Q.

Dwight Perkins

Dissatisfaction with how slowly China had grown and how quickly its neighbours were
growing
Deng different from Mao cause wanted China to be a wealthy state
Unlike Mao, Deng was not against foreign technology and foreign products
What are the key areas of economic reform?

 Rural Reform 1) decollectivization of Chinese rural society ; system of communes

that operated as a collective unit ceased to exist, household agriculture was the
norm - response of agriculture to decollectivisation/freeing up of rural markets
was immediate production of crops grew, farm income/consumption grow
- However this spurt only lasted till 1984, farmers preferred to invest in rural
industries
- Five elements needed to make market work well (steps also to be taken by Soviet
command economy to become market economy): 1)macro stability, not a lot of
inflation and acceptable BOP 2)inputs/outputs on purchase and sale in mkt and not
allocated by state 3) prices freed up to show scarcities 4) remove barriers to
increase competition 5)change key elects on institutional framework so decision
makers in production units have incentive to maximise profits by cutting
cost/raising sales

- The fifth objective was difficult to be achieved because of the household

responsibility system ; property rights were exclusive/enforceable only one farm
household had right to use a particular plot and those who did not respect this
were punished - property was not transferable, feudal habit opposed by CCP,
incomplete nature of property rights had negative impact on agriculture
performance, farmers insecure about the fact if they could hold onto their land
as “owning” the land did not exist till 1990
- However incomes still continued to rise and the gap between rural/urban began
to close  until reforms were introduced in urban areas
- “Household responsibility system”  allowed farmers to retain/sell for profit any
output above state contracted quota, allowed farmers to engage in non-
agricultural production so led to township and village enterprives

 Industrial Reform
1. Industrial enterprises have larger/complex internal structures, embedded
in external institutions like banking/tax system and are a product of the
command economy so reforming these institutions is a complex task
2. Industrial inputs were made available on the market, but those allocated
by the state were sold at fixed prices which were much higher but market
allocated ones had the most share, monopolies abolished and objective
now was profits
 3. Industrial reforms led to boom in small and medium scaled enterprises,
making inputs available on the market was very imp to growth of township
and village enterprises  esp with abolition of monopolies
Tony Saich ;

- Productivity rose due to rules of market - incentive to be productive as

profits could be retained
- Industrial reforms did create differences of opinion - especially when
economy overheated with freeing up of prices that led to inflation

 Fiscal devolution
- an amount for five years was fixed of what provinces had to give to centre and
above that amount they could keep everything for themselves. This was done to
gain support of provinces for reform, and provinces were encouraged to build
local industries to earn more revenue so this boosted entrepreneurship. But this
created a lot of problems as local investments were being done in redundant plans
which led to inflation, supply shortage, budget deficits and foreign exchange
deficits. National market also got affected cause of this, as local officials erected
blockades to protect their markets and opposed any reform that shifted authority
from local govt to enterprise itself (Susan L Shirk)

- Local governments allowed to tax TVE sales - as a result local governments

acquired strong interest in the fortunes of TVEs

 State owned Enterprise

 June Teufel Dreyer
- Fiscal responsibility of enterprises
- More decision making power for the management
- Incentives given by allowing profit retention for expansion
- State subsidies to factories reduced by a great extent - but subsidies that were
still given to loss-making enterprises led to a lot of loss for government budget
- The bankruptcy law was introduced, intended to increased financially
independent enterprises - but in actuality was never implemented as a lot of
SOEs were lossmaking and this would lead to massive job losses
- Soft budgets encouraged the SOE management to not care about economic
efficiency
- Decentralization of financial responsibility to enterprise  management
responsible for enterprise profits/losses, could also given bonuses to workers but
bonuses not used to incentivize workers, money was acc equally divided among
all workers regardless of how they worked

- Public ownership of the means of production was important for socialism - so

bankruptcy law failed to have impact