Since the 1950s, the capital construction (see Glossary)
industry has been plagued by excessive growth and
compartmentalization. There were frequent cost overruns and
construction delays, and resources were overtaxed. Project
directors often failed to predict accurately the need for such
elements as transportation, raw materials, and energy. A large
number of small factories were built, providing surplus capacity at
the national level but with deficient economies of scale at the
plant level. Poor cooperation among ministries and provinces
resulted in unnecessary duplication. Because each area strove for
self-sufficiency in all phases of construction, specialization
suffered. Since the early years of the People's Republic,
overinvestment in construction has been a persistent problem.
Fiscal reforms in 1979 and 1980 exacerbated overinvestment by
allowing local governments to keep a much greater percentage of the
revenue from enterprises in their respective areas. Local
governments could then use the retained earnings to invest in
factories in their areas. These investments, falling outside the
national economic plan, interfered with the central government's
control of capital investment.
In 1981 the economy underwent a period of "readjustment,"
during which the investment budget for capital construction was
sharply reduced (see _________, ch. 5). This administrative
solution to overinvestment proved ineffective, and later reforms
concentrated on economic measures such as tax levies to discourage
investment. The issuance of interest-bearing loans instead of
grants was also intended to control construction growth. Despite
reforms, capital construction continued at a heated pace in 1986.
The majority of the new investment was unplanned, coming from loans
or enterprises' internal capital.
During the Seventh Five-Year Plan, 925 medium-and large-scale
projects were scheduled. The government planned to allocate -Y1.3
trillion for fixed assets, an increase of 70 percent over the Sixth
Five-Year Plan. Forty percent of the funds were allocated for new
projects, and the remaining 60 percent for renovation or expansion
of existing facilities. Some of the projects involved were powergenerating stations, coal mines, railroads, ports, airports, and
raw-material production centers.
Data as of July 1987