Internal reforms

• A> Background for introducing internal reforms

  • Before the reform was introduced, China was practicing public ownership with a planned economy.
  • This had caused many problems.
• A> Background for introducing internal reforms

  • In the rural areas, where the People's Communes adopted collective ownership, peasants lacked the incentive to work hard and the result was low productivity.
  • In the cities, the state-owned enterprises were ill-managed.
  • As these enterprises were controlled by the state, workers would get the same wages no matter how they performed.
• A> Background for introducing internal reforms

  • Everybody was 'eating from the same big pot' and there was no incentive to increase productivity.
  • The goal of the internal reform was to cure these problems.
• 1.1 Introduction of the household responsibility system

  • The government introduced the household responsibility system in agriculture in 1978.
  • Peasant households were granted contracted use of land for a period of time and signed contracts with the government.
  • Peasants could retain and sell their surplus crops on the open market after submitting a certain percentage of their crops to the government.
  • This 'more work, more pay' measure successfully stimulated the peasants' motivation, and crop production increased by 49% between 1978 and 1984.
• 1.2 Establishment of township enterprises

  • Township enterprises were developed by peasant households, and they covered a range of industries.
  • Earlier on, they mainly centered on the processing of agricultural by-products, such as pickled vegetables and soy sauce.
  • Later, they expanded into other industries, such as manufacturing, business, transportation and the service industry.
• 1.2 Establishment of township enterprises

  • Not only did township enterprises provide an outlet for the surplus labour in agriculture, but they also increased the supply of consumer goods and promoted the development of township trade.
  • Many products entered into the world's market, and increased China's foreign exchange earnings.
  • A revived economy and increased income in rural areas resulted.
• 2. Reforms in the management of state-owned enterprises

  • To tackle the problems of mismanagement and low efficiency of the state-owned enterprises, reforms had been carried out.
  • In the past, workers were guaranteed lifelong employment. Managers were not responsible for the gains and losses, and often resorted to political indoctrination rather than to economic incentive for promotion.
  • Thus, the factory director responsibility system, in which the factory director held overall responsibility for the enterprise, was gradually introduced.
• 2. Reforms in the management of state-owned enterprises

  • Moreover, the enterprises introduced different forms of incentives, such as increased wages and bonuses in the hope that the managers and workers would work harder for higher productivity.
  • A number of administrative directives were promulgated to expand the autonomy of the enterprises.
  • For instance, they could hire their own workers and dismiss those who did not observe regulations or who performed badly at work.
• 2. Reforms in the management of state-owned enterprises

  • Besides, the enterprises were paying taxes on a percentage of their profits, and were allowed to retain the surplus for their own use.
• 3. Introducing modern enterprise system

  • In 1990, the Shenzhen Stock Exchange and Shanghai Stock Exchange were formed.
  • They provided services, including listing of companies, stock trading, etc.
• 4. Reforms in the ownership system

  • The government carried out reforms in the ownership system.
  • These reforms aimed at developing the economy of unitary public ownership system into that of various ownership systems (these included the collective economy, individual economy, private economy, Sino-foreign joint equity enterprises, etc.), with the public ownership economy as the core.
  • These reforms also aimed at releasing citizens' potential in establishing businesses and complying with the Opening-up Policy.
• 5. Reforms in pricing

  • In 1985, the government implemented the 'double-track pricing system'.
  • Goods produced within the state plan would be sold at state-fixed prices.
  • Goods outside the production targets in the state plan would be regulated by market forces.
  • Therefore, the same product could have two prices.
• 5. Reforms in pricing

  • Later, the government loosened its control over prices.
  • In 1996, the market decided the prices of 93% of the total products.