cambodia (Reform of Macroeconomic Policy) [May 1993] p.11 15/ The Economist Intelligence Unit, [1991, p.72] 16/ The Economist Intelligence Unit, [1991, p.72] 17/ Government of Cambodia, [1992a] 18/ YANARA, [1993, p.5] 19/ Asian Development Bank, [1993, p.259] 20/ Government of Cambodia, [1991a, p.3-4,22] , [1991b] 21/ Asian Development Bank, International Monetary Fund, United Nations Development Programme, The World Bank, [1992, p.11] 22/ AMAKAWA, [1991a, p.257] 23/ United Nations Transitional Authority In Cambodia (UNTAC), [1992b, p.24] 24/ YANARA, [1993, p.13] 25/ AMAKAWA, [1991a, p.257] 26/ TOMIYAMA, [1993, p.231] 27/ Nihon Keizai Shinbunsha, [1994.3.7] 28/ Mainichi Shinbun [1992.9.3] , Yomiuri Shinbun [1992.9.17] 29/ United Nations Transitional Authority In Cambodia (UNTAC), [1992a] 30/ KIMURA, [1988, p.259]

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REFERENCES

AMAKAWA, Naoko, Institute of Developing Economies “Cambodia, Laos” Asia Doko Nenpo 1991 1991a p.251-284

----------, Institute of Developing Economies “Cambodia” Asia Doko Nenpo 1992 1992 p.233-248

----------, Institute of Developing Economies “The Composition of Cambodia’s Dispute” Asia Trend 1990-IV 1990 pp.79-89

----------, Institute of Developing Economies “Activated Supreme National Council of Cambodia” Asia Trend 1991-III 1991b pp.12-18

Asian Development Bank, Asian Development Outlook 1993 1993 Asian Development Bank, International Monetary Fund, United Nations Development

Programme and World Bank, Cambodia Short-Term Needs August, 1993 ----------, Cambodia Socio-Economic Situation and Immediate Needs May, 1992 Chhieng Yanara, “Reform of Macroeconomic Policy in Cambodia” Working Paper No. 21,

Economic Planning Agency May, 1993 Government of Cambodia, Implementation Situation of the Socia-Economic

Rehabilitation and Development Programme 1991a ----------, Programme of Action of the Provisional National Government for the Coming

Three Months September, 1993 ----------, 1992 State Plan Report on Socio-Economic Development in 1991 and 1992 Plan

1991b IMAGAWA, Eiichi, Institute of Developing Economies “Indochina” Asia Middle East

Doko Nenpo 1985 1985 p.208-211, p.205-230 KIMURA, Tetsusaburo and TAKEUCHI, Ikuo, Institute of Developing Economies

“Indochina” Asia Doko Nenpo 1981 1981 P.203-252 KIMURA, Tetsusaburo, Institute of Developing Economies “Cambodia, Laos” Asia

Middle East Doko Nenpo 1987 1987 p.229-254 ----------, Institute of Developing Economies “Cambodia, Laos” Asia Doko Nenpo 1988

p.257-282 ----------, Institute of Developing Economies “Cambodia, Laos” Asia Doko Nenpo 1989

p.259-282 ----------, Institute of Developing Economies “Cambodia, Laos” Asia Doko Nenpo 1990

p.265-286 Mainichi Shinbun September 3, 1992 Naranhkiri Tith, Ph.D, Reconstruction and Future Development of the Industrialization

of Cambodia : Strategy and Policy October 29, 1991 Nihon Keizai Shinbun June 23 1982 ----------, October 8, 9, 1985 ----------, January 6, 8, 1986 ----------, March 7, 1994 Rengo-Shuppan Cambodia Gendaishi November 30, 1992 Siek Ly Heang “Current Situation and Respect for Future Economic Development”

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Country Report presented in Seminar on Economic Development Policies, Japan Interna- tional Cooperation Agency 1993

TAKESHITA, Hidekuni Institute of Developing Economies “Indochina” Asia Middle East Doko Nenpo 1986 1986 p.195-254

The Economist Intelligence Unit “Cambodia” Indochina : Vietnam, Laos, Cambodia 1989-90 1989 p.47-61

----------, Profile Indochina : Vietnam, Laos, Cambodia Profile 1991-92 1991 p.59-72 The Economist Intelligence Unit, “Cambodia” Indochina : Vietnam, Laos, Cambodia

Country Report No.4 1988 1988 p.22-28 The World Bank, Cambodia Agenda for Rehabilitation and Reconstruction June, 1992 TOMIYAMA, Yasushi, Institute of Developing Economies “Cambodia” Asia Doko Nenpo

1993 1993 p.223-236 Yomiuri shinbun September 17, 1992 Tuon Thavrak, “Economic Reform on Cambodia” Country Report presented in Seminar

on Transition to a Market Economy 1993 United Nations Transitional Authority In Cambodia (UNTAC), Impact of UNTAC on

Cambodia’s Economy December 21 1992a ----------, The Secretary-General’s Consolidated Appeal for Cambodia’s Immediate Needs

and National Rehabilitation May 1992b

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Table 2-I-1 The Economic Reform Chronology of Cambodia

Price Public Finance Financing Enterprises Agriculture Exchange Trade / Investment 1983 1984 Introduction of

Agricultural Taxes

1985 Taxation on Domestic Products, the Licenses of Occupations and Enterprises

Dismantling of Collective Management by Introduction of the First-Five-Year Plan

1986 1987 1988 Attaching

Importance to Management of Joint Venture of Official and Private, Collectivization and Family

Trade:from National Monopoly to Under Supervision and administration by government

1989 Beginning of Price Liberalization

Beginning of the Reform of the Banking System

Introduction of the Policy of Financial Autonomy of SOEs

Beginning of Leasing and Selling of SOEs

Privatization of Land

Introduction of Foreign Investment Law

1990 1991 1992 Achievement of

Price Liberalization for Agricultural Products

Taxation on Hotel Fees (10%)

The Arrangement of Import Tariffs

Abolition of Land Tax

1993 1994 Introduction of

Income Tax on individuals who earn more than $300 per month

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Table 2-I-2 Sectoral Share of GDP in Cambodia

Share of GDP 1988 1989 1990 1991 1992 1993

Real GDP % 100 100 100 100 100 100

Agriculture % 50. 5 52. 2 52. 3 51.8 49.4 48.2

rice % 21.2 20.4 18. 2 16.6

Rubber % 11.3 10 12. 1 11.5

Forestry % 2.5 2.8 3.3 3.5

Industry % 15. 7 15.4 14.9 15.1 16.3 17

Manufacturing % 7.5 7.1 7 6.8

Electricity and Water % 0.2 0.2 0.2 0.2

Construction % 6.6 6.5 6.7 8.2

Services Growth Rate % 33. 9 32. 3 32. 8 33.1 34. 4 34. 8

Transport and Communications % 2.7 2.6 2.7 2.9

Wholesale and Retail Trade % 13 12.5 13.1 14.2

Hotels and Restaurants % 0.2 0.3 0.4 0.5

Source: Asian Development Outlook 1993 Appendix Tables, Asian Development Bank World Bank Note: Date for 1993 are Preliminaey.

Table 2-I-3 Growth Rate of Economic Indicators in Cambodia

Growth Rate 1988 1989 1990 1991 1992 1993

Real GDP % 9.8 3.5 1.2 7.6 7 5.7

Agriculture % 5.9 7.1 1.2 6.7 1.9 3.2

rice % 5 -2.8 -4 -2

Rubber % 14.4 -10.1 30 2

Forestry % -20 14.7 24. 9 15

Industry % 15 1.7 -2.1 8.9 15.6 10

Manufacturing % 13.9 -4.3 6.8 3

Electricity and Water % -2 -9.8 -13.7 34.9

Construction % -10 -1.3 11.7 30

Services % 13.6 -1.1 2.7 8.5 11.1 7.2

Transport and Communications % -0.1 -1.4 9.2 15

Wholesale and Retail Trade % 5 2.4 12.8 16

Hotels and Restaurants % 51.5 83.5 35.7 30

Source: Asian Development Outlook 1993 Appendix Tables, Asian Development Bank World Bank Note: Date for 1993 are Preliminary.

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Table 2-I-4 Direction of Trade Unit

(000) 1980 1985 1986 1987 1988 1989 1990

A. EXPORTS OF GOODS

I. Non Convertible Area

Rubles 855.5 15268.9 18431.8 22476.9 20967.5 26836.6 20112.2

USSR Rubles 855.5 7856. 8 10400.1 13306.0 11321.8 14291.3 13882.0 Germany, D.R Rubles 0.0 1303.8 1061.2 1257.5 1618.7 2763.9 217.0 Czechoslovakia Rubles 0.0 1908.7 1135.7 1570.0 1561.3 1801.7 1741.5 Poland Rubles 0.0 810.8 1.5 646.1 647.8 729.2 678. 8 Bulgaria Rubles 0.0 1463.5 919.4 1200.0 1017.9 1177.6 61.8 Hungary Rubles 0.0 129.3 1409.1 824.2 1193.4 1105.0 326.6 Cuba Rubles 0.0 0.0 0.0 0.0 327.8 465.4 0.0 Vietnam Rubles 0.0 1458.9 3308.5 3048.6 2959.8 4029.2 3071.4 Laos Rubles 0.0 337.1 196.3 624.5 319.0 473.3 133.1 II. Convertible Area US$ 150.5 2453.2 6871.6 4667.4 11522.4 17412.9 14616.0

B. IMPORTS OF GOODS I. Non Convertible Area Rubles 0.0 92141.9 109159.0 112880.9 110323.2 110861.8 103330.0 USSR Rubles -- 81455.7 99861.3 102450.3 99695.4 99365.4 93494.6 Germany, D.R Rubles -- 800.4 1065.9 1468.3 1370.9 2524.7 1980.7 Czechoslovakia Rubles -- 4284.9 1248.2 903.9 1107.4 1427.0 483.8 Poland Rubles -- 501.7 256.2 428.4 596.0 1070.2 347.0 Bulgaria Rubles -- 98.0 2144.5 1784.2 2013.8 1192.4 1161.4 Hungary Rubles -- 807.2 1127.1 1200.3 1330.8 1286.3 1283.0 Cuba Rubles -- 0.0 0.0 0.0 571.5 303.1 0.0 Vietnam Rubles -- 3494.0 2621.6 4167.9 3637.4 3424.6 4260.6 Laos Rubles -- 700.0 834.2 477.6 0.0 268.1 318.9 II. Convertible Area US$ 1330.0 4093.3 10242.9 7375.9 16575.7 24079.7 12022.8

C. TRADE BALANCE I. Non Convertible Area Rubles 855.5 -76873.0 -90727.2 -90404.0 -89355.7 -84025.2 -83217.8 USSR Rubles 855.5 -73598.9 -89461.2 -89144.3 -88373.6 -85074.1 -79612.6 Germany, P.D.R Rubles 0.0 503.4 -4.7 -210.8 247.8 239.2 -1763.7 Czechoslovakia Rubles 0.0 -2376.2 -112.5 666.1 453.9 374.7 1257.7 Poland Rubles 0.0 309.1 -254.7 217.7 51.8 -341.0 331.8 Bulgaria Rubles 0.0 1365.5 -1225.1 -584.2 -995.9 -14.8 -1099.6 Hungary Rubles 0.0 -677.9 282.0 -376.1 -137.4 -181.3 -956.4 Cuba Rubles 0.0 0.0 0.0 0.0 -243.7 162.3 0.0 Vietnam Rubles 0.0 -2035.1 686.9 -1119.3 -677.6 604.6 -1189.2 Laos Rubles 0.0 -362.9 -637.9 146.9 319.0 205.2 -185.8 II. Convertible Area US$ -1179.5 -1640.1 -3371.3 -2708.5 -5053.3 -6666.8 2593.2

Source: Ministry of Planning, Department of Statistics.

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Table 2-I-5 Key Macroeconomic Indicators of Cambodia by Government of Cambodia

unit 1988 1989 1990 1991 1992 1993

Real GDP Growth Rate % 16.2 2.4 -0.1 13.5

Agriculture Growth Rate % -0.6 6.6 -0.9 17.2

Share of GDP % 44 45.8 45.4 46.9

Industry Growth Rate % 29 0.9 -2.4 8.6

Share of GDP % 16.9 16.7 16.3 15. 6

Services Growth Rate % 36 -1.7 1.9 11.1

Share of GDP % 39.1 37.5 38.3 37.5

Balance of Trade $ million -82.9 -90.7 -80.6 -180 -290

Merchandise Imports $ million 126.9 135 115.3 243 360

Growth Rate % 5.4 6.4 -14.6 110.8 48.1

Merchandise Exports $ million 44 44.2 34.7 63 70

Growth Rate % 61.8 0.5 -21.5 81.6 11.1

Overall Budget Surplus/Deficit of Central Government Riel million -1840 -7850

Changes in Money Supply % 81.8 150.1 47.4

Official Exchange Rate Riel/$ 148 268 537 818 1520 2800

Source: Department of Statistics and World Bank estimates Department of Trade Ministry of Commerce Ministry of Finance National Bank of Cambodia Provisional estimates Note: Date for 1993 are estimates.

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Table 2-I-6 Key Macroeconomic Indicators of Cambodia by International Organizations

unit 1988 1989 1990 1991 1992 1993

Real GDP Growth Rate % 9.8 3.5 1.2 7.6 7 5.7

Agriculture Growth Rate % 5.9 7.1 1.2 6.7 1.9 3.2

Industry Growth Rate % 15 1.7 -2.1 8.9 15.6 10

Services Growth Rate % 13.6 -1.1 2.7 8.5 11.1 7.2

Gross Domestic Saving % 1.7 3.8 3 7.7 7.5 8.3

Gross Domestic Investment % 8.9 11 8.3 9.4 9.8 14

Changes in Consumer Prices % 63.6 145.8 171.5 94.7 120.2

Changes in Money Supply (M2) % 47.2 69.8 283.3 14.5 214.1 32.5

Balance of Payments on Current Accounts (Share of GDP) % -6.4 -6.2 -3.5 -1.3 -1.4 -2.1

$ million -116 -89 -50 -25 -29 -41

Balance of Trade $ million -125 -97 -78 -33 -73 -185

Growth Rate of Merchandise Imports % 4 -7.1 74.4 26.5 12

Growth Rate of Merchandise Exports % 76.8 8.3 194.4 13.7 -23.7

External Debt Outstanding $ million 1165 1423 1557 1603 1552 1552

Debt-Service Ratio % 17.1 41.8

Overall Budget Surplus/Deficit of Central Government (Share of GDP) % -2.3 -2.7 -4.5 -3.4 -3.6 -5.7

Nomoinal Exchange Rate (Annual Average) (Riel/$) 108.8 167.2 418.3 703 1253 2816

Source: Asian Development Outlook 1993 Appendix Tables, Asian Development Bank World Bank Note: Date for 1993 are Preliminary.

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Chapter II People’s Republic of China 1 Introduction 1-1 A Short History of China’s Economic Reform

After the ten-year long Cultural Revolution,1 China decided to undertake reform. This policy also aimed at catching up to other economies improving the backwardness of the economy, and responding to the needs of the people,2 as spelled out at the Third Plenum of the 11th Party Congress in December 1978.

The reforms can be divided into the following periods. Main focus Reform under

the old system Transition3

0) Preceding Period: 1976-1978 X 1) First Stage: 1979-1983 X 2) Second Stage: 1984-1988 X X 3) Third Stage: 1989-1991 X X 4) Fourth Stage: 1992-present X

1-1-1 Preceding Period : 1976-1978

The pre-reform period started at the last stage of the Cultural Revolution and ended at the Third Plenum of the 11th Party Congress in December 1978. During this period, the economy was run under the old command system. As China’s economy suffered the damage of the Cultural Revolution and China had already recognized the necessity of modernization in four important fields,4 they adopted the “10 year National Development Plan” based on the command system at the first plenary of the 5th National People’s Congress in February 1978. This plan focused mainly on the development of heavy industries.5 But investment in heavy industries exceeded the nation’s ability, and China had to abandon the plan. To achieve the four modernizations and improve living standards, China had to decide on reform at the Third Plenum in December 1978. 1-1-2 First Stage : 1979-1983

The first Stage was from the beginning of 1979 to 1983. China adopted open-door and reform policies on the decision at the Plenum in December 1978. From 1979 to 1983, China’s average growth rate in GDP6 was 10.1 percent.7 During this period, open policies were strictly limited to the four “Special Economic Zones” (SEZs)8 and reform was proceeded mainly in rural areas.9 Based on the fruits of experiments during this period, China started to accelerate its opening and reforms to all economic fields. 1-1-3 Second Stage : 1984-1988

The second stage began in 1984. Besides the government decision to open fourteen additional coastal cities in addition to the SEZs, a “Decision on Reform of the Economic Structures” was adopted at the Third Plenum of the 12th Party Congress. The characteristic

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of this period was “Accelerating the Reform and Open to the outside world.” Reforms spread to urban areas,10 including State Owned Enterprises (SOEs). In rural areas during the period, Township and Village Enterprises (TVEs) developed very fast. The number of foreign direct investment projects increased.11 The report “Advance Along the Road of Socialism with Chinese Characteristics”12 and “The Coastal Area Economic Development Strategy”13 stimulated the development.

From 1984 to 1988, the Chinese economy showed high performance. The average growth rate in GDP was 19.5 percent.14 The high speed growth also created problems like regional inequality and high inflation.15 The announcement about price reform in August 1988 caused the hoarding of goods by citizens.16 1-1-4 Third Stage : 1989-1991

The third stage started as an adjustment (i.e., economic stabilization). From 1989 to 1991, China focused attention on calming inflation.17 The average GDP growth rate during the period was 11.9 percent.18

In this period, China certainly succeeded in cooling the economy. Economic management during the period clearly shows the lack of macroeconomic management measures. 1-1-5 Fourth Stage : 1992-Present

In early spring 1992, Deng Xiaoping made a spring tour to southern China. During the trip, he stressed his “seek truth from facts” yet again. In his speech, he clearly declared that market mechanisms are suitable for socialist economies. Even typical capitalist economic structures like stock exchange markets were permitted as a trial if only they might help China achieve good economic development. These speeches had a profound influence on economic policy in China. The tightening policy ended and China began to accelerate its economy again.

In October 1992, the Fourth Plenum of the 13th Party Congress was held. China decided to introduce the “socialist market economy.” Since then, the Chinese economy has continued to develop at a very high rate, although many problems remain in every field. The reform focuses on the state owned enterprises. Many attempts, like ownership, the employment system and social security, are now in progress. The foreign exchange system has already changed. Price reform is proceeding. Symptoms of increasing inflation, as well as a regional income gap can be seen. 1-2 Philosophy of the Reform

China’s reform has unique characteristics. The points are as follows:19 (1) Started without external pressure (2) Gradualism and experimentation (3) Partial reforms spread to the whole country whenever successful (4) Decentralization When considering China’s reform, we find no clear theoretical framework.20 Instead we

should keep two Chinese slogan in mind : “be practical and realistic” or “seek the truth from facts.”21 The slogans are from the Communist Revolution, but are now the key idea in

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China’s reform. The slogans allow Chinese Leaders to grope for new policies through experiments step by step. We can explain features (2) and (3) in this way.

For example, the origin of the “Household Contract Responsibility System (HRS)” was an unofficial and even illegal whole contract style which re-emerged in Anhui province. If China did not take the flexible “seek truth from facts” approach, the HRS system would not be realized and China would face serious agricultural production problems.

Feature (1) is unique. China itself realized its problems by 1978. At that time China needed no macroeconomic stabilization. Instead, it recognized its low productivity, low economic development and low living standards. “Excess concentration of authority to the higher organization” is another point. These also provided for point (4), decentralization of decision-making in all areas of the economy.22

Checking the philosophy in China’s economic reform, we can find that China did not intend or was not aware of moving to the market system at the first stage.

Before the Third Plenum of the 11th Party Congress in December 1978, all aspects of the economy were operated under the command system. In the old regime, the market and the commodity economy were defined as a negative inheritance of capitalism.

At the Central Working Conference and the Third Plenum at the end of 1978, China decided to introduce some reforms to solve its economic problems. There, Deng Xiaoping clearly pointed out problems in China’s system and the necessity of reforms. On March 1979, Chen Yun discussed “Plans and Markets.” In his speech, he said that “Planning is the main measure in controlling the economy. The market is needed but only as a supplement to the plan.” This philosophy is famous as the “Bird-Cage Economy” philosophy. The speech clearly shows that the main idea of China’s economic reform was nothing but reform within the framework of the command economy.23

At the Third Plenum of the 12th Party Congress in October 1984, the situation radically changed. As a result of the advancement of economic reforms in the rural areas and preliminary installation of market mechanisms, it gradually became impossible to keep the market in a bird cage. At the Plenum, “Decision on Reforms of the Economic Structures” was adopted. Besides accelerating the reform into urban areas, the document officially and clearly recognized market mechanisms as important elements in the socialist economy. Traditional frameworks that defined the commodity economy as an opposite idea to the socialist system were by that time abandoned. The new socialist economy was defined as a “plan oriented commodity economy based on the public ownership.” Here, planning coordinates the economy and the economy mainly performs under a market mechanisms. This system was also called the “socialist commodity economy.”

This idea, which means that the market is the central measure of macroeconomic management, was further clarified at the 13th Party Congress in October 1987. The theme of the congress was “accelerate and deepen the reform.” China tried to unify the plan and the market system, and declared that “the state regulates the market, and the market guides the enterprises.”

Following this, China began to experience an overheated boom and had to adopt strong stabilization policies at the Third Plenum of the 13th Party Congress in August 1988. The Fourth Plenum of the 13th Party Congress was held in June 1989. This Plenum was held just

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after the “disorder” in Beijing. China declared its intention to stay with economic reform, but apparently, the emphasis was put on a tight-belt policy to overcome inflation.

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

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

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

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

Gradually, it began to be recognized that market mechanisms are more efficient than the command system in resource allocation and the promotion of production activities. This recognition finally led to the announcement of the introduction of the socialist market economy. 2 Reform in Each Sector

In this section, situations of main reform areas will be mentioned by sector.25 2-1 Rural Reform

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

As rural reform in the first stage could show a clear effect in production,26 measures used in rural reform, especially the “contract system,”27 like urban reform,28 became the main strategy in every reform. In that sense, Rural reform is the foundation of China’s Reform.29 2-1-1 Initial Condition : Pre-Reform Period

The People’s Republic of China was established 1949. The basic organization in rural areas had been “people’s commune”30 since 1950. The people’s commune -- with collective ownership -- was introduced from 1958 to 1959. In this system, there were many problems like egalitarianism in distribution and low incentives in production. The Communes also had

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little autonomy. Improving these weak points was the beginning of the Rural Reform.31 Production in the old system was controlled by command from the higher units on the

basis of a central plan. Market mechanisms and price signals32 had not been used in control- ling production. Everything was controlled by command, and the economy could not create its efficiency and incentives. 2-1-2-1 First Stage : 1977-1983

At the Third Plenum of the 11th Party Congress, China decided to begin reforms. There, agriculture was considered as the main area. On the basis of self surveys, China enacted new policies to transfer decision-making power to lower levels. They sought to give more power to producing groups, authorize family plots, install the income distribution based on labor, allow the rural market trade,33 and raise prices of agricultural products at which the government purchased from the peasants.

China decided to introduce the “Household Contract Responsibility System (HRS)”34 into agriculture through many experiments on the product responsibility system. There were some opposite opinions about the system, but Deng Xiaoping gave strong support to the system in May 1980. The “Product Responsibility System” in agriculture was officially approved by a document35 in September 1980. This decision characterized and made great advances in agricultural reform.

Official approval to HRS brought big changes to the rural economy. Not only did production greatly increase, but the system of China’s agriculture changed to one suitable for the commodity production system from self-supporting production. Labor productivity was also improved.36 The decision completed the first stage of China’s rural reform. The result, which showed the importance of giving autonomy to peasants, influenced all the reform fields, including the urban reform.37 2-1-2-2 Second Stage : 1984-1991

After introducing the HRS, agricultural production grew steadily in the early 1980s. But by the mid-1980s, some problems,38 which originated from defects in agricultural policies, appeared.39 From 1984 to 1989, agricultural production, especially production of crops, remained stagnant.40

In January 1985, the National Council announced “Ten Measures for activating the Rural Economy” with which the rural reform advanced to the second step. Fundamental policies had kept the same general direction as the first stage, even in the new period. China kept giving more decision-making power to different areas, strengthening the producing power of non-agricultural sectors, tried to install a commodity economy and tried to modernize the agricultural sector.

According to the reform policy, the state monopoly purchasing system in agriculture was gradually loosened and market mechanisms became more important in agricultural produc- tion control.41 Industrial plants had more weight in sown areas.42

Restructuring of social and industrial structures in rural areas promoted development of TVEs. The share of TVEs in the rural economy exceeded 50 percent43 in 1987. Development of TVEs changed the economic structure in rural areas, absorbed excess labor from agricul-

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ture, and accelerated the installation of a commodity economy to rural areas. In line with the development of the rural economy, problems became clear. Though

agricultural production recorded a historical high in 1984, it stopped growing or even decreased its production after 1985. This result alone clearly indicates that there are some failures in agricultural policies. Other than weather conditions and transition to economic plants, the stagnant growth of peasants’ income compared to urban residents shattered the incentives of peasants. To earn more money, a large labor force began to move from rural areas to urban areas.44 Furthermore, introducing HRS broke up collective organization in rural areas. State investment to the rural infrastructures also stayed at stagnant levels because the government paid much attention to industries. The most important point : nothing new had been introduced to rural reform after the development of HRS. One Chinese document pointed out that the main reason for the stagnation of agricultural production was inadequate policies.45 2-1-2-3 Third Stage : 1991-Present

The third stage is from the Eighth Plenum in November 1991. In the former rural reform since 1979, the focus had been mainly on the application of HRS and improving the quantities of production through individual household encouragement. The reforms paid little attention to rural collective activities, which suffered the many ill-effects of the rural economy like maintaining agricultural infrastructures. As time went by, problems like weakened administrative organizations and stagnant agricultural infrastructure became clear. At that point, China again had to try to fix those problems by re-introducing collective organization in the rural economy.46

As the reforms deepened, the income gap between coastal developing urban areas and inland rural areas, especially those which could not develop TVEs, became significantly wider and more visible. The higher income standard of the coastal area has been broadcast to the inland areas through television and other communication media. This caused a labor flow from the inland rural areas to the coastal urban areas. Labor power from inland areas, which cause many additional problems, is now one of the most important sources of labor in the rapidly growing coastal areas. Though TVEs aimed to keep labor power in the rural area by hiring them in the villages even if peasants stopped working as farmers, the characteristics of TVEs are now changing. Some reports claim that the labor force from the inland areas is becoming the main labor source in some coastal TVEs.47 This labor flow phenomenon cannot be solved, it might even get bigger because of the recent overheated development.

Even now, though it has many limitations, the HRS is the central element in the agricultural production system. 2-1-3 Development of TVEs

In most cases, TVEs originated from factories which belonged to the People’s Commune. These days, most domestic-invested enterprises in rural areas are normally called “Township and Village Enterprises (TVEs).” Recently, about 2/3 of rural social income48 is earned from non-agricultural sectors like TVEs.

At the beginning of the rural reforms, rural factories49 were positioned as a measure to

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improve living standards, develop a more collective economy and finance investment in agriculture.50 In January 1983,51 China declared that rural factories were important to introduce a commodity economy and solve the excess labor issue in the rural areas. They also positioned the rural enterprises as a key of rebuilding the rural economic structure. In January 1984, China clearly defined the necessity of developing rural enterprises in an official document.52

Since then, TVEs have accelerated their development. TVEs utilized a lot of rural resources like agricultural products and excess labor power. TVEs can contribute a lot in the development of rural villages, like increasing rural income and restructuring the rural economy.

Though TVEs played an important role in the rural economy, they were nothing but “outsiders” in the official command system. During the tightening policy period from 1989 to 1991, TVEs became the object of this policy, and the total number of TVEs and TVEs’ employees decreased.53

These few years from 1992, the official treatment to TVEs became much better. They are now creating references and lessons for SOEs’ reform. TVEs are operated completely under a market system, and show the future enterprise system. Now, TVEs are functioning as a key factor not only in the rural economy but also in China’s transition to a complete market economy. 2-2 Open Door Policy 2-2-1 Brief Overview of the Opening

After the Cultural Revolution, the Third Plenum of the 11th Party Congress was held in December 1978. In this Plenum, they decided not only to reform their economy, but to make the transition to an open system from the former closed economy.

Open policy first began from the idea of establishing “Special Export Zones” in Guang- dong and Fujian provinces in 1979. Soon, this idea changed to “Special Economic Zones (SEZ),” realized in four places. This terminated the first stage. The next step was composed of “Fourteen Coastal Open Cities.”54 The “Coastal Economic Open Area”55 is the symbol of the third stage.

In March 1988, the “Coastal Area Economic Development Strategy” appeared. This idea is based on the perception of the strong necessity to join the world economy. This strategy expressed the importance of labor-intensive industries, enlarged the processing trade, and pulled more foreign investment into China.56 In 1989, there was a change in the situation. A two-year tightening period began, but the basic trend of the opening policies has not changed since the strategy was developed. China has re-accelerated this policy since 1992. 2-2-2 Roles and Meaning of the Opening Policy

In the beginning of those years, the People’s Republic of China got a seat in international organizations like the IMF and the World Bank.57

The purposes of China’s opening policies are clear. Under the newer policy, “opening to the outside” is defined as a basic policy to achieve modernization. Through the opening, China seeks to improve production by introducing foreign investment and technologies.58 The SEZ was a key point, and was characterized as “four windows” to the outside. The four

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meanings are “window for technology,” “window for knowledge,” “window for management” and “window for foreign policy.”59 China has tried to accelerate its economic growth and get more foreign currency through this opening policy. Through opening trial experiments like the Special Economic Zones, China absorbs foreign investment and technologies into its system.

In China’s SEZ system, China could drop its command system if only it could keep the “four fundamental principles”60 and sovereignty. Besides its economic function, the Special Economic Zones worked as show-windows to HongKong, Taiwan and overseas Chinese. As the result of economic development in the Special Economic Zones, the mainland economy amalgamated into the HongKong and Taiwan much stronger than before. China decided to open more, in addition to rapidly enhancing the already opened areas.

Based on those experiences, China decided to accelerate its open policy and integration into the world economy at the 13th Party Congress in October 1987. In this congress, China announced a four -stage development strategy composed of “Special Economic Zones/ Coastal Open Cities/ Coastal Economic Open Areas/ Inland” steps. In January 1988, the “Coastal Area Economic Development Strategy” was published in the Party’s newspaper. This clearly showed that China itself strongly feels the necessity of integrating its economy to the world.

The “Coastal Area Economic Development Strategy” illustrated the following ideas. (1) Utilizing the advantages of cheap labor power, good conditions for transportation

and comparably higher technologies, develop labor-intensive industries in the coastal areas and earn foreign currency by export.

(2) To soften the effects of the bottlenecks and shortages of raw materials in the domestic market, materials should be imported, assembled, and then exported to the international market.

(3) Attract foreign investment into China and innovate technologies. (4) Absorb new technologies and transfer them to the entire country. (5) Study the management system of foreign enterprises and develop human resources. In the “Coastal Area Economic Development Strategy,” many criticisms and newer

circumstances emerged. Since then, even when this strategy was dormant from 1989 to 1991, it was restored, and continues to be the main idea in the opening policy.61

The opening policy was not always a sure thing. For example, there were some discussions62 on the character of the SEZ. As the open policies were carried out, there happened many contradictions emerged like fighting for raw materials between enterprises, shortages of agricultural products for industrial production and export, and so on.

At present, the main issue in the opening policy is participation in GATT.63 China deals in policies in many issues like agriculture, state owned enterprises, prices and currencies, always focusing on the affiliation to GATT.64 GATT is the key point for current economic policy in China. 2-3 Urban Reform (SOEs Reform)

China calls most reforms done outside of rural areas as “urban reform.” Many fields are included in this concept. This report deals with reform of the state owned enterprise

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(SOEs). The main flow in China’s SOEs’ reform is giving more autonomy to enterprises.65 SOEs’ reform started at the beginning of economic reform as a trial of giving more

autonomy to SOEs.66 Its achievements are clear to some extent, but there is currently a large gap between advanced enterprises and backward enterprises. In China’s SOEs’ reform, advanced enterprises67 which had been “trial companies” received relatively modern management systems. But most SOEs keep the old management style. This gap is now causing many problems. For example, only 1/3 of SOEs are said to be profitable.68 In China, a lot of “enterprise groups” had been established to rationalize and improve the management of SOEs.69

Issues in SOEs reforms are mainly in the following fields : improvement of the manage- ment system, separation between administration and enterprise (which is basically owner- ship and management issues), adoption of a new labor system, separation between enterprise activities and social welfare, etc. 2-3-1 Management Reform 2-3-1-1 Trial of Granting Autonomy:1979-83

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

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

SOEs’ reform trial started in Sichuan province in October 1978. Affected by the rural reform (which was the real starting point), six SOEs were given a little autonomy in their management.71 This small trial showed a little improvement in SOEs and the trial program was enlarged to more enterprises in January 1979 in the provinces. In the program, enterprises were allowed to produce more products in excess of the plan, proceed with entrusted materials and keep some part of their profit72 by themselves if they achieved their planned production targets.

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

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

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be distributed within the enterprise. Virtually the same system existed between the enterprise and employees. This system required enterprises to pay more attention to their own management. 2-3-1-2 Trial of Granting Autonomy:1984-88

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

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

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

From 1984 to 1988, the most important theme in SOEs was granting more power of autonomy. Based on the experiences of these four years, an “Enterprise Law”76 adopted in 1988 to enforce the autonomy of SOEs. 2-3-1-3 Accelerating Autonomy:1989-Present

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

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

Though enterprise reform has continued for a long time, it has been rather difficult to improve the situation. The lack of enterprise autonomy is not the only reason : the back- ground of their bad budgetary situation is complicated and difficult to solve. For example, welfare for workers and retirees is now a big burden to SOEs when compared with develop- ing TVEs, which have more modest welfare burdens. With improvements in management systems, SOEs need more reform in many fields to assure their autonomy and efficient operation. 2-3-2 Employment System Reform

In the old system, all employment was centrally controlled and distributed to each sector

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by commands from the government. The “permanent employment” system also existed. Wages were decided centrally by the government by a unified wage table.

With the advancement of reforms, enterprises got more autonomy. A unified wage system became an obstacle to enterprise management. In 1980, a new labor distribution policy was published. In 1986, the contract employment77 system widely introduced78 (Since then, new employees are hired on a contract basis). Distribution of employment -- which concentrated on the heavy industries under the old system -- widened to the third industries.

An employment-adjusting system was also established. “Labor service companies”79 have been established since 1978. New employment become contract-based. Even for perma- nent workers, a competition system like “excellent labor group”80 and many kinds of labor contract system like “whole worker contract systems” were carried out on an experimented basis. At many enterprises, surplus workers were moved to new businesses.

Between contract workers and permanent workers, treatment regarding wages and welfare systems are different. Coexistence of both types of workers at the same place caused many problems. In some cases, contract workers and permanent workers were treated similarly.81 In the future, all workers will be transferred to the contract employment system in the flow of a transition to the market economy.82

The wage system has already changed. With the empowering of enterprise autonomy, wages are distributed according to the judgement of enterprises based on results. Wages are decided at each company ; the state only controls the total amount of wages.83 Wage reform is deeply connected to price reform. 2-3-3 Welfare and Housing System Reform

Until now, in most cases, “Units”84 pay and burden the responsibilities of the social safety net and housing. These excessive burdens have been obstacles to SOEs’ reform and performance.85

As reforms in employment like the contract worker system were introduced, workers appear who have no “permanent unit.” A social safety net and other welfare have become impossible to burden only to “units” because of the appearance of those contract workers. Since the introduction of the contract worker system, many kinds of funds and insurance systems, including unemployment insurance and pension systems, were initiated and estab- lished by local and central governments. In accordance with the advancement in SOEs’ reform, these social safety net systems become more important as the saucer of SOEs’ bankrupt.86 Recognition of the importance of housing reform established the “Notice of housing system reform” in 1991, and future commercialization of housing was clarified.

The social welfare system needs rapid development. Recently, the many gaps in the social safety net system put limitations on urban reform. 2-4 Price Reform

By 1978, the price system in China was a centrally planned system. All prices were decided by the central or local government. Enterprises that produced goods did not have any power to decide prices. Agricultural products and industrial materials for production were politically priced at cheaper rates compared with international relative prices. The market

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system was rejected. Direct administrative measures were used to fix every price. (1) 1979-1983

At the Third Plenum of the 11th Party Congress,87 a new policy was adopted. At the Plenum, they decided to adjust the price structure between industrial products and agricultural products to reform the distorted price structure. In this context, the state monopoly purchasing prices for agricultural products and basic industrial products were raised. Prices of some products were also reduced. Raising the agricultural product prices stimulated the peasants’ mind and improved their incomes.

In the price-adjustment policy, consumer prices were also raised. New systems were introduced to the price-decision system. For example, a price negotiation system was introduced to the state monopoly purchase system. A floating price based on official prices was applied to some industrial goods. The market mechanism was partially authorized, especially for non-important consumer goods. These new trials activated the economy. In this period, the main philosophy in pricing was “thought the fundamental concept is coordination by plan, market prices should be united with coordinated prices.” (2) 1984-1988

Price reform from 1979 was experiment in some aspects. The results seemed to be successful. The reforms adjusted price structures and stimulated agricultural production.

The Third Plenum of the 12th Party Congress88 adopted the “Decision on Reform of the Economic Structures.” This document referred to enterprise reform and the price reform. The document stressed granting more power of decision to enterprises. This included the power of deciding prices. On price reform, it stressed building more rational price structures, and utilizing the price mechanism. A “Dual-track Pricing” system was introduced to deal with the situation. In this system, a planned quantity of products are traded at the planned prices, and excess products are traded at the market prices. This dual-track pricing system advanced the reforms greatly, especially by widely introducing to the society market pricing systems. Step by step, the role of the market become larger and more important in China’s economy until inflation reached a very high rate and China temporarily decided to focus on the stabilization of prices in 1987. Only prices of important materials were left under state control. After the Plenum, the concept changed to “Price mainly by the market, and unify the plan with the market.” (3) 1989-1991

From 1984 to 1988, under the dual-track pricing system, China succeeded in introducing market prices into its economy but also induced high inflation and many social problems like underground trading.89

At the Third Plenum of 13th Party Congress in 1988, China decided to adopt an adjustment policy. Price controls were re-introduced on some materials (which were previously freed). (4) 1992-Present

After Deng Xiaoping’s spring tour in 1992, all reforms were accelerated again. Since then, price restrictions have loosened. Even now, the dual-track price system remains, but as the weight of market system increases, administrative prices are decreasing. The trend of transition to market pricing is clear.

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Price reform began as the adjustment of relative prices to international relative prices. At the beginning, like most reforms, they were aimed only at improving economic performance, not for installing market mechanisms. But, as the characteristics of China’s economic reform changed, price reform also changed its meaning. After 1984, price reform meant introducing market prices. Small changes in relative prices of some products affected other products. Price reform itself accelerated the reforms and the transition to the market economy. 2-5 Budgetary System Reform

Even now in China, it is rather difficult to find a modern budgetary system. The main source of revenue has been taxes and the profit transfer from SOEs. Distribution of budgetary income has been carried out based on the contract between the central and local governments. After 1994, a new tax division system between the central and local government will be installed, but even in this new system, distribution will be based on the records of the past few years.90

The distribution system between the government and SOEs was described in the section on SOEs reform. Income distribution between the central and local governments was done by both grouping of income items and total amount of income by a decision in February 1980. In 1985, the decision was reviewed and “Enterprise Tax System” began to be introduce from 1983.

In China’s system, “negotiation between the center and provinces” is the most important characteristic. The amount of budget has been mainly decided by contracts between the central government and each province since the beginning of economic reform. The system is very similar to the contract system of enterprises. If the provinces fulfill their contracts to the center, part of the additional tax income belongs to the provinces.91

In this system, tax only worked as a budget financing system. For example, with the imperfect tax structures, tax did not work as the means of income redistribution and macro control. This imperfection was one reason for using administrative measures to control the overheated economy. The rich coastal provinces can earn a lot of excess income, the money became the source for building infrastructures, and in some periods overheated the economy. On the contrary, poor provinces which received a fixed amount of subsidies from the central government could not achieve high-speed development. In this system, not only the income gap but the difference in infrastructures between advance areas and delayed areas was enlarged. Even the central government could not finance enough of the budget.

In November 1993, the Third Plenum of the 14th Party Congress was held. In this Plenum, the financial and tax systems were two of the most salient issues. A new tax dividing system, which had been tested since 1992 in some provinces was decided on, and it aimed at enhancing the whole country, including Guangdong province. In this system, the tax system is simplified : each tax item is classified as a central tax, provincial tax and common tax. This new framework of tax distribution will reduce the portion decided by negotiation. The central budget will function as the redistribution function from the advanced coastal areas to delayed inland areas.

As the new system clearly divided the tax revenue, some advanced areas - which earned

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much revenue in the contract system -- are said to have resisted the new system.92 The budgetary system reform in China is now at a turning point. 2-6 Banking System Reform

Under the old system, the main function of the bank was collecting deposits and distribute funds to build important projects. Banking was operated under a central plan, and was expected almost no function of central banking as in a market system. At the period, the People’s Bank had not been in charge of “macro management function.” 2-6-1 Commercial Banking System

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

After the Third Plenum of the 11th Party Congress, the banking system become more important to activate the economy than during the old regime. Since 1979, specialized banks were established and many non-bank financial companies like “China International Trust and Investment Co.” were permitted. In September 1983, separation of commercial banking from People’s Bank was decided. Since 1986, cooperation between many commercial bank has taken place. From the outlook, China finished building the framework of a market- compatible commercial banking system. The next step is separating policy lending function from commercial banks. In April 1994, one bank was established for policy lending. 2-6-2 Central Banking System and Monetary Control

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

The People’s Bank belongs directly to the cabinet. At the Third Plenum of the 14th Party Congress, banking system reforms were taken up. There, it was decided to strengthen the function of the People’s Bank. The deeper the transition to a market system, the more macro economic control measures and central banking function gain precedence over administrative control measures. Today, China’s banking system reforms are still being carried out. 2-6-3 Exchange System

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

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

In 1986, the foreign exchange adjustment center (FEACs) system introduced the trading of retention quotas between approved enterprises. In the beginning of this system, only a limited number of companies could participate in the market, but the limitation weakened

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and participation increased. In 1988, the market began to function just like the “exchange market” between the RMB and USdollar as all the enterprises which have the retention quotas were approved to take part in the system and the agency weakened the control of the FEACs. The official rate also remained.

In 1994, these systems were changed. From the beginning of 1994, China introduced the exchange rate based on the inter-bank exchange rate. In April 1994, the foreign exchange market system was established. Foreign exchange certificate (FEC), introduced in 1980 to enforce foreign currency control, was abolished.

The evaluation of any new system is difficult, but to get a seat in GATT, China has to abolish its dual-exchange rate. 3 Evaluation of the Reform and Prospect to the Future 3-1 Deepening the Reform and Gaining More Macro Control Measures

The “gradual approach” characterizes China’s economic reform.93 From the outlook, China’s reform has generally contributed to a good macroeconomic performance, especially compared with performances of the former Soviet Union and Eastern European countries, which took the prescription called “shock therapy.” Experiments with new measures before introducing a new system always make the effects and impacts of the policies clearer and milder. China’s large territory is suitable for “local experiment,” and its large economy needs some “tests” before widening any particular policy to the entire nation.94 If the government finds some serious failure or defect in the new system, China cancels the reform, like they did in the price field from 1988 to 1989. For China, “social stability” has the most important priority.95

Recently, China has suffered from high inflation caused by overheated economic growth and the poverty of macro management measures.96 As China is on the way to a fully- equipped market system, even now China does not have full indirect macro control measures to the economy. Because of this handicapped situation, China has to combine the old command-oriented administrative measures to control the economy.97 In many cases, China also has to deepen and proceed its reforms to get control of the newer situation. For example, China could not slow its economy whenever they wanted to slow down the speed. As China lacks sufficient macroeconomic control measures of fiscal, monetary, and other policies, it is not easy for China to slow the economy down. It tends to overkill economic growth.

“Deepen and advance the reforms,” is considered the only way to improve the present situation. 3-2 “Socialist Market Economy”

“Socialist market economy” looks like something fresh. Certainly, it is a new term China invented.98 This means the perfect separation between political and economic activities. China openly declared that its socialist governance system is equivalent to a dictatorship by the Communist Party.99 From the political point of view, the socialist system means rule by the Communist Party.

In economic fields like macro and micro control, China looks like a pragmatist. Just like Deng Xiaoping’s metaphor of a black cat and a white cat, in China’s understanding, any

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system which can improve the economy is appropriately called a socialist system.100 China seemed to have chosen the market system not because it is peculiar to the developed countries but because it can manage and control the economy much better or efficiently than the old command system, which characterized the old socialist and communist economy.

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

Though China defined the “socialist market economy” at the Third Plenum of the 14th Party Congress, a concrete image of the new system is not clear even now. One hint to imagine the future China’s system is to find to which economy China pays much attention as a reference case. From some interviews, we can find that China regards East Asian developed countries as references. 3-3 Conclusion 3-1 Evaluation to the Economic Reform

Since the end of 1978, China has continued the economic reform based on a pragmatism. China has kept its good macroeconomic performances and achieved a steady structural reform for these years. Though there remains many problems like inflation, budgetary deficit and SOEs’ reform, improvements of income standard per capita and steady economic growth can be evaluated as the result of the unification of the China’s economy to the world economy based on the open policy and activation of its domestic economy by restructuring the central planning system to the decentralized market system. 3-2 Change the Characteristics in the Role of State and Planning

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

Economic planning has also been changing its characteristics from direct commands of production to a blueprint of showing directions in economic management, correct market failures, control bottleneck sectors and play a limited role in the government sector.103 3-3 Trends in Macro-Economy

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

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

Undeveloped situation of indirect macro control measures and lack of management know-how like in fiscal and financial fields, existence of bottleneck sectors and surplus

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financial sources because of high saving rate have been said to be the cause of these situations.104 These issues has been treated as a theme which should be improved, but the movements are slow.

Newspapers105 and magazines reported that, in Chinese Government, there exist two opinions. One opinion stresses on the relief of State Owned Enterprises and permits inflation to save the SOEs. Another opinion focuses on controlling the inflation. The latest problem is how to coordinate the economic growth and SOEs’ bad fiscal issues. 3-4 Issues in the State Owned Enterprises

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

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

The burden of welfare payments is also pulling down the achievements and results of SOEs. Under a welfare system which mainly operated by each enterprise, history and the structure of workers largely influence the burden to the enterprises. In that sense, State Owned Enterprises which has long histories clearly burden heavier when compared with the newly established joint enterprises and township and village enterprises. In the future, if China could reduce the portion of state-owned enterprises’ activities in its economy, the shock which would be caused by the bankrupt of state-owned sector would be able to be lighter. 3-5 Future Scope in the Budgetary Reform

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

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3-6 Long-Term Perspectives of China's Reform It is more than fifteen years since the starting point of China’s reform. China presented

an idea of the “socialist market economy” and succeeded in showing some definition of the idea to some extent.

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

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

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FOOTNOTES 1/ From 1966 to 1976. 2/ BELL et al, [1993, p.1] 3/ Transition to a market economy. 4/ Agriculture, industry, national defense, and technology. This idea was first raised by Zhou Enlai in 1964. 5/ Heavy industry produces production goods, and materials industry (mining, machinery, light industry) produces consumer goods like textiles and durable consumer goods. : State Planning Commission of PRC, [1984, p. 69] 6/ China began to introduce SNA system in 1978. 7/ Average growth rate in National Income was 9.5 percent (SYB, table 2-13). 8/ See 2-2 of this text. 9/ Bad performance in agriculture forced the reform. The average growth rate from 1976 to 1978 was only 1.7 percent in national income. As soon as China began the rural reforms, agriculture responded to the new policies and achieved 14.4 percent average growth in national income from 1979 to 1983(SYB, table 2-13). 10/ Rural and urban are the two pillar concepts in China’s economy. 11/ In 1983, accumulated total number of FDI was 1,392. In 1988, it grew to 15,997 projects (SYB table 15-9). 12/ Published at the 13th Party Congress in November 1987 as the government report. 13/ Zhao Ziyang announced in November 1987. 14/ The average growth rate from 1984 to 1988 was 20.0 percent in National Income (SYB, table 2-13). 15/ See SYB table 2-18, 7-1. 16/ YABUKI, [1992, p.112] , GAO, [1993, p.66] , GAO, [October 1993, p.472] 17/ See SYB table 7-3. 18/ Average growth rate of National Income was only 12.2 percent. 19/ World Bank, [June 19, 1992, p. 39] 20/ World Bank, [June 19, 1992, p. 37] 21/ World Bank, [June 19, 1992, p. 43] 22/ By 1989, even in the administrative system, separation between the Communist Party and the government was also proceeded to disperse the power, but then, the Party and the government reunified again. 23/ Besides on March 1979, Chen Yun discussed “Strengthening and improving the Economic Plan,” January 25, 1982. 24/ Report at the 14th Party Congress. 25/ In this part, two Chinese documents, GAO, [1993] and GAO [October 1993] were fully referenced. 26/ From 1972 to 1977, production of crops increased 1.2 times, 42 million tons. From 1977 to 1982, it increased 1.3 times, 71 million tons (SYB table 9-30). 27/ There were many kinds of “Contract System” in the first stage. China tried to choose the most suitable contract style for each field from the experiences.

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28/ China generalizes reforms in the cities as “Urban Reform”. This concept clarify the economic structural difference between Rural area and Urban area. 29/ “Decision on the Reform of the Economic Structures,” 1984. 30/ “People’s Commune” system is a typical collective system. It was a unit both in economic activities and in administrative management. Its hierarchy was composed of “Commune- Battalion-Group” like military system. 31/ Those problems were referred in “Decision on accelerating the agricultural develop- ment,” 1974. 32/ These systems characterize the “Capitalist Economy” in their old theory. 33/ In the rural market, commodities that the government permitted are traded freely. No control to trading quantities if peasants already done their duties to the government. Prices are decided on the basis of each discussion within price guidelines in this stage. 34/ “HRS” is one of the type of “Product Responsibility System.” 35/ “Some problems on Enforcing and Perfecting the Agricultural Product Responsibility System.” 36/ See SYB table 10-17. 37/ As the advancement in rural reform especially by the spread of HRS, old collective system became non-functioning framework. In October 1983, China abolished the People’s commune system and newly established rural government. In this decision, administrative structure and economic structure were separated. 38/ For example, income gap because of the place and a collapse of collective working system are the problems (China : Basic Research for Making Decision on ODA, [1994]). 39/ GAO, [1993, p.63] 40/ SYB table 9-30. Production of crops stayed stagnant for these 5 years. 41/ In 1985, price and trade regulations to crops were decreased. Only state purchasing amounts were regulated by the state planned prices. Rest amount were left to the market both in prices and trading quantities. 42/ SYB table 9-26. In 1978, it was only 9.6 percent of the area. In 1992, it reached 16.3 percent. 43/ SYB table 9-4. 44/ IMAI, OHKUBO, KOBAYASHI and NAKAJIMA, [1993, p.109] 45/ GAO, [1993, p.64] Besides natural disasters and adjustment of industrial structure, inadequate price policy decrease the relative agricultural income and decreasing the State investment to agriculture cause the bad productive conditions and decreased the incentives of peasants. 46/ ISHIHARA, KOJIMA, TAJIMA, UCHIDA, KIZAKI, KIKUCHI, DU, NAKAO, SHINYA, IMAI and HATTORI, [1993, p.45] 47/ ISHIHARA, KOJIMA, TAJIMA, UCHIDA, KIZAKI, KIKUCHI, DU, NAKAO, SHINYA, IMAI and HATTORI, [1993, p.256] 48/ SYB table 9-4. In 1980, 68.86 percent of the Rural total output value of society was originated from the agriculture. In 1992, only 35.8 percent is from the agriculture and 50.1 percent is from the industrial sector. TVEs are now becoming more important than before as a source of rural employment and cash income.

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49/ Originally belonged to People’s Communes in the old rural system. In 1984, people’s communes were dismantled and grew up to TVEs. 50/ “Some issues on the development of Commune factories (Trial)” in July 1979. 51/ “Some issues on the Rural Economic Policy” in January 1983. 52/ “Notice on the Rural policy in 1984.” 53/ SYB table 9-54, 9-55. 54/ April, 1984. 55/ January ,1985. 56/ GAO, [1993, p.88] 57/ China entered these organizations from 1979 to 1980. China entered ADB in 1986. 58/ MA, [1992, p.2] 59/ “Issues on establishing more Special Economic Zones and Open cities” Speech by Deng Xiaoping, February 1984. Here, Deng Xiaoping pointed out that the role of SEZ is just like windows to outside. 60/ “Keep the leadership by the Communist Party,” “Keep the socialism,” “Keep the dictator- ship by people,” “Keep Marxism-Leninism and Maoism.” 61/ MA, [1992, p.16] In this section, this document is fully referenced. 62/ The main purpose of Special Economic Zone is to produce export goods, but Zhao Ziyang pointed out some problems in November 1984. Also Yao Yilin criticized the situation of SEZ unofficially in January 1985. 63/ General Agreement on Tariff and Trade. 64/ China tries to enter GATT during 1994. But some news reported that it would be impossible. 65/ In SOEs’ reform, GAO, [1993, p.959] separate periods from 1978 into 5 periods. Only for our reference, show the sections.

1. 1979-1980 Trials for giving more autonomy in management and profit distribution. 2. 1981-1982 Product Responsibility system. 3. 1983-1986 Introducing income tax system instead of profit transfer system to enterprises. 4. 1987-1990 Contract Responsibility System. 5. 1991-Present Management and ownership system reform.

66/ Influenced by agricultural Household Responsibility System. GAO, [October 1993, p. 1572] 67/ Capital Steal Company is famous as one of the most advanced enterprise groups. 68/ China : Basic Research for Making Decision on ODA, [1994, p.126] 69/ Zuixin Jingji Yonngyu Cidian, [ 1990, p.7] 70/ Chugoku Shakaishugi Keizai Ryakushi (Brief History of Chinese Socialist Economy, Japanese edition), [1986, p.340] 71/ GAO, [1993, p.36]

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72/ Partial relief of profit transfer system. 73/ In June 1980, about 6600 SOEs involved in this autonomy program, which produced 60 percent of SOEs’ products evaluated by the value. GAO, [1993, p.36] 74/ Production management, sales management, products pricing, material buying, budgetary management, organization management, assets management, human and labor affairs, delivery of incentive wages and coordination between enterprises. 75/ At the point, only 8 enterprises remained under Product Responsibility System. GAO, [October 1993, p.135] 76/ This law defines basic relationship between Nation and enterprises as “rights and duties”. Enterprise autonomy admitted and manager responsibility system also officially adopted. Until now, this law is the basement of SOEs. 77/ Trial was begun since 1982. In the system, both workers and enterprises can cancel the working contract if they do not want to continue the contract. 78/ ISHIHARA, KOJIMA, TAJIMA, UCHIDA, KIZAKI, KIKUCHI, DU, NAKAO, SHINYA, IMAI and HATTORI, [1993, p.152] 79/ These companies send temporary or short term worker to their customer companies. 80/ Quite different from the name, this unit is a pooling system of unnecessary surplus workers. Zuixin Jingji Yonngyu Cidian, [1990, p. 163] 81/ ISHIHARA, KOJIMA, TAJIMA, UCHIDA, KIZAKI, KIKUCHI, DU, NAKAO, SHINYA, IMAI and HATTORI, [1993, p. 155] 82/ ISHIHARA, KOJIMA, TAJIMA, UCHIDA, KIZAKI, KIKUCHI, DU, NAKAO, SHINYA, IMAI and HATTORI, [1993, p. 157] 83/ ISHIHARA, KOJIMA, TAJIMA, UCHIDA, KIZAKI, KIKUCHI, DU, NAKAO, SHINYA, IMAI and HATTORI, [1993, p. 164] 84/ “Unit” is just like a domicile to which every worker belongs. For example, for workers of SOEs, their company is the unit they belong to. 85/ ISHIHARA, KOJIMA, TAJIMA, UCHIDA, KIZAKI, KIKUCHI, DU, NAKAO, SHINYA, IMAI and HATTORI, [1993, p. 164] 86/ In case of bankrupt, “Unit” of employees including retired persons disappears. In this case, only the social welfare system will be the source of income for employees. ISHIHARA, KOJIMA, TAJIMA, UCHIDA, KIZAKI, KIKUCHI, DU, NAKAO, SHINYA, IMAI and HATTORI, [1993, p. 169] 87/ December 1978. 88/ October 1984. 89/ For example, under the dual-price system, it was said that brokers with privileges monopolized buying goods at the planned prices and traded them at the market prices. YABUKI, [1992, p.114] 90/ Chugoku Business Tettei Kenkyu, [1994, p. 88] 91/ There were 6 type of contracts. 92/ Kyodo News, August 2, 1994. 93/ World Bank, [June19, 1992, p. 37] NING, [May 1993] ISHIHARA, KOJIMA, TAJIMA, UCHIDA, KIZAKI, KIKUCHI, DU, NAKAO, SHINYA, IMAI and HATTORI, [ 1993, p.6]

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94/ cf. GAO, [ 1993, p.841] 95/ Hearing at the State Planning Commission. Also see an article written by KOJIMA, Tomoyuki (Asia Tokusyu, [1994, p.12]). 96/ Many documents refer about this problem. In the World Bank, [June 30,1993] the situation is well analyzed. 97/ China already identified these weak points. LEE, [1994] is a good reference. 98/ World Bank, [June19, 1992, p.29-31] BELL et al, [1993, p.4] 99/ In every chance like Plenums and Conferences, China clearly declares that as the “Keep the one core and two fundamental principles” slogan. It means “Keep the socialist system and seek the economic development based on the opening and reform.” 100/ Speech by Deng Xiaopin during the spring trip in 1992. 101/ IMAI, OHKUBO, KOBAYASHI and NAKAJIMA, [1993,p.288] 102/ World Bank, [June19, 1992, p. 53] 103/ World Bank, [June19, 1992, p. 73-] 104/ World Bank, [June19, 1992, p. 24-] 105/ i.e., Nihon Keizai Shinbun, August 18, 1994. 106/ Kyodo news, August 2, 1994.

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Economy, Japanese Edition), Beijing Zhoubaoshe, 1986. ----------, Chugoku no Keizai Kaikaku (Economic Reform in China), Soken Kenkyu No.

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a Market Economy, International Monetary Fund, September 1993. GAO, Shangquan edit., Zhongguo Gaige Kaifang Tongdian (Book on the Reform and

Openness in China), Shanxi Jinji Chibanshe, 1993. GAO, Shangquan edit., Book of Chinese Economic Events on Reforming and Opening,

Beijing Gongye Daxue Chibanshe, October 1993. IMAI, OHKUBO, KOBAYASHI and NAKAJIMA, Saishin Guide : Chugoku Keizai

“Shijokeizaika no Jittai” (Newest Guide to China’s Economy : Real Situation of the Transition to a Market System), Nihon Keizai Shinbunsha, October 1993.

ISHIHARA, KOJIMA, TAJIMA, UCHIDA, KIZAKI, KIKUCHI, DU, NAKAO, SHINYA, IMAI and HATTORI, Shakaishugi Shijokeizai wo Mezasu Chugoku (Chinese Economy : Seeking a Transition to Socialist Market Economy), IDE, July 1993.

LEE Tiejng, Economic Reform in China and a Construction of the Socialist Market Economy, May 11. 1994, Speech at the Beijing International Economic Symposium.

MA, Chengsan, Hattensuru Chugoku no Taigai Kaiho : Genjo to Kadai (Developing China’s Economy : Present Situation and Issues), IDE, November 1992.

MARUYAMA, MA, KATOH, SAWADA, Institute of Social Science of PRC, HO, KURIBAYASHI, IMAI, HATTORI, NAKAJIMA, 90 Nendai Chugoku Chiiki Kaihatsu no Shikaku : Nairiku to Enkai kankei no Rikigaku (Viewpoints of China’s Development in 1990s : Power Politics between Inland and Costal Areas), IDE, March 1994.

Mitsubisi Sogokenkyusho, Chugoku Joho Handbook 1994 (China Information Hand- book), So-so Sha, July 1994.

NING, Jizhe, Rapid Growth and Step by Step Reform in China, Economic Planning Agency (Japan) Working Paper No.22, May 1993.

NING, Jizhe, Market Oriented Reform and the Role of Planning in China, Paper for the Second International Symposium on the Transition to a Market Economy in Vietnam,

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September 30, 1993. OHKUBO & IMAI edit., Koredake ha Shitte Okitai Chugoku Keizai Q&A 100

(Essentials on China’s Economy : Q&A 100), Aki Shobo, June 1994. State Planning Commission of PRC, Guomin Jingji he Shehui Fazham Jihua Minggei

Jieshi (Technical Terms on the National Economy and Social Development Planning), September, 1984.

World Bank, China, Updating Economic Memorandum : Managing Rapid Growth and Transition, June 30, 1993.

World Bank, China Country Economic Memorandum : Reform and the Role of the Plan in the 1990s, June19, 1992.

World Bank, Economic Reform in China, January 1992. World Bank, World Development Report 1992, 1993. XUE Muqiao, Kaiteiban : Chugoku Shakaishugi Keizai Mondai Kenkyu (Report on

China’s Socialist Economy , Japanese Edition), Beijing Waiwen Zhoubaoshe, April 1988. YABUKI, Shin, [Zusetsu] Chugoku no Keizai (The Economy of China), So-so Sha,

1992.

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Table 2-II-1 Economic Reform Chronology of China

#Main Stream of these ten reforming years

1977 The 11th Party Congress

Declaration of ending the cultural revolution.

“Reconfirmation of ” “Modernizing” “ policy.”

1978 Fifth National Congress

“Ten years’ development plan”

Third Plenum of the 11th party Congress

Switch to the reform.

“Socialism modernization”

1979 Central Working Meeting

Collapse of 10 years’ plan and economic stabilization.

“Stabilization, reform, reorganize, improvement”

1980

1981

1982 Chen Yun “Bird cage economy”

1983

1984 Third Plenum of the 12th Party Congress

Decision of Reform of the Economic Structures.

“Planned commodity economy”

Accelerating the reform.

Starting the SOEs’ reform.

1985

1986

1987 The 13th Party Congress

“Socialism of Chinese characterized”

Overheated boom & inflation

1988 The Third Plenum of the 13th Party Congress

Tightening Policy

High Inflation

1989 The Fourth Plenum of the 13th Party Congress

“Keep the Opening policy”

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1990

1991

1992 Spring Tour of Deng Xiaopin

Re-acceleration of Reform

The 14th Party Congress

“Socialist Market Economy”

1993

1994

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#Price reform 1978

1979 Rise State Monopoly Purchasing Price for crops and sideline products.

Pull down the prices of manufacturer goods for agriculture.

New incentives to peasants.

Price adjustment between agricultural goods and industrial goods.

1980

1981

1982 Provisional regulation for price control.

Mainly controlled by Plan.

1983

1984 Comments about Price Reform in Decision on Reform of the Economic Structures.

1985 State Monopoly Purchasing system abolished in most fields.

Controlled prices remained in some important goods.

Domestic free market trade was permitted for most goods.

Dual-track pricing system

1986 Main strategies for price reform in the 7th FYP.

Much attention to material prices.

Utilization of market mechanism.

1987 Revised Price Controlling Law.

1988 Element ideas about Price Reform and Wage Reform.

State controls the Market, market lead the enterprises.

Clarified the market as the main pricing system.

(Buying up activities: Postponed the new price policy for 5 or more years.)

1989

1990

1991

1992

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#Agricultural reform 1977

1978 Trial to responsibility systems

1979 Decision on accelerating the agricultural development.

First official recognition of HRS in restricted conditions.

1980 Issues on the enforcement and perfection of product responsibility system.

Declared that efficient production is the most important issue.

1981

1982 Some issues on the rural reform.

Official recognition of HRS in general.

1983

1984 Notice on the Rural policy in 1984

1985 Dismantle of People’s Commune

Separation between Administration and Production

1986

1987

1988

1989

1990 Notice on the agricultural and rural policy in 1991.

Recognized HRS as a basic structure in agriculture and rural reform.

1991

1992

1993

1994

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#Budgetary reform 1978

1979 Provisional rule in dividing and budgetary revenue and expenditure.

Local government contract budgetary management with the central.

There are many variation of contract by province.

1980

1981

1982

1983

1984

1985 Refined budgetary contract system.

1986

1987

1988 Improvement of budgetary contract system.

1989

1990

1991

1992

1993

1994 Tax dividing system

Distribute moset part of budgetary revenue by the kind of each tax.

Seek the break way from the contract system.

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#Enterprise reform 1978 Some local trials to the SOEs’ reform.

1979 Five decisions on the SOEs* reform.

Start point of adding more autonomies to SOEs.

Profit retention system.

1980

1981 Product Responsibility system.

1982

1983 Reform profit transfer system to enterprise income tax system.

1984 Provisional decisions about more advancement in enhancement of SOEs* management

autonomy.

1985

1986

1987 Transition from enterprise income tax system to contract responsibility system.

Bankruptcy Law.

1988 Enterprise Law.

Clear definition of enterprise autonomy.

1989 Trial of dividing tax and profit.

1990

1991

1992 Provisional law of enterprise structural transformation.

1993

1994

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#Banking System reform 1979 Restoration of China Agricultural Bank.

Restoration of Bank of China

Establishment of Foreign Currency Management Bureau.

Establishment of CITIC (China International Trust and Investment Co.)

1980 Provisional rule of Foreign currency management.

Got a seat in the IMF/World Bank.

Installation of foreign exchange certificate (FEC) system.

1981 Establishment of China Investment Bank.

1982

1983 Decision about the reform of People*s Bank of China (PBC).

Defined transition to the central bank.

1984 Establishment of Industry and Commercial Bank.

1985 Installation of Official Rate system controlled by PBC.

China Construction Bank became controlled by PBC.

1986 Provisional decision on banking system.

PBC defined as the central bank.

Establishment of Shanghai Foreign Exchange Adjustment Center (FEACs).

1987 Establishment of Jiaotong Bank.

1988

1989

1990 Establishment of Shanghai security exchange market.

Clear definition of PBC*s power in defining and controlling the official rate.

1991 Establishment of Shenzheng security exchange market.

.

1992

1993

1994 Unifying the exchange rate.

Establishment of Development Bank and Export-Import Bank.

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#Open Policy (Trade & investment) 1978

1979 Joint Venture Law.

Establishment of Special Export Zone.

Abolishment of central foreign trade management System.

1980 Reorganization of Special Export Zone to Special Economic Zone (SEZ).

1981

1982

1983

1984 Decision of opening 14 coastal cities.

1985 Designation of Coastal Opening Areas.

1986 Foreign Capital Enterprise Law.

1987

1988 Costal Area Economic Development Strategy.

1989 Tian An Men Incident.

1990 Renewed Joint Venture Law.

1991

1992

1993

1994

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Table 2-ll-2 Main Indicators of National Economy

UNIT 1978 1980 1985 1990 1991 1992 1. Population (End year) 10 thousand 96259 98705 105851 114333 115823 117171 2. Labor Force (End year) Resource of Labor Force 10 thousand 48530 52885 62114 69732 70982 72120 Social Labor Force 10 thousand 40152 42361 49873 56740 58360 59432 #Employee 10 thousand 9499 10444 12358 14059 14508 14792 3. Gross National Product 100 mil. yuan 3588 4470 8558 17695 20236 24036 4. National Income 100 mil. yuan 3010 3688 7020 14384 16557 19845 5. Total Output Value of Society 100 mil. yuan 6846 8534 16582 38035 44142 55842 #Output from Manufacturing & Agriculture 100 mil. yuan 5634 7077 13335 31586 36405 46151 6. Investment in Fixed Assets 1. Total Investment in Fixed Assets 100 mil. yuan 668.72 910.85 2543.19 4449.29 5508.80 7854.98 Productive 100 mil. yuan 1544.10 2768.28 3453.39 5166.14 Non-Productive 100 mil. yuan 999.09 1681.01 2055.41 2688.84 #Housing 100 mil. yuan 641.63 1164.48 1417.41 1716.91 2. Investment in Fixed Assets of State-Owned Units 100 mil. yuan 668.72 745.90 1680.51 2918.64 3628.11 5273.64 Capital Construction 100 mil. yuan 500.99 558.89 1074.37 1703.81 2115.80 3012.65 Technical Updating, Transformation & Other 100 mil. yuan 167.73 187.01 606.14 1029.26 1261.86 1754.91 3. Invest. in Fixed Assets by Collect.-Owned Units 100 mil. yuan 45.95 327.46 529.48 697.80 1359.35 Urban 100 mil. yuan 22.95 128.23 163.38 203.83 364.49 Rural 100 mil. yuan 23.00 199.23 366.10 493.98 994.86 7. Public Finance 1. Government Revenue 100 mil. yuan 1121.1 1085.2 1866.4 3312.6 3610.9 4153.1 #Financed as Gov. Debt 100 mil. yuan 0.0 43.0 89.9 375.5 461.4 669.7 Central 100 mil. yuan 164.6 209.8 707.9 1367.9 1399.7 1649.2 Local 100 mil. yuan 956.5 875.5 1158.5 1944.7 2211.2 2503.9 2. Government Expenditure 100 mil. yuan 1111.0 1212.7 1844.8 3452.2 3813.6 4389.7 #Payment of Gov. Debt 100 mil. yuan 0.0 28.6 39.6 190.4 246.8 438.6 Central 100 mil. yuan 521.0 650.7 836.5 1372.8 1517.7 1817.9 Local 100 mil. yuan 590.0 562.0 1008.2 2079.4 2295.8 2571.8 3. Extra-Budgetary Revenue 100 mil. yuan 347.1 557.4 1530.0 2708.6 3243.3 4. Extra-Budgetary Expenditure 100 mil. yuan 1375.0 2707.1 3092.3 8. Price Indexes (Preceding Year = 100) 1. Overall Farm and Sideline Products Purchasing Price Indexes and by Category of Commodities % 103.9 107.1 108.6 97.4 98.0 103.4 2. Retail Price Indexes % 100.7 106.0 108.8 102.1 102.9 105.4 3. Index of Living Expenses of Staff & Workers % 100.7 107.5 111.9 101.3 105.1 108.6 9. Wage Bill 1. Total Wage Bill of Staff & Workers 100 mil. yuan 568.9 772.4 1383.0 2951.1 3323.9 3939.2 2. Average Annual Wage of Staff & Workers Yuan 615 762 1148 2140 2340 2711 10. Per Capita Consumption Yuan 175 227 403 723 803 935 Peasant Yuan 132 173 324 524 570 648 Non-Peasant Yuan 383 468 727 1477 1676 1983

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11. Agriculture 1. Gross Output Value of Agriculture 100 mil. yuan 1397 1923 3619 7662 8157 9085 2. Output of Major Farm Products Crops 10 thousand ton 30477 32056 37911 4.4624 43529 44266 Cotton 10 thousand ton 216.7 270.7 414.7 450.8 567.5 450.8 Oil plant 10 thousand ton 521.8 769.1 1578.4 1613.2 1638.3 1641.2 Sugarcane 10 thousand ton 2111.6 2280.7 5154.9 5762.0 6789.8 7301.1 Beet 10 thousand ton 270.2 630.5 891.9 1452.5 1628.9 1506.9 Tea 10 thousand ton 26.8 30.4 43.2 54.0 54.2 56.0 Fruit 10 thousand ton 657.0 679.3 1163.9 1874.4 2176.1 2440.1 Meat 10 thousand ton 856.3 1205.4 1760.7 2513.5 2723.8 2940.6 Fishery 10 thousand ton 466.0 450.0 705.0 1237.0 1351.0 1557.0 3. Gross Output Value of TVEs 100 mil. yuan 493.1 656.9 2728.4 8461.6 11621.7 17975.4 12. Industry 1. Gross Output Value of Industry 100 mil. Yuan 4237 5154 9716 23924 28248 37066 2. Output of Major Industrial Products Clothing 100 mil. meter 110.3 134.7 146.7 188.8 181.7 190.7 Paper 10 thousand ton 439 535 911 1372 1479 1725 Sugar 10 thousand ton 227 257 451 582 640 829 Refrigerator 10 thousand 2.8 4.9 144.8 463.1 469.9 485.8 Television 10 thousand 51.73 249.20 1667.66 2684.70 2691.41 2867.82 #Color television 10 thousand 0.38 3.20 435.28 1033.04 1205.06 1333.08 Washing machine 10 thousand 0.04 24.50 887.20 662.68 687.17 707.93 Recorder 10 thousand 4.7 74.3 1393.1 3023.5 2873.7 3231.8 Camera 10 thousand 17.89 37.28 178.97 213.22 478.18 526.48 Raw Coal 100 mil. Ton 6.18 6.20 8.72 10.80 10.87 11.16 Crude Oil 10 thousand ton 10405 10595 12490 13831 14099 14210 Electricity 100 mil. KWH 2566 3006 4107 6212 6775 7539 Steel 10 thousand ton 3178 3712 4679 6635 7100 8094 Rolled Steel 10 thousand ton 2208 2716 3693 5153 5638 6697 Cement 10 thousand ton 6524 7986 14595 20971 25261 30822 3. Overall Labor Productivity of Industrial Independent Accounting Enterprises 2/ Yuan/person. year 11131 12081 15080 18639 32304 36074 4. State-Owned Industrial Independent Accounting Enterprises Financial Indicators Fixed Assets Value (End year) 100 mil. Yuan 3193.4 3730.1 5956.2 11610.3 13556.8 15669.8 Total Capital 100 mil. Yuan 3273 3663.7 5604.1 12088.6 14067.6 16094.7 Net Fixed Assets Value (End year) 100 mil. Yuan 2225.7 2528 3980.8 8088.3 9507.2 10982.6 Annual Average Balance of Circulating Capital 100 mil. Yuan 1047.3 1135.7 1623.3 4000.3 4560.4 5112 Profit and Taxes 100 mil. Yuan 790.7 907.1 1334.1 1503.1 1661.2 1944.1 13. Transportation and Telecommunication 1. Freight Traffic 100 mil. Ton-Km 9829 12026 18126 26207 27986 29218 Rail 100 mil. Ton-Km 5345 5717 8126 10622 10972 11576 Road 100 mil. Ton-Km 274 764 1693 3358 3428 3755 Shipping and Waterway 100 mil. Ton-Km 3779 5053 7700 11592 12955 13256 Pipelines 100 mil. Ton-Km 430 491 603 627 621 617 Civil Aviation 100 mil. Ton-Km 1 1 4 8 10 13

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2. Passenger Traffic 100 mil. Passenger-Km 1743 2281 4437 5628 6178 6949 Rail 100 mil. Passenger-Km 1093 1383 2416 2613 2828 3152 Road 100 mil. Passenger-Km 521 730 1725 2620 2872 3193 Domestic Waterway 100 mil. Passenger-Km 101 129 179 165 177 198 Civil Aviation 100 mil. Passenger-Km 28 40 117 230 301 406 3. Cargo Throughput in Coastal Main Ports 10 thousand ton 19834 21731 31154 43229 47117 53329 4. Volume of Postal and Telecommunication Services 3/ 100 mil. 11.65 13.34 29.6 81.65 204.38 290.94 5. Postal Letters 100 mil. 28.35 33.13 46.78 54.87 52.11 57.18 6. Newspapers Published 100 mil. 11250 16431 30172 20078 23277 25104 14. Energy Production and Consumption (Converted in Standard Coal) Total Production 10 thousand ton 62770 63735 85546 103922 104844 107256 Total Consumption 10 thousand ton 57144 60275 76682 98703 103783 108900 15. Commerce 1. Gross Value of Purchases of All Commodities 100 mil. Yuan 1739.7 2263.0 3532.5 8221.2 9347.9 10653.7 #Industrial Products 100 mil. Yuan 1263.4 1567.6 2462.3 5871.2 6767.2 8071.7 Farm and Sideline Products 100 mil. Yuan 459.9 677.0 1033.2 2258.6 2453.2 2427.5 2. Total Quantities of Purchases of Farm and Sideline Products Crops 10 thousand ton 5072.5 6129.0 10762.8 13995.2 13635.5 13246.4 Cotton 10 thousand ton 209.6 261.0 431.9 409.1 529.0 435.8 Edible Oil 10 thousand ton 110.5 191.0 409.8 470.3 477.0 457.1 Sugarcane 10 thousand ton 1557.9 1584.0 3687.5 4619.0 4728.5 6012.1 Beet 10 thousand ton 255.3 554.1 806.4 1402.8 1556.6 1206.3 Tea 10 thousand ton 24.3 26.2 39.5 49.2 52.2 80.3 Pig 10 thousand 10936.5 14250.0 16020.8 18504.5 21054.1 21373.1 Cow 10 thousand 140.8 221.6 463.8 909.5 1018.5 1088.3 Mutton 10 thousand 998.3 1680.2 2839.3 4033.3 4432.6 4515.0 Eggs 10 thousand ton 56.0 99.1 192.2 282.4 350.5 376.3 Fishery 10 thousand ton 269.2 239.3 334.2 575.3 652.4 697.8 3. Total Value of Retail Sales 100 mil. Yuan 1558.6 2140.0 4305.0 8300.1 9415.6 10993.7 4. Retail Sales of Major Consumer Goods in Quantity Crops 10 thousand ton 4750.0 5497.0 9011.6 9289.1 9242.6 9774.7 Crop Oil 10 thousand ton 87.5 126.0 349.1 441.6 467.2 519.9 Pork 10 thousand ton 467.5 704.5 916.4 1246.9 1316.8 1448.7 Sugar 10 thousand ton 315.6 363.5 572.5 541.6 547.6 602.7 Clothing 100 mil. meter 76.9 98.4 121.2 120.3 118.5 125.0 Television 10 thousand 55.1 364.0 2156.9 1923.0 2096.1 2137.8 Washing machine 10 thousand 0.2 23.5 1098.1 924.9 984.1 1091.0 Refrigerator 10 thousand 2.0 5.5 220.0 436.0 465.7 472.1 5. Sales Amount of Agricultural Materials Chemical Fertilizer (Converted in Standard) 10 thousand ton 4087.5 5531.1 6231.8 10023.6 10702.2 10119.4 Agricultural Medicine 10 thousand ton 146.4 152.7 65.3 61.5 62.6 53.8 Tractor 100 MW 1037.1 639.8 723.4 898.1 983.6 1154.7 16. Foreign Trade and Tourism 1. Total value of Import and Export 100 mil. USD 206.4 381.4 696.0 1154.4 1356.3 1656.1 Import 100 mil. USD 108.9 200.2 422.5 533.5 637.9 806.1 Export 100 mil. USD 97.5 181.2 273.5 620.9 718.4 850.0

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2. Foreign Investment Licensed 100 mil. USD 98.7 120.9 195.8 694.4 Realized 100 mil. USD 46.5 102.9 115.5 192.0 #Foreign Direct Investment 100 mil. USD 16.6 34.9 43.7 110.1 3. Tourism Number of Visitors from outside China 10 thousand 570.3 1783.3 2746.2 3335.0 3811.5 Income in Foreign Currency 100 mil. USD 6.2 12.5 22.2 28.5 39.5 17. Culture and Education 1. Number of Students High School 10 thousand 85.6 114.4 170.3 206.3 204.4 218.4 Polytechnic school 10 thousand 88.9 124.3 157.1 224.4 227.7 240.8 Middle School 10 thousand 6548.3 5508.1 4706.0 4586.0 4683.5 4770.8 Primary School 10 thousand 14624.0 14627.0 13370.2 12241.4 12164.2 12201.3 2. Number of Publications Books 100 mil. Copy 37.7 45.9 66.7 56.4 61.4 63.4 magazines 100 mil. Copy 7.6 11.2 25.6 17.9 20.6 23.6 Newspaper 100 mil. Copy 127.8 140.4 199.8 160.5 176.6 189.1 18. Public Health Number of beds at hospitals 10 thousand 185.6 198.2 222.9 262.4 268.9 274.4 Medical expert 10 thousand 246.4 279.8 341.1 389.8 398.5 407.4 #Doctor 10 thousand 103.3 115.3 141.3 176.3 178.0 180.8

Notes: 1/ Calculated market Price if nothing mentioned. 2/ calculated by constant 1980 price. 3/ 1981-90: constant 1980 price, 1991-92: 1990 price, other: 1980price. Source: Zhougguo Tongji Nianjian 1993 (Statistic Yearbook of China = SYB) [1993]

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Population and GNP

7. Public Finance

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10. Per Capita Consumption

Gross Output Value of Agriculture & Industry

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Table 2-II-3 Principal relations of Major Economic Indicators (Unit: %)

1978 1980 1985 1990 1991 1992 1. Composition of GNP by Sector Agriculture 28.4 30.4 29.7 28.4 26.1 23.9 Industry 48.6 49.0 45.2 43.6 45.0 48.2 Service 23.0 20.6 24.8 28.0 28.6 27.9 2. Composition of National Income by Producing Value Agriculture 32.8 36.0 35.5 34.8 32.7 29.2 Manufacturing 49.4 48.9 45.1 46.0 47.8 49.4 Construction 4.2 5.0 5.8 5.8 6.5 7.4 Transportation 3.9 3.4 3.7 5.5 5.3 4.8 Commerce 9.8 6.7 9.9 8.0 7.7 9.1 3. Composition of Consumption and Accumulation in National Income Accumulation 36.5 31.5 35.0 32.8 32.8 34.3 Consumption 63.5 68.5 65.0 67.2 67.2 65.7 Productive Accumulation 71.8 54.5 62.4 61.2 60.9 73.2 Non-Productive Accumulation 28.2 45.5 37.6 38.8 39.1 26.8 Residential Consumption 88.6 87.8 86.9 84.9 84.3 83.5 Social Consumption 11.4 12.2 13.1 15.1 15.7 16.5 4. Source of Funds of Total Investment in Fixed Assets Budget and Extra-Budget Inv. 62.2 44.7 16.0 8.7 6.8 4.3 Domestic loan 1.7 11.7 20.1 19.6 23.5 27.1 Foreign Fund 4.2 7.2 3.6 6.3 5.7 5.5 Equity Capital 52.4 52.3 51.2 31.9 36.5 60.3 Others 13.1 11.8 12.0 5. Composition of Total Investment in Fixed Assets Productive Construction 60.7 62.2 62.7 65.8 Non-Productive Construction 39.3 37.8 37.3 34.2 #Residential house 25.2 26.2 25.7 21.9 6. Investment in Fixed Assets of State Owned Units for Energy and Communication Energy Industry 21.8 29.0 26.4 22.1 Transport and Communication 13.5 11.9 13.4 13.3 7. Ratio of Government Revenue to GNP 31.2 24.3 21.8 18.7 17.8 17.3 8. Ratio of Government Revenue to National Income 37.2 29.4 26.6 23.0 21.8 20.9 9. Composition between Central and Local Government in Public Finance Government revenue Central Government 14.7 19.3 37.9 41.3 38.8 39.7 Local Government 85.3 80.7 62.1 58.7 61.2 60.3 Government Expenditure Central Government 46.9 53.7 45.3 39.8 39.8 41.4 Local Government 53.1 46.3 54.7 60.2 60.2 58.6

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10. Composition of Extra-Budgetary Revenue to Budgetary Revenue 31.0 53.5 83.3 86.4 94.5 11. Composition of Extra-Budgetary Revenue Local Government 9.0 7.3 2.9 2.2 2.1 Administrative Unit 18.3 13.4 15.2 21.3 21.5 State-Owned Unit 72.8 79.3 81.9 76.5 76.4 12. Composition of Energy Consumption For Material Producing 81.1 79.4 80.5 80.8 For Non-material Producing 3.0 3.2 3.5 3.8 For Livelihood 15.9 17.4 16.0 15.4 13. Composition of Gross Output Value of Agriculture and Industry Agriculture 24.8 27.2 27.1 24.3 22.4 19.7 Light Indusrty 32.4 34.3 34.3 37.4 37.9 37.9 Heavy Industry 42.8 38.5 38.6 38.3 39.7 42.4 14. Composition of Gross Output Value of Light and Heavy Industry Light Indusrty 43.1 47.1 47.1 49.4 48.9 47.2 Heavy Industry 56.9 52.8 52.9 50.6 51.1 52.8 15. Composition of Gross Output Value of Agriculture in 5 fields Cultivation 76.7 71.7 63.0 58.5 57.2 55.5 Forestry 3.4 4.2 5.2 4.3 4.5 4.7 Stock Farming 15.0 18.4 22.0 25.6 26.4 27.0 Sideline Avtivities 3.3 4.0 6.3 6.2 6.0 6.1 Fishery 1.6 1.7 3.5 5.4 5.9 6.7 16. Composition of Gross Output Value of Light Industry by Source of Material 2/ Agricultural Material 68.4 68.4 70.9 69.7 68.4 67.8 Non-Agri. Material 31.6 31.6 29.1 30.3 31.6 32.2 17. Composition in Gross Output Value of Heavy Industry by Kind 2/ Mining 12.0 11.3 12.7 12.1 11.7 10.5 Raw Material Producing Industry 35.5 37.8 36.8 41.6 41.7 41.0 Processing Industry 52.5 50.9 50.5 46.3 46.6 48.5 18. Composition of Facilities in Cargo Transportation Rail 44.2 20.4 17.5 15.5 15.5 15.1 Road 34.2 69.9 72.1 74.6 74.4 74.7 Shipping 17.4 7.8 8.5 8.3 8.5 8.8 Aviation 0.0 0.0 0.0 0.0 0.0 0.0 Pipeline 4.2 1.9 1.8 1.6 1.6 1.4 19. Composition of Faclities in Freight Traffic Rail 54.4 47.5 44.8 40.5 39.2 39.6 Road 2.8 6.4 9.3 12.8 12.2 12.9 Shipping 38.4 42.0 42.5 44.2 46.3 45.4 Aviation 0.0 0.0 0.0 0.0 0.0 0.0 Pipeline 4.4 4.1 3.3 2.4 2.2 2.1

Note : 1/ Based on the Current Price except items specially noted. 2/ Caluclated by a constant price by 1980. Source: Zhougguo Tongji Nianjian 1993 (Statistic Yearbook of China = SYB) [1993]

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1. Composition of GNP by Sector

2. Composition of National Income by Producing Value

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9-1. Government Revenue

9-2. Government Expenditure

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13. Composition of Gross Output Value of Agriculture and Indusrty

Table 2-ll-4 Principal Relations of Major Economic Indicators by Ownership

unit : % 1978 1980 1985 1990 1991 1992 1. Composition of Social Labor Force State Owned 18.6 18.9 18.0 18.2 18.3 18.3 Urban Corrective 5.1 5.7 6.7 6.3 6.2 6.1 Others 0.1 0.3 0.4 0.5 Urban Private 0.2 0.9 1.2 1.3 1.4 Rural Labor 76.3 75.2 74.3 74.0 73.8 73.7 2. Composition of Total Fixed Assets State Owned 66.1 65.6 65.9 67.1 Collective Owned 12.9 11.9 12.7 17.3 Private 21.0 22.5 21.5 15.6 3. Composition of Government Revenue State Owned 86.8 85.4 73.1 70.2 67.4 Collective Owned 12.7 14.0 21.8 17.4 17.1 Private 0.5 0.6 4.1 7.3 10.1 Others 1.0 5.1 5.4 4. Composition of Distribution in Agricultural Income Taxation 5.4 5.9 6.0 7.4 Reservation at the Unit 8.1 9.6 11.7 11.4 Personal Income 86.5 84.5 82.3 81.2 5. Composition of Gross Output Value of Industry State Owned 77.6 76.0 64.9 54.6 52.9 48.1 Collective Owned 22.4 23.5 32.1 35.6 35.7 38.0 Private 1.8 5.4 5.7 6.8 Others 0.5 1.2 4.4 5.7 7.1 6. Composition of Freight Traffic State Owned 75.5 77.0 77.6 81.5 81.5 81.5 Collective Owned 24.5 23.0 21.7 17.8 17.8 17.8 Others 0.6 0.7 0.8 0.7 7. Composition of Total Value of Retail Sales State Owned 54.6 51.4 40.4 39.6 40.2 41.3 Collective Owned 43.3 44.6 37.2 31.7 30.0 27.9 Jointly Owned 0.3 0.5 0.5 0.7 Private 0.1 0.7 15.4 18.9 19.6 20.3 Peasant/Non-peasant Direct Trad 2.0 3.2 6.8 9.3 9.7 9.8

Note: Market Price Source: Zhougguo Tongji Nianjian 1993 (Statistic Yearbook of China = SYB) [1993]

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5. Composition of Gross Output Value of Industry

1. Composition of Social Labor Force