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Between October 1976 and late 1978 the Chinese socialist path to
development was stopped and then dismantled by the counter-revolutionary
members of the Communist Party who staged a coup-d'etat in late 1976
to reverse the revolutionary process evolving since 1950. This
coup d'etat was the last battle in a civil war started in 1966, when the
new communist ruling class in China was challenged by part of the
industrial workers, students and peasants and a section of the Central
Committee of the Chinese Communist Party. Leaders of the new ruling
class were Liu Shao-chi (then president of China), Chou En-lai (then
Prime Minister of China), and Deng Xiaoping (then second in command
in the political bureau). Between 1966 and 1976 this civil war was
known as the "cultural revolution".

(For this period see
  R. Rojas, La Guardia Roja Conquista China, Ediciones ML, 1968, and
  R. Rojas, China: una revolucion en agonia, Martinez Roca, 1978)

The Chinese socialist revolution started in October 1949, after a
22 year civil war, had to main foundations: in the countryside
the people's communes, and in the cities the "complete unit of
production". Both organizations were in charge not only of the
production of goods, but also the welfare of the workers/peasants and
their families (health, education, housing, pensions, etc).

In 1978, the counter-revolutionary government dismantled the people's
communes, bringing forms of private property of land, and creating
conditions for a boom in production and a catastrophe in social life
(R. Rojas: The other side of China's miracle: unemployment/inequality)

That was the first step in the instauration of "savage-guided capitalism"
in China, by which the high ranks members of the former Communist party
became the "new extrepreneurial" class, and the main supply of wealthy
people doing business with transnational corporations, producing
extraordinary rates of economic growth and dramatic levels of poverty
in their own population.

TABLE 1 illustrate the economic miracle:
TABLE 1: Gross Domestic Product (average annual growth)
                                                        GDP in 1995
                    1950-1978  1980-1990  1990-1995     (US$ million)
United Kingdom         2.70       3.20        1.40       1,105,822
United States          3.42       3.00        2.60       6,952,020
France                 4.95       2.40        1.00       1,536,089
Germany                5.50       2.20         ..        2,415,764
South Korea            6.86       9.40        7.20         455,476
Brazil                 6.83       2.70        2.70         688,085
Japan                  7.73       4.00        1.00       5,108,540
USSR                   6.17       1.90*      -9.80*        344,711*
China                  6.89      10.20       12.80         697,647
* Only Russia
Source: World Bank Tables and World Development Report 1997

The reform process consists of six main components:
1)   The introduction of private farming under the "household 
     responsibility" system.            
2)   Encouraging private business
3)   Restructuring public eneterprises
4)   Promoting foreign trade
5)   Policies to stimulate external financing
6)   decentralizing administration to the provincial and local


1.- Old centrally planned economic system:
     the government has OWNERSHIP and MANAGEMENT rights to 
     state-owned enterprises

     the government was in charge of:
          1 - planning
          2 - what to produce
          3 - allocation of manufactured products
          4 - prices
          5 - profits were remitted to the government
          6 - losses were subsidized by the government

2.- SINCE 1978, reforms designated to:
(main: delegation of power and concession of profits to
          1 - separate government administration from enterprise
          2 - gaining expanded decision-making power
          3 - altering management methods

problems:   - unclear enterprise property rights relationships, 
            - irrational organizational structures
            - unscientific management systems

Beijing Review, February 28 - March 6, 1994
3.- SINCE 1994, the need for "a modern enterprise system"
main tenets:
          a) China will draw on the "useful experiences" of    
             modern enterprise systems in developed countries
          b) the modern enterprise system is the secret of the 
             development of a market economy and socialized mass
          c) China must explore alternatives for combining 

     1)  clear property rights relationships: investmens made "by 
         various contributions, including the state" (meaning  
         state, chinese private and FDI)

     2) "Having obtained CORPORATE PROPERTY RIGHTS, the        
         enterprise will act in compliance with market demands":

         -  independent management
         -  sole responsibility for PROFITS and LOSSES
         -  pay taxes according to laws and regulations
         -  assume responsibility for preserving and increasing 
            the value of the assets of investors

     3)  "In accordance with the amount of capital investment in 
          an enterprise, THE INVESTOR ENJOYS certain rights:  

         1) the right to earn profits from assets legally due as 
         2) to participate in making major decisions
         3) to choose managers
         4) investors are prohibited from directly interfering 
            in the enterprise's PRODUCTION and MANAGEMENT   
         5) when an enterprise declares bankcruptcy, the investor 
            assumes limited liability for the enterprise's debts 
            in line with the amount of capiyal invested.       
4) China's modern enterprises will be based on PUBLIC          
   ownerships and common development will be allowed for       
   diverse economic entities, such as the:
                                          private, and
                                          foreign sectors

"There will be increasing numbers of economic unit with MIXED  

"Property owned by the state and colectivities will continue  
to make up a dominant portion of total assets in society".

"There will be a variety of organizational forms in China's
modern enterprises in accordance with the composition of

"with regard to the KEY ENTERPRISES in PILLAR  and BASIC
industries, the STATE will hold shares and attempt to attract
NON-GOVERNMENTAL investors to buy shares in order to expand the
leading role and scope of influence of state-owned economic

"...ordinary small state-owned enterprises, some will introduce
contract in leasing management, while others will be transformed
into units under a leasing cooperative system, and still others
will be sold to the collectives or individuals"

" - the party organization will continue to play its role as the
political nucleus".

By the time of the above publication, the China Statistical Yearbook
gave the following figures:
Provincial Gross Value of Industrial Output by ownership system, 1994
                       (percentage of provincial GVIO)
Province          State   Collective  Private   Foreign-funded
                  sector    sector*    sector       sector
All provinces      34.1     40.9        11.5        13.6

Some provinces:
Heilognjiang       69.3     17.4         6.2         7.2
Jiangsu            20.0     63.0         5.0        12.0
Guangxi            42.9     26.4        22.1         8.5
Guangdong          21.7     33.4         7.3        37.7
Hainan             49.7     13.3        10.3        26.1
Zhejiang           16.1     56.4        17.7         9.9
Shanxi             43.7     36.5        17.3         2.5  
source: China Statistical Yearbook 1995, derived from Table 12-6
* Collective sector refers to cooperatives

The other main foundation for the Chinese "guided capitalism" has
been two-fold:
      -export-led  growth 
      -transnational corporations export-led growth

Between 1980 and 1995, Chinese trade increased from 13 per cent of
GDP to 40 percent of GDP (trade is measured adding the value of
exports plus imports).

By 1996, China was the main destination of foreign investment in the
developing world. World Investment Report 1997 gives the following
                              (million dollars)
                 average) 1991   1992   1993   1994   1995   1996

   countries    116744   114792 119692 138762 142395 205876 208226
   countries     24736    41696  49625  73045  90462  96330 128741
 of which:
     China        2654     4366  11156  27515  33787  35849  42300

Because of the large presence of foreign capital, some negative patterns
appeared on China's Balance of Payments, driven by the fact that
transnational corporations tend to import more than what they export
in order to maximize profits trough a sistem called "transfer pricing".


                               Exporting               Importing
                                      Share of                Share of
                                       exports                 imports
Type of firm                Number    (percent)       Number  (percent)
Foreign Trade Corporations   9,400    53              8,700    44
State-owned enterprises      7,800    17              3,600     8
Joint ventures*             30,000    19             64,800    34
Foreign-owned firms*         9,730     9             23,239    12
Collective and private firms 1,060     1              1,828     1
Other                          520     0.2            5,378     1
TOTAL                       58,500   100            107,513   100
Note: some numbers may not add because of rounding
  * : foreign direct investments are in this type of firms, and
      the figures tell that they contribute to 28% of exports and
      46% of imports.
Source: International Trade Centre, "Survey of China's Foreign Trade:
        An Analysis of China's Export and Import data ate the
        Enterprise Level", Geneva, 1995

Also, the role of foreign investment as a component of gross fixed
capital formation is very high, which could lead to instances of

                        1985-1990   1991 1992 1993 1994 1995
Region/economy        (annual avg.)
Developed countries       5.5        3.2  3.2  3.7  3.5  4.4
 of which:
  Ireland                23.1       14.1 18.0 15.9 11.9 24.0
  United Kingdom         13.7        9.4  9.8 11.0  6.8 13.2
  United States           5.3        3.1  2.4  4.9  4.8  5.9
  Japan                   0.2        0.2  0.2   -   0.1   -

Developing countries      8.0        4.4  5.1  6.6  8.0  8.2
 of which:
  China                  14.5        3.3  7.8 20.0 24.5 25.7
  Singapore              59.3       33.6 12.4 23.0 23.0 24.6
  Korea                   1.9        1.0  0.6  0.5  0.6  1.1
  Taiwan                  5.1        3.1  1.8  1.8  2.5  2.7
  Hong Kong              12.2        2.3  7.7  7.1  8.2  8.4
  Mexico                 16.9        8.5  6.4  6.0 14.3 17.1
  Brazil                  3.1        1.4  3.0  1.3  3.0  4.7
  Ghana                  17.8        2.3  2.5  9.4 22.6 22.2
  Nigeria                34.9       19.8 26.3 36.5 50.5 50.0
source: World Investment Report 1997, UNTC, United Nations, 1997

The following set of tables gives a picture of changins patterns in
the structure of the economy:
                          OF GDP     LABOUR FORCE   PRODUCTIVITY*
                       1980    1995  1980    1990   1980   1990/95
United Kingdom           2       2     3       2    0.67    1.00
United States            3       2     3       3    1.00    0.67
France                   4       2     8       5    0.50    0.40
Germany                  -       -     7       4     -        -
South Korea             15       7    37      18    0.41    0.49
Brazil                  11      14    37      23    0.30    0.61
Japan                    4       2    11       7    0.36    0.29
Russia                   -       7    16      14     -      0.50
China                   30      21    76      74    0.39    0.28
* Index of productivity is obtained dividing share in GDP by share
  in labour force, which is compared with 1.00 which is the average
  for the whole economy. The figures allow us to have an indicator
  of relative levels of technology being utilized, etc (R.R.)

                          OF GDP     LABOUR FORCE   PRODUCTIVITY*
                       1980    1995  1980    1990   1980   1990/95
United Kingdom          43      32    38      29    1.13    1.10
United States           34      26    31      28    1.10    0.93
France                  34      27    35      29    0.97    0.93
Germany                  -       -    45      38     -        -
South Korea             40      43    27      35    1.48    1.23
Brazil                  44      37    24      23    1.83    1.61
Japan                   42      38    35      34    1.20    1.12
Russia                   -      38    44      42     -      0.90
China                   49      48    14      15    3.50    3.20
* Index of productivity is obtained dividing share in GDP by share
  in labour force, which is compared with 1.00 which is the average
  for the whole economy. The figures allow us to have an indicator
  of relative levels of technology being utilized, etc (R.R.)
                     URBAN INDEX OF PRODUCTIVITY
                     RURAL INDEX OF PRODUCTIVITY
                      1980          1995
United Kingdom        1.69          1.10
United States         1.10          1.39
France                2.20          2.33
Germany                -             -
South Korea           3.61          3.15
Brazil                6.10          2.64
Japan                 3.33          3.86
Russia                 -            1.80
China                 8.97         11.43
source: World Development Report 1997, World Bank, 1997

The last set of data illustrates the dramatic dimension of urban-rural
bias in China, and how "guided capitalism" is creating a very unequal
society (see BOX 1 for the opinion of the World Bank on this)

                         Total            Average annual
                       (millions)           growth rate
                    1980        1995     1980-90  1990-95
United Kingdom       27          29        0.6       0.3
United States       110         133        1.4       1.1
France               24          26        0.4       0.8
Germany              37          40        0.6       0.3
South Korea          16          22        2.3       1.9
Brazil               48          71        3.2       1.6
Japan                57          66        1.1       0.6
Russia               76          77        0.2       0.0
China               539         709        2.2       1.1
                    (US$ million)
                       1980     1995
South Korea           11,992   54,500
Brazil                71,520  159,130
Russia                 -      120,461
China                  4,504  118,090
source: World Development Report 1997, World Bank, 1997

About environmental damage see BOX 2

     -unemployment (reaching more than 200 million workers by the
                    year 2000)
     -the disintegration of the social fabric in urban and rural
      social groups (prostitution and banditry)
     -environmental destruction (ideological and physical pollution)
     -the role of transnational corporations on the social effects

The World Bank point of view:                                BOX 1


HONG KONG September 22, 1997-While inequality may continue to rise
as China makes its transition to a mature market economy, economic
growth and social harmony can be sustained, provided the government
maintains equity in access to social services, enhances labor mobility,
and creates programs to protect the poor and vulnerable, according to a
new World Bank report,

Disparities in China: Sharing Rising Incomes, released today.
China's impressive growth since 1978 has raised 200 million people out
of poverty. But despite China's stunning growth over the past two decades,
some 270 million Chinese, about one-fifth of the world's poor, live on
less than a dollar a day. And income inequality-between rural and city
dwellers, the coast and inland areas, and now between men and women-is
increasing with growth.

The report attributes the rural/urban disparities to the failure of
rural income growth to keep pace with the increase in urban incomes,
while publicly provided services-housing, pensions, health, and 
education-have augmented urban incomes by about 80 percent on average.

This large gap results from imperfect mobility in factor markets,
especially for labor. Despite increasing out-migration, continuing
impediments to mobility reflect the government's desire to control
the pace of migration and ensure grain self-sufficiency.

The absence of a housing market and limited access to social services
in urban areas pose additional constraints to labor mobility.

Widening regional disparities between coastal and inland areas are
linked to coastal areas' greater access to world markets, better 
infrastructure and educated labor force, as well as government's
preferential treatment which has stimulated foreign investment. Perhaps
the greatest damper on growth of all, the report finds, is unequal
access to opportunities to improve income and welfare, resulting in
differential access to education and health care; rising discrimination
against women in the labor market; and imperfect labor markets.

The benefits of growth--which depend on peoples' education, mobility,
and land-are being distributed unevenly, as indicated by the rise in
China's Gini coefficient from a low 28.1 in the early 1980s to 38.8 in
1995, the report notes.

While emerging inequality often accompanies growth and can help nourish
creativity and productivity, high rates can impede growth, weaken poverty
alleviation, and contribute to social tension. In China, inequalities
caused by growth have been heightened by government policies favoring
urban over rural, the coast over the interior, and have had great affect
on the access to and quality of education, health care, and labor

To ensure the benefits of growth reach all of society, the report

  • Targeting assistance programs that focus on education, health, and
  • employment to protect the poor and provide safety nets for the
  • vulnerable;
  • Eliminating policy biases and strengthening the government's
  • regulatory function by redressing the urban bias and removing
  • the coastal bias in economic policies, as well as countering gender
  • bias in household allocation decisions and in the marketplace,
  • education, and workplace;
  • Dealing fairly with the rich to combat corruption and to starve
  • corruption incentives through enforcement of regulatory functions,
  • reducing bureaucratic discretion, establishing clear and transparent
  • rules for public decision-making and stamping out access to insider
  • information through the proper regulation of financial markets
The World Bank and Poverty
        Starting in the early 1980s, the Bank program of agricultural
        investments buttressed by projects in agricultural education,
        rural health care and rural water supply have been aimed at
        raising rural incomes and living standards.
        By the mid 80s, the pace of poverty reduction had slowed, and
        although China made great progress in reducing the number of 
        poor, most of China's remaining poor were much more difficult
        to reach, concentrated in resource-deficient areas where gains
        of adopting "Green Revolution" agricultural technologies were
        not generally possible.

In 1992, the Bank produced China: Strategies for Reducing Poverty in the
1990s, which was a result of its partnership with the Leading Group for
Poverty Reduction to find new approaches in assisting the remaining
absolute poor. The Bank's report did much to establish close cooperation
with China in their work on poverty alleviation, which resulted in the
national 8-7 plan for reducing absolute poverty.
        In the early 1990s the Bank began making poverty alleviation an
        explicit focus of lending and began a more conscious program
        with agricultural and social sector lending channeled to areas
        of concentrated poverty-the northwest, the "red soils" areas
        in the southeast, and the resource-poor sections of the
        southeast. Bank support for Poverty Alleviation.
 During FY91-97 the Bank lent about $2.1 billion, almost all IDA funds,
for poverty alleviation, benefiting more than 104 million people.


HONG KONG, September 19, 1997 Despite the magnitude of China's
pollution problems, the country has an unprecedented opportunity to
better its quality of life, according to a new World Bank report,
Clear Water, Blue Skies, released today.

	The Costs of Excessive Pollution
An estimated 178,000 people in major cities suffer premature deaths each
year because of pollution.
Indoor air pollution-primarily from burning coal and biomass for cooking
and heating-causes 111,000 premature deaths each year, mainly in rural areas.
Each year some 7.4 million work-years are lost to health damages related
to air pollution.
Acid rain in the high-sulfur coal regions of southern and southwestern China
threatens to damage 10 percent of the land area, and may already have reduced
crop and forestry productivity by 3 percent.
Children in Shenyang, Shanghai, and other major cities have blood-lead
levels averaging 80 percent higher than levels considered dangerous to
mental development.
The costs of water pollution are at least US$4 billion a year.
The effects of excessive pollution-in the form of premature deaths,
sickness, and damage to productive resources-are estimated to cost
China about $54 billion a year, or 8 percent of GDP. Yet, the same
rapid economic growth that has added to China's environmental woes
in the past can be harnessed to ensure a cleaner future.

The report, produced in close collaboration with China's National
Environmental Protection Agency and State Planning Commission, focuses
on two of China's most pressing environmental concerns: air and water
pollution and their relation to economic growth. The report specifically
addresses three important questions:

--What are the costs of pollution in China today?
--Will future economic growth impair or improve air and water quality?
--What policies are needed now to ensure that rising incomes translate
into a higher environmental standard of living for present and future

According to the report, China can turn its assets-increasing market
orientation, rapid economic growth, and strong administrative capacity-
into advantages for preserving and improving its environment for future
generations. This requires pursuing a new pattern of growth-one that 
can both increase incomes and improve environmental quality.

The report recommends that a strategy for future environmental
protection should aspire to:

    increase substitution of cleaner fuels-especially natural gas-for
    coal in household cooking and heating;
    improve energy efficiency and diversify energy supplies into
    noncoal sources;
    reduce emissions from industrial boilers and furnaces;
    curb indoor air pollution in rural households;
    increase wastewater collection and treatment from cities and towns
    and industrial enterprises, especially small enterprises
    phase out lead from gasoline by 2000.

    promote public transit systems
    use environmental master plans to shape the growth of cities; and
    promote environmental education.

The report recommends that to achieve these outcomes, China should:

    Harness the market to work for the environment, not against it.
    This will require adjusting prices to cover economic costs and
    incorporating social costs through pollution taxes.
    Harness economic growth for the environment. This requires creating
    incentives to elicit investments-from both the commercial state and
    nonstate sectors and from the public sector-with the largest
    environmental benefits for future generations.
    Harness the government's administrative capabilities to the cause
    of environment. This will require providing better regulations but
    with fewer investment controls at the national level, as well as
    ensuring better planning and pollution enforcement in urban 
    airspeeds and regional water basins.

A strategy that channels investment into cleaner production, encourage
material and energy efficiency, and encourages the conservation of scarce
resources could reduce emissions in 2020 below today's levels, improve
air and water quality, and lower pollution-related health costs by 75
percent-even as China grows by 6-7 percent a year for the next two
RRojas Research Unit/1997