1
CONFIDENTIAL
13. A final, and very important condition, is the commitment
to preserve socialism. At the least, this means maintaining
the ownership of land, utilities and most of industry by the
state ("ownership by the whole people") or by collective
entitites. It could mean a good deal more, including the
preservation of a fair degree of planning and of a system
of administered prices for many industrial and some agric-
ultural products. It remains to be seen just how much.
DIFFICULTIES
14.
Difficulties have arisen, and continue to arise, both
over the implementation of policy and over the impact of
policy on the achievement of objectives. It would need
several despatches, indeed a monograph, to go into all these.
In what follows, I concentrate on four areas which seem to me
to be of particular importance. They are capital productivity,
allocative efficiency, foreign trade and foreign investment.
(i) Capital Productivity
15. From 1957 to 1978, capital productivity declined in
China. Mr R M Field of the CIA, who is held in high
regard as an authority on Chinese industry, has estimated
that the average productivity of capital in state-owned
industry (over three-quarters of the total by value of:
output throughout the period) declined by 35% between the
two dates; ie at an average annual rate of 2%. He has
also estimated that the average productivity of capital
CONFIDENTIAL
/ in