China tries to 'perfect' economy with capitalism
China's Communist Party is about to tamper with a cornerstone of the nation's post-1949 economy - low and stable prices. The steps it takes in the current plenum of the Central Committee, which convened Oct. 13, are expected to vastly alter China's socialist, centrally planned economy.
The new measures are likely to give a strong role to market forces in setting prices and to gradually eliminate state subsidies for such commodities as food and energy.
Premier Zhao Ziyang, who has often referred to the ''irrationalities'' of China's pricing system, put price reform as a top priority for the Central Committee meeting.
For Chinese families, who depend heavily on fixed prices and government subsidies, there will be little margin to pay for higher prices unless wages increase as well.
Annual incomes in China average about 900 yuan ($360) for urban workers and 700 yuan ($280) for rural workers.
Subsidized and fixed-price commodities include rice at 10 cents per pound, pork at about 40 cents per pound, and a bowl of noodles at a street stand for about 8 cents. According to a survey published in the Worker's Daily, Chinese spend 60 percent of their salaries on food.
In Peking, a ride on a public bus costs between 2 cents and 6 cents (depending on distance traveled). A pair of cotton long johns (which many Chinese wear from October through April) costs between $1.20 and $2.00. Apartment rent varies between $1.60 and $2.40 per month.
Premier Zhao recently estimated the cost of such subsidies at between 40 and 50 percent of the state budget. The subsidies must be eliminated, he said.
The artificial pricing system creates inefficiencies in the economy by sending the wrong signals to farmers and factory managers - resulting in a breakdown of economic decisionmaking at all levels.
This is apparent for industrial products as well. One example, described in a recent newsletter of the Japan External Trade Organization, is the difference in prices and profits for hot- and cold-rolled steel. Although there is little difference in the processes technologically, the Chinese price for hot-rolled stainless steel is fixed at 15,000 yuan ($6,000) per ton while that for cold-rolled steel is 2,000 yuan ($800). The profit margin for the hot-rolled variety is more than 10 times of that for the cold, the newsletter says. Chinese steelmakers thus have concentrated on making hot-rolled stainless steel.
Other reforms expected to come out of the plenum session are changes in the way the planned economy is managed. Most enterprises will be cut free from the state ministries and required to operate as profit centers, with local managers setting wages and prices. Experiments with decentralized decisionmaking have been tried in certain industries in recent years and have apparently proved successful.
The aim of the reforms is to shift away from the Soviet style of planning adopted in the early 1950s to a centrally guided economy which has capitalist features but preserves certain discertionary controls for central-planning purposes.
''We are perfecting a communist system through capitalism,'' senior leader Deng Xiaoping told a group of foreign businessmen and bankers last week.
China's disenchantment with aspects of the centrally planned economy was apparent in the early 1960s when it broke with the Soviet Union. But criticism of the system has become especially blunt since the government's success in rural economic reforms in the past five years.
Nationwide reforms may be foreshadowed by those implemented in Canton in the past several years. There, the number of agricultural products peasants must sell to the state under the quota system has been reduced from 110 to 12, and the number of items whose prices are fixed has been reduced from 60 to four.
According to the Economic Daily, after a period of adjustment, Canton's markets have an abundance of fresh vegetables, meat, and fish. Sales volumes have increased, and prices have stabilized and in some cases have declined.
There have been a series of steps taken in the past year in preparation for what Deng and others have called ''all-round reform.'' These have included instituting a tax system, which went into effect on Oct. 1, for state-run and collectively owned enterprises.
Large enterprises now pay a 55 percent income tax instead of turning over all profits to the state. Smaller enterprises pay a progressive income tax. There is , however, a provision for ''regulatory'' taxes that appear designed to absorb profits exceeding the level of earnings achieved in past years.
The Communist Party is also losing some managerial authority in industry. Decoupling factory party committees from management was formally carried out in many enterprises earlier this year. Other steps included giving more autonomy to state enterprises in hiring personnel, making investment decisions, and setting wages and bonuses for workers.
Diplomats point out that China is not abandoning its socialist system. State ministries will retain a ''guiding'' role, steering investment capital and regulating industries through new tax policies.
China's leadership hopes to quadruple 1980's production of goods and services by the year 2000. In the next several years, it aims to restructure the economy, carry out technical transformation of backward industries, and increase economic efficiency.
There are political risks in these plans: If the modernization program should falter, popular support could slip as well.