Chongqing clock company sets pace in a profits plan
"In the past, the state was the boss," said Tang Zongzhe of Chongqing (Chungking) Clock & Watch Company. "Today, we make our own plans." Chongqing Clock & Watch is one of five enterprises in pacesetting Sichuan (Szechwan) Province that have been cut free from the usual communist system in which the state plans all and factories have only to produce. The new system, as yet highly experimental, is known as "self-responsibility for profits and losses."
Sichuan is where Premier Zhao Ziyang made his mark as a go-getting, innovative administrator. "Self-responsibility" is an important aspect of the economic reforms he and his fellow ministers are carrying out nationwide with the blessing of their mentor, party Vice-Chairman Deng Xiaoping.
Economic readjustments forced by huge budget deficits will affect the pace but will not do away with the reforms themselveS, central authorities promise. The Chongqing experiment therefore remains valid as an example of the direction in which Mr. Zhao and his colleagues hope to take the entire economy as the deficit situation eases.
Mr. Tang is a short, lively man, who is in charge of the director's office of the company. "The self-responsibility system we have introduced is new for us, but I understand it is practiced in the capitalist countries for some time," he said.
He said Chongqing Clock & Watch comprises five factories, one scientific institute, two schools, and a number of ancillary units. Its employees total 5, 600. In 1980 it produced 500,000 watches and 1 million clocks, and grossed 54.7 million yuan ($36.4 million).
Before going over to the self-responsibility system at the beginning of last year, the company, which is owned by the City of Chungking, produced clocks and watches according to the state's plan and handed over all its profits to the state.
The state still makes an annual production plan for the company. But the company makes its own plan, calling for production considerably in excess of the state's plan.
Instead of handing over its profits to the state, it pays three kinds of taxes: first, an industry-and-commerce tax; second, a fixed-assets tax; third, an income tax.
The industry-and-commerce tax is a kind of production tax. On 1 million clocks and 500,000 watches, if came to 12.49 million yuan ($8.32 million) last year. The fixed-assets tax, which is on equipment, came to 700,000 yuan. The income tax, which is on profits, totaled 4.69 million yuan ($2.46 million) or 40 percent of profits.
Under the new system the state's income actually increased.
And what of the company? In 1980 it retained 60 percent of its profits, or about 7 million yuan ($4.66 million). One peculiarity of the new system, however, is that wages are paid out of profits. After deducting a payroll of about 3 million yuan, the company was left with 4 million yuan of profits it could use as it wished.
Mr. Tang said 60 percent, or 2.4 million yuan ($1.6 million), went to buy new equipment and build new factories to expand production.
Thirty percent was allocated to the welfare of the workers. Two thousand square meters (2,400 square yards) of new housing was built. New nurseries were opened. An allocation was even made for curtains for communal bathrooms.
Finally, 10 percent was allocated to improving workers' salaries, including bonuses.
Watches sell throughout China, and Chongqing Clock & Watch has no trouble disposing of all the watches it can produce. It plans to double production by next year, using both it own resources and state loans to reach this goal.
At present the company still sells most of its watches through the state -- that is, through the sales bureau of the Ministry of Commerce, which has a nationwide sales network. But it also sells 15 percent of production through its own channels, and plans to increase the proportion steadily.
For every watch that retails at 80 yuan ($53), the actual cost to the company itself is 21 yuan -- $14, Mr. Tang explained. When it sells through the state, it pays 18 yuan as a kind of commission to the state. On the remaining 62 yuan it pays a 40 percent industry-and-commerce tax, leaving 37.20 yuan. Deducting the 21-yuan cost of production, the profit is 16.20 yuan. Forty percent of this figure goes to the state as income tax. The rest stays with the company as retained profit. (But remember, salaries also come out of profits.)
When the company sells through its own retail outlets in Chongqing (which it is trying to expand), it retains the 18-yuan commission paid to the Ministry of Commerce, minus a 2.40-yuan business sales tax. When it sells through agents, such as department stores, it pays a 10 yuan commission. The company, therefore , makes the most profit when it sells through its own outlets, and the least profit when it sales through the Ministry of Commerce. On the other hand, the ministry can give Chongqing watches a nationwide distribution.
Whereas in the old days his company simply produced watches blindly, now it sends representatives to other major cities, both to see the state of the competition and to survey the changing tastes of the consumers, Mr. Tang said. Last year, at the nationwide contest held in Xian, Chongqing watches placed sixth -- outranked by companies in Shanghai, Xian, and Tianjin.