Role of market-oriented reforms in China

Question 1

Market oriented-reforms in China helped to boost lacking agricultural production in the country for exports and consumption leading to economic growth

Answer 1

1978
Household Responsibility System
- Contracts plots to farmers to operate according to the amount of labour in the family
- Farmers fulfil their obligations in terms of taxation, contributions to a public accumulation fund and public welfare fund with the remaining produce given to them
- 99% pick-up rate by 1984

→ bumper harvest in 1984
→ total grain output reached 407M tons which was increase by 33.6% compared to 1978, with an annual growth rate of 5%

Question 2

Market-oriented reforms helped to boost the productivity of state-owned enterprises through reforms aimed at higher production rates leading to industrial growth and economic growth as a whole

Answer 2

1978 Management reform
- Enterprises were allowed to keep a proportion of their profits
- If production>quota, they can use that profit to reinvest in production and technical RnD or have a reserve fund
→ 60% of national budgeted industrial output came from reformed firms and they held 70% of industrial profits

1984
Dual Track system
Provisional Regulations on Expanding the Autonomy of Enterprises
production> quota, the can sell their goods outside of the state plan at 120% of the price
Allowed to hire and fire mid-high level admin staff to offer rewards and bonuses
→ incentivise greater production rates

Ownership reform

1992 Regulations on Transforming the Operational Mechanism of State-owned Industrial Enterprises
- Allowed inefficient SOEs to overhaul their structure
- Allowed for private ownership of SOEs through Zhuada Fangxiao
→ generated 63% of the state sector profits
→ private sector increase to 1.32M from about 440K in 1996

1990s TVE
Collectively owned public enterprises by peasants that were outward oriented and controlled by budget constraints
Obtained inputs locally, processed locally and marketed locally
Small, flexible and market driven
Made up 47% of China’s total industrial output in 2000

→ increased exports from 34% to 48% exports in the same time period
→ employed 127 million people in 1994 vs 30 million in 1978
→ provided the bulk of agricultural investment at a time when state resources were shrinking

Question 3

Market-oriented reforms like wage reforms throughout the years contributed to increased labour productivity within China as it incentivised greater production for greater profits margins = economic growth

Answer 3

1978
Wage Reform policies
Profit retention system from the SOE reforms were universalised in state industrial firms
Profits retained were based on total funds for worker welfare, bonuses and training

1985 Second stage of wage reform
Linking wages with efficiency, for every 1% of increase in tax remitted, the wage bill would be increased to 0.7%

1989
Bonuses amounted to 9% of total state wages
Profit retention also permitted a rapid increase in worker welfare funds used to finance investment in housing and clinics, clubhouses and cafeterias that served worker
→ increasing their productivity