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COMMENTS
CONFIDENTIAL
Paragraphs 1-7 below comment on points raised in the telegram.
Paragraphs 8-9 discuss other important current trends within the
Chinese economy.
:
1.
The telegram (para 1) rightly points out that the implementation
of some policies has been slowed or changed at the margin since the
beginning of the year. However, the statement that there has been "no change in economic strategy" may be too bold in the present, rather fluid circumstances. The official policy line is that reforms are to continue but within a more tightly controlled economic environment, with production now to receive greater emphasis over consumption. If investment is to be targeted more closely on infrastructural projects and productive capacity as intended, then the decentralisation of decision-making to enterprises will have to be reversed and planning at the centre strengthened. Use of retained funds by enterprises and access to cheap credit will have to be more tightly controlled since enterprises have tended to use their freedoms and financial
resources on unplanned investment in non-essential and
non-productive projects and on excessive payments to their workers. Key elements of the reform would necessarily be affected, not only reversal of the trend away from central planning towards greater enterprise autonomy, but also in the areas of financial and
employment reform and the development of markets for means of production. The new policy line is, therefore, contradictory and inherently unstable. It is probably too early to say which element is gaining the upper hand.
2. In assessing the progress of industrial reform (paras 3-4), it is important to distinguish changes in policy which are of general application from those relating to extremely limited experiments. The development of the interbank market is significant (under para 3(b)) but leasing enterprises to managers (3(a)) is not likely to be
/at all
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CONFIDENTIAL