The "Three Reforms" in China: Progress and Prospects (2023)

September 1999, Nr. 45

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The "Three Reforms" in China: Progress and Prospects

Sakura Research Institute, Inc.
Shigeo Kobayashi, Jia Baobo und Junya Sano


1. The Chinese economy since the beginning of the reform and open-door policy

China's policy of reform and open doors began in late 1978 with the adoption of a new economic development strategy at the third plenary session of the XI. Central Committee of the Chinese Communist Party (CCPCC). Led by Deng Xiaoping, who was in the political arena at Returning to, the Chinese government, after its previous three defeats, began to adopt an open-door policy in which it took a stance promoting economic growth through the active introduction of foreign capital and of foreign technology while maintaining their commitment to socialism.

The obvious goal of this policy change was to rebuild their economy and society, which had been devastated by the Cultural Revolution. The policy change also appears to have been motivated by the realization that the incomes of ordinary Chinese were so low compared to the incomes of other Asian economies that the future of the Chinese state and communist regime would be in jeopardy if they did not give some change to raise the standard of living of its people through economic growth.

Subsequently, the government set up a number of areas for foreign investment, including special economic zones, open coastal cities, economic and technological development zones, open delta zones, open zones on the peninsula, open border cities and high-tech industries. Development Zones The establishment of these zones has triggered massive inflows of foreign investment, particularly from Hong Kong and Taiwan companies. At the same time, China propagated its concept of a socialist market economy. The changes sparked a business boom that led to the emergence of a large number of entrepreneurs and companies in China.

Inflows of foreign capital, technology, and managerial skills have enabled China to transform its vast workforce and space for rapid economic growth. The shift to an open-door economic policy ushered in a period of high economic growth in the first half of the 1980s. The economy was stagnant at the time of the 1989 Tiananmen Square Incident, but it was not until the mid-1990s that China had returned to high growth rates. The rapid economic growth was accompanied by an increase in GDP per capita (Fig. 1). In 1998, although it was still around US$770, per capita income was 14 times higher than in 1980. Therefore, it seems reasonable to conclude that Deng Xiaoping's first goal, which is to improve people's economic situation , has been reached. .

2. Emerging Conflicts

The positive consequences of the reform and the open-door policy were economic development and an increase in national income. Of course, there were also negative effects, which became more and more apparent over the years. The problems described below are closely related to the living standards of people in China.

First, there are now regional disparities in income levels and the gap between rich and poor is now extremely wide. Under the socialist-controlled economy, living standards were relatively low, but there wasn't much of a difference between rich and poor. The idea, derived from the writings of Mencius, that inequality is more deplorable than poverty was applied throughout society. However, with the transition to the open-door policy, Deng Xiaoping pointed out that it is acceptable for some regions to get rich before others. The result has been a huge disparity in wealth between coastal and inland regions, and between urban and rural areas. Cowardly. 2 shows the annual per capita income of urban households in relatively high-income municipalities and provinces and that of peasant households in relatively poor provinces. Yields in Guangdong Province are about eight times higher than in Gansu Province.

In addition to a massive influx of foreign investment, entrepreneurial activity in China has also been promoted. In addition to the existing state and municipal companies, this led to the establishment of numerous foreign companies, partnerships, sole proprietorships and other types of companies. These start-up companies are classified as “Other ownership companies”. Many of them work more efficiently and pay their employees more than state or municipal companies (Fig. 3). This was reflected in a growing income gap between the owners, directors and officers of these companies and the employees of state-owned companies.

There are also distinct gaps among urban office workers. On one side of this polarization are workers who can afford imported cars, while on the other side are those who can only afford a bicycle. Some parents can easily pay annual fees of 3 million yen per child to send their children to the private boarding schools that have sprung up in Beijing. On the other hand, however, there are older employees of state-owned companies who were laid off after decades of service and are basically living on the streets with a monthly benefit of about 3,000 yen. These are the realities of China today.

The existence of these income inequalities under a socialist regime inevitably gives rise to a multitude of alarming social phenomena. The cult of money spread among the people. Large numbers of rural people have migrated to the cities in search of more income, leaving many rural communities deserted and putting China at risk of future food shortages. Law and order in the cities has collapsed, and corruption is rampant among party officials and government officials. Government organizations are involved in tax evasion and smuggling, while the military, police and courts conduct parallel business. None of these phenomena are compatible with a socialist system and point to internal contradictions in the political system.

China maintained a one-party socialist dictatorship at the political level, while moving towards a market system at the economic level. This conflict has exposed the inadequacies of the legal system, and with each passing year it has become increasingly clear that there is no system of control to prevent the arbitrary exercise of power by the Communist Party. The government has accelerated the transition to a free-market system, but has so far failed to clearly define what a "socialist market economy" means. Because of this, the party and government agencies no longer act as observers and arbiters of the market. Instead, these agencies were given the freedom to engage in commercial activities as direct market participants. This situation has led them to engage in monopoly deals and use privileged information. The accepted wisdom among modern Chinese is that "those with authority (quan) will be able to acquire money (qian)".

An extreme example of this problem concerns the system of VAT export rebates. Since their introduction in 1994, discount rates have been reduced frequently and the range of prices covered by the tax has also changed. The main reason for this is the fact that the export rebates were higher than the revenue from VAT. Behind the scenes, exporters, customs officials, tax officials, and central and regional party officials conspired to obtain massive rebates through fraudulent export documents.

The gap in economic development between coastal cities and other regions has caused a sense of resentment among regional government officials, who have diverted government funds to create hastily planned development zones to attract foreign investment. The resulting lack of public funds often resulted in residents not receiving the payments to which they were entitled.

According to a Chinese newspaper, 158,000 senior Communist Party officials were fined in 1998 for violating the Chinese Communist Party constitution. Prosecutors are currently investigating 35,000 corruption cases involving 1,820 government officials with the rank of department chief or higher. Yet the accused represent only a small minority of the total number of people involved in corrupt activities.

China is often criticized for delays in updating its legal system. Despite passing numerous new laws in line with the open-door policy, China has yet to establish the rule of law. The collapse of the Guangdong International Trust and Investment Corporation (GITIC) in October 1998 drew attention to the proliferation of investment and trust companies and their financial problems. At the height of the boom in the 1980s, there were nearly 1,000 of these companies. However, China has yet to pass a law on trust and investment companies.

The declining competitiveness of state-owned enterprises, which are the real and ideological pillars of the socialist economy, is a problem with serious implications for China's economic and industrial structure. State-owned enterprises were essentially social microcosms created to feed the people and realize the ideals of socialism.

However, China has started to move towards a market economy system under reform and open-door policies. One of the results was the influx of foreign companies with resources that made them powerful competitors in the international market. The changes have also sparked a surge in business activity in China. Private and individual companies have bet their survival on a business effort that has increased their competitiveness. Meanwhile, state-owned enterprises have been unable to change the corporate culture that has developed in China's controlled economy. In the face of this onslaught, many have lost their advantage in areas such as manufacturing, domestic distribution channels, and export.

Inextricably linked to this problem is the state of the financial system. The main financial institutions in China are state banks. In the controlled economy, state-owned banks tended to view loans to state-owned enterprises as a mechanism for distributing taxpayers' money. The state-owned companies that received these loans viewed them less as loans than as grants of public money.

However, when the economy opened up, there was a massive influx of foreign investment. The government was forced to set financial guidelines and exercise macro-level controls, while state-owned banks were required to support leading companies under the government's financial guidelines and enhance their credit rating capabilities. Unfortunately, the credit rating capabilities of state-owned banks have not been developed, and there is a tendency to continue lending to state-owned enterprises in an environment influenced by the direction or interference of the Communist Party and the government. Now, as state-owned companies run into financial difficulties, state-owned banks are inevitably left with a growing mountain of bad loans. Most state-owned companies are in need of reform, and urgent action is needed to reform a financial system still based on state-owned banks.

3. Need for reform

While China has achieved economic development and improvements in its people's living standards, confusion reigns over the direction of the state and people under a one-party dictatorship that continues to claim the revolution is ongoing. Organizations and bureaucratic systems do not meet today's requirements, while state-owned companies and banks lag far behind the world-class technological and managerial capabilities of foreign and private companies.

The reform of organizations like these has become an urgent priority. In order to become a modern state and superpower, China must develop a legal system that reflects today's needs and build highly efficient administrative organizations. They must also create a fair and objective justice system. In other words, China should build a just society where the existence of companies and individuals is guaranteed by law, where administrative organizations are agile and orderly, where there is no smuggling or insider trading, where the Party, the army or the government are involved involved . Organizations where urban and rural residents can enjoy working and dream of their future.

4. Reasons for accepting the "Three Reforms"

In today's China, a variety of reforms are required. The tasks of the highest priority and urgency are the reform of state enterprises, the reform of the financial system and the reform of administrative organizations. This report examines the current status of these "Three Reforms" and considers future prospects.

The "Three Reforms" are more important than many other reform programs in China. Because state enterprises, the financial system and administrative organizations are the three pillars of state administration; all of these areas are closely intertwined; and successful reform in one of these areas leads to progress in the others. Furthermore, the Communist Party has managed to start the reform process as it still has the power to govern the state. As China moves toward a free-market system, people will inevitably adopt values ​​that do not depend on traditional ideology, and society will begin to demand political freedom.

Should the "Three Reforms" fail in this environment, China will certainly experience a major social upheaval. But the Communist Party still has the power to contain these pressures for a few more years. If the "Three Reforms" are successful, the result will be agile and efficient administrative organizations, internationally competitive state-owned enterprises with sound financial structures, and a flexible financial system capable of supporting leading companies in line with fiscal policies. Furthermore, the by-product of this process will be an orderly society where people can enjoy a lifestyle that makes them dream.

Such a society is consistent with the ideal party-state system advocated by the Chinese Communist Party. There are concerns about the Chinese Communist Party's loss of power. It is fair to say that the party has staked its survival on the "Three Reforms".

What is certain is that no matter how reforms progress, the outcome of the "Three Reforms" will differ from the expectations of people in democratic capitalist nations. In a situation where one party holds absolute power, administrative reform will inevitably lack depth in areas such as intra-party discipline. To quote Lord Acton, "Absolute power absolutely corrupts." This is a serious problem for China. The reform of state enterprises entails a number of difficult tasks. In March 1999, the National People's Congress (NPC) granted the privately owned economy a degree of respectability, but socialist public ownership remains the norm in China.

State-owned companies can be incorporated or privatised, but there is a risk that the process will be incomplete if the state is a shareholder, ie if only the ownership structure is changed. The same applies to the reform of the financial system. Since state bank executives are also senior party officials, it is not clear whether the banks will be able to completely eliminate party interference.

If the "Three Reforms" succeed even slightly, administrative efficiency and international competitiveness of large state-owned enterprises will improve, and China will make significant strides in becoming a modern superpower. However, the Communist Party has yet to establish an identity that will bring forth China's new generation. That will depend on how far he can transform socialism and adapt it to the needs of the time. If you cannot make these changes, the benefits of the "Three Reforms" will be limited.

II. Reform of State Enterprises - Progress and Prospects

1. Identification of research questions and goals

In China, a state-owned company is a company whose assets are owned by the state (government). The State Council, the Chinese equivalent of a cabinet, can exercise ownership rights over state-owned companies at any time. For a long time after the founding of the People's Republic of China, state-owned enterprises played a central role in economic development. However, several years have passed since the first reports of the worsening financial problems that have plagued many SOEs since China's transition from a command to a market economy. It's almost a cliché to talk about the need to reform state-owned enterprises.

The reform of state-owned enterprises began 21 years ago, in December 1978. Unfortunately, state-owned enterprises as a whole continue to make losses. Worse, China still hasn't figured out the right way to solve this problem.

Chinese academics and legislators have put forward a variety of arguments and proposals on the problem of state-owned enterprise deficits, and many measures have been tried. Of particular significance was the promise made by Prime Minister Zhu Rongji on March 19, 1998 at a press conference on his appointment. He said his government will eliminate the deficits of most large and medium-sized state-owned companies within three years, taking the first step towards turning corporations into modern corporations by the end of this century. (1)

This declaration put state-owned enterprise reform back in the spotlight, both in China and internationally. In fact, however, structural reform guidelines were adopted at the Chinese Communist Party (CCP) National Congress in 1997. Policies introduced included reforming ownership structures, including the introduction of a share system, and reforming industrial structures, including divesting excess facilities and restructuring loss-making companies. In his policy speech, Secretary-General Jiang Zemin formulated concrete goals and said that by the turn of the century, most medium-sized and large state-owned enterprises will have overcome their current difficulties (deficits) and first steps will be taken to establish a system modern enterprises would have been data. He also pointed out that the process would start with the reform of the textile industry.(2)

While the policy of restructuring state-owned companies through the introduction of a joint-stock company system is not particularly new, it is significant that the government has committed to putting state-owned companies in the red for a three-year period. The media dubbed this goal the "Three-Year Reform Plan of Zhu Rongji's SOE (State-owned Enterprise)." The same nomenclature is used in this work.

Why does Zhu Rongji's cabinet attach so much importance to SOEs' losses? What are the goals and scope of "Zhu Rongji's Three-Year SOE Reform Plan" and what progress has been made?
In Chapter II we will examine and analyze the state enterprise reform process from the previous perspectives. The main objective is to shed light on the progress made and the problems encountered by examining the background and goals of "Zhu Rongji's Three-Year SEE Reform Plan" and its implementation.

Chapter II consists of an overview of the background and history of the SEE reform in II.2; a review of the objectives of "Zhu Rongji's three-year SEE reform plan" and the status of progress in II.3; and in II.4 a mid-term review of state enterprise reform and a review of future prospects based on the results of this review and analysis.

2. Background and history of state-owned enterprise reform in China

(1) Current status of state-owned enterprises in China

In 1952, state-owned enterprises accounted for 41.5% of China's gross industrial production (Fig. 4). This number may seem surprisingly high to some readers. Most of this production came from companies and factories in China formerly owned by nations that were defeated in World War II, primarily Japan, Germany and Italy. These were nationalized by the Kuomintang government after the war and confiscated by the communist regime after the revolution.

In 1952, 20.6% of production was in sole proprietorships and 34.7% in other ownership companies. The high percentage of these companies reflects the fact that the majority belonged to the so-called "ethnic capitalists". Although considered an "exploiting class," these people were tolerated as long as they contributed to the revolution. However, this situation continued until 1957, when these companies were selected for "conversion into a socialist structure", which meant they became public property. From then on they were gradually transformed into state or collective enterprises.

The drive to become public property also affected individual capitalists who could not be classified as "exploiters". Individual capital, like ethnic capital, was absorbed by the people's communes in the rural sector and by state or collective enterprises in the cities.

This shift into public ownership peaked in 1965. At that time, state-owned enterprises accounted for 90.1% of gross industrial production. The goal of public ownership of all industrial enterprises seemed to have been practically achieved. Mao Zedong claimed in his notes on political economy that this ratio is an indicator to show the "integrity" of socialism. Under the Maoist line, which went beyond the development of productive capacity and advocated total reform of the relations of production, industrial production stagnated and economic activity was disrupted. The leadership was forced to change this policy, and industrial enterprises unsuitable for the state sector were privatized.

However, privatization merely downgraded the companies to joint ventures, and conversion to sole proprietorship or private ownership was strictly prohibited. In 1978, when the reforms and the open-door policy began, state-owned companies still accounted for 77.03% of gross industrial output. However, in 1992-1993 this participation had fallen below 50% and in 1996 below 30%. In 1997, state-owned enterprises contributed only a quarter (25.52%) to gross industrial production.

If we accept the view that state-owned enterprises are the cornerstone of the socialist economy, we can conclude that today's China has already lost its socialist foundation. State-owned companies are opposed to sole proprietorships and companies with other ownership structures. In the 1950s, companies with other ownership structures were owned by ethnic capitalists. However, in the 1980s and 1990s they consisted mainly of private companies (with eight or more employees), foreign companies and corporations.

Since the reforms and the open-door policy, private companies have expanded their market share at breakneck speed. Due to their strong market competitiveness, foreign companies have also increased their market share. From only 10% in 1992, the market share rose to almost 20% (1997). Most companies are privatized state companies. At the end of 1996 there were 9,600 public companies.(3)

The decline of state-owned companies was accompanied by the rise of individual companies and companies with different ownership structures. However, the status of collective enterprises is less clear. In 1975, before the reform and open-door policy, these companies accounted for 18.90% of gross industrial production. They consisted mainly of cooperative-owned manufacturing plants in the rural sector and district-owned collective farms in the cities. After the transition to the reform and open-door policy, the collective enterprises owned more than 30% of the gross industrial output. Participation gradually widened and is now at its greatest.

The economic reforms of the last two decades have led to a transition from a production structure dominated by a single public ownership structure of state enterprises and collective enterprises to a production structure made up of companies with different ownership structures.

In 1997, there were a total of 7,922,900 enterprises in China's manufacturing sector. Of these, 98.6,000, or just 1.25%, were state-owned. The rest included joint ventures, sole proprietorships, private companies, foreign companies, and corporations. State-owned enterprises, while much smaller in number than other ownership structures, still account for 25.52% of gross industrial output, 63.52% of net fixed assets of all industrial enterprises, and 65.0% of all employees (Table 1). .

Despite the rapid diversification of ownership structures since China's turn towards reform and open-door policies, SOEs remain an important component of the Chinese economy in terms of their economic status, their contribution to government revenues (Fig. 5) and their role in sustaining economic activity and social stability. Given the vital role that SOEs play, the critical importance of SOEs reform cannot be overstated.

(2) The loss problem

As mentioned above, SOEs continue to occupy a crucial position in the Chinese economy. However, state-owned enterprises lack managerial autonomy and are also required to perform government administrative functions, political party functions and various social functions. As a result, the efficiency of your business is low. This problem has led to increasing losses for state-owned companies and has reached a point where it can no longer be ignored.

Table 2 shows the changes in the number of loss-making state-owned industries as a percentage of the total number of state-owned industries over the 20-year period 1978-1997 along with their total losses and total surpluses (profits). In 1978, only 23.9% of state-owned industries made losses. In 1997 this proportion had risen to 43.9%. Likewise, the total losses of state-owned industrial enterprises increased from 9.6% of total profits in 1978 to 126.6% in 1991. In 1997 the share reached 205.3%.

The Chinese government recognizes the seriousness of this problem and has prioritized its resolution for two reasons. First, as discussed earlier in this report, state-owned enterprises have long been the main source of government revenue. Second, the proportion of SOEs that are making losses and the magnitude of their losses have increased over the years, with the result that losses now exceed surpluses (profits) every year. In other words, the surpluses of profitable state-owned companies are offset by the deficits of loss-making companies.

(3) History of State Enterprise Reform

Before examining the three-year state-owned enterprise reform plan approved by Zhu Rongji's cabinet, we will first trace the history of state-owned enterprise reform in China.
The reform of Chinese state-owned enterprises began with the passage of the reform and open-door policy in late 1978. Table 3 summarizes progress at each stage of the reform process.

The expansion of administrative autonomy in the first stage of the state enterprise reform (1978-1986) was followed in the second stage (1987 - autumn 1992) by the introduction of the system of "administrative subcontracting". Unfortunately, none of these changes solved the problem of declining business development in the state sector, and in the autumn of 1992 the government initiated a new reform process aimed at establishing a modern enterprise system. It is not possible to study and analyze in detail the evolution of each stage of the SOEs reform process. The following is a brief overview intended to clarify the significance of the current reform stage.

In the general context of SOEs reform, the current phase of the reform process is characterized by the establishment of the modern enterprise system. The "modern business system" basically means a system modeled after the corporations and corporations that exist in free-market nations.

Beginning in October 1992, the Chinese authorities decided to move from a reform approach to policy adjustment that emphasized decentralization of powers and transfer of benefits, characterized by the expansion of the management outsourcing system, to one based on the Creation of a modern business based system. In 1995, the government announced policies to tightly monitor medium-sized and large state-owned enterprises and to liberalize and revitalize small state-owned enterprises. In addition, in 1997, the CPC National Congress adopted policies to reform the ownership structure of Chinese companies through the introduction of the share system and reform the industrial structure through the restructuring of loss-making companies. As discussed below, the “Zhu Rongji Three-Year SOE Reform Plan” (eliminating SOE losses) is part of this phase of the reform process.

3. "Zhu Ronji's three-year SON reform plan" and its progress

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We will now examine the scope and specific goals of "Zhu Rongji's Three-Year State-Owned Enterprise Reform Plan." We will also review the progress made so far.

(1) Scope and Objectives

Since March 1998, the government has been implementing the "Three-Year Plan for the Reform of State-owned Enterprises Zhu Rongji". First, let's take a look at the types of businesses covered under the plan.

In 1997, there were a total of 7,922,900 enterprises in China's industrial sector, including just over 98,600 state-owned industrial enterprises. Of these, 65.9 thousand were self-booking state-owned industrial companies, of which 14,820 were classified as large or medium-sized. Of all state-owned industrial companies, 43.9% were making a loss. Among them were around 8,000 large and medium-sized companies. EITHER
Three-year plan for the reform of state-owned enterprises "does not cover all state-owned enterprises, and the main targets are the 8,000 large or medium-sized enterprises that are making losses. -Performance (Table 4).

Next, we will examine the specific goals of "Zhu Rongji's Three-Year State-Owned Enterprise Reform Plan." The plan is best viewed in terms of "one goal and two priorities."

The "single goal" is basically to address the underperformance of large and medium-sized state-owned industrial enterprises across the country over a three-year period. Specifically, this means three changes (Table 4).

(1) Once most large and medium-sized state-owned industrial enterprises have reached the point where profits offset losses, there will be a sharp improvement in economic benefits and a sharp increase in corporate profits. This will lead to the rise of large companies and competitive corporations, and state-owned industrial companies will have significantly more influence on the economy.

(2) For the 2,300 high-priority state-owned industrial enterprises, about a quarter of losses are scheduled to end in 1998, another third in 1999, and the remaining enterprises in 2000.

(3) For the approximately 8,000 large and medium-sized state-owned industrial enterprises, losses are to be reduced by about a third by 1998, by about another third by 1999 and the rest by 2000 in a sustained manner.

The "two priorities" are ending losses in the textile sector and implementing employment recovery projects.

Losses for state-owned textile companies have increased sharply in each of the five years since 1993. From 1.9 billion renminbi in 1993, the magnitude of losses jumped to 10.6 billion in 1996 and over 9 billion in 1997. In 1996, 42% of SOEs SOEs were operating in the red, and this ratio was 5 points higher as the ratio of SOEs with losses across all SOEs, which was 37%. In addition, loss-making textile companies account for about half of all employees in the state textile sector. The government's plan to get the industry out of the red calls for the eviction of 10 million textile machines by the end of this century. If the losses in the textile industry can be contained, there should be a positive impact on the reform of the public sector as a whole.

The main mechanisms used in re-employment projects are severance schemes, laid-off government sector workers are gradually separated from their current companies and taken on by new companies in other sectors such as the service sector. Laid-off workers are sent to re-employment service centers where they receive a variety of support, including child support, job training and induction. The subsidy for the living expenses of the laid off is shared between the state, companies and unemployment insurance. To improve employment opportunities and encourage re-employment, the government will also seek accelerated growth in the non-government sector and tertiary industries. The aim of the re-employment projects is to create new jobs for 1.2 million redundant workers in the textile industry by the year 2000.

(2) Objectives and results of the 1998 reform

1) State enterprise reform targets for 1998

The goals for the first year of the "Zhu Rongji Three-Year Reform Plan for State-owned Enterprises" were as follows.

Initially, eliminating the losses in the state textile sector was seen as the starting point for turning the state sector as a whole. The targets for 1998 were the forcible disposal of 4.8 million old textile machines, the reinstatement of 600,000 workers laid off to dismantle the overhaul, and a reduction in losses by 3 billion yuan from the previous year's level (Table 5).

The second goal was to eliminate losses in about a third of the approximately 8,000 large and medium-sized state-owned companies.

The third goal was to reverse the performance of about a quarter of the 2,300 primarily loss-making state-owned industrial companies.

The fourth goal was to increase the total profits of the state-owned industrial sector to at least 45.1 billion yuan.

2) State-owned enterprise reform measures in 1998

Zhu Rongji's cabinet implemented the following measures to ensure the achievement of the 1998 reform goals: First, the government maintained its policy of closely monitoring large state-owned enterprises while liberalizing smaller enterprises and encouraging mergers and bankruptcies among state-owned enterprises. .

Second, special inspectors have been assigned to oversee the management teams of large and medium-sized state-owned enterprises. On June 26, 1998, a graduation ceremony was held for the first batch of 21 newly trained Special Inspectors for Priority State Industrial Enterprises. These people, all deputy ministers or higher, were assigned to production sites of state-owned companies.
You have two tasks. The first is to evaluate the management team and business situation of each state-owned enterprise through interviews with department heads and employees. The other task is to look at the financial statements, books of accounts, and related documents to evaluate each company's performance in terms of parameters such as financial condition, ability to service debt, purchasing power, distribution of profits, management, and preservation of assets. Expanding the wealth effect of the state. In some cases, regulators recommend to the State Central Council that specialized auditing agencies conduct further inspections.

Third, the government sought adequate solutions to the basic livelihood problems faced by laid-off workers, and used all available resources to implement redeployment projects. Laid-off workers were referred to job rehabilitation service centers, which insured basic and medical expenses.

Fourth, the government worked to address social security issues for laid-off and unemployed workers. In 1997, the State Council issued a notice on improving social security systems. Authorities and companies have been ordered to set up a universal pension insurance plan based on the social reserve system linked to the individual accounts of urban workers across China, create a new health insurance plan, and strengthen the commercial insurance and social assistance plan. In addition, the central government encouraged all cities directly administered by provincial and higher governments to complete the establishment of basic subsistence systems for residents by the end of FY1998. She also encouraged counties and municipalities, provided conditions were appropriate, to set up the systems without delay. In addition, a municipal housing reservation system was established and housing reform accelerated to encourage home ownership.

Fifth, the government identified the state-owned textile sector as a starting point for the "three-year reform plan for state-owned enterprises" and aggressively promoted reforms in this area. As early as 1991, an important directive was issued that called for the abolition of textile machines. However, only 210,000 machines were sold between 1992 and 1996, also because regional interests were preferred. Although this measure reduced the total number of textile machines in operation in the east coast region, most of the machines removed from factories in that region were moved to factories in the inner west. As a result, the phase-out targets for textile machines were not achieved.

The government did not want to repeat this experience in the ongoing reform process of the state textile companies. She opted for compulsory disposal of the textile machines through a combination of administrative and economic means to avoid relocating or selling the machines. Six major cities have been designated for pilot projects for the disposal and restructuring of textile machinery. Cities named Shanghai, which is traditionally an important center of textile production, as well as Qingdao, Tianjin, Wuhan, Jinan and Dailian (4).

In order to ensure the competition of its 10 million textile machine sale plan, Zhu Rongji's cabinet passed the following reform measures.

First, a government subsidy of 3 million renminbi would be paid for every 10,000 machines discarded. The federal and state governments would each finance half of this measure.

Second, an interest rate subsidy of 2 million yuan would be provided, funded by the regional governments.

Third, the banks would use 10 billion renminbi of bad debt to pay off bad loans related to major restructuring projects in the textile industry.

Fourth, it would support the expansion of exports of textile products. In 1998, the VAT export discount rate on textile products was increased from 9% to 11%, and more than 15% of the quota for textile products exported to the United States and Europe would go directly to textile companies with export autonomy. Right.

Fifth, the production and purchase authorization systems for textile machinery sold in China would be strictly enforced, and strict limits would be imposed on the installation of additional new textile processing capacity. At the same time, exports of textile machinery would be encouraged through the granting of export credits and full VAT refunds.

Sixth, the supply system for raw cotton would be improved and prices could fluctuate by 6%. In addition, companies that export products made from Xinjiang cotton instead of imported cotton would be exempt from VAT and receive a 90-renminbi discount on the purchase price of 50 kilograms of raw cotton.(5)

3) Results of reform efforts in 1998

This research has clarified the following information on the results of state-owned enterprise reform efforts in 1998, the first year of the "Three-Year Plan for State-Owned Enterprise Reform".

First, by 1998 about a third of the approximately 8,000 large and medium-sized SOEs had essentially ended the deficit. Prioritizing action to reverse the deficit, just over a quarter were essentially out of the red.(7) ) Third, the textile industry was considered the starting point of the state-owned enterprise reform process. The results of reform efforts in this sector in 1998 were as follows.

(1) 5.12 million textile machines were scrapped. That's more than the original goal of 4.8 million machines.

(2) The original redeployment target (600,000) was also exceeded.
A total of 660,000 laid-off employees were restructured and later re-hired.

(3) State-owned textile enterprises' losses were reduced from 9 billion yuan in 1997 to 6.48 billion in 1998. (8) The reduction of 2.5 billion yuan was only 500 million yuan less than the original target (3 billion yuan).

These figures show that efforts to eliminate underperforming companies, which were the subject of the reform, made reasonable progress in 1998 and that most of the objectives were met. However, as discussed below, many problems remain.
(3) Objectives and reform measures for 1999

In March 1999, Zhu Rongji's cabinet issued new reform targets based on its 1998 review of progress. (9) The first target is to reverse the performance of another third of the roughly 8,000 large and medium-sized state-owned industrial enterprises.
The timetable essentially envisages solving the problems of the remaining companies in 2000, and the government intends to reduce the percentage of loss-making companies to normal levels (about 15% or less).

The second goal is to reverse the performance of another one-third of the 2,300 high-priority loss-making SOEs in 1999. The problems of the remaining companies will be essentially solved by the year 2000.

The third target relates to state textile companies. The government wants to cut losses by 6 billion renminbi by scrapping 10 million textile machines and restructuring and hiring 1.2 million laid-off workers. All three goals are intended to double the previous year's goal.(10)

At a national textile industry conference on January 26, 1999, Du Yuzhou, head of the Ministry of Foreign Affairs for Textile Industry, said that since the total losses of (state-owned) textile enterprises amounted to 6.48 billion yuan in 1998, the problem could be almost completely eliminated by losses were reduced by a further 6 billion renminbi in 1999.

Zhu Rongji's cabinet took the following reform measures to achieve this
the targets set for 1999.

First, it set a limit on new industrial projects.

Second, the government will continue its policy of closely monitoring large SOEs while liberalizing and revitalizing smaller SOEs. It will also encourage more mergers and bankruptcies among state-owned companies.

Third, the government would continue to appoint special inspectors to oversee the management teams of large and medium-sized state-owned companies. On January 8, 1999, the second group of 38 special inspectors was formed and assigned to state-owned enterprises. In addition, an additional 60 special inspectors have been deployed to state-owned enterprises since January to oversee priority projects.(11)

Fourth, efforts to improve economic performance through labor force restructuring will continue. Appropriate measures are taken to overcome the livelihood problems of unemployed and laid-off workers, and all possible means are used to implement re-employment projects and build social security systems. The Chinese authorities regard the reduction in layoffs as an important step in improving the economic performance of state-owned enterprises. Since 1998, the government has worked to increase the economic benefits of downsizing in state-owned enterprises by encouraging the establishment of re-employment centers.

In the March 1999 "Government Work Report" to the National People's Congress, Premier Zhu Rongji announced a "three guarantee lines" policy to help laid-off workers. Under this policy, redundant workers who are rehired must terminate their employment contracts with the state-owned company that originally hired them. Laid-off workers who remain unemployed after three years are transferred to social security agencies, which pay unemployment benefits. These workers must also terminate their employment contracts with the state-owned companies they originally worked for. If a worker remains unemployed after receiving unemployment benefits for two years, they are transferred to the public welfare administration, which provides the subsistence level for the townspeople.(12)

4. Interim balance and future prospects for the reform of state-owned enterprises

As mentioned in the previous section, in March 1999, Zhu Rongji's cabinet announced new reform targets for 1999 based on the 1998 achievements. He took a number of steps to achieve these goals. How feasible is "Zhu Rongji's three-year SOE reform plan"? The final assessment must be made by the end of 2000, the deadline set by Zhu Rongji's cabinet for the reform process. This is followed by a mid-term review based on the progress made so far in the "three-year plan for the reform of state-owned enterprises" and a review of the key factors that have been identified so far. An attempt is then made to forecast the prospects of the reform process.

(1) Interim evaluation of the joint stock company reform

First, judging by indicators such as the number of scrapped textile machines, the reinstatement of laid-off workers and loss reduction, 1998, which was the first year of "Zhu Rongji's three-year state-owned enterprise reform plan," appears to have been a resounding success, with most of the original goals being achieved . Despite the impact of the Asian financial crisis since the second half of 1997 and the major floods that hit north-east and south China in the summer of 1998, state-owned enterprise reform appears to be on track, particularly with regard to loss reduction. in own company. This should be rated highly.

Second, although SOEs have long been the government's primary source of revenue, the percentage of SOEs that are loss-making and the magnitude of their losses have steadily increased over the years as losses have outpaced profits—productive businesses have eroded profitable ones State-owned companies almost constant in recent years. For this reason, Zhu Rongji's "three-year SOE reform plan," which aims to eliminate losses managed by state-owned enterprises, is considered extremely significant. If the plan succeeds in reversing the poor performance of state-owned enterprises, the state can secure its revenue stream and should also improve the competitiveness of Chinese industry.

Third, as mentioned above, the "three-year plan for reforming public enterprises" does not target all state-owned enterprises, but mainly focuses on large and medium-sized industrial enterprises. In particular, a transition from poor performance in the textile industry is identified as a starting point for reform. Therefore, the SOEs reform with an initial focus on a single industrial sector is expected to have knock-on effects on other sectors.

Fourth, Zhu Rongji's cabinet adopted the "three lines of guarantee" policy as part of its efforts to overcome the problem of SOEs' losses. It is very meaningful to announce this policy to all the people of China. This is because the reform of state-owned enterprises will entail the restructuring of a large number of laid-off workers, and if people do not understand and support the plan, it could have serious implications not only for the implementation of the reform process, but also for social ones Stability. .

Fifth, the Chinese authorities have appointed special inspectors for large and medium-sized SOEs to try to control enterprise management teams and improve management efficiency. To some extent, the reform measures themselves can be expected to help improve the efficiency of SOEs.

(2) Future prospects

China's state-owned enterprise reform process, while successful so far, has not been without problems. Zhu Rongji's "three-year SOE reform plan" only focused on the limited area (textile industry) and certain loss-making large and medium-sized state-owned industrial enterprises. While the reform has brought some benefits, losses to the government sector as a whole remain a serious problem.

For example, according to the Bureau of Statistics of China, the total losses of state-owned enterprises and state-owned holding companies rose 21.9% year-on-year to 102.3 billion renminbi in 1998.(13) In an annual economic statistics report released in December 1998, Premier Zhu said Rongji: "Although I stated in early 1998 that the performance of most loss-making medium-sized and large SOEs would be reversed over the next three years, this would actually bring 1998 both the percentage of losses and the magnitude of those losses increasing." ( 14) Although his speech did not provide concrete figures on the losses of state-owned companies, he revealed that both the amount of losses and the percentage of companies with accumulated losses had increased compared to the previous year's values.

The official view in China is that SOEs' losses are attributed to overcapacity. This reflects the view that reducing overcapacity in state-owned enterprises will restore and increase the competitiveness of the textile industry, thereby solving the profitability problem.

Although overcapacity is one of the factors responsible for SOEs' losses, it is not the root problem. The author would like to emphasize that the main reason for the poor performance of SOEs is the inefficiency of the Chinese SOE system. Features of this system include: bureaucratic control which has led to the creation of state-owned enterprises in both competitive and non-competitive sectors and the persistence of monopolies in many industrial sectors; the lack of a clear demarcation between property rights and administrative rights, both of which are held by the government; the lack of delineation between the administrative functions of government and the economic functions of corporations; the overlap between the party's political functions and the company's economic functions; and the lack of separation between various social functions and the economic functions of corporations.(16)

As mentioned earlier in this report, Zhu Rongji's cabinet has achieved most of the goals it set in 1998 to reduce losses of large and medium-sized SOEs. being found. The key factor seems to lie in the state enterprise system itself. Real solutions will come only when the problem of inefficiency in the state economic system is completely solved.

The Chinese government began work on reforms to transform state-owned enterprises into modern enterprises in October 1992. The main methods used were (1) the conversion of large and medium-sized state-owned enterprises into joint-stock companies, (2) the reform of small state-owned enterprises under the open-capital cooperative system, and (3) mergers and acquisitions of state-owned enterprises by foreign capital. The CCP's National Congress officially passed a resolution calling for the large-scale implementation of a program to convert state-owned enterprises into joint-stock companies.

In the past, the state had ownership and management rights to state-owned companies. However, once a company has been converted into a corporation, individuals or companies can own the shares and the company leaves government ownership. This happened when Japan's national railway system was privatized. The original state-owned companies are converted into joint-stock companies. In 1998, more than 10,000 companies were created or reorganized from state-owned companies.

Common practice in China when converting state-owned companies into joint-stock companies. However, the traditional concept of official ownership was redefined at the 1997 CPC National Congress and it seems certain that the privatization process will be significantly easier. The transformation of SOEs into corporations is expected to lead to the discovery of solutions to address SOEs inefficiency and poor performance.

Due to space limitations, the discussions and analyzes in Chapter II have mainly focused on the “Three Year Plan for State Enterprise Reform” and the status of its implementation. The inefficiency of the state enterprise system and the reforms needed to address this problem are discussed elsewhere.

3. Reform of the financial system - progress and prospects

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1. Identification of research questions and goals

The outbreak of the Asian currency and financial crisis in the second half of 1997 highlighted the vulnerability of the financial systems in Asian economies. On the other hand, China's financial systems have remained virtually untouched by the crisis, due to tight exchange controls and the fact that capital accounts have not yet been liberalized. However, the Chinese financial system is not without problems. Signs of instability include problems with non-performing loans and bankruptcies of non-bank companies. The Chinese authorities need to address some urgent issues, including ways to prevent the impact of the Asian financial crisis from spilling over into China and measures to prevent similar latent problems in the Chinese economy from becoming a real crisis.

Under these circumstances, the Chinese government held a national finance conference on November 17-19, 1997. At this conference, the government approved the creation of a market-oriented financial system as a goal of financial reform. economy, for a period of about three years. So, as vice premier, Zhu Rongji was actually the highest-ranking official in the field of economy and finance. In his inaugural speech after his appointment as prime minister in March 1998, he attracted great interest at home and abroad by calling financial system reform one of the "three implementation agendas" and promising that the problems would be essentially solved in three years. . From then on, the media began to refer to the reform of the financial system as "Zhu Rongji's Three-Year Plan for Financial Reform." The same nomenclature is used in this work.

About a year has passed since the publication of "Zhu Rongji's Three-Year Financial Reform Plan." How has the financial reform process developed since then, what has been achieved and what are the problems?

In Chapter III we will address the issue of financial reform from these perspectives. The main objective is to analyze the background, policies and realities of the "Three Year Plan for Financial Reform" in order to clarify the current status and characteristics of the reform process and to identify any problems.

Chapter III consists of the following sections. III.2 provides background information on financial reforms in the form of an overview of the current state of China's financial system and the problems it faces. III.3 examines "Zhu Rongji's Three-Year Financial Reform Plan" and the progress made so far. III.4 presents the results and conclusions of these studies and analyses. In conclusion, the author will try to predict the prospects for reform of the financial system.

2. Background of the financial system reform

China's move towards open-door policies and reforms began in late 1978. Financial reforms came relatively late, and the reform process only began in earnest in the second half of 1993. However, there were several actions prior to that date. . Although the discussion here mainly focuses on "Zhu Rongji's three-year financial reform plan" rather than the overall trend of financial system reforms, we will first examine the background of the current reform, including the actual situation of the financial system and the problems affecting it.

(1) Current situation of the financial system

1) The financial system before reform and open doors

Before going into the current state of China's financial system, let's provide a brief overview of the state of the financial system before the transition to reform and open-door policies.

For many years, the People's Bank of China was the only bank in China. Until 1979, the Banco do Povo sign hung in front of all banks in major cities. The bank's only activities were taking savings, lending, and providing remittance services. There was no comprehensive clearance system for bills of exchange, checks and other instruments. The banking sector existed as a complement to the government sector. The banks simply implemented the central government's financial plans and were not independent. Profits were to be paid to the state, and losses were offset by state subsidies.

The Chinese financial system that existed under the old planned economy was largely unaffected by the problems that arise today, such as B. bad loans and bankruptcies of non-bank financial institutions.

2) The financial system after the turn to reform politics and Open Doors

Cowardly. 6 provides a simple overview of the current Chinese financial system. Under the People's Bank of China, the central bank of China, there are three policy banks, four state-owned commercial banks and private sector commercial banks. There is also the Banco Cooperativo Urbano, the Banco Cooperativo Rural and various types of non-bank financial institutions.

The transition from the situation before the adoption of the reform and open-door policy, when the People's Bank of China was the only bank in China, to the current system began in 1979. Initially, four large state-owned professional banks, namely , The Industrial and Commercial Bank of China, Agricultural Bank of China, China Construction Bank and Bank of China were separated or reorganized from the People's Bank of China and the Ministry of Finance. The aim was to expand banking services, improve the financial system and introduce the principle of competition. In 1984, private sector commercial banks were established at regional and national levels. Since then, the number of financial institutions has increased rapidly. The number peaked in the early 1990s when there were more than 60,000 banks and non-bank financial institutions.

The financial system was gradually improved. The commercial banking functions of the People's Bank of China were transferred to the four major state-owned commercial banks after its establishment in 1979. At the same time, the People's Bank of China, as China's central bank, came under the direct jurisdiction of the federal states. However, its function as a true central bank did not begin until 1984. It was only with the entry into force of the People's Bank of China Law in March 1995 that its status as a central bank was established, monetary policy and its responsibilities, including supervision of financial institutions, were fully specified (Table 6 ).

In 1994, the State Development Bank, the Export-Import Bank of China and the China Agricultural Development Bank were established as institutions to carry out policy financing. The four major state-owned commercial banks were reorganized into state-owned commercial banks with autonomous administrative rights. The goal of these changes was to separate political funding from commercial funding. In July 1995, the long-awaited Commercial Banking Act came into force. This is how the basic structure of today's modern Chinese financial system has developed.

The state-owned commercial banks retained their role as lenders to state-owned enterprises, which were the main economic units in the old planned economy system. The financing needs of the emerging non-state enterprise sector became a niche market for non-bank financial institutions and credit associations, which were small and medium-sized financial institutions serving the urban and rural sectors.

Given ever-increasing household savings, the allocation of resources to support investment in economic development in China appears to have been relatively efficient compared to Eastern Europe and Russia, although the excess supply of credit has sometimes led to inflation.

(2) Problems in the Chinese financial system

Why does China need financial system reform when, as mentioned above, its financial system has already received much praise? In fact, there are still many problems in China's current financial system, which still cannot cope with the diverse financial needs and risks arising from the rapid economic growth resulting from the development of China's domestic economy towards a market economy system over the 20 years can adequately cope under the policy of reforms and open doors. The following analysis of the Chinese financial system mainly focuses on the problem of non-performing loans of commercial banks and the problem of bankruptcies of non-bank financial institutions.

1) Problem with bad debts at commercial banks

It is well known that the four main state-owned commercial banks are burdened with non-performing loans, but opinions differ as to the size of the loans. According to one theory, their non-performing loans amount to 2 trillion renminbi, which is twice the Chinese government budget for fiscal 1998, or 20% of the four banks' total loans.

At a press conference held in Beijing on March 11, 1999(17), the Governor of the People's Bank, Dai Xianglong, explained that in China the term "arrears" was divided into three categories: arrears, loans in arrears of two years or more and bad loans. This means that "defaulting loans" are not necessarily bad loans. According to this broad definition, non-performing loans (collectively from the three categories above) of state-owned commercial banks account for about 25% of their total loans, while loans to bankrupt borrowers that require foreclosure account for 2.9%. of the total loans. In addition, approximately 5% of past due loans, as defined in the old loan classifications, must be written off as past due. On this basis, the real NPL ratio is around 7.9%.

At the end of 1998, the loans granted by all financial institutions totaled 8,652.4 billion yuan. This total includes RMB 6,844.2 billion in loans from state-owned commercial banks.(18) When the "bad loans" ratio is 25%, state-owned commercial banks have "bad loans" totaling about 1.7 trillion yuan, from of which approximately 7.9% or approximately RMB 540.7 billion will have to be written off as genuine non-performing loans (ie past due under the new loan classification).

Financial institutions appear to have accumulated these bad loans during the transition to a market economy. Most non-performing loans arose from the bursting of the housing bubble in the early 1990s or problems with the accumulation of long-dated loans to state-owned enterprises. Given that loans to state-owned enterprises account for about 90% of total loans from the four state-owned commercial banks, difficulties with these loans are likely to have a more serious impact than credit problems related to the housing bubble.

China's bad debt problems following its housing bubble are similar to those in other Asian economies. Unique to China is the problem of massive non-performing loans to SOEs that have received massive loans. The high crime rate can be explained by a number of factors. First, there is pressure from regional governments to continue lending to state-owned enterprises. Second, SOEs have credit losses. Third, state-owned enterprises have shown little moral discipline when it comes to borrowing and lending. Fourth, SOEs are unaware of the importance of refunds.

Whatever the causes of the problem, bad debt repayments will be a crucial issue in the Chinese government's efforts to reform the financial system.

2) Insolvencies between financial institutions that are not banks

With the announcement in October 1998 that the Guangdong International Trust and Investment Corporation (GITIC) would be liquidated, the shortcomings of the Chinese financial system suddenly became apparent. This incident damaged the confidence of foreign financial institutions in China.

Under the line of reform and open doors China has pursued since 1978, fiduciary banking has been championed as a means of absorbing funds. Since then, the government began considering the establishment of trust and investment companies, and in October 1979, the Bank of China set up a research and trust department. This led to the establishment of the China International Trust and Investment Corporation (CITIC).

Later, other banks established trust businesses, and regional investment and trust companies were also formed. The number of these companies peaked in 1988 at 745. Apart from CITIC, which is under the direct control of the central government, most of these companies are owned or structured as departments of banks and regional governments. Investment and trust companies get about half their funds from "trust deposits," which typically have maturities of one year or more. In addition to raising funds, companies also engage in lending and investment. Most also write bonds and are involved in a variety of other activities such as escrow, guarantees and project management.

The formation of so many trust and investment companies can be explained by a number of factors. First, the devolution of powers under the reform and the open-door policy led to an increase in funds going outside the budgets controlled by central and regional governments. This has created the need for investment in projects arising from regional initiatives and for opportunities to operate funds that deliver better results than bank deposit rates. Second, the reform shift and open-door policy has led to the emergence of new financial needs. Banks have established trust banking departments or trust and investment companies to engage in areas that are not authorized as normal banking activities. Third, China wanted to experiment with using foreign bond issuance and other mechanisms to raise foreign currency funds.

The circumstances that led to the creation of these investment and trust companies are reflected in the fact that they now perform dual functions. One is positive, the other negative.
On the plus side, trust and investment companies filled a void caused by flaws in China's existing financial system, which could not handle the transition to a market economy under reform and open-door policies. Because of their access to local information, non-bank financial institutions have been more successful than state-owned commercial banks in monitoring borrowers and applying sanctions to ensure loan repayment. The system, whereby state-owned commercial banks collect savings that are then invested in trust and investment companies in the form of loans, has worked well in the regions.

However, trust and investment companies also played a negative role as financial institutions that could be used to circumvent regulation. During the transition to a market economy, commercial banks and regional governments established various trust and investment companies to pursue ancillary activities outside the purview of central government and central bank regulation.

During the financial turmoil of 1987-89 and 1993-94, a variety of investment and trust companies actively invested in real estate, stocks and other assets. The government restricted bank lending, but trust funds and investment companies fell outside the scope of these restrictions and continued to lend. This exacerbated the turmoil that gripped the financial sector.

Table 7 shows the volume of assets and liabilities of trust funds and investment companies across the country at the end of 1997. As can be seen from these data, the companies had yuan liabilities of 269.27 billion yuan and foreign currency liabilities of US$14.59 billion U.S. dollar. The liability ratios for Renminbi and foreign currency accounts were around 85%.

There have been a number of problems associated with the administration of these trust and investment companies. First, its practice of borrowing and lending at high interest rates has turned China's financial order upside down. Second, huge amounts of investments and loans became distressed assets. Third, many trusts and investment companies face serious liquidity risks from liquidity problems arising from the investment of short-term funds in speculative ventures and medium- and long-term transactions.

The results of an inspection by the People's Bank of China in 1996 revealed problems with insufficient capital ratios, a high percentage of non-performing assets, and illegal transactions between trust and investment companies. The People's Bank of China reported that a large number of non-bank financial institutions were operating at a loss and were at risk of default. In short, many trusts and investment companies were on the brink of bankruptcy.

For the Chinese government, the liquidation and restructuring of these trust and investment companies will be a crucial aspect of the reform of the financial system.

3. "Zhu Rongji's Three-Year Financial Reform Plan" and its progress

(1) The main goals

As described above, the goal of "Zhu Rongji's three-year financial reform plan" is to build a financial system suitable for the development of a market economy system over a period of about three years. To achieve this important goal, Zhu Rongji's cabinet announced a number of specific goals, which are summarized below (Table 8).

1) Reform des Managementsystems der People's Bank of China

The first goal is to reform the management system of the People's Bank of China, the central bank of China. In accordance with the People's Bank of China Law, which was promulgated in March 1995 and came into effect, the People's Bank of China shall not allow any interference by regional governments or governmental agencies at any level in the performance of its duties and responsibilities (Article 7) and shall respect all direct and manage its subsidiary organizations in a unified manner (Article 12). In practice, however, the regional organizations of the People's Bank of China have faced constant interference and intrusion from regional governments. The result was a dual system in which both the central Banco do Povo and the regional governments exercised control. This situation severely limited the central bank's ability to implement a unified fiscal policy set by the central government at the regional level.

Collusion between government and business played an important role in the financial crisis that has swept South Korea. The Chinese government has recognized that similar relationships exist between regional governments and state-owned enterprises and recognized the urgent need to reform the financial system.

The People's Bank of China had branches at the provincial, city and county levels. It decided to close down provincial branches and create "major regional branches" based on economic blocs spanning several provinces. This concept was implemented after the Central Finance Conference in November 1997.

2) Reform of the management system of state commercial banks

The second goal is to reform the management system of state-owned commercial banks. The four state-owned commercial banks account for about 70% of all business loans in China. Its non-performing loans total 540.7 billion yuan, or about 7.9% of its total loans, according to the new credit rating criteria.(19) Improving its management base will become an urgent priority for China's economic development and reform of the country's management system state-owned commercial banks has been identified as a top priority in the financial system reform process. There are four specific goals, as described below.

(i) Organizational reform of state-owned commercial banks

The reform of the management systems of the People's Bank of China will obviously have a major impact on the organizational management of state-owned commercial banks. Therefore, the organizational reform of the state commercial banks is unavoidable.

(ii) Abolition of credit limits

In the past, the People's Bank of China used its supervisory powers to set credit limits for commercial banks to exercise direct control over financial markets. However, since the mid-1980s, the diversification of banking structures has been reflected in an increasing contribution to new lending from financial institutions other than state-owned commercial banks. From just 22% in 1990, its share of total new lending rose to 49% in 1996. In addition, the development of capital markets has brought with it an increase in the proportion of direct financing and inflows of foreign capital. Changes like these rendered the credit limit for state-owned commercial banks meaningless.

(iii) Reform of the statutory reserve system

Due to changed financial circumstances, a reform of the statutory reserve system was also necessary. After the People's Bank of China assumed the role of central bank in 1984, the ratio of statutory reserves to liquid deposits rose to 12% in 1987 and 13% in 1988. These increases in the statutory reserve ratio helped curb economic overheating. Subsequently, however, they did not serve to adjust the money supply, but to provide the necessary funds for the purchase of agricultural products and the financing of priority projects. In addition, since state-owned commercial banks could deposit funds with the People's Bank of China at rates in excess of the normal deposit rate, they tended to keep funds (cash reserves) in the People's Bank in excess of the statutory index reserve. cover your liquid depots.

(iv) issuance of special government bonds

The capital ratios of state commercial banks are low. In order to avoid financial risks, they have to improve their capital ratios through special government bond issues.

The main objectives of these changes in the management systems of the state-owned commercial banks are to prevent financial crises and to strengthen the management base of the four main state-owned commercial banks.

3) Reform of the separate management systems for the banking, stock exchange and insurance sectors

The third goal is to establish separate management systems for the areas of banking, securities and insurance. In the past, there were no clear dividing lines between these business areas. In order to avoid financial risks, sector boundaries should be more clearly defined and separate management systems should be put in place to define the areas of activity for each sector and ensure that financial institutions do not deviate from their area of ​​activity.

4) Sale of delinquent loans

The fourth objective is to sell bad loans held by financial institutions. The two main approaches in this area are the introduction of a five-tier creditworthiness criterion and the establishment of asset management companies.

Until the introduction of the five loan classification criteria, Chinese financial institutions only classified their loans into two categories: normal and non-performing. Bad loans were then broken down into three categories: past due, two years or more past due, and bad debt. These classification criteria did not conform to international standards and were mainly used for the post-recording of delinquent loans. In practice, normal loans also included loans that ran the risk of becoming non-performing. Some financial institutions may also have used this criterion to prevent payment defaults from occurring.

Therefore, the People's Bank of China has decided to change the credit qualification criteria to match international standards. The goals of this movement were to increase the risk management and self-reliance of each financial institution, to prevent the generation of bad loans, and to have an accurate understanding of the current level of bad loans (the five criteria for classifying loans are discussed later in this report).

The creation of financial asset management companies was another response to the vast amounts of bad loans being held by China's state-owned commercial banks. It became necessary to set up these companies to avoid financial risks and to provide a mechanism for the disposal of overdue loans.

5) Liquidation and restructuring of financial institutions

The fifth objective is the liquidation or restructuring of financial institutions. Some financial institutions have become insolvent and unable to meet their loan repayment obligations. Urgent action needs to be taken to liquidate or restructure these institutions. The financial collapse of non-bank financial institutions has gradually become a serious problem since the 1993 economic overheating. The liquidation or restructuring of financial institutions became a particularly pressing priority in order to prevent the financial crisis from spreading to China.

(2) Progress of "Zhu Rongji's Three-Year Financial Reform Plan"

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1) Progress in reforming the management system of the People's Bank of China

In August 1998, the People's Bank of China reorganized its head office. It then began reorganizing its 148 regional offices. Beginning with the Shanghai branch, it closed its provincial-level branches in November and December and instead set up nine "largest regional branches," each spanning several provinces. The new management system was put into practice in January 1999 (Table 9). The structure now consists of a head office, nine branches in larger regions, two enterprise management departments (in Beijing and Chongqing), 333 central branches and 1,827 county-level branches. In this system, monetary policy decisions are centralized at headquarters while the agencies focus on policy implementation and surveillance.(20)

2) Progress in reforming the administrative system of state-owned commercial banks

With the reform of the management system of the People's Bank of China, the reform of the management system of state-owned commercial banks also began in earnest.

In terms of organizational restructuring, state-owned commercial banks are consolidating their provincial and provincial capital branches. This process is expected to be completed in 1999. They are also streamlining their fringe organizations.

Regarding credit limits, in January 1999 the People's Bank of China lifted the credit limits that had previously limited the amount that state-owned commercial banks could lend each quarter and each fiscal year. She has also created a new governance structure based on responsibility for asset management and risk management.

Third, the reform of the statutory reserve system began in March 1998, when the reserve ratio on liquid deposits was reduced from 13% to 8%. In addition, deposit rates were reduced three times in June and December 1998 and June 1999.

Fourth, in August 1998, the Ministry of Finance issued a special government bond worth 270 billion yuan. The issue was necessitated by a decision to inject public funds into the four main state-owned commercial banks to bolster their bad debt-weakened assets. The proposal to conduct a special public bond issue was approved by the Standing Commission of the National People's Assembly in February 1998. The term was set at 30 years and the interest rate at 7.2%. In August, bonds were issued to the four main state commercial banks. The banks bought the securities with funds freed up by the aforementioned 5% reduction in the statutory reserve ratio for liquid deposits. The Chinese government is investing the 270 billion renminbi raised in this way in the form of equity funds in state-owned commercial banks.

3) Progress in reforming the separate management systems for the banking, stock exchange and insurance sectors

In October 1992, the Securities Committee of the State Council of the central government was established with the China Securities Regulatory Commission (CSRC) as the executive body. In July 1997, the Shanghai and Shenzhen Stock Exchanges, both previously jointly supervised by the CSRC and regional governments, came under the direct jurisdiction of the CSRC. The CSRC assumed responsibility for appointing and removing the presidents and vice-presidents of the exchanges.

Administrative reforms of 1998 resulted in the abolition of the State Council Securities Committee, leaving the CSRC as the sole body overseeing the securities industry. On December 29, 1998, five years after the start of deliberations, the Securities Law was approved by the Sixth Session of the Standing Committee of the IX. National People's Congress approved. The new law came into effect on July 1, 1999. The Securities Law, composed of 214 articles in 12 chapters, will ensure the smooth development of China's securities markets.

In the insurance industry, the China Insurance Supervision and Management Commission was established in November 1998 as an independent agency separate from the People's Bank of China. This step is intended to lead to a gradual normalization of regulation and supervision of the insurance industry in China. The creation of the commission completed the establishment of separate administrative systems for the banking, securities and insurance sectors in China.

4) Progress in liquidating delinquent loans

Efforts to deal with non-performing loans from financial institutions began to move forward with the introduction of the "five-tier credit eligibility criteria". In February 1998, the People's Bank of China selected Guangdong Province as a pilot area for applying these criteria, which are international standards. Banks' loan portfolios were classified according to their degree of risk based on five levels: approved, other specifically mentioned assets, substandard, doubtful and non-performing. Loans in the last three classifications are defined as “arrearing loans” (Table 10). By June 1999, all bank loan portfolios will have been classified in the five-tier system.

In addition, Chinese authorities have been considering ways to liquidate bad loans from the big four state-owned commercial banks, taking into account other countries' experiences, including the role of the Resolution Trust Corporation (RTC) in the United States and developments in Japan. In January 1999, a People's Bank of China conference passed a policy calling for the establishment of financial asset management companies.

Xinda Asset Management Company of China was established on April 20, 1999.(21) Affiliated with China Construction Bank, the company has a capitalization of RMB 10 billion and is wholly owned by the Ministry of Finance. It will forgive all of China Construction Bank's bad loans totaling 200 billion renminbi ($24 billion) through 1996. Preparations are underway to set up similar companies for the Bank of China, the Industrial and Commercial Bank of China and the Agricultural Bank of China.

As part of efforts to strengthen asset-liability control systems, the Chinese authorities ordered state-owned commercial banks to lower their default rates, which were 7.9% at the end of 1997 (25% under the old system). , at 2-3% per year.

Crime in rural credit unions has also become a serious problem. To avoid risk, these organizations must also reduce their failure rates by 2-3% per year.(22)

At present, the task of NPL resolution is being addressed by reducing the debt of SOEs, as this would facilitate the reform of SOEs. Table 11 shows the targets for the reduction of non-performing loans along with progress to date. The canceled amounts relate to commercial bank loans to certain SOEs in 111 cities to rationalize the capital structure, which is part of the SOE reform process. In accordance with the rules for financial institutions, credit losses to bankrupt borrowers in other regions and by other financial institutions are compensated.

5) Liquidation and restructuring of financial institutions

In China, the financial situation of non-bank financial institutions became a problem as early as the 1993 economic overheating period. In the second half of that year, raising funds on the interbank market was banned, and in 1995 the central government banned the offering of guarantees when investment companies and regional funds raised funds abroad. In late 1993, the government adopted a regulatory policy aimed at guiding non-bank financial institutions towards healthy development in its "Financial System Reform Resolution". 239 at the end of 1998 versus 745 at the end of 1988.

In December 1998, the Chinese government announced that it would formulate and implement a restructuring plan to separate and transfer the activities of companies owned and managed by the military, police, party and government agencies ) Among the 239 participating non-bank companies, financial institutions, the plan provided for the continued existence of China International Investment and Trust Corporation (CITIC) and Guangda Investment and Trust Company as central-level organizations. In principle, one institution in each state and municipality would remain and all the others would be reorganized into about 40 companies through closures, mergers, relocations and other methods.

As early as 1997, the China Rural Trust and Investment Company and several other companies had closed after failing to pay their bankruptcy debts. Since 1998, there have been a number of liquidations or restructurings of various financial institutions, including the Hainan Development Bank, the Guangdong International Trust and Investment Corporation, and the China Investment Bank (Table 12).

4. Mid-term review and future prospects of financial system reform

As can be seen from the above discussion and analysis, the main goals of "Zhu Rongji's three-year financial reform plan" were to eliminate non-performing loans and improve financial order to avoid financial risks. To what extent will financial system reform help to achieve these goals and to what extent are they achievable? Of course, the final judgment will have to wait until the end of the planned three-year period at the end of the year 2000. Our main objective in this section is to give an interim assessment at this point, based on the progress made. on the plane We will also try to predict the prospects for the reform of the financial system.

(1) Mid-term review of financial system reform

First, the reforms affecting the management structures of the People's Bank of China have essentially strengthened the bank's authority. The reform process was a way of keeping the bank independent of regional governments so that it could manage and oversee the financial system as a whole. The interference and intervention of the regional governments in all aspects of the Bank's operations, human resources and financial activities in areas under their responsibility has been eliminated. In this way, its managerial and supervisory powers were strengthened, allowing it to centralize adjustments at the macro level in its parent company.

Second, the reforms affecting the management systems of state-owned commercial banks led to a shift from direct control, based mainly on quantitative credit limits, to a reliance mainly on indirect controls. This was achieved through measures such as organizational reform of state-owned commercial banks and the abolition of credit limits. The People's Bank of China publishes quarterly and annual (fiscal year) guidelines for state-owned commercial banks as macro control indicators. Commercial banks only take this into account when planning their fundraising and can invest the funds they raise at their own discretion. These changes will facilitate the transition from state banks to commercial banks and are expected to make a significant contribution to improving the quality of funding and preventing an increase in the number of non-performing loans.

Commercial banks will benefit from the reform of the statutory reserve system. As they work aggressively to tap potential demand for finance and stimulate the economy, the downward trend in their earnings is being moderated. In contrast to measures aimed solely at promoting financial flexibility, this change can be seen as a mechanism to encourage a more autonomous and aggressive lending attitude by commercial banks.

The issuance of 270 billion renminbi of special government bonds to state-owned commercial banks is a valuable move that will lift banks' capital ratios above the international benchmark of 8%.

Third, the reform of the separate management systems for the banking, stock and insurance sectors will make an important contribution to avoiding financial risks.

Fourth, the introduction of the "five-tier loan classification criteria" led to a reclassification of banks' non-performing loans according to international standards. This will enhance the People's Bank of China's ability to oversee and regulate financial institutions. She will also ensure that loans are managed according to international standards, thereby making an important contribution to facilitating credit risk control. The establishment of asset management companies to handle bad loans reflects the determination of Zhu Rongji's cabinet to solve this problem.

Fifth, the liquidation and restructuring of financial institutions mainly focused on the closure and merger of non-bank institutions. This process is now taking place on a broad scale. Particularly important from the perspective of financial risk prevention are the liquidations and restructurings of large financial institutions such as GITIC and China Investment Bank. These steps demonstrate the determination of Zhu Rongji's cabinet to push for financial system reform in the truest sense of the word.

It would be reasonable to conclude that, in most cases, financial system reform has prevented financial risks and stabilized the financial system.

(2) Future prospects

However, as discussed below, there are still a number of issues related to the reform of the financial system in China. These problems can hamper the reform process.

First, as indicated in the previous discussion, the reform of the People's Bank of China's management system is clearly playing a positive role. However, it is possible that the adjustment process in building the agency structure of the Greater Region will stagnate.(24)

Second, there is concern that slowing economic growth will lead to a further increase in bad loans from state-owned commercial banks. Although the government is expanding public investment in infrastructure and other areas as part of an aggressive fiscal policy, other demand items for the Chinese economy, such as business equipment investment, private consumption and exports, have all been sluggish. Under these circumstances, it is inevitable that the reform of state-owned enterprises, which is causing unemployment, will slow down. This could lead to an increase in non-performing loans in the medium and long term.

Third, eliminating non-performing loans is essential to reforming state-owned commercial banks. Since 1998, the Chinese authorities have reacted aggressively to this problem by introducing the "five levels of credit qualification criteria," which are international standards, and establishing financial asset management companies. However, the bad debts that exist today date back to the transition to a market economy, and given the huge sums needed to pay back the loans, the only solution will ultimately be a public injection of funds. This is because the government has forced financial institutions to take responsibility for the poor performance (in the form of non-performing loans) of state-owned companies, which have been a breeding ground for non-performing loans, when really I should have. this management task taken over by tax expenses.

However, given the current economic environment, it would be unrealistic to expect the government to shoulder the fiscal burden of dealing with such large volumes of non-performing loans as it is already working to stimulate the economy through large-scale bond issuance. It also faces other costs, including having to support a rapidly growing unemployed population and getting the Social Security system to a soft landing. Getting rid of non-performing loans is bound to be a lengthy process.

Fourth, in relation to the establishment and operation of financial asset management companies, the government should avoid moral hazard and rash action in divesting bad loans.

Fifth, as part of the financial reform, failed banks and non-bank financial institutions will be liquidated and restructured. The collapse of GITIC has raised concerns about Chinese companies among financial institutions and foreign investors. Chinese authorities should learn from the GITIC case and recognize the impact that improper bankruptcy proceedings can have. From now on, they must consider the international implications of policies.

Sixth, financial system reform brings gradual improvements to China's financial system, and progress is also being made in eliminating non-performing loans. However, financial institutions have been forced to bear the costs of internal inconsistencies in state-owned companies. For this reason, the reform process of the financial system must aim to eliminate state intervention in the management of state-owned financial companies and institutions and develop a structure that allows financial institutions to operate autonomously, take responsibility for their own activities and strongly select borrowers .

China is beginning to look for such a structure. The question is whether or not state-owned companies can become healthy recipients of finance. It is the state-owned companies that are jeopardizing the health of the financial system. The successful reform of SOEs is an essential prerequisite for a truly successful reform of the financial system. Due to space limitations, we will save this topic for a later article.

4. Administrative reform - progress and prospects

1. Identification of research questions and goals

In this chapter, we analyze the current status of reforms in China's administrative organizations and the issues affecting the reform process. We will also try to predict the short-term outlook based on the results of this analysis. Such analysis is important to assess whether administrative organizations are helping to drive current structural economic reforms.(25)

Even if state-owned enterprises or financial institutions can streamline their operations by downsizing staff or facilities to compete with foreign enterprises and financial institutions, they will not be able to use their newfound strength if administrative organizations continue to be overly intrusive. . . in their activities. This would negate all the benefits of SOEs reform and financial system reform. On the other hand, if the government succeeds in reducing interventions in the management of individual companies and financial institutions and successfully strengthens the sector tasked with implementing fiscal and fiscal policies that reduce economic overheating or stagnation, the conditions are set for accelerated one given economic reform.

As Zhu Rongji made clear in his inaugural press conference as prime minister, administrative reform is seen not only as a means of facilitating structural economic reforms, but as one of the government's top priorities. If reform fails, Zhu Rongji's political base will be weakened and the entire leadership, led by Chairman and Secretary-General Jiang Zemin, may even lose prestige. From this perspective we shall examine the reform of administrative organizations which has regained importance since the organic reform of the State Council (Cabinet) in March 1988.

Our research goals in Chapter IV are three. First, we hope to deepen our understanding of the current status and future prospects of state-owned enterprise and financial system reform discussed in Chapters II and III by clarifying the current status of administrative organization reform and the issues involved. Since the reform of the administrative organization will have a major impact on economic activity, the assessment of progress should at least help to accurately assess the ongoing structural economic reforms.

The second aim of the research is to list the most important measures already implemented or planned for the future and to analyze the content of these measures. Due to the short period of time since the beginning of the reform in 1998, newspapers and reports on the subject of administrative organizational reform usually offer little more than explanations of individual measures and reports on the current situation. These fonts are often one-sided and tend to be complicated.

It is surprisingly difficult to determine the targets for the three-year period from the start of the reform (following Zhu Rongji's statement at his inaugural press conference as prime minister) and to what extent these targets have been met to date. We drew on official Chinese sources, including the "Explanation of the State Council Restructuring Plan" and the "Government Work Report" to take stock of the progress made since the reform began just over a year ago. and identify key actions to be implemented in the future.

The third goal of the research is to shed light on the structural problems of Chinese administrative organizations and to show the uniqueness of the administrative reform now being implemented under the leadership of Premier Zhu. Our analysis includes a comparison with the past debate about "political regime reforms", which became particularly clear in the second half of the 1980s.

In Section IV.2 ff. we will try to achieve these three research goals through specific analyses. We will begin by identifying the main issues affecting the administrative organization of the Chinese government and summarize the process that led to the current administrative reform program by examining existing research and speeches by Chinese leaders.

2. Background and history of administrative organizational reform

(1) Major issues affecting administrative organizations

We will first identify the issues that the Chinese leadership sees as the main issues affecting government organizations. The following discussion is mainly based on two main discourses.

The first speech was given by then-Vice Premier Deng Xiaoping at an expanded session of the Chinese Communist Party's Politburo in August 1980. The speech was titled "Reforming the Leadership Systems in the Party and State" [Deng (1980) ) ] .

In his speech, Deng Xiaoping listed abuses related to the party's and state's leadership structures and called for corrective action. He paid special attention to the following three points.

The first problem was the tendency towards bureaucratic rule. Specific examples cited by Deng Xiaoping included not only personal morality issues such as bribery, abuse of office, and unnecessary verbal abuse of individuals, but also the problem of bloated organizations where the number of people increased but the workload did not decrease. , and the lack of clearly defined areas of responsibility within organizations.

The second problem was the over-centralization of authority. Although the Cultural Revolution practically ended with the death of Chairman Mao Zedong in 1976, its impact on the organization of government continued. In the name of unified leadership of the Communist Party, powers that should have resided in the government or in business organizations (like state-owned companies at the time) were concentrated in the hands of party committees and ultimately the President. of the party (or party committee secretaries in the regions). Deng Xiaoping claimed that this system, in which all matters are decided based on the "voice of authority" of leaders, is the main cause of political mistakes like the Cultural Revolution. He called for changes to remedy the excessive centralization of power.

Before listing the issues related to the leadership system, Deng Xiaoping discussed the criteria for selecting the next generation of State Council leaders. He did not agree with a situation where blurring the lines between party and government business would allow the Communist Party to assume the role of government. He also said leaders should not hold positions in the party and government. This point is very significant, both as part of the program to correct the excessive centralization of power and as a point of discussion in relation to subsequent political and administrative reforms.

The third problem was the lack of appropriate tenure and retirement systems for senior civil servants. When Deng Xiaoping raised the issue, there were no "clear and reasonable rules" on these matters. A small number of senior officials, mainly the "Gang of Four", were fired for crimes against the revolution and other charges. However, others managed to remain in office until their deaths. In addition, many people whose careers had been interrupted during the Cultural Revolution had returned to public life, necessitating the creation of more nominal and secondary positions and the formation of new organizations. As a result, the number of organizations under the control of the State Council soon increased to 100. The growth of this already bloated structure clearly could not be halted without proper systems for regulating conditions and pensions.

The second speech was a report submitted by then-Secretary-General Zhao Ziyang to the CCP's 13th National Congress in 1987. His topic was "Towards Socialism with Chinese Characteristics" [Zhao (1987)].

This comprehensive report dealt with foreign policy, economic and social issues and was not a document merely pointing out problems within administrative organizations. In it, Zhao Ziyang recognized Deng Xiaoping's aforementioned speech as a "guiding document" and essentially followed the same line. However, the report was very significant. Since 1986, the progress of economic reforms has stimulated an increasing debate about the need for parallel "political regime reforms". And in connection with this situation, the report contains a proposal by the leadership of the Communist Party to reform the entire political system.(26)

Regarding administrative organization, Secretary-General Zhao Ziyang conceded that there is no clear demarcation between party affairs and government affairs and that efficiency is hampered by a system in which the party leadership exercises all political representative functions. While stating that the leadership of a strengthened Communist Party was essential, he called for the separation of party functions and government functions. Because it specifically called for the separation of party and government, the report was more radical than Deng's speech. The report is also relevant in discussing the history and problems of administrative reform, as it expresses concern about bloated administrative organizations and calls for organizational simplification and downsizing.

(2) History of reform of administrative organization

To what extent have these problems been overcome? The following discussion revisits the reforms of government administration in the period from the 1980s to the start of the administrative organization reform process led by Prime Minister Zhu Rongji in 1998.

Significant improvements have been made to tenure and retirement arrangements for senior civil servants. The 1982 Constitution established the terms of office of the main heads of state, including the President of the Republic (Head of State), the Prime Minister and Deputy Prime Minister of the Council of State, and the Chairman of the Standing Committee of the National Assembly. People's Congress (equivalent to a speaker in a parliament). It also ruled out re-election for a third term. (The constitution contained no rule prohibiting a third election to head the Central Military Commission, a position then held by Deng Xiaoping.) That rule is still observed today.


In 1982, the Central Consultative Commission of the Communist Party was established to facilitate the changing of the guard and to soften the older generation of leaders' resistance to change. The commission, made up of people who had retired from high-level positions, continued to exercise some influence over Chinese politics. However, it was abolished in 1992, partly because several of its members died and also because of the need to curb interference from party elders in order to strengthen the power base of Jiang Zemin's leadership. The dissolution of the Central Advisory Commission made it virtually impossible to hold important posts in the Communist Party or government for life.

Efforts to correct the trend toward bureaucratic dominance have met with mixed results. China's leaders often implement political and ideological education programs to correct the situation for top officials who break the rules. In some cases, they also imposed severe sanctions, including expulsion from the party and dismissal. That these measures were not entirely effective is evident from the fact that one of the causes of the 1989 Tiananmen Square incident was anger at abuse of power for illicit personal gain by individual bureaucrats or groups of bureaucrats, and from the Fact that instances of official corruption and abuse of power continued even after the Tiananmen Square incident.

Administrative reforms also aimed to reduce the number of ministries and commissions. The number of organizations in the State Council, which had risen to 100 in 1981, fell to 61 as a result of these measures. However, new organizations were later formed or re-established because they were necessary for "construction of the economy", and by the end of 1986 their number was up 72 risen. Administrative reforms carried out in 1988 and 1993 brought no change. significant. This view is based on the fact that while the number of permanent organizations has been reduced, the effectiveness of action has been negated in other ways, such as the creation of non-permanent organizations.

There has also been no real progress in solving other problems, such as the vague delimitation of competences between government agencies and excessive interference in company management. As for the number of employees, the Chinese leaders themselves have admitted, albeit indirectly, that they have not been able to find an effective solution to the vicious cycle in which organizations simplify only to inflate again, leading to new simplification measures being followed by new ones follow ones. Beats [Jiang (1997)].

Efforts to correct the excessive centralization of power brought some improvements, due to measures that included the abolition of the post of Communist Party leader. However, since the Tiananmen Square Incident in 1989 and the resignation of Deng Xiaoping as Chairman of the Central Military Commissions of the Communist Party and the People's Republic of China, priority has been given to political stability. This is reflected in efforts to return power to the center. This trend is characterized by General Secretary Jiang Zemin holding both the presidency (head of state) and chairs the central military commissions of the party and state.

As part of the party-government separation policy adopted at the CPC's 13th National Congress in 1987, steps were taken to abolish "party groups" that had previously played a leading role within administrative organizations (they became within a leading organization outside established in the country). ). Communist Party) and limit the leadership role of the Communist Party in the administrative organization to major policy decisions and the assignment of key posts. Efforts in this direction, however, have failed since the Tiananmen Square incident and the party group system has been restored.

3. The objectives of the reform of the administrative organization and their progress to date

(1) The objectives of Zhu Rongji's administrative organization reform program

Two aspects are analyzed in this section. First, we will identify the main goals of the administrative organization reform, which has been positioned as one of the top priorities of the government led by Prime Minister Zhu Rongji. Second, we will review the measures that have been implemented or are planned for future implementation at the time of writing this report (June 1999).

We will first examine what issues have been identified and what goals have been set for the administrative organization reform initiative led by Premier Zhu Rongji, using sources including the official documents in IV.1, the press conference records the inauguration of Premier Zhu Rongji Ceremony and other information We will also check whether there have been deviations from the perceptions mentioned in IV.2. Sources also include General Secretary Jiang Zemin's political report to the 15th CPC National Congress in 1997. This predates Zhu Rongji's ascension to head administrative organization reform in 1998. However, it cannot be excluded from the scope analysis as he speaks in the PCC's National Congress that will set the political and economic baseline for the next five years.(27)

The first goal of the administrative organization reform led by Premier Zhu Rongji is to achieve a functional transition leading to the creation of a government and organizations capable of fulfilling the necessary role in a socialist market economy system. As late as the second half of the 1980s, when the need for "political regime reform" was hotly debated, calls were made for the government to switch from direct to indirect methods of corporate control in response to "economic policy demands". . Reform" [Zhao (1987)]. At that time, however, the separation of party and government was given priority and this functional transition was treated as secondary.

Subsequently, the concept of a socialist market economy, the aim of which is essentially to create a market economy (to which, for example, resources are allocated through market functions), was endorsed as the basic policy for both the Communist Party and the state. And the government began to announce concrete measures to carry out this functional transition. It would strengthen the macro-control, social management and civil service sectors, restructure and reduce the sectors responsible for controlling production and operations, and transfer powers from these areas to the companies themselves. Since the separation of party and government was no longer a goal, this transfer of functions came to the fore as a goal of administrative organizational reform.

The second goal of the reform of the administrative organization was the simplification of the organizations. As discussed above, bloated government structures have been consistently identified as a negative factor and many attempts have been made to remedy this problem. However, not all shortcomings of bloated organizational structures could be eliminated and many problems, including the lack of clearly defined areas of competence, remained unresolved. For this reason, the simplification of organizational structures has been a problem since the 1980s.

However, there is a new reason, seemingly unknown in the past, why simplification is essential. This was summed up by Luo Gan, who previously served as both State Councilor and Secretary-General of the State Council (Japan's equivalent of Chief Cabinet Secretary) at the same time, but is now only State Councilor. He explained in his speech “Explanation of the State Council Restructuring Plan” that “there are many administrative organs and many places that make politics” [Luo (1998)].

As a concrete example, consider the situation at petrochemical plants. Before the current management organization reform program, petrochemical plants came under the jurisdiction of the Ministry of Chemical Industry, the State Economic and Trade Commission and the State Planning Commission. When a single area of ​​activity is under the control of multiple government agencies, problems are bound to arise, including duplication and confusion over policy. This seems to be the reason why simplification has again become a key objective for the reform of the administrative organisation.

The third goal is staff reduction and staff training. As already mentioned, since the 1980s the number of people employed has decreased several times, leading to a temporary decrease in the number of people employed in administrative organizations. However, as these cuts fell short of the cuts actually needed, the authorities continue to hire more staff than is necessary to carry out their duties. In fact, an analysis of trends in the number of people employed in government agencies, party agencies and social organizations suggests that the number may actually have increased due to measures such as the establishment of temporary organizations (Fig. 7). (28)

As a result, it has not been possible to contain the increase in public administration expenditure, particularly labor costs. This situation has led to chronic budget deficits and a lack of funds for investment in education and other areas (Fig. 8). What distinguishes the current situation from the past is that the Chinese leadership is now clearly recognizing and pointing out the need for organizational reform and downsizing from a fiscal point of view. This is a fundamental feature of the current administrative organization reform process.

The devastating consequences of overstaffing in administrative organizations do not fall within the purview of the state budget. To cover the costs, each sector of government collects payments (known as "mischarges") for a variety of reasons. This practice places an additional burden on foreign individuals and companies.

In short, there is a sense of crisis in China that rising administrative costs are creating a situation that could bankrupt the state and discourage foreign direct investment. That is why the government is working to reduce the administrative staff and create a smaller team of highly qualified people. It also explains why the expected cuts are larger than in the first attempts at reform.

Building an elite administrative staff is important for another reason. This change will not only curb widespread corruption, including bribery and abuse of office, but will also help make it clear to public officials that public officials have a duty to behave ethically and to perform their duties efficiently and in accordance with the law .

(2) Progress level at the beginning of the second year

The administrative organization reform process led by Premier Zhu Rongji has entered its second year. The program began to produce tangible results. The steps that the government will take to ensure that the promised targets are met within the three-year period are also becoming increasingly clear. In this section, we look at the three main benefits of the reform so far, as well as concrete steps planned for the future.

An important success is the reduction in the number of employees. Before the start of the reform of the administrative organization, there were six deputy prime ministers and eight state councilors one rank below the deputy prime minister. As a result of the government's efforts to create an elite management team, there are now four deputy prime ministers and five state councillors. Starting from these levels, the reductions are now extended to the entire organization of the Council of State. The weekly Liaowang reported in its December 7, 1998 edition that the number of jobs fell by 47.5%.(29)

A variety of measures are being implemented to help those made redundant by the cuts. For example, under a new system, senior officials at the level of deputy ministers and above in the State Council are appointed special inspectors after a period of training. His new job is to oversee the management of large, priority state-owned companies. Another system helps laid-off employees find a new career by sending them to college for a bachelor's or master's degree. In addition to jobs in economics, finance, accounting, tax and legal affairs, these individuals are also employed in social brokerage organizations that appear to be involved in consulting activities [Li Peng (1998)].

A second important achievement is the organizational restructuring of the State Council. A restructuring process was initiated in accordance with the "Explanation of the State Council's Restructuring Plan" approved by the National People's Congress in March 1998. Under this program, the organizations of the State Council were consolidated and simplified after dividing them into the following four sectors: (1) macro-control (responsible for financial and tax policies, etc.), (2) industrial and economic control, (3) education , science and technology, culture, social security and resource control, and (4) state policy matters (Table 13).

Of particular importance in the industrial and economic control sector is the integration of six ministries that were previously heavily involved in the control and administration of individual companies or specific industries into the State Economic and Trade Commission (equivalent to the Japanese ministry). international trade and industry). Among the six ministries were the Ministry of Engineering Industry and the Ministry of Chemistry. Some of the powers previously held by government departments in areas such as production reporting and allocation planning were not transferred to the new system.

Another goal of the program is to locate the same or similar activities in the same industry. In line with this policy, functions from different ministries have been integrated. Examples of significant achievements are functions related to social security policy previously shared by ministries including the Ministry of Civil Affairs (responsible for social security in the rural sector) and the Ministry of Personnel (responsible for social security in organizations). entities under its control) were integrated into the Ministry of Labor and Social Security, previously split mainly between the Ministry of Posts and Telecommunications and the Ministry of Electronic Industry, and merged into the new Ministry of Information Industry.

This restructuring reduced the number of ministries and commissions (the equivalent of ministries and agencies in Japan) from a total of 40 before the reform to just 29 today. The number of organizations and institutions under the direct control of the State Council has increased from 43 to 51, which is however, is due to various ministries and commissions being reorganized into directly controlled organizations. The total number of organizations in the State Council has been reduced compared to the total before the reform. The decision was made to remove all but a few non-existent organizations.

As for the macro-control sector, the powers of the State Planning Commission, which has played a prominent role in China's planned economy, have been drastically reduced. For example, its role in formulating and implementing industrial policy has been transferred to the State Commission for Economy and Trade. It was also renamed and is now called the State Development Planning Commission [JETRO (1999)]. However, as indicated above, the powers of the State Economic and Trade Commission have been expanded.

The People's Bank of China eliminated regional government interference in the administration of the bank and reorganized its branches in 1998 to strengthen its independence as a central bank. The Prime Minister was given the chairmanship of the State Commission for Economic Restructuring, which was upgraded to an advisory body made up of the responsible ministers (not included in the total number of organizations). The reorganization strengthened the functions of the macrocontrol sector as a whole.

In addition, more than 200 department-level organizations have been reduced. This has been achieved in part by relinquishing some functions, such as overseeing projects undertaken by corporations using their own funds or commercial bank loans, and by delegating some functions, such as responsibility for coal mines, to governments [JETRO (1999 ). ) ].

A third major achievement is the separation of the corporate sector from state agencies and the Communist Party organization. To date, government agencies, including military and judicial organizations, have set up companies and engaged in for-profit business activities. In a way, this practice was inevitable given the traditional expectation, dating back to the war against Japan, that the agencies would bear their own costs. This can be acceptable when agencies limit their involvement to normal business activities.

However, there were a number of cases involving behavior that aroused public outrage. For example, some of them were directly involved in smuggling, endangering state revenues or endangering the production activities of companies. Jiang Zemin's government must have come to the conclusion that this problem could not remain unsolved.

Since the second half of 1998, a consensus has emerged within the Chinese leadership that government agencies and the party must withdraw from lucrative business activities. Priority has been given to separating for-profit companies from the military, armed police, courts and prosecutors as part of anti-corruption efforts. These companies were closed or transferred to regional governments and this task was completed on December 15, 1998. Judging by the 1999 "Government Labor Report," it appears that other central-level Communist Party agencies are "continuously cutting theirs." Connections to for-profit companies [Zhu (1999)].

The current reform of administrative organization, which has been positioned as one of the "Three Reforms," ​​is not limited to the State Council. The plan calls for similar changes to be made in peripheral regional governments within three years. There will also be political education programs for high-ranking party officials and district-level government agencies with the aim of curbing dishonesty, abuse of power and other forms of corruption. The following analysis of the reform roadmap mainly focuses on these two areas of regional administrative reform and civic education.

The concrete schedule for regional administrative reform is set out in the 1999 Government Work Report [Zhu (1999)]. The report breaks down the regions into provinces and peripheral units, and sets out action programs for each one. In current measures, "peripheral units" are divided into cities, counties, municipalities and counties.

Provincial-level organizations must formulate their own reform plans and submit them to the central government. The goals of the plans include the restructuring of the departments essentially based on the model of the ministerial structure of the State Council and the basic halving of the workforce.

Once the plans have been reviewed and approved by the central government, the
the organization is committed to implementing the reforms. Judging from the reforms carried out in 1998, the requirement to model the organization mainly on the structure of the State Council and the Economic Control Sector seems to be. For reasons discussed later in this report, the sequential flow of news stories indicates that these plans are being formulated or in the process of being implemented.

The approach used for peripheral entities is similar to that at the provincial level, as the organizations must formulate and implement reform plans along the lines of the central government. However, there is an important difference: instead of the governments of the peripheral entities, the state governments are obliged to inform the central government of the extent of the downsizing after “justifying consideration of the circumstances”. County, township and county-level organizations are also being suggested to postpone the start of administrative reform "to next year to be on the safe side." (From this expression, it can be deduced that before this date, provincial-level and city-level reforms are carried out between the peripheral units).

Political education programs aim to strengthen discipline through education in the “three priorities”. The programs will be conducted according to the following schedule using the method described below [Kojima (1999)].(30)

The teaching materials include the Chinese Communist Party Constitution, the Political Report for the 15th CCP National Congress, and the works of Chinese leaders such as Mao Zedong, Deng Xiaoping, and Jiang Zemin. The Central Committee of the Communist Party and provincial-level or higher-level governments are to complete their educational programs, the study time of which will be about two months, by mid-1999, and the Party and lower-level administrative organs by the end of 1999 1999 The Central Committee of the Communist Party provides staff to monitor and inspect educational programs, and organizations at each level are tasked with submitting written reports to the next higher level (to the city governments in the case of counties and to the central government in the case of counties). case of provinces).

By providing comprehensive political education through these programs, Jiang Zemin's government aims to produce top officials with certain qualities quickly and in large numbers. Desired traits are loyalty to core directives and self-restraint (anti-corruption).

4. Mid-term review and future perspectives for the reform of the administrative organization

(1) Mid-term review of the reform of the administrative organization

Premier Zhu Rongji has made administrative organization reform one of his government's top priorities. Given the progress made so far, to what extent can we expect that the main objectives of the reform will be achieved? Zhu Rongji set a three-year timeframe for the completion of the program, with a final evaluation expected by the conclusion of that period in 2000. An interim evaluation follows.

It seems that the goals related to the functional transformation of governmental organizations have been largely achieved. Most of the ministries that previously exercised direct control over corporate governance were singled out for restructuring. In most cases, their powers, including the power to issue production planning and allocation guidelines for companies, were eliminated or restricted when the organizations were incorporated into the State Economy and Trade Commission. Since these measures have expanded the areas in which corporations (particularly state-owned) and financial institutions can make autonomous managerial decisions, one might conclude that they have also helped to facilitate structural economic reforms.

The process of removing companies from the direct management of the party and government agencies, including the military and judicial organizations, has also brought tangible benefits. These changes accelerated functional change and forced the agencies involved to focus on their core activities.

In addition to the state planning commission, which had enormous powers under the planned economy system, the ministries responsible for tax and financial policy were strengthened in authority and independence. As a result, the government's functional transition from direct control over the management of corporations and other organizations to macro-control of the economy became clearer.

However, the above assessment only relates to the central level, in particular the Council of State. At the regional level, many organizations are still preparing their reform plans and it would be inappropriate to assess the functional transformation at this stage. The only observation that can be made is that had the principles of functional change achieved at the central level been consistently applied at the regional level, the goals of functional change for the party and state agencies would have been largely achieved.

The special audit system is a new way for administrative authorities to control companies. In a way, it violates the principle of the separation of state and business. However, the government has given priority to creating conditions that facilitate the shedding of jobs through the creation of new ones, as is the case with senior positions of deputy ministers and supervisors. For this and other reasons, the government appears to have had no choice at this point.

Further progress has also been made in streamlining the organisation, at least as far as the Council of State is concerned. By assigning responsibility for specific areas to individual government agencies, such as The government appears to have mitigated the negative effects of a situation where "there are too many administrative agencies and too many places producing politics.

However, there are still some areas within the Council of State that need simplification. For example, the Ministry of Foreign Trade and Economic Cooperation should be merged with the State Commission for Economy and Trade, and the Ministry of Railways with the Ministry of Communications. The various research institutes of the State Council also need to be consolidated and streamlined. Simplification at regional level will only start in earnest in the second half of 1999. Therefore, any assessment of the achievement of administrative organizations' simplification goals must be discounted to reflect these factors.

In terms of personnel transformation into high-skilled elites, the State Council achieved a 47.5% job cut. Since the numerical target was to halve the labor force, this target seems to have been met in relation to the Council of State. Unless the various measures taken to support the redundant prove ineffective and lead to a situation where the redundant workers are transferred to non-existent organizations set up for this purpose, it seems more and more likely that the target will be reached within the expected timeframe is reached. Period. However, from a qualitative point of view, considerable difficulties are to be expected in the formation of elites and in reducing the number of workers at the regional level.

(2) Future prospects

The initiative to reform the administrative organization led by Premier Zhu Rongji differs from previous attempts in several respects. For example, the government has explicitly recognized that bloated administrative organizations have become a heavy drain on public finances. In addition, from the outset the program included specific measures to restructure ministries that previously exercised direct control over companies and financial institutions. Because of these and other differences, significant achievements have been made in the first year of the reform and performance levels are expected to continue to rise. Still, it would be overly optimistic to predict that all targets will be fully met in the remaining time. This is because the reform process will be more difficult at regional level and the outcome may affect the overall progress of administrative organization reform.

For example, the State Council had 33,000 employees at the beginning of the reform period, so it has to find new jobs for half of that number, ie 16,500. However, to halve the number of workers at the regional level of eight million people, four million people will need new jobs.(31) It may not be possible for the current re-employment policies to be implemented to accommodate the number of people wear that will be affected by the restructuring. The restructured people outside the State Council have powers and connections with many important people. A lot of value is placed on these qualities and there have been reports of a flood of job offers. On the other hand, there is a consensus that the restructured from regional administrative organizations often lack skills and connections. The task of finding new jobs for these people is likely to be difficult.

Of course, it is possible that the magnitude of the downsizing is moderated at the regional level to reflect regional conditions, such as the lack of non-governmental employers capable of providing large numbers of jobs [Zhu (1999)] . However, if the goal of reducing the total number of employees in regional organizations by about 50% cannot be achieved, it will be seen as a failure of Premier Zhu Rongji's reform of administrative organization. Such a result would likely damage the reputation of Zhu Rongji and Jiang Zemin's leadership as a whole. What is happening at the regional level does not always go according to the will of the central government, because "for every policy at the top there is a countermeasure at the bottom". Therefore, it will be necessary to closely monitor the progress of the reform of the administrative organization in the regions, especially since the result can be an indicator of the influence of the central government on the regions.

An important difference from the second half of the 1980s, when "political regime reform" was widely discussed, is that the program of administrative organization reform led by Prime Minister Zhu Rongji does not aim to change the relationship between government and government . party, or separate the party from the government. The leadership under Jiang Zemin has made political stability its top priority, and the government appears to be trying to avoid any move with even the slightest potential to spark political unrest by undermining the leadership of the Communist Party, which is a key element of the Government in China is China. .

However, as the analysis in IV.2 shows, some problems remain unresolved. Restored party groups can lead to problems such as the party's mingling with government affairs and reduced efficiency when the party handles delegated government affairs. The administration made significant progress in clarifying areas of responsibility between ministries and State Council commissions, but not between party groups and administrative organizations.

In this environment, if the government seeks simplification, redundant party control structures within administrative organizations may quickly emerge as targets for restructuring. Moreover, the simplification of the administrative organization was identified as an essential measure to "enhance the Party's energy" in the "Government Work Report" submitted to the 15th CPC National Congress [Jiang (1997)].

Within the leadership there may be disagreements between those who believe that simplification must be carried out to preserve Communist Party leadership and those who want the current systems to remain in place. When that happens, the reform process will stall until consensus is reached.

It is also possible that the party-government relationship may need to be fundamentally changed in order to achieve the goal of transforming the bureaucracy into a highly skilled elite.

If the current "Three Priorities" program is effective in the short term and leads to a decrease in corruption cases, there may not be a need to face this difficult situation. However, corruption is widespread and numerous cases of bribery have been uncovered even among prosecutors whose job it is to enforce anti-corruption rules. Education alone is not likely to bring about a quick improvement in this situation.

Of course, the government is improving the legal system and strengthening the judicial system. Although the Communist Party must "act within the law and the constitution," its role also includes "leading the people and determining the constitution and the law" [Jiang (1997)]. In other words, the Communist Party is able to stand above the law. The Communist Party continues to influence the courts and judicial authorities. There is no outside organization that can adequately monitor or review the behavior of the Communist Party.

As a result, if the Communist Party cannot regulate its own behavior, it will not be able to control corruption. Furthermore, since the government administration is integrated into the Communist Party, this situation will limit the extent to which the bureaucracy can transform itself into a highly skilled elite. If public opinion begins to adopt this point of view, the people will come to the conclusion that the reform of the administrative organization has failed. That could lead to an outbreak of mass demonstrations across China demanding the resignation of Jiang Zemin's leadership and an end to the Communist Party's one-party dictatorship.

This is the worst case. However, Jiang Zemin's leadership wishes to avoid such an outcome and may draw on the party-government divide of the late 1980s to create a structure in which "the party polices itself." [Zhu (1987))] .

Achieving consensus within the leadership on such an approach would take time and risk stalling the reform process.

For those who need to base investment decisions in China or assessments of structural economic reforms on the prospects for reform of the administrative organization, it will be necessary to consider the manner in which the leadership of the Communist Party and the relations between the party and government can be changed through the simplification of organizations and the creation of highly skilled elites, which are the main goals of administrative organization reform.

Closing remarks

(Video) MEDLEY (HQ) Pavarotti - Domingo - Carreras / The Three Tenors

  1. People's Daily, March 20, 1998.
  2. People's Daily, September 13, 1997.
  3. People's Daily, October 13, 1997.
  4. Zeitschrift Liaowang, 13. Juli 1998; y Diário do Povo, 19. März 1999.
  5. China Textile Industry Association, China Textile News, June 19, 1998.
  6. Speech by Mr. Zheng Silin, Deputy Minister of the State Economic and Trade Commission, reported in People's Daily, March 2, 1999.
  7. ibid.
  8. People's Daily, March 19, 1999.
  9. People's Daily, 2. und 19. März 1999.
  10. Zeng Peiyan, "Report on the Implementation of the National Economic and Social Development Plan for the 1998 Fiscal Year and the Draft National Economic and Social Development Plan for the 1999 Fiscal Year" (March 6, 1999, at the 2nd Session of the 9th National Popular Congress) .
  11. Diário do Povo, 29. December 1998 and 9. January 1999.
  12. For details on Premier Zhu Rongji's Government Work Report, see People's Daily, March 18, 1999.
  13. State Bureau of Statistics, Statistical Report of the People's Republic of China on National Economic and Social Development, 1998, 1999.
  14. For information on Prime Minister Zhu Rongji's statement, see JETRO (1999), p. 72.
  15. Watch speeches by Wu Bangguo (vice premier) and Shi Wanpeng (director of China Textile Industry Association) at a national textile industry restructuring conference; and Du Yuzhou (1994).
  16. For a discussion of the inefficiency of Chinese SOEs see Jia (1997), (1998) and (1999).
  17. People's Daily, March 12, 1999.
  18. People's Daily, January 13, 1999.
  19. According to the old loan classification, the total non-performing loans was 1.7 trillion renminbi, or about 25% of the total loans.
  20. People's Daily, January 28, 1999.
  21. Communication from China, May 14, 1999.
  22. People's Bank of China, China Financial Perspective 1998, p. 30
  23. People's Daily, January 1, 1999.
  24. The concept of including Shanghai, Jiangsu and Zhejiang in the Shanghai branch was initially favoured. However, the Nanjing branch was set up in Jiangsu Province (to cover Jiangsu and Anhui).
  25. The government and the Communist Party merged at various levels, including the members that make up their organizations. Therefore, the term “administrative organization reform” used in this work includes not only administrative organs and the people involved in their activities, but also state organs and personnel, namely the courts, the public ministry, the army, and the Chinese Communist Party.
  26. In the second half of the 1980s there was an intense debate about "political reforms of the regime". Some people called for political reforms, not just as a complement to economic reforms, but as a broader process that would also include the separation of the three arms of government and the abolition of the Communist Party's one-party dictatorship. Open discussion of such issues is said to have ended with the 1989 Tiananmen Square Incident. For this reason, in this paper the period of "political regime reforms" is defined as having ended at this point.
  27. In fact, the 1998 Government Work Report was presented by then Premier Li Peng. However, the content of the report appears to have been significantly influenced by the views of then-Vice Premier Zhu Rongji, who had already been elected as the next prime minister. For this reason it was included in this review.
  28. Totals are only displayed in the China Statistical Yearbook.
  29. Liaowang is a weekly magazine with general content, including analysis and commentary on current events. He has a reputation for receiving frequent contributions and comments from the Communist Party, heads of state and their advisers.
  30. The “three priorities” are learning, politics and ethical conduct. This approach was proposed by Secretary-General Jiang Zemin in 1998 and is now being implemented on an experimental basis.
  31. This number also includes employees employed by Communist Party agencies. However, it was decided to use this figure because the expenses of the communist party agencies are covered by the state budget [Tang (1997), p.57] and because no other suitable data could be found.
  1. State Bureau of Statistics, China Statistical Yearbook, China Statistics
    Editorial, 1998.
  2. State Bureau of Statistics, China Statistical Survey, China Statistical Publishing House, 1998 und 1999.
  3. State Bureau of Statistics, Statistical Report of the People's Republic of China on National Economic and Social Development 1998, 26. Februar 1999.
  4. Financial Yearbook Editorial Board, Ministry of Finance of China, China Financial Yearbook, 1998.
  5. Speech by Zheng Silin, Vice Minister of the State Economic and Trade Commission (in People's Daily, March 2, 1999).
  6. Zeng Peiyan, "Report on the Implementation of the National Economic and Social Development Plan for Fiscal Year 1998 and the Draft National Economic and Social Development Plan for Fiscal 1999" [in Chugoku Tsushin (China Daily News), Chugoku Tsushinsha, 23. 1999].
  7. Speech by Wu Bangguo, vice premier, at a national conference on restructuring the textile industry (China Textile Industry Association, China Textile News, December 30, 1997).
  8. Speech by Shi Wanpeng, director of China Textile Industry Association, at a national conference on textile industry restructuring (in China Textile Industry Association, China Textile News, December 30, 1997).
  9. Du Yuzhou, „How to Reform – Textile Industry Thinking Escapes Heartbreak“, in Economic Management, 4. Quartal, 1994.
  10. JETRO, Chugoku Keizai (China Economics), April 1999.
  11. Jia Baobo, ``Chugoku Kokuyu Kigyo Minei-ka no Mosaku'', von der World Economy Research Association, Sekai Keizai Hyoron (World Economic Review), December 1997.
  12. Jia Baobo, "Inefficiencies in Chinese State-owned Enterprises and Modernization Policies," in Dong Ying Qusuo (Japanese Studies), No. 9, 1998.
  13. Jia Baobo, „Mergers and Acquisitions of SOEs by Foreign Capital“, in Dong Ying Qusuo (Japan Studies), Nr. 10, 1999.
  14. People's Bank of China, Loan Risk Rating Principle, 1998.
  15. People's Bank of China, China Financial Perspective for 1998, 1998.
  16. Deng Xiaoping, „Reforming Leadership Systems in the Party and State“ (Rede), 1980.
  17. Hama, Katsuhiko, ``Chugoku Gyosei Kiko Kaikaku no Seika to Kongo no Tenkai'' (Progreso y perspectiva de la reforma de la organización administrativa de China), in Japan-China Association, Nicchu Keikyo Journal (JCA Journal), Mai 1999.
  18. JETRO, ``Shu Yoki Seifu no Mittsu no Kansei no 98nen no Shinten (2)'' (Progresso em 1998 das Três Reformas pelo Governo de Zhu Rongji (2)), em JETRO, Chugoku Keizai (Economia Chinesa), Mai 1999.
  19. Li Peng, Government Work Report, 1998. [Japanese translation in JETRO, Chugoku Keizai (Chinese Economics), June 1998.]
  20. Li Yongchun, Hrsg., Moves of Reforms of Regime after the Third Plenar Session of the 11th Central Committee CCP, Chungu Press, 1987.
  21. Luo Gan, "Explanation of the State Council Restructuring Plan" (speech), 1998. [Japanese translation in Chugoku Tsushin (China Daily News), March 12, 1998.]
  22. Jiang Zemin, "Let's Promote the Building of Socialism with Chinese Characteristics in the 21st Century Under the Grand Slogan of Deng Xiaoping Theory" (Political Report to the 15th CPC National Congress), 1997. [Japanese translation in Chugoku Tsushin (China Daily) News ), September 25, 1997.]
  23. Radio Press, Junkan Chugoku Naigai Doko (China Quarterly), 10. April 1998, 31. Mai 1998, 30. April 1999.
  24. Kojima, Tomoyuki, Kiro ni Tatsu Chugoku (China em pé na encruzilhada), Ashi Shobo, 1990.
  25. Kojima, Tomoyuki, "¿Arata na Seifu Kosaku ga Hajimaru?" (¿Comenzará un nuevo movimiento de rectificación?), Toua (Asia Oriental), Kazankai, Mai 1999.
  26. Kokubun, Ryosei, Chugoku Seiji to Minshu-ka (Politica e Democratização na China), Simul Press, 1992.
  27. Pekin Shuho (Beijing Review), Pekin Shuhosha, 7. April 1998 und 26. Mai 1998.
  28. Liaowang (PERSPECTIVE), Outlook Weekly, March 12, 1998; Dec 7, 1998;
    and December 28, 1998.
  29. Shen Caibin, Tsushi to Theme de Yomitoku Chugoku Keizai Tokuhon (Entendiendo a economía china a partir de su historia y themes), Aki Shobo, 1999.
  30. Takahara, Akio, ``Chugoku Shu Yoki Kaikaku 2-nenme no Kadai'' (Edições do segundo ano para as reformas de Zhu Rongji), in Toua (Ásia Oriental), Kazankai, Juni 1999.
  31. Tang Liang, Gendai Chugoku no Tosei Kankei (The Relation between Party and Government in Contemporary China), Keio University Press, 1997.
  32. Zhao Ziyang, "Let's Continue Along the Line of Socialism with Chinese Characteristics" (Political Report to the 13th National Congress of the CCP), 1987. [Japanese translation in Chugoku Soran 1988nen-ban (China Survey 1988), Kazankai, 1988.]
  33. Zhu Rongji, "Report on Government Work", 1999. [Japanese translation in Pekin Shuho (Beijing Review), Pekin Shuhosha, April 6, 1999.]

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Why did China's economic reforms succeed? ›

The characteristics of the reform process contributing to its success are the strong support of the population and government officials, the absence of a blueprint to begin with, the extensive use of experiments, the pragmatic attitude of the reformers, the stability of the political system and the attempt to maintain ...

What were the reforms introduced in China? ›

In some ways, China's reforms were fairly mainstream. The country opened up for trade and foreign investment, liberalized prices, diversified ownership, strengthened property rights, kept inflation under control, and maintained high savings and investment.

What types of economic reforms had China made? ›

Throughout the reform period, the government reduced tariffs and other trade barriers, with the overall tariff rate falling from 56% to 15%. By 2001, less than 40% of imports were subject to tariffs and only 9 percent of import were subject to licensing and import quotas.

What was a result of Deng Xiaoping's reforms? ›

The reforms carried out by Deng and his allies gradually led China away from a planned economy and Maoist ideologies, opened it up to foreign investments and technology, and introduced its vast labor force to the global market, thus turning China into one of the world's fastest-growing economies.

What steps has China taken to improve economy? ›

In 1978, China adopted the 'Open Door' policy in its economy. 2.In 2001 China became a member of the World Trade Organisation and opened her economy to other countries of the world.

What were the three reasons for rise of Chinese economy? ›

Factors responsible for its rising economy are as follows:
  • (i) Use of Soviet Model:
  • China accepted the Soviet model and depended on its resources. ...
  • (ii) Development of Industrial Economy:
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  • (iii) Relation with the United States of America:

When was reforms introduced in China? ›

The reform and open-door policy of China began with the adoption of a new economic development strategy at the Third Plenary Session of the 11th Central Committee of the Chinese Communist Party (CCPCC) in late 1978.

How did reformers try to solve China's problems? ›

Q: How did reformers try to solve China's internal problems? They tried to modernize, incorporate Western technology, build industry, and streamline government.

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These reforms can be categorised as liberalisation, privatisation and globalisation.

What are the three components of new economic reforms? ›

Elements of the New Economic Policy. The three fundamental components or elements of current economic policy are liberalization, privatization, and globalization.

How many types of economic reforms are there? ›

The essential features of the economic reforms are – Liberalisation, Privatisation, and Globalisation, commonly known as LPG.

When did China reform its economy? ›

Since China began to open up and reform its economy in 1978, GDP growth has averaged over 9 percent a year, and more than 800 million people have lifted themselves out of poverty. There have also been significant improvements in access to health, education, and other services over the same period.

What reforms did Mao Zedong make? ›

CCP Chairman Mao Zedong launched the campaign to reconstruct the country from an agrarian economy into a communist society through the formation of people's communes. Mao decreed that efforts to multiply grain yields and bring industry to the countryside should be increased.

What did Deng Xiaoping do to modernize China? ›

The Four Modernizations (simplified Chinese: 四个现代化; traditional Chinese: 四個現代化) were goals first set forth by Deng Xiaoping to strengthen the fields of agriculture, industry, defense, and science and technology in China.

What were the results of Deng Xiaoping's changes quizlet? ›

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What are the 4 most important strategies for economic growth in China's project? ›

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What changes led to economic growth in China? ›

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In which three ways did the New economic Policy of China benefit its economy? ›

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What are 3 features of the economy of ancient China? ›

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What are the four factors responsible for the rise of the Chinese economy? ›

(i) Remarkable rise in agricultural production and rural income. (ii) Growth in rural industry. (iii) Rise in foreign trade. (iv) Large foreign exchange reserves.

What were the two major policy decisions taken by the Chinese leadership in the 1970s? ›

Major decisions taken by China in 1970: (i) China ended its political and economic isolation with the establishment relations with the USA in 1972. (ii) Premier Zhou Enlai proposed the four Modernizations - Agriculture, Industry, Science and Technology and Military in 1973.

When were the reforms introduced in all three countries? ›

Reforms in India were introduced in 1991, in China in 1978 and in Pakistan in 1988.

What was the impact of reform and opening up on China? ›

Since the launch of reform and opening-up, China's GDP has grown from 367.9 billion yuan in 1978 to 114 trillion yuan in 2021, making China the world's second-largest economy, largest manufacturer and trader of goods. Its per capita income has grown from 171 yuan in 1978 to 35,128 yuan in 2021.

What achievements have been made of China's 40 years reform and opening up? ›

Free compulsory education has been implemented in urban and rural areas. The gross enrollment ratio of secondary and higher education has reached 88.3% and 45.7% respectively. More than 700 million Chinese have been lifted out of poverty, accounting for over 70 percent of global poverty reduction during that period.

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What did the social reformers try to achieve? ›

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What did reformers want? As the 1900s opened, reformers pushed for a number of changes. Together their efforts built the progressive movement. The progressive movement had four major goals: (1) to protect social welfare, (2) to promote moral improvement, (3) to create economic reform, and (4) to foster efficiency.

What are the different types of reforms? ›

See also
  • Catalytic reforming.
  • Education reform.
  • Electoral reform.
  • Land reform.
  • Microeconomic reform.
  • Monetary reform.
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  • Reform (Religion)

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Reforms on many issues — temperance, abolition, prison reform, women's rights, missionary work in the West — fomented groups dedicated to social improvements. Often these efforts had their roots in Protestant churches.

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The ratio of total goods and services trade to GDP increased from 17.2 percent to 30.6 percent in ten years. Increased competition in areas such as banking has resulted in more customer choice and increased efficiency as a result of reforms. It has also resulted in a rise in private sector investment and growth.

What are the 3 main stages of an economic process? ›

Stages of Economic Growth and Economic Development

Still, most development economists agree that the key stages of development are related to three different transitions: a) a structural transformation of the economy, b) a demographic transition, and c) a process of urbanization.

What were the 3 key economic systems? ›

There are three main types of economic systems: command, market, and mixed. We will briefly describe each of these three types.

What are 3 main components of an economy? ›

The three-sector model in economics divides economies into three sectors of activity: extraction of raw materials (primary), manufacturing (secondary), and service industries which exist to facilitate the transport, distribution and sale of goods produced in the secondary sector (tertiary).

What were three types of reform movements? ›

The three main nineteenth century social reform movements – abolition, temperance, and women's rights – were linked together and shared many of the same leaders.

What are 5 progressive reforms? ›

The leaders of the Progressive Era worked on a range of overlapping issues that characterized the time, including labor rights, women's suffrage, economic reform, environmental protections, and the welfare of the poor, including poor immigrants.

What were the main progressive reforms? ›

The Sixteenth Amendment established a federal income tax, the Seventeenth Amendment allowed for the direct election of Senators, the Eighteenth Amendment prohibited sales of alcohol, and the Nineteenth Amendment guaranteed women the right to vote.

What was the reform movement in China? ›

The Hundred Days' Reform or Wuxu Reform (traditional Chinese: 戊戌變法; simplified Chinese: 戊戌变法; pinyin: Wùxū Biànfǎ; lit. 'Reform of the Wuxu year') was a failed 103-day national, cultural, political, and educational reform movement that occurred from 11 June to 22 September 1898 during the late Qing dynasty.

What kind of reforms is Xiaoping known for in China? ›

The reforms carried out by Deng and his allies gradually led China away from a planned economy and Maoist ideologies, opened it up to foreign investments and technology, and introduced its vast labor force to the global market, thus turning China into one of the world's fastest-growing economies.

What are the social reforms of China? ›

Transforming China into a communist society required a massive upheaval and restructuring of established value systems and hierarchies. To achieve this, the Chinese Communist Party (CCP) introduced several sweeping social reforms that affected marriage, gender equality, education, literacy and religion.

What did Mao Zedong do to change China? ›

Mao has been praised for transforming China from a semi-colony to a leading world power, with greatly advanced literacy, women's rights, basic healthcare, primary education and life expectancy.

Who changed China's economy? ›

Guided by Deng Xiaoping, who is often credited as the "General Architect", the reforms were launched by reformists within the ruling Chinese Communist Party (CCP) on December 18, 1978, during the "Boluan Fanzheng" period.

Why did China introduce structural reforms in 1978? ›

(g) China had success when it enforced one-child norm in 1979. The low population growth of China can be attributed to this one factor. Thus, China's structural reforms introduced in 1978 in a phased manner offer various lessons from its success story. Question 13.

What was the result of the reforms instituted under the leadership of Deng Xiaoping? ›

As the most powerful figure in the People's Republic of China from the late 1970s to the late 1990s, Deng Xiaoping spearheaded changes in China that led to a rapidly growing economy, rising standards of living, and growing ties to the world economy, and also considerably expanded personal and cultural freedoms.

What are some of the reasons behind the successful performance of China as a leading economy of the world? ›

A key feature of China's economic development strategy was the building of market relations under the leadership of the Communist Party on the basis of five-year plans, almost like in the Soviet Union during its heyday.

What are the reasons for rapid growth of economic development in China? ›

The following are the various factors that led to the rapid growth in the economic development in China:
  • In the initial phase, reforms were initiated in agriculture, foreign trade and investment sectors. ...
  • In the later phase, reforms were initiated in the industrial sector. ...
  • The dual pricing were implemented.

How has China become so economically powerful? ›

China grew from being an emerging consumer market into a powerful and influential economy in recent years. With strategic long-term targets designed to modernize its economy and society, it has transformed its economy into one with high-tech industry and become a nation with global influence.

What are the main reasons for economic reforms? ›

The following are the reasons for economic reforms:
  • (i) Rise in Prices:
  • (ii) Rise in Fiscal Deficit:
  • (iii) Increase in Adverse Balance of Payments:
  • (iv) Iraq War:
  • (v) Dismal Performance of PSU's (Public Sector Undertakings):
  • (vi) Fall in Foreign Exchange Reserves:

Why has China been so successful in its economic development over the last three decades? ›

Causes of China's Economic Growth

Economic reforms led to higher efficiency in the economy, which boosted output and increased resources for additional investment in the economy. China has historically maintained a high rate of savings.

What are some major successes of China's economy? ›

Since China began to open up and reform its economy in 1978, GDP growth has averaged over 9 percent a year, and more than 800 million people have lifted themselves out of poverty. There have also been significant improvements in access to health, education, and other services over the same period.

How does the US benefit from China's rapid economic growth? ›

It supports US jobs.

While expanding foreign trade can disrupt US employment, trade with China also creates and supports a significant number of American jobs. Exports to China support over 1 million US jobs, and Chinese companies invested in the United States employ over 160,000 workers.

What challenges does the US economy face due to China's economic rise? ›

Some claim that China uses unfair trade practices (such as an undervalued currency and subsidies given to domestic producers) to flood U.S. markets with low-cost goods, and that such practices threaten American jobs, wages, and living standards.

What is China's current economic situation? ›

It has the world's second largest economy by nominal GDP, totaling around US $18.321 trillion in 2022, and the world's largest economy since 2016 when measured by purchasing power parity (PPP). China accounted for 18.6% of global economy in 2022 in PPP terms, and around 18% in nominal terms in 2022.

Is China's economy successful? ›

After an uneven growth performance this year, China's economy is projected to recover in 2023. Activity in China has followed the ups and downs of the pandemic—outbreaks and economic slowdowns have been followed by uneven recoveries.

What controls most of China's economy? ›

Manufacturing, services and agriculture are the largest sectors of the Chinese economy – employing the majority of the population and making the largest contributions to GDP. Since 1949, the Chinese Government has been responsible for planning and managing the national economy.

What are the three economic reforms? ›

These reforms can be categorised as liberalisation, privatisation and globalisation.

What are the three pillars of economic reforms? ›

The new Economic Reforms are related to the neo-liberal policies taken by the Indian Government that was introduced in 1991. The three main pillars on which the reform rested were - Liberalization, Globalisation, and Privatization.


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