Chapter 5 Reformulation and Debates

1
Chapter 5Reformulation and Debates

• 1984 The turning point in Chinas economic
  reform

2
Recall 1978-1983

• Reform successes Agriculture and TVEs
• Reform failure SOEs
• Sixth Five Year Plan for 1981-85 was not
  completed until 1982
• Energy sector was in trouble (lagging output
  during 1979-82)
• There was a lot of pessimism
• After 1982, coal and petroleum output began to
  increase

3
1984 was the Year for Reassessment and
Reformulation

• Again Zhao Ziyang played a key role in this
  process
• Question Direction and objective of reform
• A new type of planning -- based on projection
  rather than a simple output target

4
Seventh Five Year Plan (1986-1990)

• Priority
• Continued agricultural growth
• Consumer goods industry
• Completion of key projects in energy, transport,
  communications and raw materials
• Projected GNP growth of 7.5
• More comprehensive even on population growth,
  student enrollment, and growth of hospital
  beds,etc.
• Absence of concern on energy bottlenecks

5
Most Important, Zhao Ziyangs Three Initiatives

• Assembling Political Consensus for a
  comprehensive reform program
• Altered Role of the Planning System
• Program of Financial Rationalization Tax for
  Profit

6
1. Assembling Political Consensus

• 1984 Letter campaign to members of the
  Politiburo Standing Committee (including Deng
  Xiaoping, Chen Yun, and Hu Yaobang)

7
In October 1984

• Zhao Ziyangs reform document was ratified by the
  Communist Party Central Committee
• In this document, the reform of the price system
  was the crucial determinant of the success and
  failure of the continuing reform.

8
2. Freezing the Plan

• Conservatives wanted to rationalize the
  partitioning of the economy into Plan (energy and
  infrastructure) and Market (other small
  enterprises) sectors
• Practical compromise gt Having two sectors, but
  shifting the balance of the economy toward the
  market sphere.

9
3. Tax for Profit

• Tax for profit as a new financial system --
  Similar features as before, but to expand it
  across the board
• Profits gtcapital charge, resource taxes, sale
  taxes, and income tax
• There were many issues
• Reallocation of revenues between central and
  local governments
• Need consultation and negotiation with the
  bureaucracy

10
Summary Two Main Features

• Price realignments under the expansion of the
  outside-plan sector
• Charges for fixed asset used by SOEs under the
  tax for profit

11
There were Obstacles for Implementation

• Price reform was difficult
• Producers of raw materials such as coal did not
  make any profit because of its low prices under
  planning
• Dead end for the tax for profit
• Low implementation rate

12
New Questions and Debates on Reform Strategy

• Two groups
• Price reform
• Opposed special treatment
• Enterprise reform
• Political and economic consideration
• Argued for a two-tier price system

13
Compromised Reform Strategy

• Dual-track strategy for 1985-1988
• Agreed strategy the transition to a market
  economy requires both price and enterprise reform
• It was important to expand the proportion of
  goods marketed independently by enterprises
  outside the plan
• Again how to create incentives and managers with
  profit orientation???

14
Questions/Comments