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China STRUCTURE AND OPERATION OF THE ECONOMY
Roles of the Government and the Party
Under China's socialist political and economic system, the
government was explicitly responsible for planning and managing the
national economy. The State Constitution of 1982 specifies that the
state is to guide the country's economic development and that the
State Council is to direct its subordinate bodies in drawing up and
carrying out the national economic plan and the state budget
(see Constitutional Framework
, ch. 10). A major portion of the
governmental apparatus was devoted to managing the economy; all but
a few of the more than 100 ministries, commissions,
administrations, bureaus, academies, and corporations under the
State Council were concerned with economic matters
(see The State Council
, ch. 10).
Each significant economic sector was supervised and controlled
by one or more of these organizations, which included the People's
Bank of China, State Planning Commission, State Economic
Commission, State Machine-Building Industry Commission, and the
ministries of agriculture, animal husbandry, and fishery; coal
industry; commerce; communications; finance; light industry;
metallurgical industry; petroleum industry; railways; textile
industry; and water resources and electric power. Several aspects
of the economy were administered by specialized departments under
the State Council, including the State Statistical Bureau, General
Administration of Civil Aviation of China, and China Travel and
Tourism Bureau. Each of the economic organizations under the State
Council directed the units under its jurisdiction through
subordinate offices at the provincial and local levels.
Economic policies and decisions adopted by the National
People's Congress and the State Council were passed on to the
economic organizations under the State Council, which incorporated
them into the plans for the various sectors of the economy.
Economic plans and policies were implemented by a variety of direct
and indirect control mechanisms. Direct control was exercised by
designating specific physical output quotas and supply allocations
for some goods and services. Indirect instruments--also called
"economic levers"--operated by affecting market incentives. These
included levying taxes, setting prices for products and supplies,
allocating investment funds, monitoring and controlling financial
transactions by the banking system, and controlling the allocation
of scarce key resources, such as skilled labor, electric power,
transportation, steel, and chemical fertilizer. A major objective
of the reform program was to reduce the use of direct controls and
to increase the role of indirect economic levers. Major state-owned
enterprises still received detailed plans specifying physical
quantities of key inputs and products from their ministries. Even
these units, however, were increasingly affected by prices and
allocations that were determined through market interaction and
only indirectly influenced by the central plan.
By 1987 the majority of state-owned industrial enterprises,
which were managed at the provincial level or below, were partially
regulated by a combination of specific allocations and indirect
controls, but they also produced goods outside the plan for sale in
the market. Important, scarce resources--for example, engineers or
finished steel--might be assigned to this kind of unit in exact
numbers. Less critical assignments of personnel and materials would
be authorized in a general way by the plan, but with procurement
arrangements left up to the enterprise management. Enterprises had
increasing discretion over the quantities of inputs purchased, the
sources of inputs, the variety of products manufactured, and the
production process.
Collectively owned units and the agricultural sector were
regulated primarily by indirect instruments. Each collective unit
was "responsible for its own profit and loss," and the prices of
its inputs and products provided the major production incentives.
Consumer spending was subject to a limited degree of direct
government influence but was primarily determined by the basic
market forces of income levels and commodity prices. Before the
reform period, key goods were rationed when they were in short
supply, but by the mid-1980s availability had increased to the
point that rationing was discontinued for everything except grain,
which could also be purchased in the free markets.
Foreign trade was supervised by the Ministry of Foreign
Economic Relations and Trade, General Administration of Customs,
and Bank of China, the foreign exchange arm of the Chinese banking
system, which controlled access to the scarce foreign currency
required for imports. Because of the reduced restrictions on
foreign trade, however, there were broad opportunities for
individual work units to engage in exchanges with foreign firms
without much interference from official agencies
(see Organization of Foreign Trade
, ch. 8).
The role of the government in the economy was buttressed by the
pervasive influence of the Chinese Communist Party. The structure
of the party organization paralleled that of the government but
also extended below the lowest level of government into individual
work units. Important economic decision makers at all levels, from
the members of the State Council down to the managers of factories,
either were party members themselves or worked closely with
colleagues who were party members. The party served as a powerful
supplementary network for transmitting and implementing the
economic goals and policies of the government.
Although the government dominated the economy, the extent of
its control was limited by the sheer volume of economic activity.
Furthermore, the concept of government supervision of the economy
had changed--at least in the minds of the advocates of reform--from
one of direct but stifling state control to one of indirect
guidance of a more dynamic economy
(see The First Wave of Reform, 1979-84
, ch. 11).
Data as of July 1987
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