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UK CONFIDENTIAL
CHINA:
CHANGES IN ECONOMIC POLICY
Introduction
1.
The Chinese leadership have revealed considerable dissatisfaction with the progress of the economic policies introduced in 1979, and have begun a new phase of economic policy intended to ensure that they will now be applied successfully.
2.
The main aim of economic policy remains, as has been stressed over the last 3 years, the modernisation of agriculture, industry, defence, and science and technology, in order to create a "powerful socialist state", by the year 2000. Along with this goes a commitment to increase living standards, summarised in Deng Xiaoping's stated aim of achieving a per capita GNP of US $ 1,000 by this time. However unrealistic these aims may be, it clearly indicates the direction in which China wishes to go.
Economic Readjustment and Reform
3.
In 1979, following the re-examination of economic policy and the scaling down of the unrealistically high targets announced in 1978 as part of a 1976-85 plan, the Chinese began a three year period (1979-81) of readjustment and reform intended to lay a sound basis for future balanced and rapid economic growth and modernisation. The leadership had concluded that the economy needed a change of direction, and that traditional methods of management were not going to ensure that modernisation, with its emphasis on qualitative factors, was achieved. Readjustment includes a reduction in investment (primarily a cutback in capital construction projects) in favour of consumption,* and re-direction of investment away from petro-chemicals and iron and steel towards light industry, agriculture, energy and transport in particular. It was accepted that, as a result of these policy changes, economic growth would be temporarily restricted. The reform of economic management (or restructuring) contains 4 elements: a reduction in (overcentralised) management by the state, expanded decision making by enterprises, an increased role for market regulation, and an increased use of economic and legal methods of management at the expense of administrative intervention. combined effects of these policies would, it was envisaged, allow the economy to perform more efficiently, and ultimately allow an increased pace of modernisation and growth. Foreign economic involvement in the modernisation of China would, in the 1979-81 period, be less than anticipated in the 10 year plan, but remained vital.
The
Note
*
The rationale behind this appears to be a) that too much investment was in hand, and capital construction projects were increasing at a rate faster than they could be completed or absorbed when completed (and of course they were not directed at the correct sectors); b) that increased consumption would allow greater use of material incentive to motivate the workforce; and c) that increased consumption was one vital aspect of illustrating the superiority of the socialist system. These latter two points would be especially important to help reduce popular discontent in a period of potentially destabilising economic and political reform.
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UK CONFIDENTIAL