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The PRC's Industry
Structure
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 Modernisations
Programme 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.
As shown in Graph 2, the PRC's economy is 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 is a reflection of the Soviet influence of a planned economy
since the 1950s. The current 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 has taken place.
Graph 2
Sectoral Share of
the PRC's GDP (%)
Note: Figures are calculated as a percentage of
GDP. Source: ADB, Asian Development Outlook 1991, Table A6.
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.
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 have not always
been enough to satisfy consumer demand, which in turn has lead to
inflation. Rather than increased demand being met with increased
supply, the PRC's manufacturing sector and economic infrastructure
are still too underdeveloped to supply a population of over one
billion people with the commodities they want or need. Instead,
a 'dual track' pricing system has arisen which has promoted arbitrage
between official and free-market prices for the same commodities.
Inflation and the unavailability of consumer goods have made some
commodities too expensive for ordinary Chinese workers, as well
as resulting in a general decline in living conditions. Another
factor arising from inflation in the PRC has 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
of the PRC - 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.
The PRC's current eighth Five Year Plan - 1991 to 1995 - reflects
the goals of slowing the economy down to a manageable level after
the excesses of the late 1980s. The growth rate of GNP is planned
to average 6% per annum, and government investment will be drawn
away from national construction programmes towards agriculture,
transport and communications.
However, similar to the economic malaise in Australia where the
government-induced economic slowdown evolved into recession, the
PRC 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 financial system because of debt defaults,
the PRC government was forced to loosen the economic screws in the
middle of 1990.
Increased investment into capital construction programmes and Township
and Village Enterprises (TVEs) was the PRC's solution to reviving
its economy. However, by mid-1991 signs re-emerged that the PRC's
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 PRC government is still going to
have to struggle further with enforcing its economic policies.
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