G.F. 326
CONFIDENTIAL **
18
in the manufacturing sector which used to enjoy high profits rates (Table 1), the price reforms have worked against their interests.
38.
To reduce the effects of price increases on consumers and on industrial enterprises, the state has granted subsidies on food, housing and certain types of raw materials. These subsidies have now become a
serious drain on the state's fiscal resources. According to China's fiscal budget, in 1987 price subsidies will amount to Rmb 33.7 billion or 13.8% of total budgetted expenditure. This together with subsidies granted to enterprises in compensation for their losses, which amount to Rmb 36 billion, will use up one quarter of total state revenue.
39.
While state-owned enterprises and the state treasury are sectors most adversely affected by inflation, the major beneficiaries from price reforms are enterprises which have been successful in getting a major proportion of their output marketed outside the centralized system of distribution.
Prospects for the further implementation of price
reforms in China
40.
In the past few years, through reforms in the economic management and production system, the "non-planned" sector has been growing rapidly and has posed serious challenges to the planned sector. The output of the non-planned sector derives mainly from local collectives and the above quota production of state enterprises. The much higher extra-plan (market) prices disrupt the fulfilment of quotas by enterprises
CONFIDENTIAL #