TNAG-2527-FCO40-3696-Hong-Kong-China-Relations-Committee-1992 — Page 32

CONFIDENTIAL

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products in order to be competitive both within China and overseas. Through technical cooperation with producers in the USA, UK, Australia, it had managed to introduce up-to- date design and technology in their products. They were therefore able to maintain annual net earnings of US$100 million and double digit growth over the past few years.

73.

We suspected however that apart from foreign technical assistance, another underlining factor for the success of the factory was the great amount of freedom it enjoyed under the contract responsibility system. We were told that it was given the authority to set product prices and production targets, and conduct direct negotiations and trading with

buyers without interference from the state. Also the factory was only required to remit a

fixed sum from its profits to the state with incremental adjustments annually. In practice

therefore, it was allowed to retain most of its earnings, which gave it the drive and incentive

to do better and more profitable business. We understand that this arrangement of giving more authority and share of profit to state-owned enterprises (✩*

國營企業 ) still

received much resistance from hard-liners in China. But the success of the Dalian

Refrigerator Workers no doubt pointed to the way how China could bolster its inefficient

state-owned enterprises.

Factory Visit - Dalian Third Woollen Garments Factory

74.

We next visited

visited the Dalian Third Woollen Garments Factory ( 大連第三呢絨服裝廠 ) and was given a briefing by the Vice-Director, Mr. Song Wenpu ( ). We were told that the factory was established 10 years ago through compensation trade with Hong Kong, i.e. whereby a Hong Kong firm provided machinery and equipment to the Chinese operation which paid for them through the garments produced. The layout of the operation was therefore quite similar to a common Hong Kong garment factory - it was even located in a multi-storey factory building. The factory mainly produced suits, shirts, coats and jackets of different materials. 70% of the production was exported and 30% was for sale in the domestic market.

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