TNAG-1464-FCO40-1991-Visits-by-Chinese-officials-to-the-UK--including-visit-by-Hu-1986 — Page 73

CONE DENVAL

ANNEX: MAJOR FEATURES OF CHINA'S ECONOMIC REFORMS

1.

The Chinese embarked on their economic reforms in the late 1970s. The economic system then was basically that introduced from the Soviet Union in the 1950s. It suffered from low efficiency and a low rate of technological innovation resulting in a gradual decline in growth and the prospect of further falling behind the advanced economies. The cause was diagnosed as rigid bureaucratic control over economic units which resulted in little incentive to improve

The reform performance or meet the real economic needs. strategy has been to relax controls over the economic units and give them more freedom and material incentive to improve economic performance and respond to market forces.

2. Agriculture was the first sector to undergo large-scale reform. The rural economy had been organised on the basis of large productive units which gave little incentive to individuals to perform well. The reforms have resulted not only in an impressive increase in production but also in an all-round development of the rural economy. The major elements are:

a) introduction of the household responsibilty system' land collectively owned by People's Communes was contracted out to small units, usually households, which organised their own activities to meet State production quotas. Anything produced in excess of the quota was disposal of the household;

at the

b) peasants were encouraged to diversify their activities into 'sideline' operations eg animal husbandry, fish farming, handicrafts, services and even light industrial production. Rural industry, mostly run by collectives but also by individuals, has grown quickly, and around a third of the rural labour force is now engaged in non-agricultural occupations;

c)

Produce

restrictions on private trade were lifted. at the disposal of peasants after fulfilling State quotas and from their private plots (which were increased in size) can be marketed locally or transported to towns;

d) State mandatory purchase quotas for a number of crops including grain have been replaced by a more flexible system of contracts between peasants and state purchasing agencies. This is aimed at restructuring agricultural production so that it meets market demand better and rationalises crop patterns.

CONFIDENTIAL

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