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at all widespread.
In practice, all new workers are not employed on
a contract basis (3(c)). Share issues (3(g)) were a novelty rather
than a serious attempt to change the basis of industrial finance. Bankruptcy law (3(h)) cannot be applied in conditions where profitability is arbitrary, depending mainly on irrational input and output prices, with limited managerial freedoms.
3. The performance of the Chinese economy has been good in terms of
production growth, but in terms of qualitative indicators, it has been disappointing. As paragraph 16 of the telegram points out, the
efficiency and profitability of industry continue to decline and the
number of loss-making enterprises mount. Efficiency indicators are
the best measures of the progress of the reforms, which set out to change the economy from extensive to intensive methods of development. Production growth under present Chinese conditions is achievable without systemic change. 1986 figures show that industrial reform is making only very limited headway against
entrenched traditional practices and attitudes.
4.
-
On the question of performance, it would be worth noting the deteriorating enterprise loss position and consequent subsidy burden for the central budget caused by greater use of raw
material markets (with higher prices) while output prices are held
down to help the inflation outcome. This is only one instance of the perverse consequences of carrying out decentralisation when the
price structure gives misleading signals. Price reform remains the
fundamental need across the board.
5.
There may be some confusion over the calculation of growth
figures (para 7). Our understanding is that all of these growth
rates are increases on the 1985 base, with both 1985 and 1986 values
expressed at 1980 prices. They are thus volume (loosely speaking
'real') increases. One may quibble with the basis of valuation
because of the irrational prices used - but general inflation during
1986 does not come into it. The basis for the claim that increases
"in real terms were several percentage points lower" is unclear. (The GVIO figure in para 9 may also be a volume not a value
increase
.)
/6.
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