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Thus, improving the efficiency of state-run enterprises is a pressing problem in the Chinese economy. In recent months, the Chinese government has apparently shifted its emphasis from price reforms to reforms of the enterprise management system. In an attempt to improve the incentive system in state enterprises, the contract responsibility system is being launched on a large
scale
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This responsibility system takes various forms. For the relatively small state enterprises which are on the brink of bankruptcy, leasing arrangements are usually employed. As for the medium sized and large state enterprises, the system of factory directorship and the tax contract system are more common.
Under the former system, the factory director is given more autonomy in decision making and he is committed to the achievement of certain key economic targets including output, quality, profit, product development and technological upgrading. In principle, his contract will be renewed only upon satisfactory fulfilment of these targets. Under the latter system, the basic income tax was calculated at 55% of the profit earned in the benchmark year (usually taken to be 1986). In any year, profits earned in excess of the amount in the benchmark year will be subject to lower tax rates.
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The contract responsibility system has been experimented in some selected enterprises for some years. For instance, the leasing system in small enterprises was first introduced in 1979, and the system of factory directorship was being tried out in some large enterprises since 1983.
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