CONFIDENTIAL #B
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to adjust production plans, wages and incentives, and the system of punishments. At present, about 27,000
state-owned enterprises are experimenting with the new system. This represents an important step in separating production from party politics.
16.
There are, however, concerns that reforms of the industrial management system may be affected if attacks on "bourgeois liberalisation" lead to a tightening of control by the central authorities. The possibility of reverting to the old system cannot be ruled out if the orthodox political ideology in China regains force.
17.
In respect of foreign investment, so far there
has been no indication that China's open door economic policies are going to be changed in response to domestic political developments. On the contrary, there have been repeated reassurances from top political leaders that China will continue to rely on foreign investment to bring in advanced technology to speed up its economic development, and that the twenty-two provisions to encourage foreign investment will be implemented wholeheartedly. In addition to these state provisions, local authorities in many provinces have drawn up even more favourable provisions for foreign enterprises and joint ventures. These include simplification of administrative formalities, exemptions from or reductions in local income taxes and land use fees, as well as
preferential access to water and electricity supplies and to credit facilities. Recently, foreign enterprises and joint ventures have been granted access to interest-free Renminbi loans, mortgaged on their foreign exchange deposits, for use as working capital or for the acquisition of productive assets. These enterprises are also granted exemption from import duties and from the
CONFIDENTIAL #2
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