CONFIDENTIAL
6. In industry the situation is more complex. The practice of
the "iron rice bowl" (ie a guaranteed job for life, regardless
of performance) still persists. Bonuses introduced in the past
six years to reward hard work have too often become regular
supplements to the pay of all workers in an enterprise. Products
are generally backward and imbalances in production and wastage
enormous. Other serious problems include lack of skilled knowledge
which seriously hinders attempts to modernise plant, and energy
shortages which probably mean that on any one day 20% of Chinese
industry is lying idle. Urban unemployment is claimed to be
only 2-3%, but is probably nearer 10%.
7. The leadership is now in the process of instituting far-ranging reforms in the following areas:
a)
Enterprise Reform. In the past all industrial enterprises have been rigidly controlled in all their operations by government departments rather than by their own managements. Within broad plans set by the departments, managers are now being given
responsibility for their own production, for the supply and marketing
of products surplus to their plan, and for profits and losses.
They may within general guidelines budget their own funds and, once
themselves appointed from above, may independently hire and fire labour (although the latter remains mostly in the realm of theory).
They can set prices on products they produce which are surplus to
their plan within a band of 20% above and below state prices;
b) Fiscal Reform. Previously all enterprises handed over their
entire product to the state. Now a tax system has been introduced. This consists of a basic "income" tax (corporation tax) of 55%
and various other national and local taxes. In practice many enterprises retain some 15% of their profits for their own use;
c)
Reform of the Planning System. In October measures were
announced by which the number of industrial products for which
output targets are set by the state was cut from 120 to 60 and the
number of agricultural products from 29 to 10. But these products, which will remain subject to "mandatory" planning, still account for the bulk of the economy.
"Guidance" planning with flexibile prices
for products subject to it will apply to non-main line items. The
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