TNAG-1458-FCO40-1982-Relations-between-Hong-Kong-and-China-1986 — Page 122

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in state-owned industry continued to decline at the same

rate from 1978 to 1982. Separate estimates by Mr K C Yeh,

an economic adviser at the Rand Corporation, suggest that

the marginal productivity of capital in the whole economy

declined sharply from 1978 to 1981.

16. Things may have improved since. I have tried my hand

at working out an incremental output-capital ratio series

for the years from 1981 to 1984. This suggests that the

marginal productivity of capital improved (from 0.24% to

0.55%) during this period. Whether or not I am right

and whether, if I am, the improvement was enough to arrest

the long decline in average productivity it is clear

as

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that the leadership now sets/much store by the quality of

investment as by its quantity. It has adopted many measures

to bring about its improvement. These include the

abolition of the requirement that depreciation allowances

should be remitted by state-owned enterprises to the centre,

a general increase in such allowances and the stipulation

that all extra-budgetary investment by state-owned industry

should be financed by borrowing from the banking system.

17.

On the physical side, many thousands of factories are

being modernised. This process of "technical transformation"

is one of the four top priorities of the Seventh Five Year

Plan (1986 to 1990). Two others are to develop energy

resources and to improve communications of all kinds. Among

the purposes here are to reduce the frequency of the power

cuts which now plague industry, especially in Shanghai and

/ some

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