CONFIDENTIAL
some of the other older industrial sites, to make smoother
the supply of raw materials and intermediate products and
to encourage specialisation, and through specialisation, the
achievement of economies of scale.
18.
I have visited many Chinese factories. The older ones are
usually noisy, dusty and delapidated. The newer ones tend
Through-
to be full of equipment which is giving teething troubles or
which is still in packing cases, awaiting installation.
out industry there is under-utilisation, over-manning and poor
maintenance. It is no wonder the capital productivity is low;
and it is hard to believe that it will improve very rapidly.
(ii) Allocative Efficiency
19. The allocative efficiency of the Chinese economy has been
low. For all sorts of goods and services there has been a mis-
match between supply and demand. The leadership is now moving
to improve allocative efficiency through price reform. But
price reform has not so far been taken very far; and, to the
extent that it has been attempted, it has produced an extremely
complicated pattern. In agriculture, for example, there are now
four kinds of price for grain: two prices for grain bought by
the state under contract from households, a premium price for
grain bought by the state on top of contracted quantities and
free market prices. Urban consumers pay prices of two kinds for
the prices charged in state-owned shops
and free market prices (often about twice as high). In industry,
managers have to cope with prices of three kinds:
prices, prices which float within fixed limits and free market
their flour or rice:
administered
CONFIDENTIAL
/ prices
+