Industry of The People's Republic of China - Structure

Structure

Since the 1950s, the trend away from the agricultural sector toward industrialisation has been dramatic, and is a result of both policy changes and free market mechanisms. During the 1950s and 1960s, heavy industry received most attention and consequently grew twice as rapidly as agriculture. After the reforms of 1978, more attention to the agricultural sector as well as a move away from heavy industry toward light resulted in agricultural output almost doubling with only marginal increases for industry.

Before 1978, state-owned and collectively owned enterprises represented 77.6 percent and 22.4 percent respectively of China's exclusively public-ownership economy. The policy of reform and opening-up has given extensive scope to the common development of various economic sectors. Individual and private industrial enterprises and enterprises have mushroomed with investment from outside mainland China.

Domestically, modernisation and economic growth has been the focus of the reformist policies introduced by Deng Xiaoping, and in attempting to achieve this, the leadership has implemented the Four Modernizations Program that lays special emphasis on the fields of agriculture, industry, education, science and technology, and defence.

In the countryside, the "responsibility system" has been implemented and basically represents a return to family farming. Under this system, families lease land for a period of up to thirty years, and must agree to supply the state an agreed quota of grain or industrial crops at a fixed low cost in return. The remaining surplus can either be sold to the state or on the free market. As a result, peasants have been increasing their agricultural output in response to these incentives.

Together with the responsibility system, there have also been a number of reforms relating to rural businesses — especially in the spheres of commerce and manufacturing. The increase in personal income bought about through the responsibility system has led to a burgeoning of small-scale enterprises that remain completely in private hands.

Reform of state-owned enterprises has always been the key link of China's economic restructuring. The Chinese government has made various attempts to solve the problem of chronic extensive losses in this sector and by now almost every state-owned enterprise has adopted the company system. After being transformed into joint stock companies, the economic benefit of the state-owned enterprises increased steadily and their overall strength and quality were remarkably enhanced, gaining continuously in their control, influence and lead in the whole national economy.

The role of free market forces has also been instrumental in altering China's sectoral make-up. After 1979, the forces of supply and demand meant that consumers could play a greater role in determining which crops would be planted. This had the effect of making more profitable the planting of such crops as fruit, vegetables and tea. As a consequence, however, traditional grain crops have suffered, as farmers prefer to plant the more profitable cash crops.

Increases in light industrial production and more profitable crops bought about by the loosening of market controls had not always been enough to satisfy consumer demand, which in turn lead to inflation. Rather than increased demand being met with increased supply, the manufacturing sector and economic infrastructure were still too underdeveloped to supply a population of over one billion people with the commodities they wanted or needed. Instead, a 'dual track' pricing system aose which had promoted arbitrage between official and free-market prices for the same commodities.

Inflation and the unavailability of consumer goods had made some commodities too expensive for ordinary Chinese workers, as well as resulting in a general decline in living standards. Another factor arising from inflation in China had been corruption among the higher echelons of the CCP. Managers of factories in regulated industries — usually high-level Party cadres — have been selling factory produce on the free market at grossly inflated prices. Inflation and corruption had become so embedded in the system by 1988, that the leadership was forced to take some drastic economic measures.

In response to the general economic malaise, Li Peng - Prime Minister — adopted several austerity measures in the middle of 1988. The primary goal of these measures was to reduce economic growth and included such measures as limiting joint ventures, curtailing capital investment, tightening fiscal and monetary controls, reimposing centralised control on local construction projects and cuts in capital investment.

China's eighth Five Year Plan - 1991 to 1995 - reflected the goals of slowing the economy down to a manageable level after the excesses of the late 1980s. The growth rate of GNP was planned to average 6% per annum, and government investment to be drawn away from national construction programs towards agriculture, transportation and communications.

However, the national economy also showed similar signs of stagnation. Although eighteen months of austerity measures had lowered inflation to 2.1%, after eighteen months of rising unemployment, stagnation of industrial output and a breakdown of the Chinese financial system because of debt defaults, the government was forced to loosen the economic screws in the mid-1990s.

Increased investment into capital construction programs and Township and Village Enterprises (TVEs) was the government's solution to reviving the economy. However, by mid-1991 signs re-emerged that the economy was about to overheat once again. Rises in industrial production within TVEs of 32% for the first half of 1991, refusal to heed calls for curbs on investment capital construction in the provinces as well as the re-emergence of double-digit inflation. The rapid growth of early 1991 indicated that the government was still going to have to struggle further with enforcing its economic policies.

The national economy had been characterised by a large share of industry — standing at 61.2% of total GDP in 1990 - with a smaller share of 24.4% devoted to agriculture and a much smaller service sector constituting only 14.4% of GDP. Such a constitution of GDP was a reflection of the Soviet influence of a planned economy since the 1950s. The dominance of the industrial sector in the PRC's GDP constitution has not always been the case however, and it has been largely through governmental intervention that this evolution took place.

In 2004, of the industrial added value created by all state-owned industrial enterprises and non-state industrial enterprises with annual turnover exceeding five million yuan, state-owned and state stock-holding enterprises accounted for 42.4 percent, collectively owned enterprises 5.3 percent, the rest taken up by other non-public enterprises, including enterprises with investment from outside mainland China, and individual and private enterprises. The result is a dynamic juxtaposition of diversified economic elements.

In 2004, of Chinese enterprises ranking in the world's top 500, 14 enterprises of China's mainland were all state-owned. Of China's own top 500, 74 percent (370) were state-owned and state stock-holding enterprises, with assets of 27, 370 billion yuan and realizing profit of 266.3 billion yuan, representing 96.96 percent and 84.09 percent respectively of the top 500 corresponding values. Small and medium-sized enterprises and non-public enterprises have become China's main job creators. Private enterprises alone provided 50 percent of employment of the entire society.

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