Table Of ContentCHINA'S ECONOMIC REFORM
STUDIESONTHECHINESEECONOMY
General Editors: Peter Nolan, Lecturerin Economicsand Politics, University
of Cambridge, and Fellow and Director of Studies in Economics, Jesus
College, Cambridge, England; and Dong Fureng, Professor, Chinese
AcademyofSocial Sciences, Beijing,China
This series analyses issues in China's current economic development, and
sheds light upon that process by examining China's economic history. It
contains a wide range of books on the Chinese economy past and present,
and includes not only studies written by leading Western authorities, butalso
translations ofthe most important works on the Chinese economy produced
withinChina. Itintends to makea majorcontribution towards understanding
this immensely importantpartofthe worldeconomy.
Publishedtitlesinclude:
DerongChen
CHINESEFIRMS BETWEEN HIERARCHY AND MARKET
DuRunsheng(editedbyThomas R. Gottsclwng)
REFORM AND DEVELOPMENTIN RURALCHINA
QimiaoFanand PeterNolan (editors)
CHINA'SECONOMICREFORMS
ChristopherFindlay, Andrew Watson and Harry X. Wu (editors)
RURALENTERPRISES INCHINA
NicholasK. Menzies
FORESTAND LAND MANAGEMENTIN IMPERIALCHINA
Ryoshin Minami
THEECONOMICDEVELOPMENTOFCHINA
Haiqun Yang
BANKING AND FINANCIALCONTROLIN REFORMING PLANNED
ECONOMIES
MalcolmWarner
THEMANAGEMENTOFHUMAN RESOURCES IN CHINESE
INDUSTRY
China's Economic
Reform
Shangquan Gao
Forewords by
Sir Alec Cairncross
and
Sir Edward Heath
First published in Great Britain 1996 by
MACMILLAN PRESS LTD
Houndmills, Basingstoke, Hampshire RG21 6XS
and London
Companies and representatives
throughout the world
A catalogue record for this book is available
from the British Library.
ISBN 978-1-349-24469-0 ISBN 978-1-349-24467-6 (eBook)
DOI 10.1007/978-1-349-24467-6
First published in the United States of America 1996 by
ST. MARTIN'S PRESS, INC.,
Scholarly and Reference Division,
175 Fifth Avenue,
New York, N.Y. 10010
ISBN 978-0-312-12034-4
Library of Congress Cataloging-in-Publication Data
Gao, Shangquan.
China's economic reform I Shangquan Gao.
p. em.-(Studies on the Chinese economy)
Includes index.
ISBN 978-0-312-12034-4
I, China-Economic policy-1976- I. Title. II. Series.
HC427.92.K383 1996
338.95!-<lc20 93-38043
CIP
© Shangquan Gao !996
Forewords© Sir Alec Cairncross and Sir Edward Heath 1996
Softcover reprint of the hardcover 1st edition 1996 978-0-333-61122-7
All rights reserved. No reproduction, copy or transmission of
this publication may be made without written permission.
No paragraph of this publication may be reproduced, copied or
transmitted save with written pennission or in accordance with
the provisions of the Copyright, Designs and Patents Act 1988,
or under the terms of any licence permitting limited copying
issued by the Copyright Licensing Agency, 90 Tottcnham Court
Road, London WI P 9HE.
Any person who does any unauthorised act in relation to this
publication may be liable to criminal prosecution and civil
claims for damages.
10 9 8 7 6 5 4 3
05 04 03 02 01 00 99 98
Contents
Introduction viii
Foreword by Sir Edward Heath ix
Foreword by Sir Alec Caimcross xii
1 From Planned Economy to Market Economy 1
Why China has to build up a socialist market economy
The socialist market economy: a significant breakthrough
in theory and practice 5
The basic vision of the socialist market economy 7
2 The Achievements and Problems of China's Economic
Reform 11
3 China's Open-Door Policy 36
Opening up to the outside world is part of an inexorable
trend of social development 36
The open-door policy has ushered in a diversity of
initiatives 39
The major results of the open-door policy 43
Adapting structural reform of foreign trade to the
open-door policy 51
4 China's Rural Economic Restructuring 57
Drawbacks of the former rural economic structure and
the starting points of reform 57
The universal practice of the contracted responsibility
system with remuneration linked to output 59
Reform of the people's commune system 62
Reform of the system of buying and selling farm
produce and the system of supply and marketing 63
Ten years of agrarian reform 64
The deepening of agricultural reform and ensuring
stable rural economic development 66
y
vi Contents
5 China's Enterprise Reform 69
Improving the vitality of enterprises 69
Expansion of the decision-making power of enterprises 70
Popularising the system of contracted managerial
responsibility and improving the managerial mechanism 73
General restructuring of enterprise management 76
The merging of enterprises 78
The development of enterprise groups 81
The share system 86
The experimental separation of taxes and profits 90
Strengthening the entrepreneurial sector and ensuring
the vitality of enterprises 94
6 An Approach to the Socialist Market System in China 98
Establishment of the socialist market system: its
significance and development 98
The initial stage of growth of the socialist market system 106
Establishing a market and regulating business activities 112
7 The Restructuring of China's Macroeconomic
Management System 116
Reform of the planning system and the establishment
of a macro regulatory system 116
Reform of the financial and taxation systems 119
Strengthening the ability of the central bank to
conduct macro regulation and control 123
8 Reform of Income Distribution and the Social
Insurance System 126
Reform of the wage system 126
The main problems of income distribution 127
Solving the problems of income distribution 128
The social insurance system 130
9 China's Economic Experiment: Interviews with
Chinese and Foreign Journalists 135
A great experiment: interview with the chief editor of
the Weekly News, Yugoslavia 135
Contents vii
A socialist economy is a commodity economy: statements
made at the press conference of the Thirteenth National
Congress of the Communist Party of China 144
Inflation and price reform: interview with a correspondent
of Der Spiegel 150
Price reform is the key to the success of economic
reform: interview with BBC television 156
Ten years of reform has caused historic changes in
China: interview with Mortimer B. Zukerman, chief
editor of US News & World Report 160
Putting housing reform at the top of the agenda:
interview in the newspaper Construction Daily,
28 August 1987 168
A new order in business activities: interview in the
People's Daily, 10 September 1988 174
Appendix: The Major Events ofthe Ten-Year Economic Reform 178
Index 243
Introduction
Reform and an open-door policy are the ways to make China powerful
and prosperous. Since the adoption ofthese practices, China has achieved
tremendous success and attracted worldwide attention, but it has also
confronted difficulties and problems. According to a former foreign
premier, 'China's reform is the greatestexperiment in human economic
history.' Why must China, a country with a population of 1.1 billion,
carry out reform and open itself to the outside world? What progress
can be achieved by doing so? What difficulties will confront the Chinese
people as a consequence? Are there any lessons to be drawn from the
experience? These are the kinds ofquestion raised constantly by foreign
friends. ProfessorGao Shangquanprovides comprehensive and systematic
response in this, his latest authoritative work, China's Economic Reform.
The author of this book is a renowned Chinese economist who has
been engaged in the research of reform theory and practice over a
long period. As early as 1956 he pointed out with customary insight
the defects of the highly centralised economic system, and proposed
granting decision-making power to the enterprises (published in the
People's Daily on 6 December 1956). He is now the vice Minister of
the State Commission for Restructuring the Economic System, the presi-
dent ofChina Reform and Development institute, the vice president of
the Chinese Society ofIndustry, and the vice president of the Chinese
Society of Urban Economy. He is also the vice board chairman of the
Research Institute for Comprehensive Exploitation, and a professor
Doctorate Supervisor at Beijing University. He participates directly in
the planning and instigation of reform.
In this book Professor Gao Shangquan reviews and considers from
the theoretical pointofview the changes in China's economy and society
during the course ofreform, as well as assessing from a practical point
of view the processes, difficulties and prospects of that reform. From
the many data and illustrative examples provided in the book, the reader
will readily grasp the fundamentals of China's economic policy, and
will gain a vivid, true-to-life picture of the country's reform. In addi-
tion, some valuable statistical graphs and an appendix listing the ma-
jor events of the ten-year economic reforms are included at the back
of the book to help further the reader's understanding of China.
viii
Foreword
The Rt Hon. Edward Heath, MBE, MP
With the Soviet Union in economic chaos and many countries in East-
ern Europe discovering that the marketplace can becold and uncomfort-
able, it is time to reevaluate the Chinese experience ofreform. Professor
Gao Shangquan gives us an opportunity to do so, notonly with Chinese
eyes, but through the mind of a minister in the Chinese government.
It is fashionable among pundits of the Hayek-Friedmann school of
thought to assert an inflexible relationship between political freedom
in the Western sense and economic progress. Few doubt that in the
long run people whose minds are set free to unleash creative forces in
commerce, industry and indeed agriculture will demand more liberty
to speak and to act as they choose. Taiwan under the Kuomintang,
Japan with its strict notions of social conformity, and indeed Singa-
pore, all examplars of economic success, show how long a regulated
social structure can coexist with economicliberalisation.
We foreigners can only hope that China will succeed in her drive to
offer her citizens a decent standard of life - it is not so long ago that
she was hard put to satisfy the more limited objective ofoffering them
enough food to eat - and at the same time cope with the strains and
tensions let loose by deep economic change. For much of my lifetime
China has been ravaged by warand famine, sometimes caused by foreign
aggression, sometimes convulsed by social movements that the politi-
cal system could not contain.
The Chinesegovernment has a narrow path to tread and a difficult
pace to measure. To expose the entire economy suddenly to the forces
ofinternational competition would invite wholesale economic collapse.
Not to open will foster continued backwardness. Failure to pursue econ-
omic reform will produce mounting discontent as the people's hopes
for material prosperity evaporate. Too fast apace risks inflation, economic
instability and social disorder. Twenty years may bring forth riper fruit
than 100 days.
Professor Gao charts the course of China's gradual reform over a
decade with an insider's perspective, conscious ofthe immense problems
of governing a nation of 1.1 billion. There can be no doubt of the
success of the programme nor of the spectacular rise in incomes over
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