TNAG-1458-FCO40-1982-Relations-between-Hong-Kong-and-China-1986 — Page 117

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6. The decision of the leadership not to retain the system

introduced during the 1950s, perhaps with some modifications,

is on the face of it less easy to understand. China had done

well during the period of the First Five Year Plan (1953 to 1957),

when the system was consolidated, and had not done too badly at

other times when it had been made, or allowed to, function.

During the period of the First Five Year Plan, the economy grew

at an average rate of 9%. It grew at an average rate of about

6% during the 11 years from 1965 to 1975.

7. The fullest explanation I know for the rejection of the

system is the one given by Huan Xiang, an Adviser to the Chinese

Academy for Social Sciences (and a graduate of the London School

of Economics), in an article published during the summer of 1985.

He wrote:

"Owing to the fact that, in the period immediately after

the founding of the People's Republic, the level of China's

development was low, and the economic structure was extremely

brittle and irrational, the establishment of this system did

play a positive role. However, with the development of the

productive forces and the increase in the level of complexity

of economic life, this system became more and more out of

step with the needs of socialist construction. It became

extremely rigid

There was no clear line of demarcation

between the functions of the government and the functions of

enterprises

There was excessive control by government

agencies over enterprises ....There was disregard for the

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