Report No. :11117 Type: (PEU.JB) Title: REFORM AND THE ROLE OF TIIE PLA Author: WORLD BANK Ext.: 0 Room : Dept.: WORLD BANK COUNTRY STUDY China Reform and the Role of the Plan in the 1990s ' -- A WORLD BANK COUNTRY STUDY China Reform and the Role of the Plan in the 1990s The World Bank Washington, D.C. Copyright i 1992 The International Bank for Reconstruction and Development/TEm WORLD BANK 1818 H Street, N.W. Washington, D.C. 20433, U.S.A. All rights reserved Manufactured in the United States of America First printing September 1992 World Bank Country Studies are among the many reports originally prepared for internal use as part of the continuing analysis by the Bank of the economic and related conditions of its developing member countries and of its dialogues with the governments. Some of the reports are published in this series with the least possible delay for the use of governments and the academic, business and financial, and development communities. 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ISSN: 0253-2123 Library of Congress Cataloging-in-Publication Data China : reform and the role of the plan in the 1990s. p. cm. - (A World Bank country study) ISBN 0-8213-2230-3 1. China-Economic policy-1976- 2. Central planning-China. 3. Economic forecasting-China. I. World Bank. II. Series. HC427.92.C46454 1992 338.951-dc2O 92-30849 CIP Abstract The focus of this report is on the government's reform and development policies for the decade of the nineties. The assessment is based on a review of the successes and failures of China's reform experience over the past decade. Particular attention is paid to the key reform areas that appear to deserve increased attention. Development policies are examined on the basis of the Eight Five-Year Plan, with a particular focus on transport policies. The report also reviews economic developments during the 1990-91 period, when China was emerging from recession. Finally, after examining reform and development options, the report develops a set of alternative scenarios for the economy for the rest of the decade, depending upon the set of policy options selected. -iv- CURRENCY EQUIVALENTS Up to December 15, 1989 Up to November 29, 1990 At March 31, 1992: $1.00 X Y 3.72 $1.00 Y 4.72 $1.00 - Y 5.46 Y 1.00 $0.27 Y 1.00 - 0.21 Y 1.00 - $0.18 FISCAL YEAR January 1 - December 31 ABBREVIATIONS AND ACRONYMS 7thFYP - Seventh Five-Year Plan, 1986-90 8thFYP - Eighlth Five-Year Plan, 1991-95 CAAC - Civil Aviation Authority of China CIECC - China International Engineering Consulting Corporation CTRI - Comprehensive Transport Research Institute DRC - Development Research Center of the State Council GNFS - Goods and Nonfactor Services IMF - International Monetary Fund IOT - Investment Orientation Tax ME - Ministry of Materials and Equipment NOC - Ministry of Communications MOF - Ministry of Finance MOR - Ministry of Railways NDA - Net Domestic Assets NFA - Net Foreign Assets PBC - People's Bank of China SAEC - State Administration of Exchange Control SOE - State-Owned Enterprise SPC - State Planning Commission SRC - State Commission for Restructuring the Economic System TVE - Township and Village Enterprise SCIC - State Communications Investment Corporation -v - Preface This report is based on a mission which visited China in May/June 1991. Mission members were Peter Harrold (Principal Economist, Mission Leader, Reform Issues), Fernando Montes-Negret (Senior Economist, Macroeconom- ics), Michael Bell (Deputy Division Chief, IMF, Macroeconomics), Anand Rajaram (Economist, Development Plan), Thomas Chan (Consultant, Reform Plan), Hernan Levy (Principal Transport Economist, Transport Plan) and Tejaswi Raparla (Research Analyst, Statistics and Projections). The mission received -eat support from the World Bank Resident Mission in China, and especially Chen Xingdong (Economic Officer) and Dai Dongchang (Transport Operations Officer), as well as from Zhang Shaojie (Local Consultant). The mission was hosted by and received great support from the Minis- try of Finance. In particular, MOF put together a very capable counterpart team to work with the mission: Liu He, Ning Jizhe, Wu Qing, Zhu Zhixin, Li Tiejun, Yang Weimin, all of the State Planning Commission; Wang Hong, Ministry of Finance; Wang Huijiong, Li Poxi, Development Research Center; Fan Hengshan, Systems Reform Commission; and Huang Deha.i, Comprehensive Transport Research Institute. The team was led by Zhang Shengman (World Bank Department, Minis- try of Finance), and support was ably coordinated by Wu Jingkang. The team produced nine background papers in preparation for the mission. The mission visited Henan Province, where it was hosted by the local Bureau of Finance. This was a most useful and enlightening visit, the results of which are illustrated at various points in the report. The support of all the Chinese counterparts is duly acknowledged, for without it, this report would not have been possible. - vii - Table of Contents Page No, EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . xi I. RECENT ECONOMIC DEVELOPMENTS . . . . . . . . . . . . . . . . 1 A. Introduction . . . . . . .. . . . . . . . . . . . . . . . 1 B. Monetary and Credit Policies . . . . . . . . . . . . . . 1 C. The Real Sector . . . . . . . . . . . . . . . . . . . . 8 D. Price Developments . . . . . . . . . . . . . . . . . . . . 15 E. The State Sector . . . . . . . . . . . . . . . . . . . . 18 F. The External Sector . . . . . . . . . . . . . . . . . . 25 G. Conclusions . . . . . . . . . . . . . . . . . . . . . . 31 II. CHINESE REFORM EXPERIENCE TO DATE . . . . . . . . . . . . . 34 A. Introduction . . . . . . . . . . . . . . . . . . . . . . 34 B. The Initial Conditions . . . . . . . . . . . . . . . . . 34 C. China's Reform Style . . . . . . . . . . . . . . . . . . 37 D. China's Major Reform Steps . . . . . . . . . . . . . . . 42 E; The Impact of Reforms . . . . . . . . . . . . . . . . . 49 F. Reform Priorities . . . . . . . . . . . . . . . . . . . 60 G. Some Tentative Conclusions . . . . . . . . . . . . . . . 66 III. CHINA'S DEVELOPMENT PLAN, 1991-95 . . . . . . . . . . . . . 70 A. Introduction . . . . . . . . . . . . . . . . . . . . . . 70 B. The Evolution of Planning . . . . . . . . . . . . . . . 70 C. Role of the Plan in the 1990s . .............73 D. The Macroeconomic Framework and Development Policy . . 75 E. Planning to Correct Market Failures . . . . . . . . . . 85 F. Planning for the State Sector . . . . . . . . . . . . . 94 G. Conclusions and Issues for Future Plans . . . . . . . . 97 IV. THE REFORM PLAN . . . . . . . .. . . . . . . . . . . . . . . 100 A. Introduction . . . . . . . . . . . . . . . . . . . . . . 100 B. Reform in 1989/91 . . . . . . . . . . . . . . . . . . . 100 C. The Reform Plan . . . . . . . . . . . . . . . . . . . .. 103 D. The Implied Shape of the Reformed Chinese Economy . . . 116 E. Timing, Sequencing and Reform Style . . . . . . . . . . 117 F. Links with the Development i'lan . . . . . . . . . . . . 120 G. Specific Reform Areas . . . . . . . . . . . . . . . . . 122 H. Conclusions . . . . . . . . . . . . . . . . . . . . . ..127 - viii - Page f V. THE PLAN FOR THE TRANSPORT SECTOR .S............ . 131 A. Background . . . . . . . . . . . . . . . . . . . . . . . 131 B. The Eighth Five-Year Plan, 1991-95 . . . . . . a . . 0 . 133 C. Financing of the Plan . . . . . . . . . . . . . . . 141 D. Sectoral and Institutional Reforms . . . . . . . . . . 146 E. Conclusions . . . . . . . . . . . . . * . . . . * * 151 VI. SCENARIOS FOR TIE CHINESE ECONOMY . . . . . . . .... 154 A. Introduction..................... . . . . . . . . e . 154 B. The Base Case . . . . . . . . . . . . . . . . . . . 155 C. Scenario 2: Slow Policy Change/Macroeconomic Instability. . ........... . . . . . . . . . 158 D. Scenario 3: Accelerated Reform . . . . . . 0 . . . . . 160 E. Conclusions . . . . . . . . . . . . . . . . . . . . . 1S2 END NOTES . .* ................ . . . . . . . e e . . . . 0 163 BOXES IN TEXT 1.1 Fiscal Policy in Henan Province . . . . . . . . . . . . . 23 3.1 The 7th FYP and its Outcome . . . . . . . . . . * . . ... . 72 3.2 Development Plans in an Interior and a Coastal Province . . 88 3.3 Eleven Measures to Revitalize SOEs . . . . . e . . . . 0 . 96 4.1 The Future Chinese Policy Framework . . . . . . . . . . . . 118 5.1 Organizational Reforms in Air Transport and Ports . . . . . 132 5.2 Transport Development and Market Integration . . . . . . . . 136 5.3 Growing Role for Local Railways . . . . . . o . . . . . . . 139 5.4 The Bank for Public Works, Mexico . . . . . . . . e . . . . 145 TABLES IN TEXT 1.1 Relative Composition of Reserve Money . . . a .. . . . . a 4 1.2 Specialized and Comprehensive Banks: Total Deposits a . . . 7 1.3 China: Sources of Growth of GDP (1988-90) . . . 0 0 . . . . 9 1.4 China: Comparative Supply and Demand-Side Contributions to Growth . . . . . . . . . . . . . . ... .. . . .. 10 1.5 China: Price Adjustments During 1990/91 . . . . . . . . . . 18 1.6 China--State Budgetary Operations, 1986-91 . * .. . . . 20 1.7 China: Selected Indicators for the SOEs, 1984-91 . . . . . 25 1.8 Sources of Foreign Exchange, 1988-90 . . . . . . . . .. . . . 28 1.9 China: Balance of Payments, 1986-91 . . . . . . . . a . . . 29 1.10 China: Effective Exchange Rate, 1986-91 . . . . . . . . . * 30 2.1 Output Gains in the Reform Era . . . . . .. . . . . . . .. 50 2.2 Consumption Indicators, 1978 and 1988 . . . . . a. . . 51 2.3 Economic Gains during the Reform Era . . . . . . . . . a . . 52 2.4 Changing Role of the State . . . . . . . . . . . . . .* . . 54 2.5 Shares of Industrial Output of Nonstate Industry . . . . . . 55 2.6 Structure of Government Expenditures, 1978-90 . . . . . . . 57 2.7 Trade in the Chinese Economy, 1978-90 . . . . a . . . . . . 59 - ix - Page No. 3.1 8th FYP Objectives and Targeta . . . . . . . . . . . . . . . 78 3.2 Provincial Allocation of State Investment, 1981-90 ......86 3.3 Labor and Employment Under Eighth Plan . . . . . . . . . . . 90 3.4 Employment Elasticity of GNP by Sectors, 1980-89 . . . . . . 91 3.5 Possible Employment Growth, 1991-95 . . . . . . . . . . . . 91 3.6 Share of Services in Current GDP in Selected Countries, 1965-90 . . . . . . . . . . . . . . . . . . . . . . . . . . 93 3.7 Sectoral Composition of China's GNP, 1979-90 . . . . . . . . 93 3.8 Performance of Industrial SOEs in Central Budget . . . . 95 5.1 Financing of 8th FYP Highway Program, Henan Province . . . . 143 6.1 The Base Case, 1989-2000 . . . . . . . . . . . . . . . . . . 155 6.2 The Slow Reform Scenario, 1989-2000 . . . . . . . . . .. . 159 6.3 The Accelerated Reform Scenario, 1989-2000 . . . . . . . . . 161 GRAPHS IN TEXT 1.1 Monetary Aggregates . . . . . . . . . . . . . . . . . . . . 6 1.2 Real Gross Value of Industrial Output and Retail Sales . . . 11 1.3 Commercial Inventory Changes .................. . . . . 14 1.4 Retail Price Inflation . ............................ . . . 16 CHARTS IN TEXT 2.1 Ownership Shares in Industrial Output . . . . . . . . . . . 56 2.2 Regional Development and Nonstate Industry . . . . . . . . . 58 5.1 International Comparison of Transport Networks . . . . . . . 134 5.2 Passenger and 'reight Volumes in China . . . . . . . . . . 138 MATRIX IN TEXT 4.1 Reform Priorities and the Reform Plan . . . . . . . . . . . 128-29 ENDNOTES ANNEX A RMSM-X Model for China STATISTICAL APPENDIX - xi - Executive Summary Introduction i. China entered the decade of the 1990s at a crucial stage both in its own development path and in the world economy. China emerged in 1990 from a painful period of economic stabilization and from the domestic and interna- tional repercussions of the May-June 1989 events. It did so with an apparent determination to avoid the sharp economic cycles of the 1980s, or at least to dampen the amplitude of such cycles. Moreover, after a period in which it seemed the government was tending to look towards administrative measures to solve economic problems, there has been a clear revival of attention to reform issues, and a renewed recognition that only further, economic reform can solve the fundamental issues facing the economy. Moreover, this recognition comes at a time when the state sector itself faces increasingly severe problems, to which solutions have yet to be clearly identified. Finally, all these domes- tic issues are occurring at a time of rapid changes in the world economy, not only in terms of unclear global economic prospects, but more particularly, the collapse of the former USSR, and a less benign international environment for China. ii. This report focuses on China's recent economic developments and future prospects in the light of the reform and development strategy set out in the "Outline of the Ten-Year Program and of the Eighth Five-Year Plan for National Economic and Social Development", which was prepared in 1991. In particular, it proposes a range of economic policies and reforms that may be necessary to achieve a strong, sustainable growth path over the rest of this decade. These proposals are based on an analysis of the reform experience of the past decade, and the lessons to be drawn both from this experience and from China's macroeconomic performance over this decade, especially the 1988- 91 period. iii. The report concLudes that China's economic prospects are extremely bright if the government continues to pursue a strong program of economic reform and appropriate development policies. Many of the economic problems that China has encountered in recent years are considered to be the conse- quence of incomplete reforms, and the judgement of the report is that these problems can be avoided or minimized in the future if the program of reform is widened and deepened across a broad policy spectrum, which is spelled out in the report. Moreover, it appears that the likelihood that such reforms will continue has increased in recent months. Current' Economic Situation iv. By early 1990, the serious inflationary pressures of 1988 had been eliminated and the economy was showing signs of severe strain from the auster- ity policies. In particular, the state sector, with much less flexibility in adjusting to the recessionary environment, was facing cash flow difficulties in the face of sluggish demand. From the second quarter of 1990, the authori- ties began to relax monetary policy, and in particular to expand working capi- tal for state owned enterprises, as well as relaxing investment controls. Thus, in deciding to reflate the economy, the government chose the same two instruments that had been employed in 1989 to dampen inflation. Once it got underway the recovery in output was very rapid indeed, and the key issue - xii - raised by the speed and manner of the recovery is its sustainability and whether it will lead the economy straight back into a strong upswing, bringing a return to inflation and overheating. v. Money and credit policies have been the key area of economic policy once more. From an original planned credit growth of 14 percent, the level of loans outstanding grew by over 22 percent for the year in 1990, and particu- larly large increases went to finance SOEs' inventories and the purchase of the record grain harvest. This was repeated in 1991, when loans grew by 19 percent, again well above the 14 percent target. This source of money supply growth was further boosted by the very large balance of payments sur- plus, and broad money rose by 28 percent in 1990 and by a similar level in 1991. J'imilar trends in credit growth appear to be continuing in 1992, with gS-wth rates well over 20 percent in the first six months, which is signifi- cantly above the credit target. Fortunately, both households and enterprises proved to be very willing to increase their savings, and total bank deposits grew by a remarkable 30 percent in both 1990 and 1991, with particularly fast growth of enterprise deposits, as enterprises rebuilt deposits which had been run down in 1989 in the face of the austerity program. This rapid growth of savings meant that the build-up of inventories and of foreign exchange reserves was achieved without increasing inflationary pressures, and inflation has remained at very low levels, falling to only 2.9 percent in 1991. How- ever, it has also meant that banks' profitability and the ratio of their equity to assets have fallen significantly. vi. The real impact of the austerity program in China was felt from mid- 1989 to mid-1990, a period which saw no real growth. As noted, once recovery began, it took off very rapidly. In the 18 months after October 1990, indus- trial output grew by over 15 percent, close to 1988 levels. Overall GDP grew by 5.6 percent in 1990, and 7 percent in 1991. The first six months of 1992 saw their growth accelerate to 10.6 percent. While agriculture and trade were key sources of growth in 1990, this shifted to industry and investment in 1991. However, while output was recovering rapidly, final demand was not, and the "sluggish market" became a major issue as retail sales grew by only 1.9 percent for 1990 as a whole, having declined substantially in the first half. As a consequence, inventories grew very rapidly. Although data is very poor in this regard, inventories probably reached a peak of about 20 percent of GDP in early 1991 and were particularly large in those sectors where production is dominated by SOEs, such as textiles and large consumer durables. A concerted effort was made in late 1991 to reduce these inventories, with some initial success. The level of consumer demand recovered in 1991, growing at 13 per- cent, and is continuing to grow in 1992, but inventories still remained high, given the high growth of industrial output, although inventory accumulation appears to have stopped. vii. It should be no surprise that the economic downturn strongly affected China's state-owned enterprises, especially in terms of profitability. However, while profits fell, and about one third of SOEs were losing money, this had no noticeable impact on tax receipts. Overall, the open fiscal deficit was only 2 percent of GDP in 1990, and 2.6 percent in 1991, higher than projected (primarily because of higher administrative expen- ditures) but still manageable. However, MOF was, for the second year, unable to service maturing bonds held outside the household sector. The greater - - xiii - impact has been on the public sector's borrowing requirement more broadly defined, which appears to have risen from 8 percent of GDP in 1987 to 11 per- cent in 1990, and a similar level in 1991. viii. The strongest area of performance in China in the last year has been the external sector, with record external surpluses in 1990 and 1991. Exports have continued to perform very well, in response both to declining domestic demand, and to improved incentives, notably successive real devaluations. As a result of the austerity program and intensified restrictions, imports fell 10 percent in 1990, but as the economy recovered, imports registered growth of almost 20 percent in 1991, a trend which is continuing in 1992. The trade surplus was accompanied by a recovery of tourism and by greater willingness to lend to China, and therefore the current account surplus of $12 billion in each of the two years resulted in a cumulative $26 billion improvement in reserves during 1990/91 to the equivalent of about ten months of imports. ix. China has therefore had in many ways an enviable emergence from recession, with rapid output growth accompanied by low inflation and a strong external position. However, while fully recognizing this success, three issues arise: (a) the strong growth of credit could, if permitted to con- tinue, lead China back to an inflationary situation, especially given highly liquid savings. For this reason, a more moderate credit stance, consistent with non-inflationary growth, is now called for, and restoration of the provi- sions for index-linked interest rates would be desirable in case of a change in inflationary expectations; (b) the severe difficulties of the SOEs during the last three years merit a focus on restructuring and reform issues for these enterprises; and (c) the growing open and quasi-fiscal deficit, now of the order of 9 percent of GNP (through forced lending by banks to loss-making SOEs) merits attention not only to the SOEs, but also more generally to fiscal and financial sector reforms. Development Policies x. The new five-year plan can be seen as part of an evolving pattern for the role of planning. Over time, the plans have gradually developed from being an exercise in numerical targeting and in calling for mobilization of effort, to an attempt at a realistic macroeconomic assessment and statement of government intent. The previous plan (the 7th FYP, 1986-90) had suffered from a macroeconomic framework that was very divergent from actual government policy, and from an attempt to provide targets and goals for sectors beyond the government's direct influence. While the present plan has more of a focus on the macroeconomic framework and development policy, and on the reforms necessary to achieve those goals, it continues to suffer from some of the same difficulties as past plans, and as such, it runs the risk of rapidly becoming irrelevant. xi. In this report, we assess the plan in the light of the three key roles for planning: the provision of a macroeconomic framework and set of accompanying policies that can act as a guide for the actions of others; plan- ning to correct market failures, which can be expected to be quite serious under China's partially-reformed economy; and planning for the state sector and specifically for the avoidance of bottlenecks. With respect to this - xiv - latter role for planning, particular focus is paid to what is probably the single most important sector in this regard: the provision of transport. xii. The macroeconomic framework and its associated development strategy and policies calls for a much more moderate pace of growth (6 percent per annum) than in the recent past, and while the framework appears in general to be easily achievable, there are three particular issues: (a) It suffers from a rather incomplete coverage--for example, by the absence of trade and external accounts projections--and from a lack of exposition of macroeconomic policies. (b) More serious, it suffers from the same problem as the 7th FYP, in that actual economic policy in the first year of the Plan differed radically (by promoting rapid growth) from the Plan, not least because the Plan's target was below the growth level that was both desirable and achievable. (c) While the development strategy seems sensible, there is very little exposition of policies and programs to support the achievement of the strategy, such as pricing policies for the key 'basic' indus- tries. xiii. Where the exposition is fairly explicit is with respect to indus- trial policies. These show a continued move away from mechanical targeting policies and associated credit allocations towards greater use of indirect instruments, such are the new Investment Orientation Tax. While this trend is welcomed it will need to accelerate and to place less emphasis on the use of countervailing distortions, such as this tax. xiv. With respect to policies to correct market failure, we have focussed our analysis on two such issues: balancing the pace of regional development; and creation of sufficient employment generation via the tertiary sector. This plan does not have regional policy as a key instrument of the overall development strategy, as was the case of the 7th FYP with its emphasis on the coastal development strategy. Rather, it focusses on ways to maximize growth in each region, and to re-distribute income as appropriate. However, the Plan pays no attention to the major policy issues that appear to have generated the present pattern of income distribution, notably pricing policies, provincial economic policy-making discretion, and the location of SOEs, If the authori- ties are concerned about emerging patterns of regional income distribution, these seem to be the issues to be addressed. While general economic reform and progress will, therefore, be the key to continued poverty reduction in China, recent analysis has shown there to be pockets of absolute poverty in certain resource-poor areas, where more direct action is warranted. xv. The Plan recognizes the heavy burden of employment creation facing the economy, and has only modest aims in this regard. For example, it antici- pates that open unemployment will rise from 2.5 percent to 3.5 percent and that no significant progress will be made on reducing underemployment. How- ever, it recognizes the potential key role of the services sector in creating employment opportunities, by targeting for a 9 percent growth in the tertiary sector. However, while the target seems appropriate and potentially achiev- -xv- able, no supporting policies are outlined. Among the more important that seem to merit attention are those that would create an enabling framework for the sector, including efficient licensing systems, access to credit and contract- ing out of various government services. xvi. Increasingly, the more traditional aspects of the plan, in terms of investment programming and output targeting, will have to be limited to those parts of the economy where government provision of services or production of goods will remain dominant, as in the transport sector (paras. xxviii.- xxxii.). Similarly, there will be the need for continued government attention to issues concerned with improving the environment. One key issue for the future will be industrial restructuring for the SOEs, especially given the increasing burden they are placing on the budget. However, while the policy framework includes some appropriate concerns--such as the granting of trade rights and the reduction of mandatory plans--too much of the solution is being sought through technical improvements and through disguised subsidies, espe- cially on credit and via tax exemptions. In short, as restructuring policies are refined, they should concentrate more on the removal of disadvantages imposed on the SOEs and less on the provision of countervailing advantages. China's Reform experience since 1979 xvii. In identifying reform priorities for the coming period, it is appro- priate to start from an assessment of the successes and failures of past reform experience. Such an assessment can now be done on an objective basis because of the passage of time and the availability of recent research results. However, in drawing broader lessons from this experience, it is important to understand clearly the initial conditions under which the reform was launched. Three factors are key in China in this regard: the absence of severe macroeconomic crisis at the start of the program, so that harsh stabi- lization measures could be avoided; the state of agriculture, with its good infrastructure but poor incentives; and the presence of Hong Kong, as a source of inspiration, expertise and investment. xviii. As the reform program has developed in China, four distinctive fea- tures in terms of reform style have emerged: (a) Gradualism and Experimentation. China has tended to spread changes over several years, and usually after considerable experimentation and adaptation. Its large size and provincial structure foster such experiments and make such an approach appropriate, if not inevita- ble. (b) Partial Reforms. One of the distinctive features of China's reform has been the apparent success of partial reforms within sectors, notably the two-tier price system, which has created a situation in which marginal decisions are based on market prices, and market skills can be learned without economic dislocation. (c) Decentralization. Decentralization of decision-making power to enterprises, individuals and local governments has been a key theme of reforms, enhancing microeconomic incentives and creating a strong interest group in favor of continued reform deepening. - xvi (d) Self-Reinforcing Reforms. Reforms in one area created pressures for matching reforms in other areas, and policymakers have in general seen their interests served best by meeting such pressures with new reforms rather than by administrative protectionism, albeit some- times with a considerable lag. xix. China's approach to reform has been demonstrably effective, particu- larly in terms of its impact in four distinct areas: (a) Output and Welfare. GNP has grown about 50 percent faster during the reform period, especially in light industry and services. This has resulted in enormous improvements in consumption levels (more than doubled over the decade) and in the lifting of 160 million from poverty since 1979. (b) Productivity. The key to this has been that growth has come via productivity gains, which were close to zero in the 1949-79 period, but accounted for 3-4 percent per annum of growth during reforms. (c) The Role of the State. The state used to dominate savings and investment, but now, most savings are generated by individuals and enterprises, and investment is financed by retained profits and banks. Even more dramatic is the changing role of state-owned enterprises, which accounted for almost all output in the prereform period, but now nonstate industry employs almost 100 million people and produces 45 percent of industrial output. (d) Trade. The share of trade in GNP has risen from just under 10 per- cent in 1978 to over 30 percent in 1990, and there are over 20,000 sino-foreign joint ventures in operation. xx. Despite the great progress achieved to date, the gradual approach means that much remains to be done, and reform priorities can be identified in six key areas: (a) enterprise reform, especially the question of ownership reform for the state-owned enterprises; (b) financial sector issues, especially the reduction of forced policy lending by commercial banks; (c) fiscal reforms, to replace the present revenue generation system with a diversified tax system; (d) external reforms, and especially reduced import protection; (e) further price reform, particularly for such distorted prices of raw materials and agriculture; and (f) social sector reforms, primarily those which improve labor mobility by converting nonwage benefits such as housing and pension rights, to wages. In addition, the government will need to be increasingly concerned in this decade with issues that affect the envi- ronment and with poverty alleviation, although these topics are not addressed directly in this report. The adequacy of the reform plan's proposals in each of these areas is discussed in the next section. xxi. The final issues addressed in considering China's reform experience to date are concerned with conclusions of more general applicability that can be reached, and the sustainability of the approach. Five key features of China's experience seem to have wider applicability: agriculture as an entry point for reform; the success of "marketization" of the enterprise sector, instead of privatization; the key role of changing the interest of the bureau- - xvii - cracy; the impact of developing exports at an early stage; and the role of the state in maintaining stability by looking after the most affected. xxii. Given the lack of historical precedents for the Chinese approach, the question of its sustainability overtime must be addressed. On balance, it is judged that the approach is sustainable, because: (a) the Chinese reform has generated intensive development, and the consequent generation of true welfare changes; and (b) China has generally responded to the problems arising out of reform by deepening reforms, which suggests that deep crisis can be avoided via a process of continued incremental change. Nevertheless, the key will be in how well China responds to the reform challenges still to be addressed (para. xx). Reform Prospects xxiii. During three years of stabilization curing 1988-91, when reforms were given less prominence, a surprising degree of progress was achieved, not least because of the imperatives of the fiscal situation. Most important, several key prices were adjusted substantially, notably the prices of grain, oilseeds, coal, and transportation, in some cases for the first time in 20 years. In addition, a new round of trade reform and extension of the coverage of the foreign exchange adjustment centers lent further impetus to the export drive. Finally, reform experiments were extended and widened in various areas, notably in housing and in the separation of profits and taxes. xxiv. The prospects for a deepening of economic reform have improved sharply of late, since the visit of Deng Xiaoping to Southern China in the spring, and various reform initiatives have either been launched or are being actively prepared at the local level since that time. However, this report takes as its point of basic reference the reform plan contained in the 8th FYP issued in 1991, and some of the observations made about the shortcomings of this plan are already being addressed by the Chinese authorities at various levels. Nevertheless, these shortcomings merit continued attention as the government reviews its overall reform strategy and its specific reform pro- posals in preparation for the 14th Party Congress later in 1992. XXV. This reform plan is a rather comprehensive statement of intention in all the major areas of reform, some of which are new and of considerable interest and importance. Notable among these are: a program to expand the number of enterprise groups to 100 from the present 57, with groups which would cross ministerial, bureau or even provincial boundaries, and be the locus of many other reforms initiatives, such as the formation of joint stock companies; a renewed emphasis on price reform and a clear commitment to elimi- nate major distortions, even if not necessarily via markets; a new focus on reform of the distribution system, and on the formation of an integrated national market; a major initiative on social sector reformss especially hous- ing, social security and unemployment and medical insurance; and further reforms of the investment system. xxvi. In reviewing this reform plan, it can be seen to be relatively com- prehensive, and to propose appropriate reforms in many areas. One general issue is that, in most areas, it suggests only preparatory actions during the 8th FYP, leaving implementation to the 9th FYP, although recent announcements - xviii - suggest this position may already have been overtaken. Such caution seems neither desirable, nor necessary, given the state of the economy, and the state of preparation. This would seem to be the case in particular for price reforms, and for fiscal reforms. In addition, four key areas of reform seem to merit particular care or greater attention. (a) Ownership Reform Issues. Enterprise reform remains the central challenge in China, particularly those reforms which will enable SOEs to become efficient and competitive. The government has very little to say at present as to how it will represent its ownership function in the future. Experience suggests that the preparation time in this regard can be extensive, so this would call for a much more aggressive program of reform experiments, especially in such' areas as joint-stock companies, and the separation of profits from taxes, as well as the improvement of the legal framework and accounting systems. Nevertheless, while there are clear incremental gains to be made in China's SOEs, it must be noted that interna- tional experience casts doubt on the ability of the SOEs to attain the same level of efficieney as private enterprises, so long as the SOEs remain dominant. (b) Enterprise Groups. The great interest in this idea is that such groups would cut across the present interest structuz that currently impacts on the performance of the SOEs. As such, it is a development to be very much welcomed, but with one major caveat. Great care will need to be taken with respect to competition policy, as such groups could rapidly create monopolistic positions. In particular the role of the TVEs should be invoked in this regard, both as a direct source of competition, and potentially as leading enterprises of such groups. A key to the achievement of greater efficiency gains could be the future taking over of loss-making SOEs by efficient, aggressive nonstate-owned enterprises. (c) Financial Sector Issues. The government hopes to create banks that are fully responsible for credit risk, but at the same time, it continues to impose tight control on banks to ensure that its key enterprises and key projects receive funding, which is clearly con- tradictory with the first aim. The solution seems to be to find alternative methods to fund these priorities, and the suggested route is to convert the State Investment Corporations into true investment banks issuing bonds to generate financing for such investments. (d) Role of the External Sector. While much progress has been made on the export policy framework, and the performance of China's external sector has been remarkable, it continues to have relatively little impact on the domestic economy, except in provinces such as Guangdong and Fujian. In particular, the external sector--with respect to both imports and foreign investment--is seen only as a source of foreign capital and technology, and not as a source of competitive pressure for innovation for domestic enterprises. This crucial link between an outward orientation and enterprise reform deserves to be revisited as the reform plan is refined. - xix - xxvii. It seems clear that there is once again a major impetus for reform in China, and a recognition that only via reform can further efficiency gains be achieved. Moreover, it is also beginning to be seen that, far from the economic cycles of Tihe latter 1980s having been caused by reform, rather they reflected inadequate reform in the area of the development of instruments of indirect economic management. Indeed, only with further, deeper reforms can there be economic gains while avoiding the strong cyclical pattern of the 1980s. However, the reform program seems to be weakest in the very areas that would do most to strengthen macroeconomic management capability, and it is therefore in these same areas that incremental attention should be addressed. The Transport Plan xxviii. The transport sector has long been one of the main bottlenecks in the economy, serving not only as a constraint to the achievable rate of non- inflationary growth, but also as an impediment to efficiency gains through greater integration of the national market. As such, the plan for the trans- port sector should be seen very much in the light of its links to the rest of the economy, and to the achievement of the development and reform plans. xxix. The reason that this sector has for so long been a constraint on the rest of the economy is clear: there have been decades of underinvestment in the sector, not least because of the importance attached to regional self- sufficiency during the pre-reform era. It must also be recognized that any economy would have had difficulties keeping up in terms of the provision of transport infrastructure with the rapid overall rate of economic growth in the 1980s. When compared to other countries, China has a very small transport network in terms of population and area covered. China's investment in trans- port in the last ten years has been 1.4 percent of GDP, compared with 2-3 percent for countries such as Korea, India and Brazil. xxx. The plan for the transport sector gives an appropriate emphasis to transport investments that would help to integrate the national market. In particular, there is a focus on two key areas: expansion of highways and efficiency improvements on the railways. For the latter, the main priority continues to be to relieve coal transport bottlenecks, but the focus is on double-tracking, electrification and related improvements rather than new lines. The railways will dominate overall investments in the sector, at an estimated Y 116 billion in today's prices, about 0.8 percent of GNP. The highways plan is based on traffic growth projections of 14-15 percent per annum, with a particular focus on interprovincial highways and expressways, reflecting the key importance being attached to the role of the trucking industry. Given good progress in the 1980s, less attention is given to ports, but civil aviation is expected to expand rapidly, at about 12 percent per annum, with major focus not on network expansion but on airport improvement and increased numbers of aircraft. xxxi. There are three key issues that emerge within the transport plan; financing, pricing and competition, and the role of the trucking industry. (a) Financing. While there may be some increased budget allocation for transport investments, the main source of incremental revenue is seen as higher use charges, both at the national and local levels. - xx - While there is much scope for this, and it is an appropriate direc- tion--especially with respect to tariff adjustment--care will need to be taken to select fitting instruments. This is especially so in highways, where there is an absence of sufficient use charges on fuels, but the presence of many toll roads. A greater reliance on the former could lead to efficiency gains, especially in terms of road selection by users, and average speeds. Similarly, use of bonds could be expanded as a source of financing for some high uti- lization, high quality facilities, However, with full financing by no means assured, government will need to monitor this carefully and take appropriate actions if necessary. (b) Pricing and Competition. Major progress has been made during the 7th FYP period in eliminating some of the most serious pricing dis- tortions. Nevertheless, further progress is needed if the sector is to generate the necessary investment resources. In contrast, truck- ing tariffs are unusually high, and five to ten times unit rates on the railways. The key to stimulating road-rail competition is bringing these rates closer together, and while some further adjust- ment of rail tariffs can be expected, much will have to come from lowering trucking rates through encouraging competition. In partic- ular, this should come through stimulating the role of TVEs in the provision of trucking services. (c) The Trucking Industry. This is the most backward sector in relative terms in China's transport sector and will have a critical role to play in transport diversification, and new initiatives are needed to increase efficiency and lower costs. The key issue is the common practice of trucking via own account trucks, with very few common carriers, and these mainly publicly owned. One consequence of this is very low load factors, as many trucks return empty. Similarly, the low load-bearing capacity of most roads reduces the average truck size. In addition, as noted, this is a sector where small enterprises could play a key role given the opportunity. xxxii. In short, the 8th FYP for transport appears to give the sector the priority it requires and attempts to remedy longstanding neglect. However, the pricing and institutional reforms that have been identified are critical to the achievement of the aims of the transport plan, and thus to the wider aims of the development plan itself. Macroeconomic Prospects xxxiii. China's macroeconomic prospects have been considered under three scenarios, which differ in terms of the policy framework to be adopted and the associated efficiency gains. The base case assumes a moderate, steady pace of reform over the decade. The accelerated reform case assumes that the pace of reform quickens in the next year or so, particularly in price, financial, trade and f iscal reforms, with consequent gains in efficiency. The slow case, in contrast, assumes a repetition of some of the economic cycles of the 1980s, with their associated reform cycles. In each case, however, we see a strong growth performance, and continued creditworthiness. The key distinctions between the - xxi - cases are in the degree of efficiency improvement, and consequently in the level of welfare. xxxiv. The base case assumes that China makes good progress with a wide range of reforms, on an accelerated schedule compared with the reform plan. It thus assumes that growth will be on average rather higher than the government target at about 7.5 percent per annum. The impact of reform is reflected in a gradually falling investment requirement over the period, from 37 percent of GDP in 1990, to 33 percent by the end of the decade, indicating efficiency improvements. Inflation control is assumed to remain a priority for the government--hence the lower rate of growth than in the 1980s--and inflation is expected to be in the 5-6 percent range over the period. Any sign of a return to double-digit infla- tion is expected to generate the sort of firm policy response that was witnessed in 1988-89. The growth pattern under this scenario is projected to be in line with the 8th FYP's targets, with industry showing more moderate growth, at about 6-8 percent in GDP terms, while the services sector, and especially transport, finance and information services, is projected to be the leading source of growth, at around 9 percent per annum. xxxv. The external sector is also projected to continue to expand its role in the economy, with both exports and imports growing faster than GDP. The export (volume) growth rate is projected to be in the 7.5-9 percent range, while we expect a very rapid growth of imports for a year or two, to eliminate the present trade surplus, and thereafter growth at about 8 percent. The strong emphasis on technical modernization in the development strategy is thus expected to be reflected.in particular in higher capital goods imports, which we expect to grow at about 10 percent a year. Nevertheless, the current account deficit is not expected to exceed 1.3 percent of GDP, keeping debt within manageable levels, and in fact declining as a share of GDP. With relatively small additions to the level of reserves, the net external financing requirement barely exceeds the current account deficit. In the base, about $4 billion is projected on average to come from foreign direct investment, and thus the net external borrowing requirement is about $6 billion per annum on average over the course of the decade. The distribution of such borrowing between official and private sources is expected to be a bit more favorable to China than in the last decade, as more and larger sources of official financing are now available. xxxvi. The slow reform scenario assumes that with less progress in reform in particular with respect to the development of macroeconomic management capabil- ity, and the state-owned enterprises, there would be a consequent repetition of the stop-go cycles of the 1980s. It is not expected that this would have a severe impact on the average growth rate--even in 1989, at the height of the austerity program, GDP grew by 4.6 percent--but rather it would be reflected in three things: a higher investment requirement and thus significantly lower rate of consumption growth; a higher average inflation rate, nearer to 10 percent per annum on average, because of the high rates during the "booms"; and a lower rate of foreign direct investment, because of the economic instability. xxxvii. The accelerated reform case assumes a much more aggressive attack on these issues, commencing in the next year or so. This would have three primary effects: GDP would rise by an average of about 8.5 percent a year in response to efficiency gains, as experience has shown in China that reforms launched in periods of macroeconomic stability have a strong growth effect as people respond - xxii - to the new incentives; similarly, more products would become export-competitive, raising average trade levels; and in response to these reforms, foreign direct investment would rise rapidly. In the higher scenario, FDI would rise to about $5 billion per annum, while in the slow case it would be about $3 billion, the lowest it has been in the recent past. In the slow case, therefore, debt ratios are somewhat worse than the base case, while in the accelerated case they are better. It is to be noted that in this scenario we do not project any increase in the rate of inflation above the base case of 5-6 percent rate, associated with the higher growth rate. This is because it is assumed that the accelerated reform would strongly impinge upon fiscal and financial areas, which would reinforce the effectiveness of macroeconomic management under conditions of rapid growth. Nevertheless, we would urge caution in permitting sustained growth above this rate, and specifically sustained growth rates of 10 percent per annum or more, as these would cause overheating and inflation, which would interfere with the orderly implementation of reforms. xxxviii. Under all three of our scenarios China would continue to enjoy a strong creditworthiness position, with all indicators remaining very good. Total debt outstanding stood at only 15.4 percent of GDP in 1991, and under our base scenario, this would fall to 11.4 percent in the year 2000, and stay between these two levels throughout the decade. Even in the low case, debt would not rise above 16 percent of GDP, and would be only 9.4 percent in the high case. The associated debt service levels also remain manageable, at a peak of 11.5 per- cent of export earnings in 1992, falling to only 7.7 percent in the year 2000. Iowever, even with these modest indicators, it should be emphasized that in a different sense they cannot be regarded as conservative, in that the absolute level of debt would double over the decade to $113 billion in the year 2000, placing China among the ranks of the most highly indebted developing countries in absolute terms, which would mean that China would account for a very substan- tial proportion of total new net debt to developing countries over the decade. xxxix. In summary, these scenarios demonstrate two things: first, the policy decisions that will be taken will have a clear and measurable impact on economic variables, and we have attempted to indicate the orders of magnitude of such impact under different policy frameworks; second, our assessment has shown that within the range of what could be considered likely outcomes, China is likely to continue to enjoy healthy growth, and to continue to enjoy a strong credit- worthiness position. xl. This report has reviewed China's past experience with reform and its prospects for the future. It finds great opportunities for China to move forward and enjoy a continued strong economic performance if these opportunities are grasped. But this will require strong reform efforts by the Chinese government, for without changes to the present policy framework, it is unlikely that the current problems facing the economy could be solved. The indications are that these opportunities will indeed be grasped, and that the decade will see economic gains at least as great as those of the 1980s. I. RECENT ECONOMIC DEVELOPMENTS A. Introduction 1.1 By early 1990, the serious inflation and overheating of the economy that had been seen in 1987/88 had been overcome, and the more pressing issue had become the need to restart the economy, which was suffering heavily from the downturn in economic activity.' Therefore, this chapter is concerned primarily with the manner of China's emergence from recession since 1990. In many respects, this recovery has been remarkable, in that growth in 1991 has returned to the 7 percent region, with industrial output growth well into double figures, but without the reemergence of inflation or with any negative impact on the external accounts. This growth has returned partly as a natural upswing in activity at the end of the cycle, and even more as a result of explicit government policies to stimulate economic activity. 1.2 There are two main questions that this chapter attempts to address. First, there is the question of the sustainability of the recovery in view of the way in which it has been initiated. Just as there was a heavy reliance on a tightening of money and credit policies in 1989 to overcome inflation, so has there also been a heavy reliance on such policies to stimulate the recov- ery, which raises the obvious question of whether this approach is likely to generate inflationary pressures. The second issue is therefore whether the recovery can be sustained without a repetition of the earlier economic cycles that have characterized the Chinese economy in the 1980s, or at least with a dampening of their amplitude. 1.3 To a large extent, these past cycles have occurred because of the inadequacy of the macroeconomic policy instruments and, in particular, the lack of indirect economic levers available to the government.2 More recently, however, such tools have been used with greater frequency and effect, which permits more emphasis to be placed on an assessment of the effi- cacy with which such tools have been used. The links between these assess- ments and the rest of the report should be clear: continued success of the reform process and attainment of the goals of the Eighth Five-Year Plan (8th FYP) depend on achieving sustainable growth with macroeconomic stability, primarily through indirect management of the economy.3 B. Monetary and Credit Policies Background 1.4 In 1988, Chinese policymakers confronted an economy which was seri- ously overheated, as described in detail in the World Bank's last two CEMs on China. This prompted the authorities to act quickly, shelving plans for fur- ther price adjustments and adopting a stabilization program, consisting both of direct administrative interventions, including reduction of state invest- ment outlays by 20 percent, freezing prices of basic goods and tight credit controls and also more intensive and successful use of indirect policy levers. Nominal interest rates on deposits were increased by more than four percentage points, and the People's Bank of China (PBC) introduced long-term indexed savings accounts to reverse the depletion of deposits and to encourage longer- -2- term savings. These decisive actions proved to be highly effective in reduc- ing inflation and, by restoring confidence, curbing inflationary expectations. By mid-1989, the annualized monthly rate of inflation, seasonally adjusted, had already declined to single-digit levels. However, measures to establish stricter controls over aggregate demand led to a sharp contraction of output growth and sales, especially in late 1989. The authorities were therefore faced in 1990 with a very different set of economic problems to address. Money and Credit in 1990 and 1991 1.5 It is clear that, by early 1990, it was appropriate to begin to reflate the economy, as inflation was no longer a short-term threat, and the economy presented Chinese policymakers with a somber picture characterized by rising (open and disguised) unemployment; rising losses or declining profits in most large and medium state-owned enterprises (SOEs);l/ stagnant indus- trial production and retail sales; rising tax and credit delinquency and major fiscal difficulties; and high and rising inventories of unsold (industrial, agricultural and finished) goods. Moreover, 1989 had witnessed considerable disintermediation in the banking system, with rapidly growing interenterprise arrears (the so-called "debt-triangle"), and all these circumstances called for some relaxation by PBC of monetary policy in 1990.2/ 1.6 The 1990 Credit Plan. PBC's initial credit plan was Y 170 billion for the year--about the same as the actual credit growth for 1989--but this was raised on three occasions, for a total credit expansion of Y 276 billion in 1990, yielding total credit growth of 22.3 percent for the year. Several factors explain this outcome. First, it was decided to guarantee credit to key state enterprises and projects. The result was, on the one hand, that as much as 80 percent of working capital loans, above the initial credit target, went to finance the rapid accumulation of inventories, and to finance opera- tional expenditures of SOEs such as overdue taxes and salaries. In addition, as much as Y 30 billion went to help clear interenterprise arrears, which reached a peak of Y 158 billion during the year. At the same time, as part of the reflation strategy, the level of fixed asset investment financed by the specialized banks rose significantly, which facilitated a growth in investment by state-owned units of 11.5 percent, and it was these units that explained 1/ "Poor economic performance in enterprises constitutes the main obstacle to China's economic development and the major cause of its financial difficulties. In the past few years, the enterprises' economic perfor- mance has been fairly poor, and the profit from their operation, both the total and the part turned over to the financial authorities, has been steadily decreasing, while their losses have been increasing," Report on the Implementation of the State Budget for 1990 and on the Draft State Budget for 1991, Speech delivered at the 4th Session of the 7th NPC Con- gress on March 26, 1991 by Finance Minister Wang Bingqian. 2/ Three alternative strategies were discussed in China for the reflation of the economy: to relax credit, especially to SOEs; to expand public investment rapidly in economic infrastructure; or to increase incentives for consumption through reduced interest rates. While all three were used to some extent, it was the first that received greatest attention. -3 the entire growth in fixed investment in 1990.3/ It should be noted that restraints on lending to Township and Village Enterprises (TVEs), introduced in the last quarter of 1988, were also relaxed, and Rural Credit Cooperatives (RCCs) increased their lending to TVEs by 35 percent in 1990. 1.7 Second, it was necessary for the authorities to guarantee credit to procure 1990's bumper grain harvest, and PBC allocated above Y 20 billion in new credits for this purpose. In practice, credits to procure agricultural crops are excluded from the credit ceiling, as illustrated by the credit plan of Henan, a largely wheat-producing province.4/ Third, PBC executed the 1990 credit plan with more flexibility than in previous years, letting its provincial branches exceed their credit quotas by up to 5 percent, allocating any excess among the banks under their jurisdiction. It also appears to be the case, however, that this flexibility was exercised primarily in the inte- rior provinces and the Northeast, and that credit limits continued to be applied quite strictly in the major cities and coastal areas. 1.8 Most of the additional requests for credit financing during 1990 could not be foreseen by the monetary authorities at the beginning of the year, such as unplanned losses of SOEs and to finance crop purchases, given the record grain harvest. In other countries, these are usually the responsi- bility of the budget authorities. This delayed progress in achieving a more complete separation of fiscal and monetary functions. As a result of the expansionary pressures from the domestic front, Net Domestic Assets (NDA) grew at an annual rate of 24 percent by the end of 1990. 1.9 The credit plan for 1991 postulated a reduction of credit expansion from the Y 276 billion level of 1990 to Y 210 billion in 1991, with Y 145 bil- lion for working capital, Y 10 billion for agriculture and Y 50 billion for 31 In spite of the rapid growth of these longer-term loans in 1990, their relative importance in the stock of total outstanding bank loans remained under 10 percent. 4/ Henan's Credit Plan. Henan's 1990 credit plan amounted to Y 12.4 billion (4.5 percent of the national plan), well in excess of the allocation at the beginning of the year. This outcome reflected the rapid growth in lending to procure agricultural products, as well as the increase in working capital loans to finance the accumulation of unsold inventories in the province., A feature giving an expansionary bias to the provin- cial credit plan results from the flexibility and practical automaticity in exceeding the planned allocation of funds when bank loans are granted to procure agricultural goods. The initial credit plan for 1991 foresaw an expansion of Y 6.3 billion, which was seen as clearly insufficient by the provincial authorities, given the demand for working capital to finance inventories and the rapid growth in bank deposits in Flenan which has resulted in a rapid rise in excess reserves. Demand pressiures gener- ally become particularly intense during the second semester of the year, when--given the marked seasonal pattern of the demand for agricultural loans--about 70 percent of total annual bank credit is granted, while banks are extremely liquid and anxious to expand their assets in order to improve their financial results. -4- fixed capital investment. Most of the proposed cuts would have fallen on working capital, based on the notion that the recovery of retail sales would reduce the need for bank credit for this purpose. As it turned out, the credit plan target was exceeded by Y 80 billion in 1991, driven in part by a credit infusion of an additional Y 35 billion to reduce the problem of inter- enterprise debt as well as credit to finance recovery from flood damage.5/ Seasonally adjusted domestic credit increased by more than 20 percent in each of the first three quarters (23.8, 20.5 and 22.9 percent, respectively) before slowing to 14.4 percent growth in the final quarter of 1991. The 1992 credit plan had not been finalized at the time of preparation of this report, and the PBC intends to monitor the performance of the economy and inflation in the first two quarters before setting a target for the year. The Governor of the PBC indicated, however, that credit expansion in 1992 would not exceed the nominal increase in 1991, i.e., Y 345 billion. 1.10 Net Foreign Assets, Reserve Money and Broad Money. The balance of payments strengthened sharply in response to the stabilization program (see Section E below). Therefore, the financing of the large accumulation of for- eign reserves in 1990 and 1991 ($11.6 and $14.1 billion respectively) provided an additional impetus to the overall level of domestic liquidity, while also changing the relative composition of the monetary base significantly. As shown in Table 1.1, Net Foreign Assets (NFA) trebled from 5 percent of PBC's reserve money in 1988 to over 16 percent at the end of 1991. In addition, due to the rapid growth of international reserves, broad money (M2) grew faster than Net Domestic Assets in 1990 and again in 1991, albeit by a smaller amount, fueling a rapid growth of reserve money (see Graph 1.1).6/ Table 1.1: RELATIVE COMPOSITION OF RESERVE MONEY (Percentages) December 1987 1988 1989 1990 1991 Net foreign assets 4.6 5.1 6.6 10.4 16e0 Claims on financial institutions 86.1 83.6 83.8 78.3 72.6 Other domestic assets 9.3 11.3 9.6 11.3 11.4 Reserve Money 100.0 100.0 100.0 100.0 100.0 5/ Total domestic credit expanded by Y 345 billion in 1991. However, using the credit plan definition, credit expansion was Y 289.5 billion. 61 Since evidence in China indicates that broad money is a good leading indicator of inflation, targeting broad money may be an efficient way to achieve macroeconomic stability and reduce the frequency and amplitude of the business cycles. -5- 1.11 One result of this growth has been the reversal of the decline in the ratio of excess reserves to deposits. With unchanged legal reserve requirements, the spectacular increase in bank deposits caused the ratio to double from 5.9 percent in 1988 to 13.5 percent at the end of 199i. The increase in bank deposits also allowed the rapid growth of credit to have minimal short-term impact on the price level, but this rate of credit expan- sion is clearly inconsistent with low and stable inflation in the medium term. Savings Deposits and Interest Rates 1.12 In 1989 total bank deposits grew by 19.3 percent, with household deposits rising by about 33 percent. In contrast, enterprise deposits rose only 5 percent, a steep decline in real terms, as enterprises were forced to draw down their deposits in the face of the shortage of credit, and to finance the rising level of interenterprise arrears.7/ In 1990, total bank deposits grew by 31 percent, a remarkably fast increase in real terms. Household total and time deposits continued to grow at annual rates of 30 and 41 percent, respectively, but it was the growth of enterprise sight and time deposits, by about 26 and 55 percent respectively, that caused this acceleration in total savings.8/ By the end of 1990, total deposits in the specialized and uni- versal banks had reached the level of Y 1,046 billion, equivalent to 60 per- cent of GDP (Table 1.2). This trend continued in 1991; by the end of the year, household deposits were 29 percent larger and enterprise deposits were 27 percent greater than in 1990, while total deposits had grown to Y 1,330 billion, or 67.9 percent of GNP. 1.13 The increase in household savings in 1990 and 1991, which was par- ticularly rapid in urban areas which accounted for 90 percent of growth, can be attributed to a mixture of policy and structural factors: (a) low inflationary expectations as a result of the impact of the aus- terity program, strengthened by an ample supply of agricultural goods and the reassuring presence of the indexation mechanism for longer-term deposits; 7/ Interestingly, however, enterprise term deposits, which accounted for only about 17 percent of total enterprise deposits at the beginning of the year, grew by almost 32 percent in that year. This was probably in response to two things: the postponement of investment projects during the "retrenchment programi," resulting in a temporary increase in demand for financial assets; and the abolition of punitively low interest rates on such deposits. Although enterprises were not eligible for indexed deposits, they received the same interest rates as individuals with effect from September 1988. 8/ By the end of 1990, enterprise deposits were 36.2 percent higher than at the end of 1988, while nominal GDP was up 24.5 percent, and if the com- parison is made on the basis of 1987, such deposits are still below "nor- mal." Therefore, a good proportion of the growth in such deposits in 1990 can be attributed to enterprises restoring balances to a normal level. Percentage Growth Rate 50 40 -/ 30 0+\/ ,= 20 i->W< 10 \e,,- 1 2 3 4 1 2 3 4 1 2 3 4 1 2 3 4 1988 I 1989 I 1990 I 1991 Ml i3 Broad Money ° Currency - 7- Table 1.2: SPECIALIZED AND COMPREHENSIVE BANKS: TOTAL DEPOSITS Growth Year-End (Y billion) Rate (%) 1988 1989 1990 1991 1990 1991 Enterprise Deposits 293 308 399 505 29.6 26.6 Sight 262 267 336 455 25.7 35.4 Term 31 41 64 50 55.0 -14.1 Household Deposits 259 363 501 647 38.0 29.1 Sight 60 61 76 102 24.4 34.2 Term 199 302 424 545 40.7 28.5 TVEs 6 6 7 9 18.3 28.6 Agricultural Collectives 2 2 2 2 11.8 5.3 RCCs 59 64 76 92 18.8 21.1 Other Deposits 50 56 61 74 9.5 21.3 Total Deposits 669 798 12046 1,330 31.0 27.2 Memorandum Items: Total Deposits/Total Liabilities 58.0 58.0 60.1 62.8 3.6 4.5 Household Deposits/Total Deposits 38.7 45.5 47.9 48.7 5.3 1.7 Liabilities to PBC/Total Liabilities 29.2 30.5 29.2 27.9 -4.3 -4,5 Total Deposits/GDP 47.7 50.3 59.0 67.9 19.1 15.1 Total Liabilities/GDP 82.3 86.8 98.1 108.1 14.9 10.3 Source: Annex Table 6.7. (b) record high real interest rates on bank deposits; (c) a rapid increase in urban real wages and incomes, of a reported 9.7 percent in urban areas in 1990 and a further 13.2 percent in 1991;9/ (d) an apparent increasing concentration of savings among nonstate and private workers, with a high propensity to save in view of both the relatively high level of their incomes as well as uncertainty over their future incomes; and (e) factors which might explain a more permanent shift in the savings function,4 including the aging of China's population, the increased uncertainty associated with a reduction of pension and health bene- -9/ Report on the Implementation of the 1990 Plan for National Economic and Social DeveloRment and the Draft 1991 Plan: speech delivered at the 4th Session of the NPC on March 26, 1991, by Zou Jiahua, Minister in charge of the State Planning Commission. - 8- fits,5 opportunities for financial bequests, and the expectation of an attractive housing reform, which might facilitate the purchase of new or existing properties. While the structural factors seem to explain an upward shift of the savings function over time, they seem less adequate to explain the recent accelera- tion. This suggests that the shorter term factors, and especially high inter- est rates and low price expectations, have been more important, casting some doubt on the longer-term stability of the incremental deposits in 1990, which exceeded incremental GDP by 55 percent in 1990, and 49 percent in 1991, with household deposits alone growing by the equivalent of 80 percent of incre- mental GNP. 1.14 In the short term, however, the growth in savings had two important effects. First, from a macroeconomic point of view, the very fast increase in household savings and enterprise deposits in the last two years made it possi- ble to finance the large accumulation of foreign assets and inventories of domestically-produced goods without exacerbating inflationary pressures. Second, the rapid increase of household savings deposits had two important sectoral effects. First, the relative share of the different sources of bank funds has changed significantly, in favor of the more expensive deposits, increasing the cost of funding bank operations. The share of household depos- its in total bank deposits rose by more than 9 percentage points over the period 1988-91, while term deposits rose from 34.5 percent of total deposits in 1988, to 45 percent at the end of 1991, putting additional pressure on the banks' financial margins. Second, the rapid increase of bank total assets and liabilities during 1990/91 resulted in a significant fall of the ratio of equity to assets, weakening the banks' capital adequacy. 1.15 Interest rate policy played a positive role in the stabilization program, with rates becoming highly positive in 1990 as a result of the rapid decline in the rate of inflation. In 1990, in an effort to stimulate the economy, PBC reduced rates across the board on two occasions (March and August) by a total of about 2.7 percentage points, followed by a further reduction of 1.08 points in April 1991. Nominal interest rates on one-year bank deposits have thus fallen from a peak of 11.34 percent in February 1989 to 7.56 percent in the second quarter of 1992, although this still leaves real rates higher than at the time of the first rate cut. The consensus forecast for the expected rate of inflation for 1992 is about 6 percent. If inflation were to rise beyond that range, real interest rates could become negative, and the government will need to be ready to use interest rate policy again to reduce inflationary expectations if this proves necessary, which would imply, inter alia, restoring the provisions for the indexation of interest rates on medium-term deposits. C. The Real Sector Overview 1.16 China's real GDP growth averaged a remarkable 9.6 percent per year between 1979, when major economic reforms were initiated, and 1988. Over the last two years of the decade, real growth slowed down substantially, falling from 11.2 percent in 1988, to 4.6 percent and 5.6 percent in 1989 and 1990, -9- respectively, as the government sought to cool down the economy in order to eliminate inflation. Economic activity was sluggish in the first half of 1990, but it accelerated in the second half,10/ aided by the rapid increase in credit, a moderate rise in public investment and a fast expansion of exports, and these trends continued throughout 1991, with GDP growing by 7 percent. Table 1.3: CHINA: SOURCES OF GROWTH OF GDP (1988-90) (Percentage Growth Rate in Constant 1980 Prices) Annual Percentage Change 1988 1989 1990 1991 GDP 11.2 4.6 5.6 7.0 Agriculture 2.5 3.1 7.5 3.2 Industry 15.3 5.1 5.7 11.4 Services and Other 12.3 4.8 3.9 2.8 Memorandum Items: Imports of GNFS La 25.0 12.1 -13.0 13.5 Exports of GNFS 15.4 5.4 10.7 16.1 GNP Deflator 11.4 8.9 5.1 4.1 Consumption 11.7 7.3 5.7 7.8 Gross Domestic Investment 10.8 -15.5 2.3 13.9 /a GNFS - Goods and Nonfactor Services. Source: Annex Tables 1.7 and 1.8, Sources of Growth Analysis 1.17 Industrial GNP growth slowed to 5.7 percent in 1990, and its share in total GNP growth fell to 43 percent. The services and construction sector grew steadily over these two years, but it was the agricultural sector, which grew by 7.5 percent, that enabled overall GDP growth to accelerate to 5.6 per- cent in 1990 while accounting for a remarkable 35 percent of aggregate GNP growth, its highest since 1982. 1.18 Similar shifts are also evident in the relative roles of demand-side factors in explaining aggregate growth since 1989. Whereas consumer spending has been the predominant influence in the past, slack domestic demand in 1990 had the result that only 24 percent of growth was generated by this source. The weak domestic market compelled many enterprises to look to foreign markets 'and a successful export drive increased the contribution of exports to 35 per- cent, while the cutback in imports contributed another 37 percent of the 10/ The quarterly rates of growth of GVIO were 0 percent, 4.1 percent, 5 per- cent and 14.2 percent. - 10 - growth in 1990. This is the biggest contribution of the foreign trade sector to China's growth since 1949. Table 1.4: CHINA: COMPARATIVE SUPPLY AND DEMAND-SIDE CONTRIBUTIONS TO GROWTH (In Percentage Points) 1988 1989 - 1990 1991 Rate Share Rate Share Rate Share Rate Share GDP Growth Rate 11.2 100 4.6 100 5.6 100 7.0 100 SupRlv Side Agriculture 0.7 6.3 0.8 17.8 2.0 34.7 0.9 12.0 Industry 6.2 55.4 2.2 47.1 2.4 43.3 4.8 69.2 Services and Other 4.3 38.3 1.6 35.1 1.2 22.0 1.3 18.8 Demand Side Total Consumption 7.7 69.1 4.0 87.1 1.4 24.8 4.5 65.1 Gross Domestic Investment 4.7 41.6 0.6 14.5 0.2 3.4 1.6 22.9 Exports of GNFS 2.1 18.9 1.2 25o7 1.9 34.5 2.3 32.6 Imports of GNFS -3.3 -29.6 -1.2 -27.3 2.1 37.3 -1.4 -20.6 Source: Annex Table 1.9(b). 1.19 Preliminary statistics for 1991 indicate that the economy returned to a much more "normal" pattern, with industry contributing two thirds of growth on the supply side, and consumption leading on the demand side, with trade more neutral. This is a further indication that after the extraordinary economic events of 1988-90, the last year has seen a return to the growth path of the mid-1980s. Industrial Output 1.20 The recovery of GVIO in 1990 followed very closely the expansion of credit and the subsequent improvement of consumer demand and retail sales (see Graph 1.2). One remarkable aspect of the industrial output picture in 1990 was that output of the SOEs grew by o,Lly 2.9 percent,6 compared with 11.1 per- cent for industrial TVEs, in spite of the strong preferential treatment received by SOEs in terms of access to credit, raw materials, imports and transport. Light industry grew 60 percent faster than heavy industry, thus maintaining the longer-term trend of a shrinking share of both SOEs and heavy industry in total GVIO (see Annex Table 9.2). As recently as 1985 SOEs had a 65 percent share of total GVIO, while in 1990 such share had fallen below 7 55 percent.7 The recovery of GVIO had also an important regional dimension, with coastal provinces like Guangdong, Fujian and Hainan growing in double figures (Guangdong by 17 percent), while the older industrial cities (e.g., Shanghai) and the Northeast showed very little growth. These trends continued in 1991, with the share of SOEs in GVIO falling to 52.8 percent, despite a CHINA: REAL GROSS VALUE OF INDUSTRIAL OUTPUT & RETAIL SALES Annual Percentage Change 30 25 20 . 1 r -. -10 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1989 1 1990 I 1991 - Real GVIO ^ Retail Sales - 12 - relatively strong output growth of 8 percent, as TVE output grew over 14 per- cent, and foreign enterprises' output by over 45 percent. Agricultural Output 1.21 In 1990, the agricultural sector had excellent summer and fall har- vests, achieving a record level of grain output of 446 million tons, with annual output growth of 6.7 percent. China's agricultural growth in 1990 was not confined to grains alone. Cotton, oilseeds and sugar also did particu- larly well (see Annex Table 8.1). These good agricultural results in 1990 were achieved through a combination of good weather and policies directed at increasing agricultural investment, reversing the reduction in farming acre- age,1l/ continuing to increase procurement prices,l2/ while controlling prices of agricultural inputs (e.g., pesticides and chemical fertilizers) and mobilizing labor to extend and repair agricultural infrastructure, particular- ly irrigation. 1.22 Floods in Jiangsu and Anhui, major grain-producing provinces, had raised fears of a sharp drop in agricultural production in 1991. The results, however, bear testimony to the remarkable resilience of the agricultural sec- tor. While grain production is estimated to have dropped by 11 million tons from the record 1990 level to 435 million tons, this is still 28 million tons greater than the previous high of 407 million tons. Moreover, output of other crops such as cotton, oilseeds and sugar-bearing crops showed strong growth in 1991 with output levels greater than that achieved in 1990. Retail Sales and Inventories 1.23 Throughout 1990, there was much debate about the "sluggish market," as growth in retail sales followed output growth with a very considerable lag, growing by only 1.9 percent for the year,13/ but recording growth of 13.2 percent in 1991. This slow growth of sales in 1990 is, of course, the mirror of the high rate of savings. In particular, sales of consumer durables such as washing machines and refrigerators fell by about a quarter, confirming the view that the growth of savings reflected postponement of major purchases, or perhaps even saturation for certain consumer durables. However, with the 11/ "The overall acreage for crop production increased from 2.173 billion mu (one hectare - 15 mu) in 1988 to 2.198 billion mu in 1989 and that for grain was enlarged from 1.652 billion mu to 1.683 billion mu over the same period and again to 1.7 billion mu in 1990," in You Ji and Wang Yuesheng, "China's Agricultural. Development and Reform in 1990," in China Review, Hong-Kong, 1991, p. 12.6. 12/ Over and above the price increases already registered for 1989, i.e., 27 percent for grain and 23 percent for cotton, the state again raised in 1990 the purchasing prices for agricultural products as follows: cotton 27.1 percent, oil-bearing products 28.3 percent and sugar 10 percent. Op. cit., p. 12.6. 13/ The low had been negative growth of 8.5 percent in real terms at the end of 1989. - 13 - relaxed credit stance financing output growth, the sluggish market rapidly generated large accumulations of inventories. 1.24 The mismatch between industrial production and retail sales during 1989-91 created a disequilibrium growth of inventory both at enterprise level and, to a lesser extent, with commercial departments. Graph 1.3 indicates the behavior of inventory held by commercial units as a reflection of their pro- curement and sales between January 1989 and September 1991. The period between September and December 1990 saw a buildup of inventory with commercial departments, driven largely by the procurement of the bumper harvest of grain and edible oil.14/ For the year as a whole, the inventory of grain and edible oil grew by 31 and 27 percent, respectively. Commercial units also saw a sharp increase in their inventories of specific consumer durables such as television sets (which increased by 22 and 37 percent, respectively, in 1989 and 1990) and electric fans (which rose by 37 and 22 percent, respectively, in 1990 and 1991), and faced difficulties in unloading previously built-up stocks of other items such as refrigerators and washing machines. However, the period 1990 and 1991 also saw commercial units cutting back on purchases of consumer durables, backing the problem of excess production to the enterprise. Commercial inventories of several consumer goods had declined substantially by the end of 1991 and stocks of producer goods with commercial units had also been reduced after peaking in 1989. The inventory problem in 1991 was thus largely concentrated in the enterprise sector. The value of inventories with enterprises and industrial departments increased from Y 90 billion in 1989 to Y 116 billion by 1990 and reached a peak of Y 136 billion in June 1991.15/ In September, the authorities initiated measures to curb production of items in excess supply--enterprises producing unsalable products were asked to curb production and banks were instructed to extend credit only to enterprises that succeeded in reducing their inventory. Whereas the first half of 1991 saw industrial production rise by 9.9 percent and inventories grow by 20 percent, the growth rate of industrial output fell by 5.5 percent in the second half of 1991, while inventories fell by 13.4 percent, from Y 136 billion in June 1991 to Y 113.1 billion by year-end. Correspondingly, enterprise profitability improved from -17.5 percent to +2.8 percent. 1.25 What Annex Tables 13.6-13.9 indicate clearly is that enterprises reacted slower than consumers to the austerity program of 1989, in that sales fell faster than output, but were faster than consumers to respond to the subsequent relaxed credit stance, as output grew more rapidly than sales. This is the expected response of enterprises not fully subject to hard budget constraints, and reflects strategic behavior directed at putting pressure on policymakers to reverse contractionary policies,8 given the authorities' desires to maintain employment. In other words, enterprises doubt the cred- 14/ The purchases of grain in November and December 1990 were 19 and 40 per- cent greater than the corresponding months in 1989. 15/ These inventory figures refer to stockpiles held by budgeted state-owqned industrial enterprises which are additional to the figure for inventory held by commercial units. The latter are cited by the China Statistics Monthly and are three times as large. Most of the recent growth in inventory has been in the stocks held by enterprises. CHINA: COMMERCIAL INVENTORY CHANGES Billion Yuan Nominal Values 1989-91 160 140 - 120 - 100 - 60 - 40- 20 0 -20 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 1989 I 1990 I 1991 1992 -Purchases Sales E Changes in Inventory - 15 - ibility of contractionary policies, and try to position themselves well for the economic conditions that will exist if contractionary policies are aban- doned.9 It had appeared that the determination of the authorities in 1989 to implement the austerity program was going to moderate this kind of behavior by enterprises, but the manner of the relaxation of the policy in 1990 has served to reinforce the appearance that such behavior actually pays. D. Price Developments 1.26 The most significant and obvious achievement of the rectification program in China has been the remarkable speed with which the rate of infla- tion has declined. The retail price index, and the index of free market prices were both growing at close to 30 percent at the end of 1988, and within one year this was down to single digits. The average increase in the retail price index for 1990 was only 2.1 percent and 2.9 percent for 1991, with mar- ket price indices falling in both years. The question to be addressed, how- ever, is whether there is imminent risk that inflation will reemerge some time in the near future. 1.27 In 1990 price pressures continued to fall. The most significant factors to explain this were sluggish domestic demand, large inventories, and the second bumper grain harvest in succession. In these circumstances, China witnessed the unexpected phenomenon of appreciable reductions in the free market price index, which fell by 9 percent in 1990, while retail prices rose by 2.1 percent in 1990 and the broader based cost of living index (which includes the effect of service price movements) increased by 1.3 percent. In 1991, despite a decline in market prices, the retail price index grew by 2.9 percent and the cost of living index increased by 5.1 percent as the government seized the opportunity to adjust administered prices. The upward adjustment of food ration prices and increases in the administered price of urban services had the effect of increasing the cost of living index for 35 large and medium cities by approximately 8 percent in 1991.16/ Graph 1.4 illustrates the sharp upward spike in the retail price index in May 1991 as a reflection of the ration price adjustment in that month. 1.28 Evidence of inflationary pressure is best gauged by movements of market prices and while these largely showed a tendency to decline, the period since May 1991 has seen market prices firming up and even inching up slightly. The market price index, which had been negative from November 1989 to May 1991, was 1.7 percent higher in October 1991 than in October 1990, indicating the emergence of demand pressure. Moreover, nominal per capita urban incomes rose by 9.7 percent in 1990 and 13.2 percent in 1991, translating into sizable real income increases in both years as basic wages in SOEs increased by 13 percent in 1990 while bonuses expanded by 30.5 percent. At present most of this increased income has been saved, minimizing demand pressure, but the 16/ By October 1991, the prices of several urban services in the 35 large and medium cities had been raised--commuter bus fares were raised by 18.8 percent, running water by 16.6 percent, public bath charges by 20.4 percent, hospital registration fees by 12 percent, household elec- tricity by 5.3 percent, and house rents by 4.2 percent. CHINA: RETAIL PRICE INFLATION % Change Annualized Monthly Inflation 1989-91 80 -60 -§ 60 -40- -60 II I I I I'I I j I 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 1989 1 1990 I 1991 I * Unadj.Inflation - Adj. Inflation - 17 - possibility remains of the tiger emerging from the cage should consumers' expectations about price stability change. 1.29 The overall price reform program in China has two essential compo- nents: the introduction of greater use of markets in determining prices; and the adjustment of state fixed prices closer to market levels. While the move towards the greater use of markets has been gradual, there was significant relaxation in price control. This came in the form of a substantial reduction in the number of commodities where price adjustments remain subject to State Council approval, by relaxation of some of the additional administrative con- trols that had been imposed in 1989.10 By the end of 1989, some 50 items had been returned to central control, but by the second quarter of 1991 the list had been reduced to only six. Nevertheless, a substantial degree of indirect control remains through the continued operation of a system under which pro- vincial authorities are given targets for price increases in commodities which are part of the monitored basket for the retail price indices. The provincial price controllers are expected to keep annual price increases in these commod- ities to within a margin of 0.5 to 1.0 percentage point of these targets, which are designed to yield the Plan target for inflation for the year in question (e.g., 6 percent in 1991). 1.30 The Chinese government has taken advantage of the sluggish market to make a relatively large number of adjustments to administered prices during 1990 and 1991, a selective list of which appears at Table 1.5.' These adjustments are across the board in a wide range of commodities, but include some in which the government had for many years been unwilling to take any action at all. Indeed, it is these price adjustments that have probably accounted for much of the price increase so far registered (para. 1.26). Most notable of these were the increases of about 60 percent in urban grain prices and of over 150 percent in edible oil prices. However, the list of adjust- ments is very long, and in fact represents the highest level of activity in this area since the reform program began.'2 This experience has demonstrated a major lesson: if carried out in a period of tight macroeconomic management and excess supply, price reform has little impact on the overall price level in the short term. Rather, it has been reflected in declining rates of profit--and higher rates of loss--in the enterprise sector, as enterprises have not been able to pass on higher costs at this stage in the economic cycle. This is a second factor to consider in assessing the potential for a return of inflation. 1.31 While the maintenance of administrative controls has helped to restrain the rate of increase of the price indices, the question remains as to why more general inflation has not reemerged in the Chinese economy, given the size of the monetary expansion described in Section A above. There are two overriding reasons for this, in our judgment. First, short-term inflationary expectations remained low, as demonstrated by the fact that even the signifi- cant administered price adjustments in 1990/91 did not provoke panic buying. Thus, as discussed earlier (paras. 1.12-1.13), the savings propensity remained extremely high. Second, inventories were still high, and for some commodities continued to grow despite price-cutting by state-owned outlets. What remains to be seen is how long such inventories will be able to extercise this cushion- ing effect, since the quality and composition of such stocks may well not match demand patterns as retail sales continue to build. Inflation, there- - 18 - Table 1.5: CHINA: PRICE ADJUSTMENTS DURING 1990/91 Date Old New change Unit price price Range La Percentage 1990 Agricultural commodities lb Food oil Apr 1 50 kg 47 ... Soybean Apr 50 kg 165 215 50 30.3 Sugarcane tons 125 140 15 12.0 Sugar beet tons 140 155 10.7 Tobacco 50 kg 109.42 120.6 10.2 Cotton 50 kg 236.42 300.00 26.9 Timber Nov meters 144.97 214.83 48.2 Industrial commoditrlas /c Crude oil Mar tons 137 167 21.9 Residual oil Mar tons 60 Railway freight Mar ton-km 0.02 0.25 25.0 Water freight Mar ton-km 0.01051 0.01353 28.7 Mineral ore (42%) Jul tc4s 188 242 28.7 Iron ore (68%) Jul tons 93.5 115 23.0 Mail post Jul a letter 0.08 0.2 150.0 Corrugated aluminum Aug tons 800 1,000 66.7 Coal Aug tons 10 ... Copper ore (25%) Sep tons 5,700 7,560 32.6 Electrolytic copper (99.95%) Sep tons 7,500 9,700 29.3 Tin ore (60%) Sep tons 2,700 3,550 31.5 Living comodities Detergent Jul 500 g 0.4 .. White cloth Oct meters 2.79 .. Sugar Nov 500 g 1.90 ... 1991 Industrial comodities d Steel Q I 15 Transport fares Q I 23 Consumer goods Grain (state-rationed) May /e 67 Edible oil May /f 159 La Difference of old and new price. b Mainly procurement prices. Ic Mainly ex-factory prices. d Retail prices. Ie Price change from Y 0.06 to Y 0.10 per 0.5 kg. /f Price change from Y 52 to Y 1.55 per 0.5 kg. Source: Data provided by the Chinese authorities. fore, is one of the most hotly debated topics in Chinese economic circles, and is one of the main issues to emerge from this review of recent developments as needing the continued close attention of the authorities. E. The State Sector 1.32 Throughout the 1980s, the overall fiscal deficit (including both local and central government) fluctuated in the relatively narrow range of 1.5 percent to 3 percent of GNP. Although not exceptional by international standards, even this level proved difficult to finance at times. But it is - 19 - necessary to look beyond this relatively narrow concept of deficit to the much larger financial requirements of the state enterprises to realize the full financial consequences of government policy. In particular, there io a high level of policy-related bank lending to the SOEs because of the constraints placed on the state budget. This section analyzes both the government budget situation and the difficult-to-quantify broader issue of the public sector deficit as a whole. The Government 1.33 Revenue and Expenditure Trends. There were two major reforms of the fiscal system in the 1980s, each of which reduced the ratio of revenue to GDP: the switch from profit surrender to income taxes for enterprises in the first half of the decade, and the move to the fiscal contract responsibility system in the latter half. In effect, the primary impact of these reforms was to transfer responsibility for investment financing from the central government to enterprises. With rising enterprise losses in sectors subject to price controls, the overall result was that the net contribution of the SOEs and collectives to the budget (that is income tax and related taxes, levies, and profits, net of subsidies to loss-making enterprises) declined from 6 percent of GNP in 1984 to 2 percent of GNP in 1989 (see section "Enterprises" below). The overall level of revenue was maintained by the broadening of the tax base through indirect taxes (Table 1.6). The expenditure/GNP ratio was compressed by holding capital expenditure constant in nominal terms, and by a gradual reduction in consumer subsidies. The effects of these measures were counter- acted by the marked increase in subsidies to loss-making enterprises. Recur- rent expenditure other than subsidies has stabilized relative to GNP since 1987, suggesting that there may be little prospect for major reduction in the future. 1.34 Performance in 1990. The overall deficit in 1990, only marginally higher than the preceding year, was 2 percent of GNP, about 0.5 percent of GNP larger than budgeted. This overrun was entirely financed by net credit from the PBC. However, while the overall outcome was close to target, not all components were so close to their estimated levels. First, tax revenue fell 6 percent short of target because of the decision not to implement the bud- geted increase (from 3 percent to 5 percent) in the business tax rate, owing to fears as to the impact on retail prices, and because of below-budget receipts from value added taxes and customs duties, reflecting weak domestic demand and import compression during much of the year. This latter factor accounted for about two-thirds of the shortfall. Although enterprise finances remained weak, it is noteworthy, and somewhat surprising, that in 1990 for the first time net flows from the enterprises rose in nominal terms for the first time in the reform era. 1.35 Total expenditure was marginally below the budget target, despite overruns in several areas of current expenditure and an increase in capital expenditures authorized during the year. This out-turn was largely attribut- able to lower subsidies, because the procurement prices of some foodstuffs (notably pork) were lower than expected, and because transfers to loss-making enterprises were less than budgeted. As described in the section on "Center- Local Fiscal Relations" below, overruns in current expenditure came from local government outlays, primarily on administration, reflecting higher wages. - 20 - Table 1.6: CHINA--STATE BUDGETARY OPERATIONS, 1986-91 1986 1987 1988 1989 1990 1990 1991 1991 Budget Actual Budget Prelim (in billions of yuan) Total Revenue 244.6 257.6 280.4 326.4 356.1 351.8 364.8 363.4 Tax 224.8 232.1 257.6 301.7 333.9 313.9 336.8 330.2 Nontax 19.8 25.5 22.8 24.7 22.2 37.9 28.0 33.2 Total Expenditure and net lending 263.2 282.4 313.7 364.3 382.0 388.5 395.8 413.5 Current 188.0 206.8 237.6 288.7 307.5 306.9 317.9 330.4 of which: subsidies 58.2 67.0 76.3 97.3 106.4 96.0 89.0 87.7 Capital 75.2 75.6 76.1 75.6 74.5 81.6 77.9 83.1 Overall deficit -18.6 -24.8 -33.3 -37.9 -25.9 -36.7 -31.0 -50.1 Financing 18.1 24.6 33.5 37.4 25.9 36.8 31.0 50.1 Domestic 12.8 17.8 22.0 26.1 14.0 23.7 20.3 38.2 Peoples Bank of China, net 12.7 8.4 11.5 -7.5 8.8 17.4 12.3 21.1 Other domestic 0.1 9.4 10.5 33.6 5.2 6.3 8.0 17.1 Foreign 5.3 6.8 11.5 11.3 11.9 13.1 10.7 11.9 Gross foreign borrowing 7.6 10.6 13.9 14.4 16.4 17.8 16.2 17.4 Amortization -2.3 -3.8 -2.4 -3.1 -4.5 -4.7 -5.5 -5.5 (as a percent of GNP) Revenue 25.2 22.8 20.1 20.7 20.1 20.2 18.6 18.6 Expenditure 27.1 25.0 22.4 23.1 21.6 22.3 20.2 21.1 Current expenditure 19.4 18.3 17.0 18.3 17.4 17.6 16.2 16.9 Subsidies 6.0 5.9 5.5 6.2 6.0 5.5 4.5 4.5 Capital expenditure 7.8 6.7 5.4 4.8 4.2 4.7 4.0 4.2 Overall balance -1.9 -2.2 -2.4 -2.4 -1.5 -2.1 -1.6 -2.6 Sources: Ministry of Finance; State Statistical Bureau; and staff estimates. 1.36 The 1991 Budget. The budget for 1991 was intended to reduce the overall deficit from the 2.1 percent of 1990 to 1.6 percent of GDP in 1991. The budget had anticipated a 1.3 percentage point decline in the revenue/GNP ratio, as a consequence of weak state enterprise performance and in spite of a proposed increase in the business tax rate. However, the deficit was to be reduced by a sharper cutback in expenditure--by reducing outlays on subsidies and limiting the nominal growth of nonsubsidy current and capital expenditure, The Budget presentation for 1992 revealed that the targeted reduction in the deficit was not achieved and it in fact increased to 2.6 percent of GNP. While the business tax increase was not implemented, the revenue/GNP ratio declined by 1.6 percentage points. Wage pressure, indicated by a 13 percent growth of wages in 1991, continues to weaken the budget position. However, the government was successful in reducing expenditure on subsidies which has been cut by 1 percent of GNP to 4.5 percent of GNP. 1.37 Financing. In addition to a modest level of net foreign financing, and the residually determined level of net borrowing from the PBC, the Govern- ment has financed about one third of the deficit, on average, through the issue of domestic bonds. The management of these bonds has created a number of problems. There was strong growth during the 1980s in the holdings--mainly by individuals and enterprises--of government securities. For the most part - 21 - these were sold through involuntary placement, and, for enterprises and finan- cial institutions, at interest rates that were far below market (typically half the rate offered to households). What is more, the Government's finan- cing tneeds were compounded by the progressive reduction in the average matur- ity of treasury bonds, which resulted in a bunching of debt service, exacer- bated by the Chinese practice of paying interest only at maturity. 1.38 In 1990, the total value of maturing bonds rose to Y 30 billion from Y 5 billion in the previous year. Only a small part of the resulting gross financing needs could be met by the issue of new bonds to households and enterprises, so the government resorted to the forced rollover of bonds held by enterprises. In 1991, similar demands arose, and so, in addition to the planned issue of new bonds, the Government once again postponed redemption of enterprise-held bonds, resorting for a second time to the device of conversion bonds.17/ To balance this, however, a new method of placement was used for new bonds held by individuals, relying on voluntary placement via financial institutions instead of the usual compulsory placement via work units. 1.39 This practice of non-redemption is not conducive to the development of a market for the voluntary placement Qf government securities, a key ele- ment of financial sector reform. There is an urgent need for the authorities to develop more rational public debt management techniques, in parallel with the gradual relaxation of the direct methods of monetary control in favor of indirect instruments that would foster government securities markets. Center-Local Fiscal Relations13 1.40 Since 1988, center-local fiscal relations have been regulated by contracts, usually of 3-4 years' duration, struck between the central Govern- ment and provincial and municipal governments. The tmportance of these con- tracts cannot be overstated since local governments account for the majority (about 60 percent in 1990) of both revenue collection and expenditure. There are several different forms of contract, but a common one is demonstrated by the case of Henan province (see Box 1.1). One feature of these contracts is that, after the provinces have satisfied their contractual tax obligations to the center, they are permitted to retain, and spend, about 75 percent (on average) of the incremental revenue, One consequence of this arrangement is that the central government has lost a degree of fiscal control, because it cannot anticipate the magnitude of total government spending, and at the same time the buoyancy of fiscal revenues has been severely limited. In particu- lar, it is the central government that has had to cope with shortfalls in revenues, while the local governments get the benefits of any above-budget revenues. 14 1.41 The largest deviation from budget in 1990 was in expenditure by the local governments which overshot by about 5 percent, even though revenue col- lection was close to target. As noted earlier, the overrun was mainly the result of natural disasters and expenditure on priority projects. Expansion of administrative expenses has also contributed as wages caught up with their 17/ These were bonds issued to enterprises in replacement for the maturing bonds. Interest was not paid on the latter, merely a promise to pay on maturity of the conversion bonds. - 22 - Box 1.1: FISCAL POLICY IN HENAN PROVINCE Henan is the second most populous province in China, and a leading producer of many basic commodities and raw materials processed in other provinces. Its economic condi- tions are in many senses typical of the inland provinces, which have not benefited from reform to the same extent as the coastal provinces. The following are selected basic sta- tistics for 1990 for Henan province: Population as a proportion of total 7.7 percent GNP as a proportion of total 5.1 percent Fixed investment/GNP 23.1 percent Government revenue/GNP 9r5 percent Government expenditure/GNP 10.1 percent Comparisons between national statistics and those for Henan are complicated, by the following considerations: (i) a larger than average proportion of Henan's output comes from commodities produced under the Plan, distortions in the prices of which are reflected in both GNP estimates, and the level of revenue and expenditure; and (ii) the fiscal data exclude revenue and expenditure relating to centrally owned state enterprises which report directly to the center. Nonetheless, it is notable that Henan's revenue and expenditure are barely half the national average. Center-Local Fiscal Relation. Henan's relationship with the central government is governed by a four-year contract (1988-91), and the next contract which will take effect in 1992 has been negotiated, though has yet to be signed. In principle, Henan remits an amount determined by this contract each year (based on 1988 revenue, Henan's remittance was to increase by 5 percent annually, with 80 percent of any revenue collected in excess of the target being retained in the province). In 1990, under the contract Henan was due to remit Y 1.4 billion out of total collections of Y 8.4 billion. However, this amount was reduced by amounts (approved either at the annual budget or by supplementary allocation during the year) relating to additional subsidies for enterprise losses (including foreign trading cor- porations) and grain, disaster relief, and additional capital construction implemented through the local budget. In the final aaalysis, the central government transferred about Y 0.4 billion to Henan. Lower Levels of Government. The provincial budget covers the activities of lower levels of government: there are 12 provincial municipalities, 5 districts, 105 counties, and 12 municipalities at the county level. Of this total, 56 counties and municipalities (almost half, typically those in the mountainous areas) have budget deficits that need sup- port from the provincial government. Tax Reform. Henan has not been selected as one of the provinces to participate in experiments with new tax-sharing arrangements between the central and local governments. Therefore, its next four-year contract (1992-95) will be similar in structure to that of the 1988 version. Concerning enterprise taxation, one small city, Nanyang, has been, since November 1989, an e:perimental area for new forms of contract that ensure better separation of tax and profit. Two particular concerns have arisen as a result of these experiments: the concerned enterprises have perceived an inequity in that they must now pay more tax (35 percent) than the effective tax rate for the area of about 24 percent; second, the ter- mination of debt amortization as a deductible expense has met with considerable resistance from the enterprises. These factors have no doubt contributed to a situation in which the determination of the amount of post-tax profit to be remitted is characterized as "quite flexible." real losses of the previous two years. In the 1991 budget, local government expenditure was projected to remain constant in nominal terms, with sharply lower transfers from the central government offsetting higher local revenue collection, in part flowing from the distribution of the collection of the new business tax (collected at the local level), and the new Investment Orienta- tion Tax (see paras. 3.31-3.34). Detailed figures for the breakdown of cen- tral and local revenues and expenditures in 1991 are not yet available, but of the cash deficit of Y 21 billion, Y 18 billion was in central government, which implies that the budget overrun was split evenly between the center and localities. - 23 - Enterprises 1.42 The losses of the SOEs (Annex Table 9.6-9.9) impose a heavy finan- cial burden on the Government and the banking system; indeed, the evidence is that the burden on the banking system from the SOEs is much greater than that imposed by the Government itself, and that it has been increasing over time. As noted above, the SOEs have made a progressively declining net contribu- tion 18/ to the budget. It is notable, therefore, and surprising that there is reported to have been a marginal improvement in the SOEs' financial position vis-a-vis the government during 1990 (see Table 1.7). It seems Table 1.7: CHINA: SELECTED INDICATORS FOR THE SOEs, 1984-91 1984 1985 1986 1987 1988 1989 1990 1990 1991 Budget Actual Budget Net flows from the enterprises la In billions of yuan 81.7 69.5 56.7 52.3 46.7 35.5 29.6 39.7 41.0 In percent of GNP 11.7 8.1 5.8 4.5 3.3 2.2 1.8 2.3 2.1 Net domestic bank financing of state enterprises In billions of yuan - - 92.3 73.6 114.1 156.8 - 158.9 - In percent of GNP - - 9.5 6.5 8.1 9.9 - 9.1 - Memorandum Items: (in billions of yuan) State enterprises with independent accounting lb Profit (post-tax) 85.2 94.4 87.8 100.5 119.0 100.0 - Taxes paid 53.4 72.0 78.7 88.8 109.9 127.6 - Losses 3.4 4.1 7.2 8.5 10.7 23.4 - La Consists of receipts from the taxation of the state enterprises and collectives, taxation of extrabudgetary receipts (for key energy and communications projects), and profits remitted to the Government, less subsidies to loss-making enterprises. Lb Medium and large scale enterprises with accounts distinct from those of the Government. Sources: Data provided by the Chinese authorities; and staff estimates. unlikely that this was due to a strengthening in enterprise performance (para. 1.43). Rather, it can be assumed that the Government reduced net flows to enterprises in the light of its own financial constraints and compelled enterprises to increase their remittances, which were concealed within the overall figures, not least by the growing inter-enterprise arrears. 18/ This net contribution is defined as the receipts from the taxation of state enterprises and collectives, the taxation of extrabudgetary receipts for key projects in energy and communication, less subsidies to enterprises. It is an incomplete definition, since it excludes the 10 percent regulatory fund, a tax on a portion of extrabudgetary funds introduced in 1989. It is not believed that this latter exclusion would fundamentally alter the picture. - 24 - 1.43 Any efficiency gain can be discounted on the basis of the govern- ment9s own statistics about the performance of the "budgeted" enter- prises 19/ both in 1990 and in the first half of 1991. In 1990, their profits fell by 58 percent (and their total taxes and profits by 18.5 per- cent). In the first half of 1991, as production recovered, the rate of decline slowed, but profits still fell by a further 17.5 percent. Thus, effi- ciency, if defined narrowly in terms of financial returns and budget revenue, remains rather growth-determined in China, and this factor helps to explain the authorities' willingness to relax the austerity program.15 It can thus be hoped that, as growth continues and retail sales pick up, the financial performance of the SOEs will gradually recover in 1992. 1.44 The enterprises have made demands on the banking system that have ranged from 3-5 times the total overall Government deficit. This is shown in Table 1.7. Net financing of the enterprise sector as shown in the table is defined as the increase in the specialized and universal banks' credit to state-owned industrial, commercial, and construction enterprises and urban collectives, less the deposits of these enterprises. It is less than the total deficit of the sector since it excludes foreign financing and other forms of domestic financing such as bonds. That such net financing of the sector rose sharply during 1988 accords with the generally expansionary mone- tary stance of the time, but it is significant that rapid expansion continued through 1989 at a time when monetary policy was supposedly more contraction- ary. By 1989 net bank financing of the enterprise sector had risen to 10 per- cent of GNP. Not only does this imply that the SOEs were utilizing an increasing share of the nation's resources--while producing a falling output share--but also it may explain why net contributions to the government were able to rise in 1990, as it is likely that SOEs were using bank credit to pay tax bills and meet contract payments. It is not unreasonable to add the ris- ing deficit of the SOEs to the fiscal deficit, and conclude that the overall public sector borrowing requirement has been rising steadily since 1987, and may have risen from about 8 percent of GDP in 1987 to about 11 percent in 1990. Medium-Term Fiscal Prospects 1.45 With the apparent decision to defer reform of the enterprise respon- sibility system and of the revenue sharing arrangements until the Ninth Five- Year Plan (see Chapter IV), the only way that the central government can avoid further declines in the revenue/GNP ratio--if that remains the government's intent--will be via annual discretionary measures such as the 1991 business tax rate increase. We would note, however, that the government has been quite proficient in recent years in introducing such measures to maintain revenue. It should, in addition, be noted that the government is very actively promot- ing price reform, and that, if this is instituted early, it could have a sig- nificant positive impact on both revenue and expenditure. 19/ These are a subset of SOEs which can be defined as those whose initial capital and major reinvestments are financed mainly by budgetary resources. Examples would be the iron and steel corporations and most energy enterprises. - 25 1.46 On the expenditure side, although there has been a decline in the price subsidy bill 20/ in 1991, with, as noted, some prospects for this to continue, other components of the budget are unlikely to sustain reduction in real terms in the absence of significant changes in the services offered by the Government, in that nonsubsidy current expenditures have been a steady proportion of GDP since the mid-1980s. Wage pressure is evident at present, and since wage rates in the medium term are unlikely to deviate appreciably below the trend rate of inflation, avoiding growth in the wage bill seems unlikely. Interest payments are likely to increase as the burden of govern- ment debt grows and more attractive financial instruments are introduced to an expanding market. Capital expenditure, already substantially reduced in real terms will be needed to maintain the development effort. The bright spot, as noted above, is price subsidies, which can be expected to continue to reduce in importance, both by reducing the subsidy component in the budget. 1.47 While innovations in the securities markets may enable the Govern- ment to obtain a higher level of domestic financing, it should also be borne in mind that the Government will be competing for financial resources against an enterprise sector with large financing requirements. Therefore, in the absence of deeper fiscal reform, the only way to improve the fiscal situation will be to reduce the financial needs of enterprises through reforms designed both to reduce subsidies, and to limit enterprises use of bank credit. F. The External Sector 1.48 China's policy of opening to the outside world, its exchange and trade system reforms, and an improved climate for foreign direct investment, have resulted in an increasing integration of the economy to world markets, and a spectacular export drive. Moreover, China became a major player in international capital markets, although the growth of debt has been controlled. well within affordable proportions. It was to be expected that the external sector would display considerable volatility during the last two years, in the light both of the depth of the austerity program, and the reaction of the outside world to the May-June 1989 events, but it is interesting that the major changes were recorded in the trade rather than the capital or services accounts. The Current Account and the Structure of Exports and Imports 1.49 China's trade account has consistently lagged changes in other mac- roeconomic variables in the economy by about 6 months. Therefore, the impact of the "retrenchment program" did not result in an immediate improvement in the current account in 1989, but rather the slower growth trends evident from mid-1989 (see Table 1.9) had their impact in the following year. In 1990, the balance of payments was transformed from a deficit on both the current and overall account to a large surplus on all accounts. The more than $9 billion 20/ Price subsidies in 1990 were Y 38.1 billion, almost the same level as 1989, but 7 percent below budget, and are estimated to fall to Y 33 bil- lion in 1991 on the basis of the grain, coal and transport price adjust- ments. Thus, price subsidies have fallen from 12.3 percent of expendi- ture in 1989 to 11.2 percent in 1990 and 9.3 percent of the 1991 budget. - 26 - surplus in the merchandise account reflected an 18.1 percent growth in export value while merchandise imports declined by 9.8 percent. This resulted in the resource balance improving by a remarkable 4.2 percent of GDP, which, as noted, served as one of the main sources of growth in 1990. In 1991, as the economy recovered, there was a sharp reversal in this pattern, with exports continuing to grow by 15.8 percent to $71.3 billion, but with imports rising sharply by 19.5 percent to $64 billion. 1.50 The structure of Chinese exports has continued the trend observed since the second half of the 1980s, with a declining percentage of primary exports, which accounted for about one fourth of total exports (see Annex Table 3.2), while manufactured exports represented three-quarters of export revenue. Among the latter, particularly rapid gains have been achieved by machinery and transport equipment, textiles, apparel and shoes, while the variety of products traded internationally has expanded by a large amount. In addition, a considerable share of the growth in export revenue now comes from trade carried out by town and village enterprises (TVEs 6) and the large number of export-oriented joint ventures and wholly foreign-owned enterprises established over the years. Also, there is a regional dimension to China's export drive resulting from the concentration of exporting industries in the coastal areas. Indeed, Guangdong province alone accounts for more than 15 percent of the country's exports, being the recipient of about half of total foreign direct investment. 1.51 Indeed, export growth accelerated in 1990, and the question is whether this reflects the impact of the austerity program persuading producers to switch products to the export market, or the continuation of the earlier growth trend, with 1989 being a dip explained by other factors. Of the exports that registered large volume growth,21/ three categories explain most of the growth: machinery, chemicals, and products exported after inward processing. For the first category, it seems quite probable that the rapid jump in the growth of exports does indeed reflect in part the austerity pro- gram, as this was in particular for those goods such as TV sets and bicycles for which domestic demand was falling so heavily, although production capacity and the quality of the products has also had a strong impact. Exports of these two commodities, for example, grew by 54 percent and 50 percent in vol- ume terms, respectively, although this category still represents less than 10 percent of the total. 1.52 For the other two categories, however, this is the continuation of earlier trends. Growth in the processing industry alone accounted for growth in exports of $2.2 billions, to reach a level of $10.5 billions (17 percent of the total), and the growth in chemicals was in particular for products such as pharmaceuticals. For these latter two commodities, the impact of the auster- ity program on product availability can be judged to be minimal. Overall, therefore, we would conclude from the export figures that the growth in 1990 primarily reflected the continuation of the upward trend in the last few years in response to the open-door policies, and to domestic reforms which have 21/ The value of oil exports grew by 20 percent in 1990, or by almost $1 billion, explained entirely by higher prices, and volumes fell by 1.6 percent. ° 27 - improved China's competitiveness in these sectors, assisted by the strong, real, effective devaluation (para. 1.60). Therefore, the resumption of domes- tic demand is unlikely to have a very serious effect on the availability of export supply. More significant are likely to be the trade reforms introduced in January 1991 (see Chapter IV), which have placed exporting on a more level playing field by removing subsidies and mandatory planning of exports. 1.53 The almost 10 percent decline in imports during 1990 can be attri- buted to three main factors: the effect of the depressed domestic market; the tightening of administrative controls; axid the large effective devaluation of the Renminbi. With respect to the latter two factors, it is significant that the volume of transactions on the foreign exchange adjustment centers (FEACs) rose by 53 percent, from $8.5 billion in 1989 to $13 billion in 1990, suggest- ing that access to the swap centers was encouraged, but also implying that the effective average exchange rate was even lower. At the same time, the exchange rate at the swap centers displayed remarkable stability, with the differential from the official rate narrowing to less than 10 percent. In 1991, imports grew by 19.5 percent, once again displaying the classic lag to a recovery in industrial output discussed above. From this we would conclude that the overridinx factor in the import decline in 1990 was the impact of the depressed domestic situation. 1.54 The nature of the commodities to suffer from decline lends further credence to this. The biggest declines were suffered by textile fibers and machinery, steel, vehicles and petroleum, all of which would be expected to decline in the face of the depressed level of retail sales and construction, and grain, in response to the high domestic harvests. In terms of longer-term changes in the structure of Chinese imports, the share of imports of interme- diate goods continued to decline from over half of total imports in the second half of the 1980s, to about a third in 1990. The share of manufactured imports, mainly capital goods, continued to rise from less than a third in the mid-1980s to over half of total imports in 1990. The share of consumer goods continued to be insignificant, with less than 4 percent of the total value (see Annex Table 4.2). 1.55 As on previous occasions, movements of the current account over the period 1988-90 were primarily related to changes in the merchandise trade balance, while the balance of services mimicked the merchandise account in a procyclical way. In 1990, the services account posted the highest ever sur- plus, as investment income and other nonfactor services (particularly tour- ism 22/) rapidly increased, recovering much more rapidly than had been anti- cipated, not least because of increased contact with Taiwan. 1.56 In terms of sources of foreign exchange, it is no surprise that exports have taken up a rising share in the last two years, but this is less dramatic than might have been expected (see Table 1.8). It seems clear that in drawing up the foreign exchange plan for 1990, the SPC assumed that tour- 22/ Tourism revenue reached $2.2 billion in 1990, practically equal to the highest ever level reached in 1988. However, tourism receipts explain only about 50 percent of the improvement in net services, the balance coming from other sources, particularly shipping and insurance. - 28 - ism, investment and loans would decline much more heavily than they did 23/ in response to the May-June 1989 events, and that this partly exp.ains the very strong trade performance. That is to say, import plans were of necessity very conservative in 1990, as it was assumed that a large current account surplus was necessary to avoid external payments difficulties. Table 1.8: SOURCES OF FOREIGN EXCHANGE, 1988-90 (Percentages) 1988 1989 1990 Exports 77.4 79.4 81.6 Loans 10.6 9.5 8.4 Investment 6.1 5.7 4.9 Tourism 3.6 2.8 2.9 Labor Services 2.3 2.6 2.2 Source: Annex Table 2.1. The Capital Account and the Overall External Balance: Recent Developments and Short-Term Outlook 1.57 The origin of capital inflows over the last two years has changed significantly, as the reduction of new longer-term capital inflows--resulting from the imposition of external sanctions after June 1989--has been partially compensated by a faster drawdown of existing commercial bank credits. In 1990, net short-term capital drawdowns ($2 billion) more than compensated the decline in long-term funds. China's overall external account balance in 1990 was therefore largely determined by the outcome of its current account. China's gross external reserves rose that year by almost $12 billion, to a level equivalent to more than eight months' imports. Even with the rapid recovery of imports, there was a further surplus of $12 billion in 1991, and reserves accumulation of $14 billion. It is expected that the current account will fall sharply in 1992 as imports grow in the face of rapid economic growth. 1.58 It should be noted, however, that preliminary balance of payments data for 1990 (Table 1.9) indicate a very large increase in the "Errors and Omissions" item, showing an unexplained balance of almost $4 billion (IMF definition). Such a figure, which is more than twice previous levels, sug- gests a possible underreporting of imports or an overstatement of China's foreign exchange reserves derived from growing offshore deposits outside PBC 23/ In fact, investment and tourism revenue from developed countries declined sharply in 1989/90, but they have been replaced by very rapid growth in revenues from Taiwan, China. However, recovery in developed country investment and tourism is being seen in 1991. - 29 - and the Bank of China (BOC), and this deserves the attention of the PBC and the State Administration of Exchange Control (SAEC). Table 1.9: CHINA: BALANCE OF PAYMENTS, 1986-91 ($ million) 1986 1987 1988 1989 1990 1991 Trade balance, customs basis -8,401 -192 -3,169 -1,694 13,141 13,415 Exports FOB 30,942 39,437 47,518 52,537 62,063 71,911 Imports FOB 39,343 39,629 50,687 54,231 48,922 58,496 Services, net, IMF basis 1,427 1,737 1,094 923 2,558 2,787 of which: Travel receipts 1,531 1,845 2,247 1,860 2,218 2,639 Interest payments 909 1,189 1,622 1,658 2,016 4,103 Other current transactions -360 -1,245 -1,727 -3,546 -3,702 -3,831 Current account balance /a -7,334 300 -3,802 -4,317 11,997 12,371 Direct inv., net 1,425 1,669 2,344 2,613 2,657 3,340 M&L-term liab., net 4,851 6,131 6,781 6,023 6,249 3,108 Errors and omissions 580 -1,450 -1,094 45 3,213 -856 Memorandum Items: Gross reserves 11,994 16,934 19,135 18,547 30,209 44,308 In months of imports 3.4 4.7 4.2 3.8 6.8 8.3 Current account/GNP -2.75 0.10 -1.01 -1.02 3.24 3.33 /a Current account balance after grants. Tables in Chapter VI use current account before grants. Sources: Data provided by the Chinese authorities; and staff estimates. Exchange Rate Management and External Competitiveness 1.59 In the past years China has maintained a dual exchange rate system, in which the official rate was administered as a managed float, while the parallel rate was determined by realized demand and supply in the FEACs by eligible participants. In practice, the exchange rate was adjusted infre- quently. There were two large, discrete devaluations of the official exchange rate in December 1989 and November 1990 by 21 percent and 10 percent, respec- tively. Since April 1991, the SAEC has announced adjustments every two or three days, appreciating and depreciating by small amounts, apparently follow- ing the movement of a basket of currencies. Overall, the nominal rate has depreciated by about 3 percent since this practice was introduced. While these new developments might speed up the convergence of the two markets (and - 30 - the unification of the exchange rate), it is important to maintain the compe- titiveness (in real effective terms) of the renminbi, particularly if the domestic rate of inflation were to exceed the rates of inflation of China's main trade partners. 1.60 Over the twelve months to June 1991, the real effective exchange rate depreciated by 12.5 percent, faster than the nominal depreciation given China's low inflation rate (Table 1.10). This brought the cumulative depreciation since November 1989 (the month before the first devaluation) to 31.9 percent on a real effective basis. This also goes a long way to explain why exports have been growing so rapidly in this period.24/ It is to be noted, however, that the exchange rate appreciated somewhat in 1991 with the rise of the US dollar. Table 1.10: CHINA: EFFECTIVE EXCHANGE RATE, 1986-91 (1980=100) Real effective Nominal effective Exchange exchange rate exchange rate rate 1986 Q4 42.1 56.0 40.3 1987 Q4 39.5 52.4 40.2 1988 Q4 47.2 54.8 40.2 1989 Nov. 50.8 64.3 40.2 1990 Apr. 40.1 54.8 31.7 1990 Dec0 31.9 46.5 28.7 1991 Jun. 34.6 49.9 28.0 Source: IMF. External Debt and Creditworthiness 1.61 China's external debt increased tenfold between 1980 and 1990 from $4.5 billion to $52.5 billion, growing especially fast between 1985 and 1988. The share of short term debt in total debt peaked in 1984 at 46.3 percent, but declined thereafter because of the mandatory 20 percent ceiling that was approved by the State Council in February 1989. Since then short-term debt has been used strictly for financing working capital needs. Total debt in 1989 remained at the same level of about $42 billion as in 1988, but the com- position of short-term and long-term debt has changed. Medium- and long-term debt has increased by about $4.5 billion and short-term debt was halved to about $4.3 billion from $8.8 billion in 1988. China borrowed about a fifth of its medium- and long-term debt on concessional terms since 1985, from both multilateral and bilateral sources. 24/ Although this measure does not capture fully the effect of the transfer of transactions to the parallel market. 31 - 1.62 The ratio of total debt into GNP, a longer-term indicator of the debt level, has increased from 1.5 percent in 1980 to only about 10 percent in 1990, a very low level by international standards. Similarly, debt service projections indicate that the debt service/exports ratio peaked at 11.5 per- cent in 1991, and will decline thereafter to only 9.0 percent in 1995. This indicates the creditworthiness of China compared to other countries. Even though the market for medium- and long-term debt became very difficult for China in the period following the May-June 1989 incidents, which affected the confidence of China's lenders in its creditworthiness, lending to China picked up in 1990 and by the end of 1990 total debt had increased by about $7.7 billion to $52.6 billion, of which incremental long-term debt was $8.3 bil- lion.25/ Preliminary debt estimates for 1991 indicate that only a modest increase appears to have been incurred, to a level of $57 billion. 1.63 The currency composition of China's external debt is dominated by the US dollar, with a share of 40 percent, followed by Japanese Yen (34 per- cent), SDR (9.4 percent) , and Hong Kong dollars (7 percent) in 1989. China moved away in the mid-1980s from its high exposure to the appreciating Japanese Yen, but still there is room for improvement in China's currency risk. Overall, however, the strong efforts that China has made in the last four years to bring its debt under control and to improve its management have paid off, and this can be judged one area where macroeconomic management has made major strides. G. Conclusions 1.64 The period that has been the subject of this review began with the 5th Party Plenum, which sounded a strong note of austerity and reemphasis on the role of the planning system. However, the out-turn has been very differ- ,ent indeed. China has been on the path of a rapid economic recovery with low inflation and a strong external position. A combination of good policies and good fortune came together to produce a very strong performance in the economy in most sectors. Far from this being a result of the reemphasis of the role of planning, the recovery came about because of the relaxation of controls, reflected in highly expansionary monetary and credit policies, and because of the good weather, and it was in the nonstate sector, agriculture and in exports that most of the recovery was grounded. 1.65 The high level of inventories in the economy and the very strong reserves position give some comfort that this recovery can be maintained with- out rekindling the fires of inflation. However, this has been a very strong recovery indeed, and since the start of the fourth quarter 1990, industrial output has been growing at an annual rate of over 15 percent, which will clearly soon begin to put strains on infrastructure and input supplies if maintained for too long. In addition, there are two other main reasons to have concern about the dangers of inflation: 25/ It remains unclear to what extent this rapid growth of debt reflects valuation adjustments as the Japanese yen has strengthened, as well as improved recording of existing debt, as opposed to genuine new debt obli- gations. - 32 - (a) There is a very high level of financial savings in highly liquid form, and the events of summer 1988 demonstrated how quickly these can be converted into effective demand when inflationary expecta- tions change. (b) There are clear signs of strong cost-push factors becoming more important, with real wage rises well in excess of productivity gains, and profit rates squeezed between rising costs due to these wage rises and price adjustments in the face of the sluggish market. It can be anticipated that producers will attempt to raise prices to restore profit levels as soon as the market recovers fully. 1.66 The danger, therefore, is that as the market continues to recover-- and retail sales are growing at around 13 percent--cost-push factors, vali- dated by an easy credit stance, will once again force up prices. This situa- tion could lead to a rapid change in price expectations, and to a consequent move by consumers to convert financial into real assets. As was witnessed in 1988, the effect of this could be serious indeed. 1.67 This said, that is by no means the situation at present, and the economy is much further from the production frontier than it was in 1978. It was possible to predict the inflation of that year with some certainty, but it is too early to say that at the present. Rather, the point is to learn the lesson both of that experience, and of the earlier cycles, and take appropri- ate measures on a timely basis to counteract these tendencies. In terms of short-term management, there are three key areas for attention: (a) Adherence to a much tighter monetary and credit plan is critical, and cannot be expected to kill off the recovery at this stage. Thus, China must maintain a monetary and fiscal policy stance that is much more consistent with noninflationary growth than were the policies in 1990 and 1991, which would suggest limiting credit growth to about 14-15 percent per annum, in particular by limiting the access to credit of the SOEs. In addition, government should continue to exercise caution now in the rate of approval of new state investment projects, which have also been a major source of demand growth. (b) While some recovery of real wages was to be expected in the after- math of the 1988 inflation and the 1989 austerity, this should not continue, and the government should set the example for this by the wage rises that it grants itself, and those which it approves for the large and medium SOEs. (c) Government should monitor short-term developments carefully, and be prepared to take action to stabilize savings in the event of a change of expectations, as it did in the fall of 1988. This relates in particular to the use of interest rate policy, which has now proved its effectiveness in China, and the need to maintain the real value of savings accounts. However, it also relates to the import policy, and the comfort of the high reserves cushion. Thus, the timing is appropriate for a general relaxation of import licensing controls, not only for its intrinsic benefits, but also so that - 33 - selective imports can dampen any emerging supply bottlenecks which could kindle inflationary expectations. Indeed, the rapid growth of imports in recent months indicates that this may be beginning to occur. 1.68 But the government would also be advised to look at the experience of the last two years, and draw two other conclusions. First, it is clear that the capacity to manage the economy continues to require considerable strengthening. The 1991 monetary targets were revised several times as the year progressed, and it was clear that the rate of monetary expansion was not being controlled by the central bank. At the same time as monetary policy was exerting strong reflationary pressure, so too was fiscal policy, not because of a central decision to reflate, but because of overspending at the local level. It is also evident that, in 1990 especially, the separation of mone- tary and fiscal policies became less clear, as the role of "policy lending" to the SQEs increased. Given that a lesson of the past few years is that a sta- ble macroeconomic situation is critical for the successful implementation of reforms, the continued strengthening of the institutions concerned should remain very high on the reform agenda, and should be seen to be an integral part of the reform itself. 1.69 Secondly, this period of retrenchment and recovery has seen much success for the Chinese authorities in controlling inflation, avoiding over- heating, and in stimulating agriculture, but in other areas, it was much less successful. This is especially the case 'with respect to the management and restructuring of the SOEs, and this has been recognized time and again by Chinese leaders. While there has been some, perhaps temporary change in the relative proportion of production of intermediate and final goods, there has been very little, if any change in the enterprises themselves. This will entail a variety of measures in both reform and development policy, and espe- cially in the areas of price, tax and ownership reforms, and these are the main subject of Chapters III and IV of this report. However, the design of such reforms should be based on a clear understanding of the success, failures and impact of past reform efforts, so it is to these issues that the next chapter is addressed. - 34 - II. CHINESE REFORM EXPERIENCE TO DATE A. Introduction 2.1 It is now more than a decade since China launched its program of economic reform in late 1978. Much has been written and said about China's progress and experience since that time. This chapter is an attempt to exam- ine the period of reform as a whole, to extract the essence of the Chinese reform experience and approach, and to assess the impact of the reform period on the Chinese economy. There are two main purposes for such an exercise. First, the length of the reform experience, and the availability of research results, now offer the scope to carry out such an assessment on a more rigor- ous basis. Second, now that the 1988-91 rectification program has been com- pleted, China appears to have the opportunity and interest to enter a new reform era. In this regard, therefore, it seems appropriate to take stock of China's considerable reform achievements to date, to assess not only how far China has already gone along the reform road, but also how much further it has to go in order to have in place the new economic system for which it is striv- ing. It is against this background, therefore, that in Chapter IV we assess how well China's current reform intentions address this unfinished agenda. Given the impossibility, and undesirability of listing the chronology of China's individual reforms, a reform matrix is included at Annex 1, which lists past reforms together with current stated intentions and Bank recommendations. B. The Initial Conditions 2.2 It is clear that the initial conditions under which China entered its reform era were very different from those of other reforming socialist economies, and were such as to be in general favorable to the rapid achieve- ment of economic gains. It sometimes seems to be the opinion of commentators both inside and outside China that it is only in the reform period that China has achieved any economic or social success. However, there were many well- documented achievements of the first 30 years of China's socialist system since 1949,1 most importantly in health and education. Moreover, China was not impelled to enter upon its reform path because of deep macroeconomic cri- sis, which removed the need for a strong dose of deflationary policy to accom- pany the launching of reforms..j/ Indeed, the fiscal and external accounts were in broad balance at this time, and savings mobilization was already high. Rather, the launching of reform stemmed from two main factors: (a) dissatisfaction with the "extensive" growth model that had generated overall growth, but little if any improvement in productivity, and required increasing levels of investment to be maintained, thus preventing significant gains in personal consumption; and 1/ For Central and Eastern European countries, stabilization measures are estimated to account for about half of the output losses that have fol- lowed the launching of their reform programs. - 35 - (b) a political rejection of the extremes of "leftism" associated in particular with the period of the "Cultural Revolution." It should be noted, however, that even at that time and despite the excesses of that period, and the deaths of Mao Zedong and Zhou Enlai, there was no rejection of the socialist system per se, but rather a call for a radical reform away from the earlier approach to its implementation. 2.3 The initial economic conditions appear to have laid the basis for a situation whereby the immediate benefits of the reforms selected outweighed the immediate costs. In agriculture, where reforms were launched, the Commune system of socialized agriculture had achieved four of the five main goals for which it was established: (a) It had developed rural infrastructure, especially in terms of irri- gation facilities and use of improved seeds and fertilizers. (b) It had created a rural management system, which not only served political and social needs, but fostered economic support systems, such as input supply and marketing. (c) It had served to foster social aims, such as preventive medicine and attainment of universal education, through local (compulsory) funds mobilization for such purposes. (d) It had diversified the rural sector from being a peasant agriculture on self-sufficient basis. 2.4 What it had not done was improve agricultural productivity and thus output, either in quantity, quality or variety. Grain output per capita was 283 kg in 1952, but had risen to only 317 kg in 1978. Moreover, agricultural productivity probably fell over this period (para. 2.55), not least because of the absence of alternative, off-farm employment, as well as the two problems of the incentive system: there were virtually no incentives for individual efforts,2/ and agricultural prices were kept intentionally low in order to generate a surplus for industrial investment. Thus, prior to reform, the agricultural sector was endowed with reasonable physical, marketing and human infrastructure, but without incentives. It was the sense of agricultural crisis that was perhaps as important as any other factor in creating the initial impetus for reform. Once individual incentives were introduced, and the role of the state was reformed, it was not surprising that the output response was rapid. It was improved output and productivity which were the aims (and, indeed, the result) of agricultural reforms. As will be seen, increased savings available for investment and the release of surplus labor were unforeseen but perhaps even more significant side-effects. 2./ The commune system incorporated an arrangement for awarding "work points" to individuals in relation to individual effort. In practice, however, measurement of effort proved very difficulty, not only because of intrin- sic problems, but also because of the general ethos of egalitarianism in that period. See Perkins and Yusuf "Agricultural Development in China." - 36 2.5 In the industrial sector, there are three key factors with respect to the initial conditions. First, China had changed from being an essentially rural, peasant economy in 1949 to one in which industry was very significant. The share of industry in national income had grown from 20 percent in 1952 to 49 percent in 1978. Of particular significance during this period was the first decade, and the 156 heavy industrial projects carried out with the assistance of the former Soviet Union. The second factor of critical impor- tance was that by far the largest share of this industrial expansion was in heavy industry, and light industry was neglected, as would be expected in a Soviet-influenced approach. Heavy industry accounted for 57 percent of total output in 1978. The significance of this was twofold: first, it meant that there was a significant industrial base from which to build; but second, it meant that there were enormous opportunities for light industrial investment once investment decision making was decentralized. 2.6 The third factor was that almost all this early industrial develop- ment took place through large- and medium-sized state-owned enterprises, with only a relatively small share in smaller, local enterprises. Indeed, these SOEs accounted for 78 percent of industrial output in 1978. This is of course to be expected given the emphasis on heavy industry. But these large SOEs were burdened with excessive workforces and heavy social obligations and were managed in a largely administrative fashion, and this rendered theim highly inflexible. Thus, when controls were released on small firm creation, the large SOEs were not able to squeeze out such firms or react rapidly to new opportunities. As with agriculture, the socialist system had laid a solid basis, but which lacked incentives, and thus was ripe for reform. 2.7 The third aspect relevant to the initial conditions is provincial autonomy. China, after 1960 was never truly a centrally planned economy in the same sense as the former Soviet Union: there were only about 500 commodities under mandatory planning, compared with over 20,000 in the former USSR; and local governments always took the primary role in plan formulation and inter- pretation. This had three particular consequences for the initial conditions. First, it meant that local implementation capacity was rather well-developed, with officials well able to respond to improved incentives. Second, with obvious exceptions, there was significantly less pressure for provincial autonomy in China than in other reforming socialist economies, such as the USSR or Yugoslavia, made easier by the relatively high ethnic homogeneity of the Chinese population. Third, while the emphasis on regional autonomy had generated good government capacity, it had also bred serious inefficiencies, especially in agriculture. It therefoe offered enormous scope for gains from interprovincial trade. 2.8 Thus, China's initial domestic conditions in several key areas can be seen to have been ideal for reform. Unlike the case of many other social- ist economies in transition, China's reform responded to socioeconomic pres- sures rather than deep crisis, and the absence of the need for major stabili- zation meant that "shock therapy" was not needed. China also had the good fortune of its historic ties to Hong Kong and the overseas Chinese community, which have played a critical role. Above all, it had a set of conditions whereby the economy and its system of government were well-situated to respond rapidly to improved incentives by increasing output. Of course, not all results would be positive and not everyone would be a winner from reform, as - 37 the stop-go pattern of reform in China has amply demonstrated. Moreover, it is clear that several of these elements were distinct to the Chinese case, possibly reducing the applicability of the lessons from this experience. It is important to bear these initial conditions in mind in assessing the gains from reform: it can be cogently argued that part of the returns to reform in terms of efficiency gains and output growth are the delayed returns to the physical investment of the prereform era, which could not be reaped at that time because of inadequate incentives. C. China's Reform Style 2.9 Because China began its reform program at the particular point in its economic history noted, it was able to develop its own distinctive approach to economic reform. This is most frequently described as "gradual- ist," although this only refers to the time taken rather than the depth of reforms. Indeed, the transformation of the Chinese economy that has occurred in these relatively few years since 1979 can hardly be regarded as a gradual change. China has not developed a well-defined reform strategy, nor has it drawn up a clear reform blueprint. Pre-announced reforms have oftern been withdrawn--such as the price and wage reform plan of 1989--and at other times, deep reforms have emerged suddenly, as with the grain price reform of May 1991. 2.10 It can be argued that China's reform philosophy or strategy is indeed to not plan reforms, but to push forward reforms in a coherent way when the economic, political and social climate permits or demands it. This may itself be a response to the perceived failures of the planning system. It is generally agreed that a key reason why central planning fails--and must fail-- is that it requires too much information. Not only cannot this information be assembled and processed, much of it is unobtainable by definition. It can be argued with equal coherence that to draw up a comprehensive reform blueprint would require a similar amount of information, much of it unobtainable. China did not and could not have foreseen the response of the rural sector to the agricultural reform, and the easing of restrictions on entry to the industrial sector. Therefore, it is argued, it is better to use the Chinese approach which moves and adapts as responses and results become evident.2 But throughout the reform period, four features of the Chinese approach can be traced as consistent themes in implementation; gradualism, partial reforms, decentralization and self-reinforcing reforms. It can perhaps be argued that these features, and especially the first three, were necessitated by the sheer size and diversity of China. Gradualism and Experimentation 2.11 In almost all areas of reform, implementation has been spread over- time, often several years, and usually after experimentation..2/ Typically, such experiments take place in designated "reform areas," and after the results of trials are observed, they then spread to other parts of the 3/ What the Chinese call "Feeling the stones to cross the river," in con- trast to the maxim coined by President Havel of the Czech and Slovak Federal Republic: "It is impossible to cross a chasm in two leaps." -38- country. Sometimes, this is the result of a well-publicized central govern- ment decision, and sometimes this happens "spontaneously," as other provinces copy the originating province. For example, the household contract responsi- bility system in agriculture began as an experiment in Sichuan province in 1980/81, and by the time it was formally endorsed by the central government in 1985, it had already spread throughout the whole country. Similarly, though less spontaneously, openness to foreign investment--and to foreign ownership of assets in general--started in a few areas and continues to be extended gradually over the whole country. 2.12 Sometimes, this gradualism is the result of the trial process. Other times it is opportunism frequently in response to rising fiscal pres- sures, and this is especially the case in price reform. In this area, there have been two attempts at formulating a comprehensive reform strategy, both of which have been abandoned. At other, sometimes unexpected times, progress has been rapid. The period from late 1989 to the end of 1991, when reforms in general were receiving less attention, perhaps saw the most radical changes in relative prices in China in the whole reform period (see paras. 1.29-1.31). 2.13 For some reforms, by their nature, gradualism is not possible, and an overnight change occurs. The central bank was established in 1984, and all its commercial transactions were rapidly transferred to the newly-created Industrial and Commercial Bank, although, of course, it took longer for the People's Bank of China to take up its new functions fully. The foreign exchange swap centers were all opened to domestic enterprises at the same time in 1988. But even in these areas, where arbitrage would suggest the impossi- bility of gradualism, the sheer size of the country and the inadequacy of the transport and telecommunications systems make gradualism possible. 2.14 The great advantages of this gradual approach, where it is possible, are clear3: severe shocks are avoided, trials permit mid-course corrections, institutional development can occur in line with the new systems, and economic agents can adjust slowly to the new conditions. China has thus been able to first bypass and later dismantle its administrative controls at the pace that market mechanisms capable of regulatory functions have emerged.4 This has meant not only that severe dislocations have in general been avoided, it also has meant that China has been able to enjoy growth with reform. Of course, much of the reason that this has been possible has been the favorable initial conditions under which reform was launched. 2.15 But this approach has its drawbacks, and two in particular. The first is that some economic agents are unable to predict their future economic environment. In most areas of reform, the advantages of pragmatism override this,A/ but in other areas advance planning is important. This will be the case in the near future as China sets about reforming its import framework, for advance announcement of reduced protection will permit enterprises to adjust to the future set of arrangements. In such cases, there is a case for A/ Indeed, in some areas, pre-announcement is to be avoided. It was the announcement of future price reform in 1988 which triggered inflation, not the reform itself. Similarly, in late 1990, a devaluation came to be known in advance, compressing the parallel exchange rate. - 39 - rapid implementation of the reform itself, but with adjustment to the new situation spread overtime. 2.16 Potentially more serious is the charge that gradual reforms can give time for those whose interests are threatened by reforms to re-group and either block progress along the gradual slope, or even reverse some reforms, and that failure to introduce reform rapidly will reduce the credibility of such reforms. This is clearly the fear of many policymakers in Central and Eastern Europe. There have indeed been such periods of reversal in China. The Communique of the Fifth Plenary Session of the 13th Central Committee in December 1989 clearly espoused a view that planning could solve the problems that had arisen during the course of reforms designed to address the short- comings of planning . However, so far, each such reversal (or "one step back") has been temporary. It is clear that the new momentum of enterprise reform evident in 1992 is partly a conclusion of China's leaders that, during the rectification program, the instruments of planning failed to come to grips with the fundamental problems of the state-owned enterprise sector. Thus, while periodic reversals occur, the overall direction continues. The reasons why planners have failed to re-group effectively in China is discussed below (paras. 2.90). Partial Reforms 2.17 Closely related to the gradual/experimental approach to reform has been the use of partial reforms within sectors, and one of the more interest- ing results of the Chinese reform experience has been the apparent success of this approach. This has perhaps been most obvious in the two-tier pricing system, under which state enterprises have been permitted to sell above-plan output at market prices. It has been estimated that in 1989, on average, 38 percent of an SOE's outputs were sold on markets, and 56 percent of its inputs were procured on markets.6 This dual price system has been of partic- ular importance in the materials sector, for commodities such as coal, steel, timber, and cement, where differentials were sometimes very large indeed.5/ 2.18 The two-tier price system, like the partial reform approach in gen- eral, has two particular advantages. First, it has been a powerful instrument of the gradualist approach, providing an underlying assurance of continuity of supply, while creating a situation where market skills can be learned. Sec- ond, and most important, it has created a situation where marginal resource allocation decisions have been made on the basis of market prices. In almost all sectors, enterprises' output targets are such that enterprise managers have sufficient capacity to make decisions based on the market as to how much above-plan output to produce. Only in the state coal, crude oil and power sectors as well as transport does the command plan continue to leave little room for market-based resource allocation decisions. 2.19 This system has, however, had certain obvious drawbacks. The most important of these has been the incentive for leakage from the planned sector to the market sector, and the associated corruption this has engendered. One 5/ Coal minehead prices in 1989 were Y 30/ton in Shanxi, but Y 250/ton on a market basis in Guangdong. - 40 - explanation of the difference between the percentage of outputs and inputs under the planning system is that output leaving enterprises under the plan then gets diverted to the market, or else undergoes price adjustment. It is estimated that of output under the plan, one third arrives at its intended destination at the plan price, one third arrives at the intended location but with the price adjusted to the market rate, and one third gets diverted entirely. Clearly, the incentives for corruption in this have been realized and this not only has concerned policymakers in China, it was also one of the overt factors behind the May-June events of 1989. What remains unclear is why these price differentials have persisted for so long, without arbitrage elimi- nating them. One factor is clearly the undeveloped transport and information system, but beyond this, provincial protectionism and import barriers explain how such differentials can continue. This partial reform approach is one whose benefits appear rapidly, but whose costs increase overtime. Thus, if used as a transitional device, the approach has merits, but it has severe drawbacks as a long-term system. As discussed later (paras. 2.82-2.83), inte- gration of the domestic market remains one of the major challenges. Decentralization 2.20 One of the features of China's initial conditions discussed above (para. 2.8) was the presence of'a capable, in-place decentralized administra- tion. This became a critical element in China's reform approach. As the central goverrment released control, provincial, municipal, county, township and even village administrations were ready to respond. This decentralization element of the reform approach is controversial in two ways: first, govern- ments at local levels have frequently replaced reduced central planning with increased local planning; and at times, the decentralization ran ahead of other reforms, so the local response was reacting to distorted relative prices, leading to inappropriate local investments, as in, for example, o-er 100 car assembly plants each with a capacity of less than 5,000 vehicles per annum. But in general, and taken over the period, the unrelenting pursuit of economic development at the local level has clearly been a tremendous force for good and for progress as, for example, through the creation of so many new jobs in the township and village enterprises. 2.21 Moreover, decentralization has not just been to local governments, but to actors in all spheres of economic activity, to enterprises in making production and marketing decisions; to foreign trade corporations in selection of export products; to farmers in selecting crops; and, most important, to individuals, to a large extent with respect to purchases, though to a much lesser extent with respect to employment. Of course, this form of decentra- lization is how markets get created, for it is the absence of concentration of decision-making that makes markets work, and thus the decentralization of decision-making that is at the heart of market creation, In China, the key to market creation without severe disruption has been twofold: as noted earlier, via gradual change which releases administrative controls only as markets develop; and via judicious balancing of markets and local governments. By decentralizing administrative power to lower levels of government, other forms of economic decentralization have been made more effective by local govern- ments. For example, for most consumer goods, the government decentralized price controls to local governments in 1986, leaving it to them to decide when to release controls entirely, depending on the state of local market - 41 - conditions. This moved rapidly in the dynamic South, with its many small firms, but more slowly in the North-East, where state firms dominate. The direction of causality is open to debate, but the results seem to be positive in general. 2.22 Such decentralization has its dangers. Some conservative parts of China have moved slowly in some areas, such as price decontrol in the North- East, and public ownership in Shanghai. It has also created a tendency towards overheating, as local development aspirations have forced a more rapid growth of credit than desired at the center. Thus, while the microeconomic effects appear to have been positive, it is less clear that the macroeconomic impact of decentralization has been wholly desirable. 2.23 Perhaps the greatest advantage of the decentralization approach has been to create interest groups in favor of further reforms, and to foster a climate for reform initiatives and "spontaneous" reform at the local level. This comes in two forms. First, many central reforms are "enabling," in the sense that they remove central prohibitions. Trade reform, for example, began in the mid-1980s with the removal of the prohibition on the creation of local foreign trade corporations: by 1990, 6,000 had been created, where only 15 existed before. Second, as noted earlier, local reforms frequently spread, often from experiment in one area, and are later sanctioned nationally. This was the case in agriculture with the spread of the household contract respon- sibility system in 1981/82, and appears to be being repeated in the case of social security systems at the present time. This is often the result of arbitrage pressures, when one province moves faster than a neighbor. This not only helps to build up increased confidence and interest in reforms, it also creates innovative approaches to reform. Self-Reinforcing Reforms 2.24 The fourth characteristic of China's approach to reform has been the self-reinforcing nature of reform: "Once a crack is opened in the monolith that is the centrally planned economy, natural forces take over and force the crack open ever more widely."7 It can thus be seen with the benefit of hind- sight how reforms in one area lead naturally to reforms in other areas, and indeed force those reforms by creating pressures for change, and this seems to refute the thesis that the gradualist approach permits the rise of counter- vailing forces. The initial agricultural reforms created surplus savings and labor, which created pressures for decentralization of enterprise creation authority in rural areas, spawning the massive expansion of township and vil- lage enterprises (see para. 2.60-2.62). The creation of nonstate firms in turn created pressure of competition on the state-owned sector, forcing the state to relax control on the SOEs. This itself compelled the state to restructure its own sources and uses of revenue, and to reform the financial sector. 2.25 The key to the successful linking of one reform to another requires the appropriate response of policymakers. It would be possible, of course, for the pressure emerging from one area to be met with counter-pressure rather than a complimentary reform. For example, competition from TVEs was met in 1989 by an initial attempt to restrict availability of credit for these enter- prises and to close some of them administratively. Some of this did occur for - 42 - a time, but it was short-lived, and soon attention returned to how to solve the more serious problems affecting the SOEs. There is no clear way to ensure that the response of policymakers will be appropriate, but two factors seem paramount: the dynamics of the reform process create opportunities for gov- ernment to push forward with new reforms; and second, attempts to reverse reforms and reintroduce planning soon reveal those limitations again--just as attempts to solve the SOE problem in 1989/90 via planning have had little impact on restructuring and have instead fostered new interest in market-based solutions to these issues. D. China's Major Reform Steps 2.26 As noted earlier, this is not the occasion for a detailed review of individual reforms in China, a subject on which several books have already been written, and many more will come.8 Nevertheless, it seems appropriate to consider briefly the main steps that were taken in each major reform area, and how they linked to others, not least so that the discussion of future reform priorities in part "F" can be seen against the achievements of the past. The discussion that follows is divided into nine major sectoral areas, rather than chronologically. While it is useful to have this kind of periodic overview- -and for the Chinese to put together the sort of document seen in the reform plan that accompanied the Eighth Five-Year Plan--the emphasis of China's reform approach will continue to be on individual interventions at the sectoral level, rather than the formulation of grand, cross-sectoral compre- hensive blueprints, and we have already discussed the strengths and weaknesses of this approach. It does seem likely that the approach will be more balanced than in the past, with an absence of emphasis on a leading reform sector, and with coordinated reforms in different areas, but this will remain well short of a blueprint approach. Major Reform Turning Points 2.27 There are different ways to define turning points in economic and political history. However, in this context, we are primarily conc-erned with key decisions taken by the Communist Party and the Government of China with regard to reforms. These decisions then became important reference works,,9 and bear rereading for what they do and do not say about what is permitted after such decisions have been taken. The first of these is, of course, the decision of the 3rd Plenary Session of the lLth Central Committee of the Com- munist Party of China, 6/ the Communique of which officially launched the reform program, and spawned the agricultural reforms and the beginning of the opening up to the outside world. Reforms in urban areas were only on a very limited experimental basis until the Third Plenary Session of the 12th CCP, which adopted the "Decision on Reform of the Economic Structures" in October 20, 1984. It was this document that launched the acceleration of 61 The Communist Party holds a Congress about every five years, and elects a Central Committee. This Central Committee meets in plenary session about ten times between Congresses, to make important decisions. The last (13th) Congress was in November 1987. Since then eight plenary sessions have been held, and the next (14th) Congress is scheduled for the last quarter of 1992. - 43 - reforms in urban areas in 1985, and especially the two-tier price system, and decentralization of enterprise management. 2.28 Despite these two milestones, the reform lacked a theoretical back- ground and basis in socialist principles--it being based on Deng Xiaoping's principle of "seeking truth from facts," the basis for pragmatic decision- making--but this came in October 1987 in the Report of Government to the 13th Party Congress "Advance Along the Road of Socialism with Chinese Characteris- tics." This adopted the theory of the "Primary Stage of Socialism," which provided the theoretical basis for Deng's approach, by showing the acceptabil- ity of multiple forms of ownership and of economic systems during the early period of socialism that China would be likely to be under until well into the 21st Century. This also spawned the important guidelines of "the state regu- lates the market, and the market guides the enterprises," which remains the fundamental principle for China's "planned commodity economy." Finally, the adoption of the "Outline of the Eighth Five-Year Plan and the Ten-Year Devel- opment Program" is very.significant, as it includes a clear description of China's reform approach for the coming period, and sets out reform intentions in a wide range of areas, as further discussed in the next two chapters, mark- ing the first occasion when the Plan has focused on policy issues as the key to development. However, it is likely in the future that this turning point will be seen to have been overtaken by the 14th Party Congress scheduled for the last quarter of 1992, which can be expected to take major decisions to guide the next phase of reforms. Each of these four documents/decisions should be regarded as part of the enabling framework which has permitted the central and local governments to move on to define specific reform moves, which are addressed in subsequent paragraphs. Rural Reforms 2.29 These are listed first, not only because this is where the reform started, but also because these remain the most significant of all the reform efforts. As noted, China began the reform period with socialized agriculture operating on a reasonable technical basis, and at the heart of the reform was a return to individual, household agriculture with the break-up of the com- munes. With the return of the land to individuals on a long (15-25 year) lease basis, farmers had to agree to turn over a percentage of output to the state, and in some areas, the particular crops (especially rice in the south) were specified, and thus the phrase "Household Contract Responsibility Sys- tem." This was accompanied by a 25 percent (average) real increase in rela- tive agricultural prices. Together, these improved incentives elicited a very rapid output response (para. 2.52), and generated large cash savings. Pres- sure for permission to utilize these for industrial use grew, resulting in the formal decision in 1984 for local authorities to create township and village enterprises. 2.30 Much has been written about the growth of rural industry,10 and this remains the key to much of China's success in the 1980s (see Part D). But w did this mushrooming of rural industry occur, apparently without posi- tive policies, and as a result essentially of an enabling environment? We would offer three main reasons: - 44 - (a) As suggested, the agricultural reforms created a surplus available for investment and released a pool of labor eager and available for new sources of employment. (b) The initial industrial conditions had, by having neglected the light industrial sector, and as a consequence of the socialist pricing system which favored light industry, created major opportunities for entry of small firms into this sector, where rapid, very high prof- its could be made. (c) Local governments were heavily committed to local economic develop- ment and played a key facilitating, and even sometimes entrepreneur- ial role in fostering such industries. In the South, the role of overseas Chinese is also relevant, while in pro- vinces with large rural industrial sectors, such as Zhejiang and Jiangsu, domestic factors are paramount. 2.31 These are, in essence, the only two reforms of significance, and it was not until 1988 and 1991 that new reforms were launched, on the pric- ing/marketing side. In 1988, it was in the prices of nonstaples (sugar, eggs, vegetables and pork) that the price reform was successfully launcbed, and abandoned only after an attempted widening. But this approach--of converting product subsidies into wages--was the basis for the important grain and oil- seeds price reform of 1991 (see Table 1.5). These have been accompanied by the introduction of wholesale and futures markets in grain, and together, these indicate that China is slowly moving to a situation where markets will dominate agriculture. Foreign Direct Investment 2.32 It is sometimes forgotten that it was in the area of foreign direct investment that the first industrial reforms were made, with the passing of the joint venture law in 1979, and the opening of the first four Special Eco- nomic Zones in 1980. Since that time, FDI has poured into China (para. 2.66). The importance in Chinese terms of this was that it represented a major break with the autarkic principles of the pre-reform era, recognizing that China could not rely on its own resources alone to catch up with the rest of the world in terms of technology. Thus, the importation of foreign technology and management techniques and their financing by overseas capital became a key strand of Deng's reform approach from the outset. Nevertheless, the early approach, focussing solely on export-oriented industries, severely limited the volume of FDI. Major modifications were introduced by the "22 Articles" in October 1986, which paved the way the following year for the opening up of the foreign exchange swap centers, which removed the most serious constraint, which had been China's attempt to force joint ventures to achieve self-suffi- ciency in foreign exchange. These "Articles" were further improved in 1990, when regulations were introduced to limit administrative interference with the operation of joint ventures. 2.33 It would have been surprising if the opening of China to FDI would not have been successful, given the size of its market and the cheapness and quality of Chinese labor. But the role of overseas Chinese communities, and - 45 - of Hong Kong and Taiwan in particular cannot be over-emphasized. Fully three- quarters of all foreign investment in China originated in Hong Kong, of course much of it being by non-Hong Kong residents but rather channelled, but this is of no matter. The turning point for this was the adoption of the "one coun- try, two systems" policy, which led to the signing of the Sino-British accord in Hong Kong in 1986, which has in turn permitted a remarkable integration between the economies of China and Hong Kong."1 While the regulations have been an important and appropriate enabling environment, it is the Hong iong factor that explains, in our view, most of the great success of the open door policy. Commercial Reforms 2.34 One of the earlier reforms in China that appears to have been repeated in other reforming socialist economies has been the effective privat- ization of the commercial sector. This began in 1982 and, by 1985, 75 percent of all state-owned commercial and service companies had been sold or leased to private owners, and entry was permitted for any newcomers. The state sector remained important in three main areas: wholesaling of a wide range of prod- ucts, especially agricultural; retailing of commodities under price controls and under the ration system; and operation of major commercial outlets employ- ing large numbers of people, such as department stores. In addition to these formal retail channels, local governments have fostered the emergence through- out the country of "free markets" for food and consumer goods, especially clothing, frequently by providing basic facilities such as covered market stalls. Again, we have seen here the combination of the initial conditions of neglected consumption and facilitative local government. 2.35 It is no surprise that this proved a popular and successful reform, as it has in other countries, where improved commerce has been an early reform result. But two parallel results of this reform seem to merit mention. First, the private commercial system has provided a demand for backward link- age to the emerging new industrial sector, not least in alternative transport systems to deliver small quantities of goods to these outlets. This spawning of nonstate services seems set to continue in the 1990s, and indeed is now recognized by policymakers as a key source of future employment creation. Second, this area of reform has served as much as any to create a constituency in favor of the preservation and continuation of reforms, especially among the younger generation. It seems likely that this-reform also had such instant results in China because the state commercial system had never been as all- encompassing in China as in other countries, and private commercial skills never completely disappeared, especially in rural areas. State-Owned Enterprise Reforms 2.36 There have been many detailed reforms related to the SOEs, but they really come down to two basic changes in the system. First, in 1983/84, the system of profit remittance to the central government was changed to one whereby enterprises paid income taxes, and shared profits with their super- visory authority, with an increasing role for local industrial bureaus in this, compared with the earlier dominance of central ministries. This was accompanied in 1984 by incentives to generate those now retainable profits by the lowering of plan targets and permission to sell above plan output on - 46 - markets, together with the further decentralization of plan formulation and implementation. This led to investment hunger and very rapid industrial expansion in 1985, so the system became more structured from 1986 onwards, as the agricultural contract responsibility system was applied to the SOEs under the enterprise contract responsibility system, which fixed profit remittance, retention rates, investment targets, etc., usually for a three-year period. By 1988, over SO percent of all SOEs, accounting for over 50 percent of indus- trial output, were operating under this system, and by the end of 1991, most had signed a second contract. 2.37 Further innovations have been made, such as the Bankruptcy Law in 1987, the Enterprise Law in 1988, the use of enterprise groups and leasing of enterprises, but these are merely codification or variation of these two basic changes. Contrary to many general impressions, important efficiency gains have been achieved in the state sector (see Table 2.3), as well as in the nonstate sector. What these have amounted to is this: gradually changing the focus of SOEs from concern with meeting output targets to one of meeting financial targets, by specifying the latter targets as the main performance criteria of the contracts, and by offering incentives for attaining and exceeding such targets. The key to ensuring that such gains have come via efficiency improvements has been the role of competition, not only from new nonstate enterprises, but also from other SOEs given the size of the market in China. On the positive side, more gains have been made via this rouice than is frequently acknowledged. The key difficulty, as we discuss more below (para. 2.73-2.75) is that the system is primarily one of positive inducements, without clear negative consequences of failure. 2.38 In short, China's enterprise reforms can be summed up in this way: it has been the "marketization" of such entarprises, as contrasted to the "privatization" approach of many other countries. Can state-owned enterprises operate fairly and effectively in the market? That is at the heart of the assessment of China's future (para. 2.89). Financial Sector Reforms'2 2.39 Like most other socialist economies, China operated an essentially monolithic banking structure, and this has been one reform area where a clas- sic sequencing of reforms over time has been planned and followed. The first step, in 1984, was to separate central banking 'from commercial banking, by creating the Industrial and Commercial Bank to take over the latter functions, leaving the People's Bank of China to focus mainly on central banking. This was extended in 1987 by the creation of two new universal banks to introduce slightly more nonprice competition into the banking sector. At the same time, financial innovations were encouraged, first by decentralizing authority to create nonbank financial institutions beginning in 1987, and secondly, by forming new capital markets, essentially for secondary trading of government bonds in 1988/89 and more recently, for trading in shares, beginning offi- cially in 1991. This gradual deepening of the financial sector--at times ahead of the central institutional capacity to supervise and manage it--has been rapid and logical. 2.40 These financial innovations were necessary and "forced" by the change in the respective roles of the state and enterprises and individuals - 47 - with respect to savings. The enterprise reforms meant that no longer would most surpluses be channeled via the government, but rather they would be retained by enterprises for investment, or passed on to workers in the form of rising wages and bonuses, who then needed somewhere to lodge their financial savings. It was this rapid financial deepening of the economy which also explains why China was able to sustain monetary expansion of close to 20 per- cent per annum throughout the decade of the 1980s without either revealed or repressed inflation.'3 2.41 These financial innovations took place extremely rapidly in the mid- 1980s, with little change since then, The commercial banking system remains 100 percent state-owned and operated, with a considerable share of total (especially working capital) lending influenced by the state through direct intervention to support its industrial policy, and seemingly only a relatively small proportion of total lending decided by banks on purely commercial grounds. Further reform in this area, then, also remains one of the major items on the unfinished agenda (para. 2.77). Fiscal Reform 2.42 Many would argue that China has never had, and continues not to have, a tax system, but rather it has a revenue system. It should first of all be noted that China has always operated a decentralized taxation system, with the central government relying on provincial taxation bureaus to collect their taxes. The main changes that have taken place have been less concerned with a fundamental restructuring of sources of revenue, but rather changes in the way it has been collected and shared. In particular, the first big change has already been noted: profits began to be retained at the enterprise level, instead of being remitted almost in total to the state. This, of course, relieved the state of most of the burden of funding enterprise investment (see para. 2.64). The second big change came from the introduction of the fiscal contract responsibility system, the third of the four contract systems. This was introduced over a few years beginning 1985-86, when contracts were signed between the central and local governments, specifying the taxes to be handed over to the state, those to be shared and--in what proportions--and those to be retained.7/ Similar arrangements had always been in place but the con- tract system formalized them. 2.43 These contract systems, together with the high initial reliance on profits taxes, meant that central revenues were bound to be squeezed, as the former did not take account of inflation, and the profitability of enterprises was reduced in the face of competition. However, after the initial rapid decline in revenues following the measures noted above, the central government 7/ A common misconception is that all taxes are subject to sharing. In fact, a significant proportion (about 40 percent) are collected by local finance bureaus on behalf of central government, about 50 percent are collected and retained; and about 10 percent gets handed over for redis- tribution. In fact, transfers from the center exceed amount handed over from shared revenues. Taxes from centrally-owned SOEs are handed over to the state, as are certain other taxes, such as the salt tax and the extrabudgetary tax. - 48 - $was able to introduce minor tax adjustments, especially on indirect taxes, to permit revenues to remain reasonably buoyant. China's tax or revenue system remains very unusual, however, with its reliance on contracted tax payments, layered indirect taxes and near-total absence of personal taxes, together with the absence of any centralized tax collection system. This is a second area where two major reforms occurred early (in 1986-88) with only minor adjust- ments since. Foreign Trade 2.44 In contrast to fiscal and financial reforms, the foreign trade area has seen evolutionary, gradual change, very much exemplifying the "Chinese model"14 Not only has it progressed gradually as opportunity has arisen, it has also involved partial reforms and has seen the "two steps forward, one step back" phenomenon. From its opening position of a system of about 15 foreign trade corporations operating under a near total mandatory trade plan, China rapidly moved to decentralize authority to create foreign trade corpora- tions, while simultaneously reducing the scope of the trade plan, and permit- ting retention of foreign exchange at the local level. This rapidly spawned 1,500 new FTCs by the end of 1987, when the next two innovations were launched: sectoral reforms, whereby certain sectors (garments, electronics, and agricultural sideline products) were essentially forced from planning (and subsidy) and given high retention, and the institution of the fourth contract system, providing for the sharing of foreign exchange between central and local governments and the level of "support" from the center. Further power to create FTCs was delegated, and the number reached over 5,000 by 1990. 2.45 The third wave came in January 1991, when the second round of trade contracts was put in place, which eliminated central subsidies for exports and increased local retention of foreign exchange, which has increasingly been traded on the official parallel market. Over the last five years, a series of devaluations has gradually corrected the over-valued exchange rate and elimi- nated all but 7 percent of differentials between the official and parallel rates, with more than one third of all transactions now taking place at the parallel rate. The results of all this in terms of export performance are well-known (para. 2.80), and have permitted a rapid increase in technology imports. However, the emphasis of trade reform has always been on export promotion to finance "modernization" imports, and the import sector has never been seen as a source of competition. Now, however, with China once again seeking to resume its seat in the GATT, the fourth wave of trade reform can be expected to focus on liberalizing the import regime and making it more trans- parent. 2.46 It can thus be seen that the successful trade reforms have been driven by the desire to increase foreign exchange earnings to finance technol- ogy and materials imports. China has succeeded in this because of competition in the export sector, constant improvement in export incentives, and openness to foreign traders, especially from Hong Kong. In this regard, it has mir- rored the Korean export experience a decade earlier. One final similarity shouti be noted: while import liberalization was left to last, imports of raw materials and other inputs for exports have been open from the start, espe- cially in the assembly industries of electronics, toys and garments. - 49 - Social Sector Reforms 2.47 China has left social sector reforms to last. The reason for that seems to be twofold: first, by keeping the enterprise-based social safety net in place, it has postponed, or possibly avoided, many potential social prob- lems; second, China continues to be very concerned about growth of large urban areas, so has resisted major labor reforms. Thus, within the labor area, the main reform has been a preparatory one: the introduction of the labor con- tract system, whereby all new workers in SOEs since 1986 have been on contract not permanent status, and can theoretically be fired, and this system covers about 20 percent of all state workers. The wage system has seen greater reli- ance on bonuses, but, on a national basis, the biggest change has been the growth of employment in nonstate enterprises, where rewards are usually on a piece-rate basis, and where the nonwage benefits (housing, pension, health) generally do not exist, or are far less significant. Thus, the main change has not been to the basic state system, but in the development of a parallel system. 2.48 It is only very recently that the government has begun to move on a national basis with respect to areas such as housing, social security and health financing, having largely focused on experiments so far. The diffi- culty is to move from a system of nonwage benefits tying the worker to his enterprise, to one where rewards are essentially monetary, with such social facilities and services being made available to the worker through other mech- anisms, both public and private. Given its potential for creating social instability, this is an area where the Chinese government is moving very cau- tiously indeed, as these reforms will also serve to loosen the state's control over labor mobility. 2.49 This brief overview of the main steps in China's reform hopefully displays many of the characteristics of Chinese reform discussed earlier, from gradual (trade), to decentralized (enterprise), to partial (price) and self- reinforcing (financial).. It also shows a clear trend throughout towards mar- ketization of the economy, and the gradual evolution of arm's length, rules- based systems, although there remains a considerable way to go. What we can also see is that reforms have made least progress, the more they can be seen to affect the state-owned enterprises in any adverse way, and most progress where the opposite is the case. Thus, the challenges appear greatest in enterprise reform, and in financial and fiscal reforms. However, before we address future reform priorities, it seems appropriate to review the impact of reforms to date, as an indicator of how far reforms have come. E. The Impact of Reforms 2.50 Reform is not an end in itself: it is employed as a mechanism to foster development, and especially gain in efficiency, so that economies can enjoy growth and have a quality of growth that permits individuals to enjoy the benefits of growth. Fortunately, after more than 12 years of reform, and building on research results, we are now able to begin to assess quantita- tively what has been the impact of China's reform. We look here at measures in four areas that seem most pertinent: output and consumption; gains in productivity; the changing role of the state; and openness to the outside world. As we shall see, these results are impressive indeed, and a powerful - 50 - source of justification for China's approach. They do not prove that China could not have done better with some alternative policies, perhaps avoiding some pitfalls. Such a contrafactual argument can always be raised and will be partially true. But the numbers show a strong response to reforms, in partic- ular in terms of achieving its main goal: to generate rapid economic growth on the basis of efficiency gains snd opening to the outside world, through a growing role for the market. Gains in Output and Welfare15 2e51 China has had a strong growth performance for most of the period since 1949, and even during the Ctultural Revolution. This is not surprising considering that the state has seen to it that over 30 percent of GNP has been invested every year. During the period 1965-80, real GNP grew by about 6.4 percent per annum, with the gross value of industrial output rising by 10.3 percent and of agriculture by 3.1 percent. What we will see in the reform era is thus an accelerationi of growth and welfare gains, rather than their introduction, for it bears repeating that the purely economic gains of the prereform period were impressiLve, even if obtained at eimormous cost, phys- ical, political and social. The reform era itself saw most rapid gains in 1982-88, with significantly lower growth in the two tails, although 1991 has seen a strong recovery, as discussed in Chapter I. 2.52 At Table 2.1, we show various indices for the change in GNP and output over the reform period. With GNP growing at over 9 percent per annum-- Table 2.1: OUTPUT GAINS IN THE REFORM ERA (average growth rates per annum) 1979-89 1982-88 Gross output value 10.7 13.1 Agricultural output 6.0 6.8 Industrial output 12.5 15.3 of which: SOEs 8.1 9.8 Collectives 19.0 23.1 (TVEs) 29.9 38.2 Private - 222.6 Other - 45.7 GNP 9.1 10.9 of which: Primary 5.3 6.4 Secondary 10.5 12.4 Tertiary 11.1 13.3 Source: China Statistical Yearbook and Xiao, op. cit. - 51 - and per capita GNP at 7.8 percent per annum--there was a remarkably sustained increase in output over this period. Moreover, this growth in output was relatively balanced, especially during the early period, for agricultural performance also responded well to the reform, as noted. It is also not sur- prising, given the nature of reforms, that the tertiary sector saw the most rapid growth over this period. Indeed, the share of transport and commerce in national income fell from 13.6 percent in 1965 to 10.1 percent in 1980, but had risen to 14.8 percent by 1988. 2.53 But while output had grown during the prereform periodt there had been relatively modest gains in private consumption per capita. Indeed, real wages saw little if any improvement over the period prior to 1979, with more increase in household income coming via growth in employment. At Table 2.2, Table 2.2: CONSUMPTION INDICATORS, 1978 AND 1988 1988 as % 1978 1988 of 1978 Cloth (m/person/yr) 8.0 12.2 152 Housing space (m/person) Urban 4.2 8.8 210 Rural 8.1 16.6 205 Wristwatches 8.5 47.0 553 Bicycles 7.7 30.4 395 Food (kg/person/yr) Pork 7.7 14.9 194 Poultry 0.4 1.8 438 Eggs 2.0 5.8 291 Source: China Statistical Yearbook. we show various indicators of consumption in 1978 and 1988, showing how basic consumer goods and housing improved in availability over this period. Perhaps an even stronger indication of the real change in living standards is posses- sion of major durable consumer goods. To take the three most startling exam- ples: in 1981, there was less than 1 color television set per hundred urban households, but by 1990, this number had risen to 59; there were 0.2 refriger-' ators per hundred households in 1981, and 42.3 in 1990; and for washing machines, the figure rose from 6.3 per hundred to 78 per hundred households. Thus, the rapid growth in output translated into a very significant change in the standard of living in China over this period. That this was possible was because the reform era has seen intensive rather than extensive development, and thus rapid gains in total factor productivity. 2.54 These welfare gains are reflected in sharp reductions in the mea- sured incidence of poverty during the reform era. A recent Bank report 16 found that the proportion of the population below the poverty line in China - 52 - declined from 28 percent in 1978 to under 10 percent by the middle of the 1980s. However, no additional gains were made after 1984, as poverty in China is overwhelmingly a rural phenomenon, and the gains reflected the early gains from agricultural reforms. By 1990, some 11.5 percent of the rural population and 0.4 percent of the urban population remained in poverty. This meant, however, that over 160 million people had emerged from poverty during the reform era. Table 2.3: ECONOMIC GAINS DURING THE REFORM ERA (Percent growth per annum unless stated) Productivity Indicators 1980-88 1980-84 1984-88 State Sector Growth 8.49 6.77 10.22 TFP growth 2.40 1.80 3.01 Use of materials 4.31 3.72 4.90 Collective Sector Growth 16.94 14.03 19.86 TFP growth 4.63 3.45 5.86 Use of materials 9.70 8.30 10.85 Agriculture Output growth 6.12 7.71 4.13 TFP growth 6.44 9.52 2.60 Land under cultivation -0.13 -0.38 0.12 Use of fertilizers 6.75 8.20 5.33 Convergence of Returns (Ratio of nominal marginal returns 1980 1988 in collective industry as % of state) Labor 48.5 55.4 Capital 168.7 153.7 Materials 95.4 100.7 Source: Statistical Yearbook of China and Jefferson et al (op. cit). Productivity Gains 2.55 Several of the studies have cited begun to provide reliable esti- mates of gains in total factor productivity during the reform period, incorpo- rating re-estimates of the value of China's capital stock. Some of the - 53 - results are summarized in Table 2.3.8/ These show very strong gains in TFP over the reform period, in all sectors of the economy. We have already noted that the first half of the reform period focused on agriculture, with indus- trial reforms coming later, and the TFP gains reflect this, with TFP growth accelerating noticeably in industry after 1984. In agriculture, by contrast, productivity gains were rapid for a while, but then fell off, as most gains from increased effort were by then achieved. It is also of interest to note that TFP explains most growth in agriculture--land area fell, though use of fertilizers grew rapidly--but extensive growth (meaning greater use of inputs) continued to be the most important factor explaining industrial growth. 2.56 These gains in factor productivity are in stark contrast to the prereform era. Various estimates have been made which indicate that produc- tivity was stagnant during the 1957-76 period. Indeed, one study showed a decline in combined agricultural and industrial TFP of -1.41 percent during 1957-65 and a gain of only 0.62 percent per annum during 1965-76.17 2.57 These changes in TFP overtime are supported by more conventional measures of efficiency gain. The accumulation/national income ratio (the Chinese equivalent of a capital-output ratio, given the absence of GNP data before 1978) rose from 3.79 in the first decade (1953-59) to 4.30 in 1960-69, and to 5.39 in 1970-78. However, from 1978-88 it fell to 2.38, despite the surge in investment during the reform era. It is only during the slower growth performance of the rectification program of 1989/90 that the capital- output ratio has again risen. 2.58 Other results show that the reform in China is beginning to make the economy behave in ways similar to market economies. One of the distinctive features of the socialist system is that the inability of factors of produc- tion to move between alternative uses means that the government can fix the price system so that profits are a matter of administrative decision, and can vary widely between sectors, and the returns to factors of production in dif- ferent uses can be very divergent. Evidence of equalizing profit rates and convergence of returns is a sign of effective marketization. 2.59 In 1980, profit rates in industry ranged from 7 percent to 98 per- cent: by 1989, the range had fallen to 8-23 percent, which is much more nor- mal. In 1980, returns to labor in collective industry were only 48 percent of those in the state-owned sector, while this same ratio had risen to 55 percent by 1988. In contrast, returns to capital, which were 69 percent higher in the collective sector in 1980 were only 54 percent higher by 1988. Thus, reforms are not only serving to generate productivity gains, they also appear to be improving resource allocation. This, it must be assumed, is the direct result 8/ These results, based on survey data, confirm earlier results from Chinese researchers. They found TFP growth of 3.39 percent per annum during 1980-84, and,4.46 percent during 1984-88, although such growth turned negative during the 1989/90 rectification program, and results for the 7th FYP period were below those for the 6th. See Li Jingwen et al "Anal- ysis of Economic Growth in China," Institute of Quantitative and Techni- cal Economics, Chinese Academy of Social Sciences (1991). 54 - of the rapid growth in competition, especially between state and nonstate industries. The Role of the State 2.60 The primary purpose of reform in a centrally-planned economy is to change the role of the state from one of planning and directing economic resources directly, to one where the state manages the policies which direct the resources. The impact of reform on the role of the state is shown in a variety of indicators in Table 2.4, and these show how fundamental this change Table 2.4: CHANGING ROLE OF THE STATE 1978 1984 1989 Output of state-owned enterprises as % of total 77.6 73,6 56.1 Gov't revenues as Z of GNP 34.4 26.4 20.9 Extrabudgetary revenues as % of GNP 9.7 17.1 16.8 Financing of investment (1981) Budget 28.1 23.0 8.3 Loans 12.7 14.1 17.3 Foreign investment 3.8 3.9 6.6 Other 55.4 59.1 67.8 SOEs as % of total 69.5 64.7 61.3 Financing of SOEs Investment Budget 37.7 39.0 13.4 Loans n.a. 15.4 20.9 Foreign investment n.a: 2.2 10.2 Other n2a. 43.5 55.6 Bank deposits as Z of GNP Total 31.6 47.6 56.8 Enterprise 10.3 19.2 19.5 Urban savings 4.3 11.2 23.6 Rural savings 4.3 5.4 4.5 Treasury & government 9.7 7.1 5.8 has been. The first, and perhaps most dramatic change has been in the struc- ture of output. In 1978, 78 percent of all industrial output came from the SOEs, operating entirely under the planning system. By 1989, the share of SOEs in total industrial output had fallen to 56 percent. This was not the result of privatization--for the effect of change in ownership of SOEs during this period was negligible, as it mostly occurred in the commercial sector-- but rather the growth of the nonstate sector. This should thus be seen as one - 55 - of the results of the gradual approach: that small, incremental changes (in this case, via differential rates of growth) can over time add up to major structural reforms. Among these, we may note the growth of output of township and village enterprises, individual enterprises and joint ventures in particu- lar, as shown in Table 2.5 and Chart 2.1.9/ Table 2.5: SHARES OF INDUSTRIAL OUTPUT OF NONSTATE INDUSTRY (percentage) 1985 1990 Total collective 32.1 35.7 of which: Township 7.8 10.4 Village 8.4 12.3 Urban collective 15.9 13.0 Individual enterprises 1.9 5.4 Others, including joint ventures 1.2 4.4 Total nonstate 35.2 45.5 excl. urban collectives 19.3 32.5 2.61 What this shows very clearly is that since the inception of urban reforms, the share of nonstate industry in the total has expanded enormously by virtue of very rapid growth rates. SOEs have been growing fast as well, but at only half the pace of nonstate enterprises. In fact, despite their low base, nonstate industries account for more than half of the total growth in industry over the 1985-90 period. If this result is linked back to the pro- ductivity figures of Table 2.3, then it can be seen that part of the explana- tion for the rapid growth of total TFP is the relative growth of collective industry, where TFP gains have been particularly rapid. 2.62 This can be seen on a regional basis as well, as demonstrated in Chart 2.2. This traces gains in total factor productivity at the provincial level with the share of nonstate industry in total industrial output in dif- ferent provinces. As can be seen, there is a generally close relationship between high-productivity provinces such as Zhejiang, Jiangsu and Guangdong, and the high share of nonstate industry, which in the extreme case of Zhejiang reached 68 percent in 1989. In contrast, provinces with.very low shares of 9/ While all collectives and TVEs are defined as "nonstate," many would also fall under the definition "publicly owned." While many TVEs (the "Wenzhou" model) should be seen as akin to private enterprises, others (the "Suzhou-Nanjing" model) are closer to local state enterprises, with the role of the entrepreneur being critical in the former, and local government in the latter. See Byrd and Lin, oR- cit. - 56 - Chart 2.1: OWNERSHIP SHARES IN INDUSTRIAL OUTPUT Individual 5% Urbann 13% Individual 2 Rural 22 Rural 16% Other 1% Other 4% X State 65% State 55% 1986 1990 Urban * Urban Colleotlve Rural * Rural Colleotives A TVYe. Other * Foreign Joint Ventures & all other. Source: China Statialleal 'Vtarbesk 1901. nonstate industry, especially those in the North-West of China, had the lowest productivity. The only significant outlier is Shanghai, where the state sec- tor appears to be most productive, perhaps as it is in Shanghai where much of the state's final goods production (automobile, bicycles, electronics, ciga- rettes, processed food) is located. 2.63 The reforms of the budget system and decline in the role of budget- ary financing show up very clearly in the fiscal statistics. About one third of GNP used to pass through the budget in 1978, but this had fallen to only 21 percent by 1989, with the fall in budgetary revenues being more than com- pensated by increases in extrabudgetary revenues, 80 percent of which belong to enterprises in the form of profits. The main change that this has brought about is with respect to the structure of government spending and the financ- ing of investment. 2.64 The change in the budget has meant that investment is now financed primarily from retained profits and bank loans. This is especially the case for the state-owned enterprises. In 1978, when they were remitting profits to the center, about 40 percent of their investment came from the budget: by 1989 this had fallen to only 13 percent, with most of this change coming after 1984. While the state continues to influence investment very heavily through its approval system and via the banking system, it no longer has any signifi- cant direct financing role, especially in the productive sectors, for almost all of the budgetary investment is in infrastructure. 2.65 The corollary of the declining influence of the state in the financ- ing of investment is the rising importance of the banking system in mobilizing - 57 - Table 2.6: STRUCTURE OF GOVERNMENT EXPENDITURE, 1978-90 (percentage) 1978 1984 1990 Current expenditure 56.5 71.2 79.7 of which: Defense (13.7) (9.3) (7.6) Culture, education, health (9.2) (13.6) (16.2) Administration (4.0) (7.1) (8.1) Subsidies (9.3) (21.1) (25.2) Development expenditures 43.5 28.8 20.3 Source: Statistical Yearbook of China. savings. Not only has the use of bank loans for financing investment risen, but it has been made possible by the rapid growth of personal and enterprise deposits, although this does raise some of the key issues for the future (paras. 2.76-2.77). In 1978, savings deposits were only 8.6 percent of GDP, since when they have more than tripled to 28 percent in 1989, and enterprise deposits have about doubled as a share of GDP, with the corollary being a decline in treasury and governmant department deposits. Indeed this overall marketization and financial deepening of the Chinese economy is one of the more noticeable features of the reform period. The External Sector 2.66 The fourth area of impact has been in the external sector, and in ways that distinguish China's reform effort from earlier socialist reform experiments. The key result has been that China has become a much more sig- nificant participant in the world economy. This has been an area of reform where decentralization of decision-making has been the primary factor behind the change. There are four aspects in which the impact can be seen: trade, technology, foreign exchange arrangements and foreign direct investment. 2.67 Perhaps trade is the most significant of these in many ways, and this is shown in Table 2.7. It should perhaps be noted that, even in 1978, trade was relatively high in China, as by this time the program to import western technology was already under way, but via the planning system. How- ever, since 1978, trade has consistently grown at rates well above GDP growth, so that by 1990, trade had risen to the equivalent of 31.3 percent of GDP, making China, by this measure, the most open of all large countries, and with Index of Total Factor Productivity 150 | _ _ _ _ _ _ _ _ _ _ _ 140 I .Zh iang 120 110 .a.oBeijing . G 90FG --u - Slch lanJ~ *ubel |--t Nati nal Aerag | |3 80 - G zhou Shaan . ..rt . Sl anx Iang 70 Inne Mong 8 2: 60 _ 1 10%6 15% 20%C 25% 30%C 35%6 40%0 45%G 50% 55% 60%6 65% 70% Non-State Sector Share of Indu. Output Source:GXiaoa China Economic Reviewad 991n - 59 - Table 2.7: TRADE IN THE CHINESE ECONOMY, 1978-90 1978 1984 1990 Exports $ billion 9.75 26.14 62.09 Y billion 16.76 58.05 298.58 % of GDP 4.7 8.4 17.1 Imports $ billion 10.89 27.41 53.35 Y billion 18.74 62.05 257.43 $ of GDP 5.2 8.9 14.2 Trade as % of GDP 9.9 17.3 31.3 Source: China Custom Statistics. a degree of openness more than t.wice that of India, Brazil, USA or Japan.10/ Note also that with the exception of the two retrenchment programs--1982/83 and 1990/91 11/--a trade deficit has been recorded every year. While no doubt some part of this growth in exports is the result of planning, more than half of all exports by the end of the 1980s fell outside any sort of planning, so these can be regarded as the result of the strong export incentives China has had in place.18 2.68 Of all such incentives--including foreign exchange retention, tax rebates, and direct subsidies on planned exports--the most important has been use of the exchange rate and foreign exchange markets. The exchange rate, which at the time was almost irrelevant for the determination of trade, was only Y 1.72/$1 in 1978, but stands today at Y 5.38/$1, despite there having been only less than 30 percent more inflation in China than in the United States over the period, and thus we have witnessed a very strong real effec- tive exchange rate depreciation in China. In fact, taking 1980 as 100, the real effective exchange rate index at June 1991 was only 34.6. Thus, with the reduction of trade planning and the aggressive use of the exchange rate, it seems reasonable to attribute a considerable share of the growth in trade to this factor. However, not all of this exchange rate change has been strictly "managed," since, as noted earlier, one of the reforms has been the introduc- 10/ Although it would not alter the conclusion, care should be taken in using these statistics. GNP may be somewhat underestimated, and trade statis- tics include the full value of exports based on processing of imported inputs, which tends to exaggerate the true role of trade in the economy. 11/ Trade surpluses have occurred in the two years following the main stabi- lization efforts of 1981 and 1989. - 60 - tion of the parallel foreign exchange market. In its first year, turnover on the parallel market was only $4 million, but this rose rapidly to an estimated $18 billion in 1991, accounting for about one third of all transactions. It has been the growth in this market which has forced the realignment of the official rate since 1987, to the point where the differential, which was close to 100 percent in 1988, is now less than 10 percent, and unification of the rates under a market-based system seems to be under active consideration. 2.69 One other factor about the growth of trade in China has been its impact on the level of technology in the country. About one third of all imports over the last ten years have been of machinery and equipment. In other words, each year China has imported the equivalent of about 3 percent of GDP in capital goods, accounting for about 7.5 percent of all investment, and about 15 percent of all investment in equipment. It can be assumed that this has had a marked impact upon the equipment manufacturing industry, in China, and thus, while modernization and upgrading of equipment remains a priority, it can also be safely assumed that there is a wide range of Chinese industries where the vintage of capital equipment is not the primary issue in terms of competitiveness. 2.70 The fourth area of openness has been the impact of reform on foreign direct investment, which was the very first of the urban reforms. According to official statistics, there have been contracts signed over the period 1978- 90 for over 29,000 joint ventures, with a contracted value of $45 billion. About half of these are in operation, with an investment value of about $22 billion. This translates in the last few years to annual direct foreign investment of $2-3 billion, which is of the same order as inflows of either official borrowing (World Bank, ADB, Japan, etc.) or commercial borrowing. More important, as many of these investments have been export-oriented, espe- cially in the southern provinces of Guangdong and Fujian, this has been the other major explanatory factor behind China's export growth, as the economies of China, Hong Kong and Taiwan have been more closely linked. Indeed, some 70 percent of all foreign investment originates in Hong Kong, and over one third of all trade. To put this in a global perspective, China is the desti- nation for about 10-15 percent of all direct foreign investment in low- and middle-income countries, and is exceeded in Asia only by Singapore.19 2.71 Thus, the reforms have led to a situation in which China has been a major player in world markets, both through its own trade links and the inte- gration of its manufacturing sector through direct foreign investments, and this distinguishes China's reform efforts. However, as discussed below, this effort on the export sector has proceeded faster than and has not been the result of import liberalization, which remains high on the unfinished agenda. F. Reform Priorities 2.72 We have seen from the preceding five parts of this chapter that China has come a long way in its economic reform, and that the economic impact has been measurably strong. However, it takes no more than a reread of the first chapter of this report to see that many problems remain, and, while progress has been great and the overall economic performance of the last decade remarkable, it seems clear that much indeed remains to be done. Indeed, this follows from the Chinese approach to reform, which expects the - 61 reform process to last a long time. The rest of this section therefore is concerned with the main items on the unfinished agenda. In terms of the major priority areas, it seems to us that there are six of particular importance. These are: the state-owned enterprises; the financial sector; public finance; trade; prices and markets; and the role of the state. In this chapter, we will only concern ourselves with the major unresolved issues, leaving the details to be addressed in Chapter IV. While actions in each area are dis- tinct, it is reform of the SOEs that is the key constraint, and the main obstacle to be overcome. The State-Owned Enterprises 2.73 Many incentives have changed for the state-owned enterprises, and their focus has shifted considerably away from achieving output targets and providing social services towards making profits and improving efficiency. Nevertheless, while the role of the nonstate enterprise sector has changed dramatically, the fundamental structure of the relationships between the state and the SOEs, and between the SOEs and their workers remains unchanged. Enterprises remain subjected to administrative interference in day-to-day operations, the negative consequences of failure remain unclear (in contrast to the positive rewards for success), and workers continue to be assigned to enterprises administratively and to be bound to those enterprises through the housing, health, education and social security systems. China's state-owned enterprises therefore continue to display many characteristics of public enterprises throughout the world, not least in making losses, funded both via the budget, and, in a less open way, through the banking system. 2.74 However, China requires that the publicly-owned enterprises must remain dominant in China's society (see paras. 4.16 and 4.16). Therefore, the reform priority in the state enterprise sector relates not so much to the issue of privatization, as to the regulatory and competition framework. Three areas seem to be paramount in this regard: (a) In terms of ownership, property rights remain vague, and there corn- tinues to be the need for new institutional mechanisms to separate the roles of government as regulator, owner and manager of enter- prises. (b) The regulatory and legal framework remains largely undeveloped-- there is no company law for example--which makes the developmient of an arm's length trading system difficult. (c) The SOEs continue to be protected from the full impact of domestic and foreigrn market forces, Nonstate enterprises have less than equal access to credit; they are restricted from entry to sectors where they would threaten SOEs; foreign investment is not permitted to compete with existing SOEs; and trade is restricted. Finally, bankruptcy remains extremely limited, and while the use of mergers is gaining, it is being carried out in a largely administrative fashion. 2.75 The challenge is therefore to create a framework whereby public enterprises are operating within a clear system of regulation and are subject - 62 to the full force and consequences of competition, so that they behave much as private enterprises would in the same situation. Progress in this aspect will both be key to and closely linked to progress in the financial sector. While there are several reform experiments underway or planned in this area, it is not at all clear what Chinese policymakers are trying to achieve, or what concept of the future Chines. 1;'3E they have in mind. While in such areas as price reform and the tax system, the final goal seems clear, it is in the area of SOE reform that new thinking seems most needed. Financial Sector Issues 2.76 Dramatic change was introduced to the financial sector in China in the first years of urban reforms, but, aside from some encouraging develop- ments in capital markets, reform in this area seems to have stalled since 1988. At the heart of the problem is the excessive use of the banking system by the state to meet its own economic aims, via the use of directed lending and "policy" lending. This effectively prevents the banking system from per- forming its key role of allocating savings to their priority uses. Further- more, if the state is directing resources towards, for example, the covering of SOE losses, this could be storing up enormous portfolio problems for the banking system. 2.77 Associated with this remains the continued relative weakness of the central bank in China, both in its ability to regulate and supervise the financial sector and to formulate monetary policy and implement it via the use of indirect instruments. Instead, monetary policy appears still to be heavily influenced by, inter alia, provincial leaders, and is implemented largely by use of direct credi- controls. This suggests three key areas for priority development in the financial sector: (a) Development of alternative methods of financing for government policy objectives, including the budget itself and capital market developments. (b) Continued strengthening, both in terms of technical capability and status, of the central bank in formulating and implementing monetary policy and in carrying out its regu i.ator;y/supervisory functions. (c) Further efforts to Increase the use of indirect instruments of financial control, such as the interost rate structure and use of open market operations via new instruments stLch as short-term trea- sury bonds. Although the financial sector has yet to face a serious crisis, portfolios of banks deteriorated during 1989-91 through a combination of heavy lending (made possible by very high savings) and the weak economy. While the recovery should bring some relief, this st-111 posc.s a threat to the long-term success of the Chinese approach to economic reform, and short-term action in these three zireas is most urgent. 63 - Public Finance 2.78 The second of the three strands of macroeconomic management develop- ment in China relates to public finance. As with the financial. sector, this underwent one massive reform--the shift from profit remittance @:Oc corporate income tax--but only minor change since. China continues to have a revenue system rather than a tax system, and it is one that is bound by contracts. As such, it is tied inextricably to the old economic system that links the state, enterprises and workers. It thus perpetuates the old economic system and will need dramatic overhaul if it is to promote a new economic system. This would seem to relate to three aspects in particular. (a) Taxes are contracted (both at the enterprise and at the provincial level) and taxes will have to be clearly separated from such con- tracts. (b) The tax system is heavily based in the state production enterprise system--this being the primary tax collection point--and will have to be diversified with greater reliance on personal income tax and final sales point taxes, in line with progress in converting nonwage into wage income. (c) The indirect tax system cascades and makes incentives very unclear and will need to be replaced by more transparent, rules-based sys- tems, such as value-added taxes. 2.79 Finally, it must be noted that one third of all public expenditures are for price and enterprise subsidies, at the expense of infrastructure investment and social expenditures, although the solution to this lies primar- ily in the area of price and enterprise reform. The growing pressure on the budget seems to be lending some urgency to the attention given to fiscal issues, which take time to implement once reforms are formulated. Therefore, this too appears to merit acceleration. External Sector 2.80 It was observed earlier that great progress has been achieved not only in expanding trade, but in making exports responsive to economic signals on an aggregate basis. And yet two factors about the trade regime continue to be of particular importance. First, external trade continues to be dominated by foreign trade corporations of various kinds, and participation of produc- tion enterprises directly in trade is limited. Second, as suggested, the import regime continues to offer a high degree of protection to domestic industry, and thus imports continue to be regarded primarily as a source of embodied technology. This protection is provided by an opaque and unpredict- able system of import licensing, and by an uneven tariff structure, albeit witth apparent frequent exemptions to reduce the anti-export bias. This would suggest two primary areas of focus for future trade reform. (a) Reform of the import regime, by moving to a system of management by indirect control, under a lower level of protection effected by tariffs rather than licenses and administrative barriers, and with transparent control mechanisms. - 64 - (b) Continued efforts at institutional reform of FTCs, through further reduction of their effective monopsony and greater entry to export markets for production enterprises. 2.81 It is logical that the existing import regime has been accompanied by a foreign direct investment system that, while offering good incentives, restricted the competitive impact of foreign enterprises, and, in order to achieve this, developed a complex and lengthy approval process. Similarly, therefore, efforts in this area would have to be directed towards further opening of the domestic market, and improved efficiency and transparency in the approval process. With a very strong trade balance, and about nine months of imports in foreign exchange reserves, this would seem a most opportune time to launch such reforms. Prices and Markets 2.82 In terms of reform progress, we stressed that more than half (per- haps two thirds) of all transactions were now carried out at market prices. Moreover, a key factor is that most marginal resource allocation decisions are made at market prices. However, this implies that at least one third of all transactions are at controlled prices and many of these remain subject to the materials allocation'system. In theory, this need not matter, as the state should be able to adjust for this in other ways. For example, low coal prices reduce the attractiveness of investment in coal for local governments, and reduce available financial surpluses at coal mines for reinvestment. Theoret- ically, and in practice in the prereform situation, the planning system could compensate for this with fiscal transfers, but the state no longer has the fiscal resource control to do this. The result is unbalanced investment, and unfair interprovincial income distribution, in addition to obvious microeco- nomic consequences such as wastage of energy. 2.83 Price reform in these areas, in the sense of new price formulation systems, especially in raw materials and grain, will require not only lifting of controls or adjustment of fixed prices, but development of market infra- structure, such as transport and storage facilitiesg and information systems. It will also require price sensitive consumers, so a major accompanying reform will need to be the conversion of price subsidies into wages. Thus, reforms in these areas would need to focus on: (a) Removal of remaining price controls for most commodities, usually preceded by price adjustment, and accompanied by market infrastruc- ture investments. Priorities seem to be in energy, transport, cer- tain raw materials and in grain. This would need to be accompanied by the development of regulatory mechanisms and institutions to guard against abuse of monopoly powers. (b) Conversion of remaining consumer price subsidies--especially for grain--into wages, so that state procurement and distribution can be gradually eliminated. It appears that, with recent price adjustments, there are no longer any "sacred cows" in pricing. Given the continued favorable demand-supply balance - 65 - in most markets, there continues to be plenty of scope for rapid movement in this area at the present time. The Role of the State 2.84 Much has already changed with respect to the role of the state, as it has fostered the growth of nonstate enterprises, and yielded control over prices, revenues and materials. Much of what has already been mentioned in this section is concerned with continued progress in this direction. Other elements that have been mentioned imply things that the state will have to do more, such as indirect macroeconomic management and development of a legal framework. In short, the role of the state and of planning will have to con- tinue to evolve. The third chapter of this report is allocated to a discus- sion of this issue in the context of an assessment of the Eighth Five-Year Plan. 2.85 Over and above this, there are two other key areas where the role of the state will have to change dramatically and where little concrete progress has been made so far. First, social services of one kind or another continues to be provided primarily by the enterprise sector, especially housing, health insurance and pensions. Also, by virtue of the gradual reform process, and emphasis on development of new enterprises rather than radical reform of existing enterprises, the state enterprise system has continued to offer pro- tection against unemployment. Here, there is a new role for the state, either in direct provision of such services, or by creating a framework for nonstate, nonenterprise based systems, such as private pensions and health insurance. It is only by removing this burden from enterprises that true enterprise reform can begin, and yet the state will have to directly promote appropriate solutions. 2.86 Finally, an area where virtually no significant progress has been made has been in the labor market. Most workers continue to be assigned jobs, and movement between geographical areas remains highly restricted. Movement between enterprises within one geographical area is even difficult, because of nontransferability of accumulated nonwage benefits and housing. These factors are compounded by a set of antiemployment-creation policies, such as low interest rates and low energy prices, coupled with bias against labor-inten- sive sectors such as service industries and private enterprises. These sug- gest thrae areas of primary focus: (a) Conversion of nonwage benefits into wages and separation of services provision from enterprises. (b) Gradual relaxation of labor allocation systems, both vocational and geographical. (c) Continued attention to removal of antiemployment policies, espe- cially those that encourage high capital/labor ratios, such as low input prices and interest rates, and policies that discriminate against TVEs. - 66 G. Some Tentative Conclusions 2.87 The discussion of this chapter has been concerned with the way that China has gone about its reform program, and the impact on the economy of these reforms. It is clear that the Chinese approach has worked well in the initial conditions under which it was launched. This is not to say that the outcome was optimal, and it must be accepted that other measures could have made the results even better. For example, it is now generally accepted in China that stronger monetary management in 1988 and more rapid price reform in 1990 would have improved matters. It must also be stressed that one of the key features of China's initial conditions was the absence of a need for harsh stabilization measures, and no simultaneous external shocks, such as the col- lapse of the CMEA which has so strong'y affected the countries of Central and Eastern Europe. This said, five key features of the Chinese reform experience do seem to be key elements of success, which may have some more general appli- cability, irrespective of the issues related to the gradual approach, and to the special conditions that are unique both to China and its approach to reform. Five Rev Features 2.88 At the start of the reform program, China had a large and relatively well-developed industrial system, but was nevertheless fundamentally a rural economy. Moreover, as the discussion of initial conditions suggested, the agricultural sector was highly repressed, and was thus ripe to respond to reforms. These factors supported the appropriateness of the decision to use agriculture as the entry point. Not only did agriculture respond rapidly--as it has in other countries such as Vietnam--but this generated the rural sav- ings and surplus labor necessary to launch the next phase of reform, and cre- ated a constituency for reform. 2.89 The second element that seems to have been of particular signifi- cance in China was the emphasis on marketization instead of Privatization, and on the role of growth of the nonstate sector in diversifying ownership pat- terns. The spectacular growth of nonstate enterprise has served two key func- tions, (a) It created economic growth and generated employment opportunities, thus bringing out significant gains from reform. (b) It generated competitive pressure on state-owned enterprises, forc- ing change in their behavior, even though this process remains far from complete. This process is one thst can be regarded as "privatization from below," in that, within just a few years, 45 percent of industrial output is now from nonstate industries. More generally, this emphasis on creation of new non- state industries suggests the possibility of creating a competitive framework in which state enterprises can be made more efficient without recourse to direct privatization programs. 2.90 The gradual approach to reform runs the risk that the losers from reform can regroup either to oppose further change or even attempt reversal. 67 - Of course, this same factor can also work in the opposite direction, as reform skeptics can be won over when the pace of reform is gradual, and benefits start to emerge. The particular problem in a socialist system is how to change the interest of the bureaucracy and the Party. Bureaucrats, especially at the national level, are among the major losers from socialist reform, with loss of power, prestige and, in particular, nonwage income. Nevertheless, China seems to have had some success in reorienting the bureaucracy. The reforms created pressure on the planners because they reduced central revenues and the profitability of state enterprises. Although to some extent, this caused part of the bureaucracy to seek to protect their profits and interests, it also redirected the interest of the bureaucracy towards ensuring that their enterprises were oriented towards profit-making. This has seen setbacks at times, but the periods of resurgence of planning theology, as in 1989/90, have proved short-lived as even planners have found it hard to preserve their interests through such methods in the face of past reforms. We can observe in 1992 a recognition of the failure of planning solutions to achieve significant restructuring of state-owned enterprises during the previous three years. Thus, the use of decentralization and promotion or nonstate industry generated a reorientation of the interest of the bureaucracy away from planning goals towards economic performance. This coincided with the interests of the Party, which saw its political interests geared increasingly to the achievement of economic success. 2.91 The fourth element of the Chinese approach that is distinctive has been its emphasis on export development and more generally its entry into world markets. The big contrast between this approach and that of other coun- tries has been the postponement of import liberalization to late in the reform process, although it has had the result of a relatively high level of importa- tion of advanced technology. This has been possible for two reasons: first, the size of the domestic economy has made it possible to generate competitive forces, especially among smaller enterprises vying for export business; sec- ond, while China had been closed to import competition, it has been very open to influence from outside in its export industry, and especially from Hong Kong entrepreneurs, who have been permitted to impose rigorous export design and quality control standards. The unique relationship between China and Hong Kong may reduce the replicability of this element of the strategy. 2.92 The fifth key factor in the Chinese approach has been the role of the state in maintaining social stability. By using the gradual approach, and by not subjecting the state sector to maior shocks, China has succeeded in avoiding severe social costs du.ing its transition. The Chinese effort has focused much less on changing old enterprises and more on generating new opportunities. Moreover, by postponing social reforms to the end of the reform process, this has given the opportunity to develop over time the iristi- tutional framework for a new social security system. What remains to be tested is whether China can now move beyond this approach to address the more fundamental issues of the state enterprise sector and the dismantling of this social system--and indeed the issue of whether the state wishes to carry out this aspect of reform. Nevertheless, it is clear that this approach has avoided some of the serious social consequences that could have undermined the case for further reform. - 68 - Sustainability 2.93 A key question in considering the Chinese approach to economic reform is whether this approach is sustainable over the medium to long term, or whether it is simply postponing problems that will later "come home to roost." Three potential issues for the future need to be addressed: (a) The danger of future insolvency of some large banks, as they acquire an increasingly weak portfolio by funding the losses of the state- owned enterprises, with limited capital bases and small loan loss provisions. It is further argued by some that this problem will worsen as the influence of nonstate industry rises, which would result in the squeezing out of such enterprises from resources. (b) The argument that so long as state-owned enterprises remain domi- nant, they will never be able to achieve efficiency at internation- ally competitive levels, so that so long as this position is main- tained, China will always be a highly protected economy, and the benefits of present reforms will fade away to lead to stagnation until this issue is addressed. (c) That social tensions will mount in two directions. First, that increasing provincial autonomy and self-sufficiency will increase further the growing regional disparities in China, leading to increasing conflicts. Second, that the fight against poverty in China is showing fragile gains, with many persons only just above the poverty line. With reforms and further difficulties for the central government, the present social safety net could collapse, pulling millions back into poverty. 2.94 In other words, these arguments suggest that the gradual approach has limitations, and that China will eventually approach these limits. This argument is based primarily on the recent experiences of the formerly social- ist countries of Eastern and Central Europe. These are serious issues, and the possibility of such a collapse--forcing China into its own "big bang"-- should not be dismissed out of hand. Moreover, it must be recognized explic- itly that China's reform is indeed one which does not have successful historical precedent. But two important factors must be stressed as sources of reassurance: (a) Over the existing reform period, China has generally responded to the problems arising out of the reform experience by introducing new reforms and by deepening existing reforms. Thus, we can see incre- mental reform movement over the entire period of the reform era, albeit at varying speeds. This gives reassurance that, as new prob- lems emerge, so they too will be met by incremental movement, so that, as with the past ten years, deep crisis simply will not occur. For example, this could result in incremental reforms which restruc- ture existing SOEs, such that these reforms in turn correct on an incremental basis the genuine portfolio problems of banks. (b) The gains of the reform era have been "intensive" rather than "extensive," as measured by the strong productivity gairiv that have - 69 - been registered, and China has succeeded in maintaining the momentum of GDP growth even during periods of adjustment. These productivity gains are not restricted to the new industries, but have been recorded also in the existing SOEs. This suggests that the economic results of the Chinese approach to reform may be qualitatively dif- ferent from the experiences of some others that tried such an approach, and we would suggest that this could lend credence to sustainability, and to the possibility that China will grow out of .ts problems. The secret to this success has been China's use of "'marketization" and the vigorous development of the nonstate sector, which has been unique to the Chinese approach, and is in marked contrast to the Hungarian experience of the 1970s. 2.95 The key to sustainability thus rests, in our view, not on any theo- retical or philosophical issues about the ultimate level of efficiency that publicly-owned enterprises can achieve, but rather on the solutions that China will develop towards the unfinished agenda. In particular, this relates to solutions to the problems of the financial sector and the state-owned enter- prise sector and its environment. If appropriate incremental reforms are instituted, stressing growing "marketization" and a continued associated increase of ccupetitive forces via growth of the nonstate sector and trade reform, then the remarkable experience of the past decade lends hope that the Chinese approach can indeed lead to a sustainable pattern of growth with reform. The question is how well future policy will address the unfinished agenda, and this is addressed in the next two chapters of this report. - 70 - III. CHINA'S DEVELOPMENT PLAN, 1991-95 A. Introduction 3.1 The preparation of the Eighth Five-Year Plan, 1991-95 (8th FYP) and Ten-Year Program, 1991-2000, offers the opportunity to examine not only the Chinese Government's stated intentions for economic policy over the coming period, but also the evolution of the planning process in China. Within the Chinese economic system, there are three distinct aspects to planning: the formulation of medium- and long-term (five and ten year) plans, and corre- sponding annual plans; the instruments of planning, or more generally, the planned economy, and notably the use of output targets, the materials alloca- tion system, and the use of other administrative means of management, such as price and credit controls; and the formulation of plans for the role of the state, such as goverment investment programs or policy reform programs. In assessing the Sth FYP, it is necessary to consider all three aspects of plan- ning in China, and to place any such assessment more generally within the framework of the rapidly changing economic system. 3.2 This chapter attempts to carry out such an assessment. First, it is important to see the current plan in the context of how planning has been evolving in China since the First FYP was formally adopted in July 1955. Then, we discuss what seem to be the key roles for planning in China in the 1990s, and assess how the present proposals fit into that structure, which raises some of the key economnic policy issues addressed in the plan. This leads iiaturally on to some conclusions about the future of planning and plan formulation in China. B. The Evolution of Planning 3.3 There are three quite distinct phases in the history of economic plans in China.1/ (a) The Soviet Period. The first two plans, covering 1953-57, and 1958-62, reflected Soviet influence and style. The Second FYP included the period of the "Great Leap Forward," with its mass programs of communization in agriculture, and massive investment in heavy industry, with well-known consequences. The Second FYP was followed by a period of adjustment and consolidation, which many Chinese economists regard as a "golden age" of the Chinese approach to planned economic management. Both plans were relatively detailed, and most targets achieved. (b) The Pre-Reform Period. The Third and Fourth Plans covered the period of the Cultural Revolution, and were, in the end, essentially irrelevant to the unfolding economic situation. The period included the one year, 1968, when it was impossible to formulate an annual jJ For a good description of China's early experience in planning, see Liu Suinian and Wu Qungan "China's Socialist Economy; An Outline History 1949-84" (1986) and Nicholas Lands "Chinese Economic Planning" (1978). 71 . plan because of the chaotic political situation. Nevertheless, this can be typified as a period of "planning as propaganda," in which the plans were intended as means to mobilize the population, rather than as guides to specific policies and priorities. The Fifth Plan, formulated immediately after this in 1976, was essentially in the same mold, but with elements of the Soviet period in that it aimed once again for massive levels of investment to accelerate develop- ment. (c) The Reform Period. The present plan is the third since the reform process was launched in 1978. These plans have attempted to make realistic assessments of the economic situation, and to draw up a framework for the country's overall development strategy. Never- theless, they have continued to include many output and investment targets of the sort traditionally included in Soviet-style economic plans. A clear contrast, however, between this period and previous periods is that while past plans were generally underfulfilled, . especially during the Maoist era, the reform period has seen plans overfulfilled; while planners have sought to be more realistic, they have consistently underestimated the impact of economic reform. 3.4 In the Sixth Plan period, which came on the heels of inflation following the 1977-79 expansion, very modest targets were set and the plan aimed to create a program of slow steady growth. Yet, targets were achieved by the third year, not long after the Plan itself was promulgated in late 1982.2/ This was a combination of lack of information following the chaos of the Cultural Revolution, together with a genuine desire to send out a mes- sage of modest growth and an equally genuine inability to estimate the impact of reform. 3.5 The Seventh Plan for 1986-90 was prepared in elaborate detail, with many years of officials' time put into its preparation.3/ The results of the 7th FYP are presented in Box 3.1. Perhaps two particular features of this should be stressed as lessons for the future: (a) Although the five year outcome was remarkably close to the aggregate target, the projected pattern was entirely reversed, with rapid growth for three years followed by harsh stabilization, while the Plan called for two moderate years followed by acceleration. This was not least because macroeconomic policy, especially credit expan- sion, was not governed by the planning process. 2/ A consistent feature of Plans before the 7th and 8th is that they were approved well into the Plan period. The first FYP for 1953-57 was approved in July 1955. 3/ See Carol Hamrin "China and the Challenge of the Future" for an excellent description of the various working' groups and investigation teams that were set up, and Wang Huijiong and Li Poxi "China Towards the Year 2000"1 for some of the output. - 72 - Box 3.1, THE 7TH PYP AND ITS OUTCOME I The Seventh Plan set a target average snnual real growth rate in GNP of 7.5 percent which while high b the standards of the rest of the world, was a reasonable target for China in the light of the previous live yeare. H;owver, tlven he need to control the expansionary impulss ir, the economy, the plan proposed slower rates of growth In the first woysars while the last three were expected to feature faster growth accompanied by accelerated roform, consistent with achi.evng the average growth target of 7.5 percent. The tertiary sector was designed to grow faster than other sectors, Th plan focused on reducing investment and output of low-tech industries and improving the growth of exports and isports. Given iufrastructural bottlenecks, energy conservation was touted as a goa 1./ 2. Unlike the 6th Plan, which saw growth through productivity improvements, in the 7th FTP, growth came through demand-driven growth that intensified shortagas in bottleneck arese and contributed to inflation. Following the tight zacropolicy ln 1989 and first half of 1990, the average annual rate of growth for the plan period aver ad 7.6 perent-- almost exactly the plan target. Grain output hit a record high iu the last two years, and production of the aj:or nonstapla foodstuffs was on a continuous rise over the period. As a result, the gross output value of agriculture (GOVA) grew a little bit higher than planned. The strongest performance was shown by export industry, which xpanded at an annual rate of 19.2 Mercent, but the gross value of industrial output grew overall by a remarkable 13 percent. A major factor in China's achevements in these areas was the dynamic performance of the rural industrial sector which took advan- tate of reduced entry barrlirs in many sectors and increased its real value of gross output by over 182 percent over 1985-90, absorbing in exces of 15 million workers over the same period.2/ MAJOR INDICATORS OF 7TH FYP CT billilon) Annusl Growth Rate Value Growth Rate Value Growth Rate (target) (target) (outcome) (outcome) GNP 1,117 7.5 1 740 7.8 NI 935 6.7 1,430 7.5 GOVIA 1,677 6.7 3,123 1150 GOVA 353 4. oa 738 4.6 GOVI 1,324 7.5Th 2 385 13.1 Light 661 77 1,179 14.1 Heavy 663 7.5 1,205 12.2 Public finance Revenue 257 6.7 324 11.8 Expenditure 257 7.1 340 13.2 Fixed iuv. 297 3.7 445 12.5 Ext. trade /a 83 7.0 486 14.3 Export 38 8.1 233 19.2 Import 45 6.1 254 9.8 la In $ billion Price Indexes, 7th FTP (previous year - 100) 1986 1987 1988 1989 1990 Cost of living 106.5 107.3 , 118.8 118.0 103.1 Retail price 106.0 107.3 118.5 117.8 102.1 Not*s (1) GOVIA figures for targets are li 1980 constant prices. (2) G13P and HI figures for targets are in current prices (1985 prices). 3) Annual growth rates for outcomes are based on 1980 constant prices, while values are in terms of current prices (1990 prices). (4) Public finance and total invistment figures are in current prices. Sourcess 7th FTP, SSB Communique on Completion of 7th FYP, and Annual Plan docusents. 3. The pace of development during the 7th FYP also had a distinctive regional bias (discussed further in Part P) the results of which are displayad in the following table. The coastal provinces, which were given various advantages iu addition to their natural advantages) in terms of freedom from central planning, tax retntion and openne to th outside world. Clearly, this was reflected in output growth over the 7th FYP, with the coastal provinces growing mUch faster com- pared to the older cities or the "unreformed" areas. Interestingly, minority areas continued to exert strong growth per- formance, reflecting perhaps their continued high access to investmnt financing resources. REGIONAL GROWTH RATE, 1985-90 (percentage growth in GVIAO at current prices) Beijing 117 Guangdong 203 Shanghai 90 Jiangu 153 Tian3uin 117 Shan ong 179 Liaoning 112 Fujian Henan 138 Xinjiang 153 Hailongjiang 118 Ningxia 144 Sources China Statistics Abstract, 1991. 4. If judged by the aims, the outcome was also a demonstration of some of the fundmental problems in the economy. The annual growth rate of fixed investment was almost four times as high as the targat, and that of iudustry and govern- ment ex nditure twice. This could be attributd, to a laret xtent, to the lack of determination of the govermnnt to deal with tho fundamental problems which were at the root of th excessive grrwth and amaroinstability (investment hunger, poor performance of the state sector, soft budget constraint, and inability of the macroeconomic management system when faced with the robust growth of the nonstate sector). 1/ See Barry Naughton, "China's Experience with Guidance Planning," Journal of Comparative Economics, 1990. 2/ Output of rural Industry (twnship, village and individual enterprises) is estimated at T 182 million in 1985 and Y 614 aillion in 1990 usiang Statistical Yearbook 1990 and Statistical Abstract 1991. Real output is derivod by using industrial output price deflators given in Table 1.3 of the Appendix. - 73 - (b) The Plan continued to have many quantitative output targets, includ- ing for comodities where the state no longer had a position of dominance, or the planning instruments--in terms of material alloca- tion or investment financing--to influence the outcome. However, the Plan did not include a policy framework to influence the achievement of those targets, nor, in general, any particular pro- gram for the use of indirect economic levers. Perhaps as a conse- quence of this, planners at the local level in particular, resorted to "secondary" mandatory planning and materials allocation to attempt to achieve their targets. 3.6 That such an elaborate exercise as the 7th FYP should have an out- come so divergent from expectations throws doubt on the credibility and value of the entire plan formulation process in China.' Does this mean that it has become irrelevant to the realities of the economy? It is clear that the plan formulation process remains of critical importance to the formulation of over- all economic policy. Indeed, reversal of a trend back towards mandatory planning (following the Fifth Plenum of the 13th Central Committee in December 1989) to a renewed emphasis on economic reform appears to have coincided with discussions of the draft 8th FYP in the fall of 1990. Moreover, the Plan itself remains a significant influence in the Chinese economy, since it pro- vides the macroeconomic framework for the period, and it outlines policies towards the state-owned sector, which still dominates production. Of increas- ing importance is the indication it provides of the future policy framework (see Chapter IV). 3.7 This evolution of the planning process towards the macroeconomic framework and policy planning mirrors the reduction in the scope of mandatory planning. It is estimated that the share of industrial production under the mandatory plan has declined from 70 percent in 1979 to an estimated 16 percent in 1990, with only 9 percent falling under the state plan. Similarly, the proportion of investment financed by the government budget directly has fallen from 28 percent in 1981 to only 8 percent in 1989, with the share financed by enterprises and especially banks rising to mirror this change. These trends may even underestimate the true decline of mandatory planning, as there has also been a general decline in the level of fulfillment of plan supply zon- tracts between the mid-1980s and the late 1980s.2 3.8 As the economy continues to change and as the scope for direct determination of outcomes by the state continues to fall, it is obvious that the old style plan has less and less relevance. Therefore, in assessing the new plan, the question to be addressed is how well it has incorporated the lessons of the past, and how well it fulfills what can be regarded as the new role of planning in the framework of the reformed planned commodity economy. C. Role of the Plan in the 1990s 3.9 From the above discussion, we can conclude the Plan should no longer be primarily a set of arithmetic targets, or a framework for the allocation of materials or budget resources. As noted, the state no longer has the capacity to control investment financing or materials allocation. However, there are three functions within the economy that the government is uniquely equipped to 74 - deal with via the planning process,9/ each of which is highly relevant to China and to the 8th FYP. (a) The Economic Framework. Only the government can address its economic intentions, and most governments have staff resources assigned to analyzing future directions for the economy. If such frameworks are coordinated with actual government intentions and actions, they become powerful information tools for the rest of the economy. This is especially so if such frameworks are accompanied by statements outlining economic policies designed to achieve the aims of the economic framework. Good examples of this are provided by the planning experience of South Korea and Japan during the 1970s and 1980s.3 This is relevant in China to the issue of the pace of development in the 1990s and the use of industrial policies to adjust the economic structure (paras. 3.28-3.35). (b) Correcting Market Failures. As the Chinese reform proceeds, and more and more transactions are determined by the market, an increas- ing role of the state will be to correct for market failures. Traditionally, this means providing4 for the production or control of commodities that provide externalities or are essentially public goods or natural monopolies. The classic examples are such goods as parks and roads, and externalities such as pollution. The state can do these things because it has the power to tax, the power to pro- scribe, the power to punish and (in some cases) lower transactions costs than the private sector.5/ In the course of gradual and partial reform, market failure can be expected to be rather a serious problem in China, and one which has as yet received relatively less attention. It can thus be expected that the state will have a critical role to play in regulating the market as its role increases. This would be to foster competition, to regulate against or combat monopoly and to prevent the erection of barriers to trade. Two particular issues in China are that the market may not generate sufficient employment opportunities given market rigid- ities and constraints, and that it may generate a distribution of income which is not compatible with Chinese equity consideration (paras. 3.38-3.58). (c) Planning for Bottlenecks and the Statb Sector. The state in most countries retains responsibility for the provision of economic infrastructure, and planning is necessary to avoid bottlenecks, given the lumpiness of such investments. However, when the state is also responsible for many production decisions, infrastructure can be interpreted as an "input" to such plans. This calls for a different sort of sector planning once production decisions are 4t The two unique features of the State that relace to these three issues are that the state has universal membership, and the state has power of compulsion--see Stiglitz (1991) "The Economic Role of the State." 5/ For example, state social security systems have much lower administrative costs than private pension plans. - 75 - decentralized, as planners have to attempt to anticipate the decisions of others. The clearest example is the provision of tran- sport, to which Chapter V of this report is dedicated. However, it applies more generally to investment decisions that remain within the government's purview, and thus is relevant to policies towards the state-owned enterprises (para. 3.56-3.61). 3.10 These three critical functions of the state, which would call for a continued strong if re-directed planning function, can be seen to be the same areas where our review of the most recent past plans found major shortcomings. The following sections therefore examine the 8th FYP in the light of these three roles. D. The Macroeconomic Framework and Development Policy 3.11 The "Outline of the Ten-Year Programme and of the Eighth Five-Year Plan for National Economic and Social Development" was adopted by the 7th NPC on April 9, 1991. It differs from past plans, in one substantiai way, in that it is an outline, not a detailed plan, and so it does not contain the many tables of detailed targets familiar from past plans. Instead, it aims to set out the main tasks and priorities for the decade of the 1990s and the instru- ments to be used to achieve those tasks, including investment and econom,ic reforms. This, in itself, is a reform and one that is to be welcomed. Unlike the 7th FYP, which underwent an elaborate preparation process, with huge expenditure of officials' time (para. 3.5), the 8th FYP was prepared quite quickly over about 9 months in 1990, with a relatively compact preparation team. While the Plan takes a long term view, it is heavily influenced by the recent economic past in China, and in particular, by two factors: the severe instability of 1988 resulting frow overheating; and the economic difficulties of the SOEs during the rectific-4tion period. 3.12 Plsknning authorities characterize the Eighth Plan as one which incorporates an awarenesa of market conditions and demand-supply balances, moderates growth objectives to take account of real and fiscal bottlenecks, features a revamped industrial policy to restructure industry, and acknow- ledges the need for enterprise and market reform to achieve plan targets. Notwithstanding the claims about a significantly different plan strategy, the Eighth Plan bears an uncanny resemblance to its predecessor. 3.13 Like the 7th FYIP, the new plan was formulated during a period of policy-imposed recession and proposes an initial two years of slower growth to be followed by a quickening of the pace of growth in the last three years. Also as with the 7th FYP, growth targets are expressed in real terms although there is no explicit discussion of the expected rate of inflation (para. 3.14). The average annual target real growth rate of GNP for the period is 6 percent, suggesting a lowering of the growth total below the 7.5 percent targeted, and achieved, during the Seventh Plan. This rate of growth has two origins. First, it is derived "in accordance with the goal of quadrupling 1980 GNP by the year 2000." As such, this is reminiscent of earlier target- ing. Eowever, it is later stated clearly that a moderate growth rate (by Chinese standards) has been adopted in order to achieve demand-supply balance and to control inflation. It is also hoped that such growth would derive from efficiency gains, rather than by extensive developments. Thus, the Plan - 76 - emphasizes technical upgrading projects and projects annual labor productivity growth at 3.5 percent. 3.14 The projected sources of growth are very similar to those of the 7th Plan (in terms of projections if not outcome), with agricultural, industrial and tertiary sector output projected to grow by 3.5, 6.5 and 9 percent respec- tively. This implies two things in particular: first, agriculture would have to perform significantly better on a relative basis (ie. compared to industry) than in the 7th FYP period, with the GVIO:GVIA ratio at 1.86 instead of the outcome of 2.85; and industrial growth would have to be half the rate of 1986- 90. The first of these is reflected in a strong emphasis on agricultural investment and agricultural services development, while the second is reflected in the emphasis on restructuring and renovation, rather than devel- opment of new enterprises. 3.15 The outline also provides other macroeconomic indicators, although with less elaboration. There is no explicit inflation target, but the Plan aims to limit credit expansion to 12 percent, which, given the 6 percent growth rate, implies a 6 percent inflation target. Within the credit target, loans for fixed investments are targeted t-L grow much faster (at 15.3 percent) than loans for working capital (11.7 percent). This implies that with only 8 percent of loans outstanding for fixed investments, this share would still be below 10 percent in 1995. There are no indications of monetary policies to be used to achieve this target, implying a continued reliance on administra- tive controls. In the same paragraph, the Plan notes the intention of reduc- ing the fiscal deficit, by containing expenditure growth to 5.7 percent a year, while increasing revenue by 6.1 percent, given large recent deficits and the coming debt repayment peak. As this is apparently a target for nominal revenue and expenditure, it would imply continued decline in revenue and expenditure ratios to GNP. Since it is clear from other statements that the government's intention is in fact to raise "the two proportions"--the share of revenue in GNP and the share of central government in total revenue--this would seem to indicate an area where greater attention is warranted in future planning. It is quite possible that the public finance plan has been drawn up under a zero inflation assumption. 3.16 The Plan has a separate section on the external sector, and has qualitative targets for export growth, focusing on diversification of exports and increasing value-added, as wqell as policies for improving the institu- tional framework. There are, however, no quantitative targets for exports, or for the balance of payments. One -of the strongest trends in the 1980s was the growth of trade at higher rates than the growth of GDP, together with moderate but steady growth in external borrowing. While it can be presumed that trade will continue to expand as a share of GDP (as it did in 1991), there is no statement of intent to this effect. 3.17 In terms of expenditure categories, various consumption level indi- cators are given, and two important quantitative targets: real wages are pro- jected to grow at 2 percent per annum and farmers' income by 3.5 percent, whilo the total value of retail sales is projected to be 61.1 percent higher, which implies nominal consumption growth at 11 percent per annum, and real growth at 5 percent. Fixed investment, however, is only projected to grow by 5.7 percent per annum. Consistent with the emphasis on intensive rather than - 77 - extensive development, expansion investment is targeted to be limited to 2.1 percent growth and investment in new machinery to 9.8 percent per annum. As will be seen in Chapter VI, these targets do not seem quite consistent, especially in the light of the very large opening external surplus, so it would seem likely to us that consumption will grow considerably faster than the implied 5 percent, and indeed, faster than GDP. 3.18 There are two main conclusions to be drawn from a consideration of this macroeconomic framework. First, it is clearly a realizable framework on the basis of recent experience. Indeed, it would seem to err very much on the conservative side, as have the last two plans, and there is every reason to believe that growth would tend to be nearer the 7.5 percent mark of the last plan than the more moderate growth projected by this plan,6/ and the rapid expansion in 1991 would seem to support such a conclusion. Second, however, while it is a somewhat more comprehensive framework than in previous plans, it falls short of being a full description and analysis of expected macroeconomic trends and policies, and, as such, continues to be of only limited information benefit to the rest of the economy. In addition, we are already seeing a repeat of the outcome of the 7th Plan: the framework calls for moderate growth in the first year or so, but GDP grew by 7 percent in 1991, which considerably undermines the credibility of the Plan's framework. Development Strate-y and Sectoral Priorities 3.19 The Plan describes the future development strategy on two levels. At the general level, it focucas on major tasks and important targets; and it describes sectoral priorities and programs as "department targets." In terms of overall development strategy, the outline focuses on six priority sectors: agriculture; basic industries; adjustment of the processing industry; elec- tronics; services; and defense. It is on the basis of the structural adjust- ment and modernization of those sectors that the 8th FYP seeke to modernize the economy overall, and cater for the changing needs of citizens. In addition, the plan stresses the links between sectoral policies and policies with respect to regional development, science, technology and education, social services, and reform and "opening to the outside world." As noted earlier, however, the plan is only an "outline" at this stage, so unlike earlier plans, it does not contain tables of detailed targets for individual subsectors. These may be published later--they are known to have been pre- pared---or such details may be left to annual plans. However, we do know that the priorities are reflected in investment allocations.7/ 6/ Indeed, the government has recently revised its targets for the rest of this decade to about 10 percent per annum. This revision occured after this report had been initially issued. 7/ For example, state investment in energy is expected to'rise from 30 per- cent of the total in the Seventh Plan to about 35 percent under the pre- sent plan, and transport and telecommunications are also expected to receive larger allocations of investment, with the share rising from 15 percent under the previous plan to about 18 percent under the Eighth Plan (see Chapter V). - 78 - Table 3.1: 8th FYP OBJECTIVES AND TARGETS Average Actual Average Target (Average) Objective Units p.a. 1981-90 1990 1991-95 1995 1996-2000 2000 GNP (1990 prices) Y bln. 1,740 2,325 3110 GNP growth 2 8. 96/a 6 6 6 6 Population Y bln. 1.143 Population growth X 1.25 1.25 1.25 1.25 Labor Productivity Z 0.8 3.5 3.5 3.5 3.5 Urban Unemployment Z <3.5 Urban Employment 139.9 Per capita X 5 5 Consumption growth Sectoral growth tarRets GVAO Y bln. 738 878 GVAO growth Z 3.5 3.5 GVIO Y bln. 2,385 3,270 GVIO growth % 6.5 6.5 TVE output level Y bln. 843 1,400 Tertiary industry growth 2 9 9 share of GNP 25 33 Energy cons.per std.coal 9.3 8.5 Y 10,000 of GNP tons Retail sales Y bln. 825.5 1,330 Revenue and Expenditure Revenue growth 2 6.1 6.1 State Fixed Z 5.7 5.7 Investment Y bl. 445.1 2,600/a of which: 2 5.5 5.5 by SOEs Y bln. 292.7 1,700/a of which: CC Lb 2.1 2.1 CC /b Y bln. 170.3 840la TT Ic % 9.8 9.8 TT Le Y bln. 82.8 550/a Growth of expend. on agric., educ, defense, key projects, ST Ld x 5.7 5.7 /a Items marked with asterisks refer to five year totals. /b CC refers to capital construction investment. /c TT to technical transformation. /d ST refers to Science and Technology. 3.20 At the general level, there are six main strategic areas of focus to the development strategy, that are supportive of the general targets described earlier: (a) Agriculture is re-emphasized as the most important sector of the economy, but with a new recognition of both the need for investment (especially in water conservancy) and the provision of agricultural - 79 - services, as well as a recognition of the key role of TVEs both in supporting agriculture and in strengthening the rural economy;8/ (b) In industrv, there is a clear emphasis on the perceived need to balance development of basic industries with expansion of process- ing, and an implied analysis that it was the excessive growth of processing industries relative to basic industries that led to the problems of overheating in 1988; (c) Efficiency improvements, especially in processing and in energy use are thus seen as the key, rather than expansion of processing, and this explains the tilted investment target; (d) Electronics is the sole industrial subsector singled out at this level, it being seen not only as a key product industry, but also as the key process industry for improving technical efficiency in other subsectors; (e) Construction is identified as an important sector primarily in terms of its relationship to housing and the achievement of the targets for expanded availability of housing per person; and (f) The tertiary sector is mentioned almost in passing, with its share of GNP being targeted to rise from one quarter to one third (see paras. 3.50-3.53 for a fuller discussion). 3.21 These general development principles are clearly consistent with the macroeconomic strategy outlined, in that they follow logically from a desire to avoid rapid growth of the economy through high levels of investment by new facilities, focusing instead on avoiding bottlenecks and increasing the efficiency of existing facilities. At the same time, such a strategy recog- nizas that, as incomes rise, so too does the demand for various urban services and for improved quality of products. It is therefore to be expected that the rest of the plan would outline the program, policies and projects to be put in place to achieve the aims of this strategy. Reform policies are addressed in Chapter IV, and the following sections focus on how the investment program and industrial policies are to be used in this regard. Investment Priorities and Financing 3.22 The long section of the Plan describing 'Department Tasks' covers twelve separate areas, and is the part of the Plan which most closely resembles traditional five year plans. Each section contains quantitative targets--such as 500 million tons of grain in the year 2000--and gives some indication of the policies and priority investment programs to achieve the targets. Many of the priority investments to be implemented during this period are identified, but it is not clear which such projects are to be funded from the budget, and which are identified for priority funding from other sources. 8/ The output of TVEs is projected to grow by about 11 percent a year in real terms. - 80 - 3.23 Since 1984 the investment system has been changed in a number of respects. The project approval process has increased the authority of local governments to approve investments below specified levels. At the same time, declining revenues have forced the central government to focus its investment expenditure on a few priority sectors such as energy and communications. Another result of the tighter budgetary revenue situation is that state investments are increasingly made in the form of credit allocations through the banking system rather than as straight budgetary allocations.5 The cre- ation of six State Investment Corporations in 1988 was meant to enhance the implementation of the state investment plan. Furthermore, in order to control total nonstate investment and its specific use, investments made out of local funds had to be deposited in the Construction Bank for six months before being used. Nonplan investments, other than those in energy, construction, trans- port and c'ommunication, schools and educational facilities, were subject to the construction tax.6 With the exception of the construction tax, however, most measures featured extensive reliance on administrative controls. 3.24 The 8th FYP proposes investment of about 32 percent of GNP, implying total investment of Y 2,600 billion during the plan period. Of this amount, state investment will constitute about Y 1,700 billion--spread among "capital construction" (i.e., new capital stock investment) of Y 840 billion, "technology transformation" (upgrading existing plant and equipment) to the tune of Y 550 billion, and purchases of planes, ships, etc. (Y 310 billion). Capital construction of the SOEs is expected to grow at only 2.1 percent whereas their technology transformation will rise at 9.8 percent, indicating the priority given to restructuring existing state enterprises rather than setting up new ones. Capital construction projects are largely funded through the state budget whereas technical updating is funded out of the depreciation funds of enterprises as well as extrabudgetary funds. 3.25 Plan authorities estimate that central government will account for about Y 500 billion or 60 percent of the Y 840 billion projected for Capital Construction (CC) under the Eighth Plan. This share is higher than that under the Seventh Plan and reflects three factors: (a) the creation of Capital Construction Funds financed by higher prices for oil, coal, transport and electricity. Although in principle these are extrabudgetary funds, the resources will effectively be controlled and directed by the central government; (b) the introduction of the Investment Orientation Tax (IOT) to be levied on all investment (see paras. 3.31-3.34) which will both direct investment into preferred activities as well as generate revenue for the government; and (c) increased budgetary direct investment. 3.26 The plan document is silent about how it is intended to fund the state investment program, and it is clear that there is no specific plan in this regard. Even the Y 500 billion of state capital construction investment alone will greatly exceed available budgetary revenues, which have provided - 81 - only about Y 40 billion per annum for investment financing in recent years.9/ As is discussed further in Chapter IV, there are at fresent no proposals for serious fiscal reform during the 8th FYP period. 3.27 While the Ministry of Finance speaks of the need to arrest the decline both in total revenue as well as the center's share in the total ("the two proportions"), the stated targets belie this statement. The plan projects an annual rate of growth of revenue at rates similar to the present of 6.1 percent (apparently in nominal terms), and expenditure growth at a slower rate of 5.9 percent to reduce the deficit. This implies that the proportions will continue to fall, and that there will be an increasing reliance on indus- trial policy to guide investment lending by banks, and investment spending by enterprises. It also would suggest relatively little attention to this aspect of the plan, as falling revenues would be met with revenue measures to stem the decline, as has been the case in the last few years. Use of Industrial Policies 3.28 Since 1989, China has been operating with what it refers to as a detailed industrial policy as a guide both for investment approval policy and for credit allocation. This was first approved in March 1989, and modified in July 1990. This is essentially a targeting policy, consisting of long lists of industrial subsectors and individual industrial products that fall into high, low and nil priority classifications, with the latter meaning no new approvals or credit. This policy has been a major instrument of economic management during the economic retrenchment program, as it was used to select investment projects for cancellation during this process. However, the policy suffers from three major defects: (a) It was highly administrative in nature, as it incorporated no eco- nomic instruments to effect the policy, and it was not linked to price, trade, fiscal or financial sector policies. (b) It was based only on present demand/supply balances, with little forward projection for future demand patterns. (c) It was essentially reactive not proactive, acting mainly as a deter- rent against investment in low priority areas, but with little beyond exhortation for high priority areas. 3.29 This said, the policy was effective during the retrenchment program, and did provide some useful guidance to provincial-level planners faced with the need to administratively review and cut back investment. It thus served a function at that time, but once the economy had recovered from the "emergency" situation of 1988/89, the policy began to outlive its usefulness. 3.30 Guidance of investment via industrial policy is an important feature of the Eighth Plan, and this is a prime example of the Plan as a framework for decision making by others. While the policy will continue to consist 9/ This is not the same as the budget for capital construction, as the above numbers are on an ex post, national accounts basis. - 82 - essentially of target sectors and priority industries, which are being reviewed at the present time with a view to their simplification, several other features of such policies are now recognized:10/ (a) The key priorities should only be identified at the broader level, as, for example, the emphasis on basic industries, and there should only be a limited number of "priorities" if this is to be a meaningful concept; (b) The main task for the administration in industrial policies is to create a favorable, competitive environment for the industrial enterprises, instead of pursuing "tilting" policies and using admin- istrative instruments, and that as reform progresses, such adminis- trative tilting policies can be removed; (c) In strengthening infrastructure, the most important steps are to correct price distortions, both to remove investment disincentives and to generate investment funds; (d) A major task identified for planning authorities is to identify enterprises operating below scale for merger, and to formulate adjustment programs for 'sunset' industries; and (e) The need to identify major policy reform issues that can assist the industrial restructuring process. 3.31 Together with this recognition that industrial policy is much broader than the simple identification of high and low priority subsectors has come the use of more indirect instruments of implementation, and in part- icular, to supplement the administrative controls on investments wit1 the use of taxation to influence its direction and volume, for which purpose, the govrnment introduced the Investment Orientation Tax (IOT) on April 16, 1991. The Investment Orientation Tax (IOT hereafter) 11/ schedule consists of a positive list of activities subject to one of three tax rates (0, 5 and 30 percent) on the value of capital construction. Any capital construction activity not explicitly mentioned in the regulation is subject to a 15 percent tax rate, and all technical transformation investment in activities that are not explicitly zero rated is subject to a 10 percent tax. In addition to the IOT, the preexisting "Table of State-Banned Development Projects" continues to prevent any investment in certain sectors. Only activities that are explic- itly zero rated or exempted are not subject to the tax. Zero-rated items are primarily priority sector activities, while "fixed asset investments made by 10/ This section is drawn from the background papers prepared for the mission by the counterpar,t team, as the Outline does not describe the industrial policies explicitly. II/ See Decree No. 82 of the State Council on Interim Regulations of the People's Republic Of China on Regulatory Tax Levied in Accordance with the Orientation of Investment in Fixed Assets. The Tax came into effect from 1991, and in the 1992 budget is projected to raise Y 3 billion. - 83 - Sino-foreign joint ventures, cooperative ventures and foreign enterprises" are granted a blanket exemption from the IOT. 3.32 Clearly, the IOT represents a significant new comprehensive tax instrument that attempts to achieve many objectives. It is first and foremost a means to strengthen the government's ability to define and implement indus- trial policy by discouraging investments below a certain scale and in certain lines of activity altogether. Since investment approval limits have in the past encouraged inefficient-scale investments by lower levels of government, this may be seen as a corrective tax. Secondly, it increases central control over the direction of investment by giving the government' a more potent means of influencing the flows of extrabudgetary resources. Given the larger con- text where the center has seen its control over total resources decline, this may be seen as a way of reasserting central influence through indirect means. It should be noted, however, that it remains unclear how the tax revenue will be divided between the center and the localities.12/ Thirdly, it may be viewed as providing the government with a mechanism to control the volume of total investment and to moderate the appetite of enterprises for investment funds by raising the cost of capital. Fourth, despite uncertainties as to sharing arrangements, it creates a new source of revenue to the center, pro- viding a much larger tax base than the extrabudgetary construction tax that it replaces. Given the scope of the tax and the many effects it is likely to generate, it also promises to be administratively challenging. 3.33 The IOT is a second best solution to the problems it seeks to address. It is an attempt to use one instrument to solve problems created by incorrect price signals, absence of fiscal instruments to control extra- budgetary resources, local protectionism and underpricing of capital. The obvious first observation to make is that this is a tall order for one instru- ment, and is very much a second best to more direct attention to these same issues, through price, tax, trade, commerce and interest rate reforms, 3.34 The other major observation is that by designing it as a positive list, many anomalies are bound to occur, and administration may become very heavy. The encouraging feature of the tax is that it is an attempt to use tax policy to replace administrative controls. However, as has been shown from recent experience with industrial policy, such instruments are most effective as deterrents. Therefore, consideration should be given to recasting this as a simpler, negative list of activities to which the tax would apply, or alternatively, as a much broader based positive list. However, even more important are two other factors with respect to the tax. Government should recognize that this is a second-best solution to the problem of investment incentives, which should therefore be temporary, until such time as the more fundamental reforms can be put in place; and secondly, use of an economic instrument such as this should replace administrative methods of controls (such as the imposition of policy lending on banks) and not merely be an overlay. 12/ The central authorities claimed that all the revenues would belong to the center, although this was disputed at the provincial level. 4 - 84 - 3.35 The macroeconomic framework, the development strategy and the formu- lation of policies to achieve those aims must be regarded as the critical elements of the Plan in the future if it is to perform its key function as a guiding framework against which others can formulate their own future plans. This review of these three aspects of the 8th FYP would suggest the following in broad terms; (a) The framework appears to be sensible and realistic, but suffers from rather incomplete coverage, from a lack of exposition of macro- economic policies, and, more important, from a continued divorce between the framework as formulated and actual economic policy. Thus, the rapid growth being experienced in the first year of the Plan, and which is itself the consequence of the government's policy stance, significantly reduces the usefulness of the policy frame- work. (b) Similarly, the development strategy as formulated seems to be sensible and to be consistent with the overall aims and targets. What is much less well developed, however, is any analysis of the policies necessary to achieve these strategies. For example, the aim is to bolster 'basic' industries and to restrict processing industries, but there is no related discussion of the pricing issues that give rise to such policies, nor the respective roles of central and local governments both in creating the present situation and in solving it in the future. (c) The prospective role for industrial policy in the future and the proposed instruments of that policy are a clear advance on the past. With all the existing distortions in the economy there is a clear role for the state in correcting some of these. However, the balance of such policies will need to continue to shift in favor of a role for identifying and removing such distortions, with less emphasis on administrative counter-measures or over-laying distor- tions. This appears to be the intention of the planning authorities and it is hoped this trend will continue. 3.36 It is also clear from this discussion that further efforts in the area of investment system reform will be needed in the coming period. This is discussed further in Chapter IV (paras. 4.43-4.45). It is understood that the government is considering aligning the investment approval system more closely with the industrial policy, by liberalizing approval procedures for basic infrastructure projects and projects in industry which meet "efficiency" cri- teria, while tightening up, and centralizing certain other approval proce- dures, as was done in August 1990, when projects in various sectors--including automobile assembly--became subject to central approval regardless of project size. It is our view that the financing system also merits continued atten- tion and reform (paras. 4.84-4.85). 3.37 While further rationalization of the approval procedures is sensi- ble, it must also be recognized that in the area of productive investment, this is a form of correction for market failure and should be regarded as a transitory mechanism. The distorted price structure, undeveloped domestic market, trade protection, and soft budget constraint on enterprises mean that - 85 - administrative control of investment will continue to be necessary, for other- wise there would continue to be sub-economic size investments. However, as reforms in these four areas in partizular proceed, so it should be possible to relax or remove those administrative controls, leaving such investment deci- sions increasingly to the enterprises and financial institutions. This, in turn, would permit increased attention in planning authorities to the new roles of the state described in this chapter. A related aspect of investment system reform that will continue to merit attention relates to center-local relations, and the clarification of responsibility for investment in infra- structure by the various levels of government. E. Planning to Correct Market Failures 3.38 As discussed earlier [para. 3.9(b)], correcting for market failures is a new issue for Chinese planners, and one that will be of increasing impor- tance over time. Although the 8th FYP does not discuss the issues in this form, it lays particular stress on two particular aspects of market failure in the Chinese context: regional development and employment generation. The first reflects factor endowments, the lack of integration of the national economy, and 7th Plan policies that favored coastal provinces; the second reflects major imperfections in the labor market, and in particular, rigidi- ties which increased the cost of labor 8. Regional Development Issues 3.39 The pattern of regional development in China is the result of a complex set of policies--notably center-local fiscal relations, pricing poli- cies which act against raw material producing provinces, and planning policies which give different degrees of autonomy in policy and decision making to different provinces--in comoination with fiscal compensation in the form of state investments and subsidization of social services such as health, educa- tion and food distribution. The slant of such policies has varied greatly over the various plan periods.9 3.40 More recently, since the Open Door policy was announced in 1979, development strategy has featured a strong coastal bias. This found explicit expression in the Coastal Development Strategy adopted by the CCP in 1988 and in the Seventh Plan which described China in terms of Coastal, Central and Western Regions and proposed a strategy that emphasized external trade and technology import for the coastal regions (expansion of special economic zones, open coastal cities, consumer goods and high-value industries), while advocating focus on raw material production, technology upgrading and agricultural development for the Central and Western regions. This strategy was largely implemented by relying to a greater extent on local authorities to use the freedoms provided by economic reforms and reduced mandatory planning to fashion local development. This has resulted in differential rates or economic growth, conflicts over access to resources, and tendencies towards provincial protectionism. However, it is also clear that the strategy has contributed significantly to the rapid growth rates of industrial output and, especially export production in the last few years, not least by unleashing entrepreneurial capacity and attracting investment and management expertise, especially from Hong Kong. - 86 - 3.41 Table 3.2 provides an indicato: of shifts in regional emphasis by comparing the shares of state investment in the threa regions during the Sixth Table 3.2: PROVINCIAL ALLOCATION OF STATE INVESTMENT, 1981-90 1981-85 1981-85 1986-90 1986-90 % change Region Province Volume Share Volume Share c Beijing 24.374 4.6 60.582 4.8 6.0 c Tianjin 18.366 3.4 33.491 2.7 -22.2/a c Hebei 24.931 4.7 48.426 3.9 -17.2Ja c Liaoning 34.135 6.4 93.286 7.5 16.5/a c Shanghai 34.37 6.4 84.278 6.7 4.6 c Jiangsu 24.198 4.5 61.881 4.9 9.0 c Zhejiang 12.653 2.4 32.391 2.6 9.2 c Fujian 10.302 1.9 25.681 2.1 6.3 c Shandong 29.371 5.5 81.464 6.5 18.3/a c Guangdong 39.109 7.3 99.812 8.0 15.9Ta c Guangxi 8.023 1.5 20.326 1.6 8.0 c Hainan - - 6.669 0.5 - Coastal Total 259.832 48.74 648.287 51.86 6.4 m Shanxi 19.468 3.7 39.289 3.1 -13.9 m Inner Mongolia 12.479 2.3 21.157 1.7 -27.7Ta m Jilin 12.771 2.4 29.091 2.3 -2.9 m Heilongjiang 31.496 5.9 60.917 4.9 -17.5La m Anhui 13.562 2.5 30.279 2.4 -4.8 m Jiangxi 9.672 1.8 19.028 1.5 -16.1Tl m Henan 22.106 4.1 47.26 3.8 -8.8 m Hubei 21.171 4.0 41.088 3.3 -17.2La m Hunan 14.238 2.7 30.071 2.4 -9.9 Central Total 156.963 29.4 318.18 25.5 -13.6 v Sichuan 28.3 5.3 68.338 5.5 3.0 w Guizhou 7.465 1.4 15.038 1.2 -14.1 w Yunnan 11.07 2.1 20.983 1.7 -19.21a w Tibet 1.755 0.3 2.412 0.2 -41.4La w Shaanxi 12.969 2.4 29.201 2.3 -4.0 w Gansu 8.778 1.6 19.271 1.5 -6.4 w Qinghai 5.253 1.0 9.301 0.7 -24.5la w Ningxia 3.008 0.6 6.898 0.6 -2.2 w Xinjiang 13.547 2.5 27.543 2.2 -13.3 Western Total 92.145 17.3 198.985 15.9 -7.9 Nonregion specific 24.108 4.5 79.402 6.4 40.4/a and Seventh Plans. Under the Sixth Plan, which followed the open door policy and therefore already featured the coastal strategy, the 12 provinces that constitute the coastal region received almost half (48.7 percent) of total state investment, while the central region received about 30 percent and the west about 17 percent. In the Seventh Plan period, the share allocated to the coast increased by over three percentage points to about 52 percent, while the share of nonregion-specific investments rose by almost two percentage points. This reallocation came at the expense of the central region (whose share declined by four percentage points) and the west (decline of 1.4 percentage points). Investment shares therefore tend to support the rhetoric of the -87 - coastal strategy, reinforcing the advantages of greater use of market forces in these areas. Within the coastal region, some provi'nces (Shandong, Liaoning, Guangdong) have seceived the bulk of these investment increases while others (such as Tianjin and Hebei) have experiei,ced sharp declines in their shares. Nevertheless, coastal provinces as a whole have had an increase in share of total investment, largely at the expense of central provinces such as Hubei, Jiangxi, Inner Mongolia, Shanxi, and Heilongjiang. 3.42 The issue of whether the coastal strategy and the different pace of economic reform in different provinces has increased regional disparity has been the subject of some analysis recently,10 which is as yet inconclusive. However, two things are clear. (a) The provinces with the highest rates of growth in recent years-- Guangdong, Jiangsu, Hainan, Fujian, Shandong, Zhejiang--have been those favored by the coastal strategy and, more importantly, given the greatest latitude in economic reforms. (b) There is a perception among Chinese officials that regional dispari- ties have increased over the period of the 7th FYP. 3.43 The 8th FYP has a large section devoted to regional policy, but whereas the 7th FYP had a clear emphasis on regional policy as an instrument of the overall development policy through the accelerated development of coastal areas, this is not the case with this Plan. Rather, the regional policy component of the plan is a clear compromise in that it has policies for development in coastal, inland, minority and poor areas, and, in this sense, advocates an absence of regional favoritism, and instead a set of regional development strategies tailored to the needs of the regions. While the coastal strategy remains important, it is clear that these areas are no longer to be given administrative or financial advantages over other provinces. 3.44 The strategy for the inland provinces calls for them to specialize in natural resource based industries. In some instances this will require the relocation "in a planned manner" of industries from coastal to inland regions. For example, cities like Shanghai are looking for ways to switch from the textile industry which may be better located in cotton-growing provinces such as Henan. The coastal region will continue to provide access to new technology and generate the surpluses needed for development of the interior provinces. The Pudong zone in Shanghai is the most important manifestation of this strategy. Box 3.2 illustrates how this strategy is manifested in the five-year plans of two important Chinese provinces: Henan, an interior province that has hitherto served as an important natural resource base, and Jiangsuy a coastal province that has developed rapidly on the back of the TVE sector that has seized the opportunities made available by economic reforms. 3.45 However, the outline does not specify the instruments that are to be used in this process. It recognizes the need to correct distortions that have led to "the present irrational situation characterized by regional separation, market blockade and pursuit of regional self-sufficiency." It, however, does little to recognize the causes for this situation. Moreover, the proposed solution of "relocating" industries has a clear suggestion of the use of planning mechanisms to solve the problem. The experience of, for example, - 88 Box 3.2: DEVELOPMENT PLANS IN AN INTERIOR AND A COASTAL PROVINCE Background. Both Jiangsu and Henan are populous provinces with 1990 populations of 67.7 and 86.5 million, respectively. Both are important sources of national output of grain and cotton. However, the two provinces differ in important respects including the fact that per capita GNP in Henan is approximately half that in Jiangsu. Structural differ- ences are also significant: Jiangsu sees itself as a "processing economy" with a relatively large industrial base (with an increasingly significant TVE sector) and a stock of skilled labor that is dependent on other provinces for important raw materials and energy. Henan, on the other hand, is rich in resources (including energy) but feels the need to develop its industrial base in downstream activities. The cotton textile industry provides a good illustration of the difference in level of industrialization of the two provinces. While Henan produces 15 percent of the national output of cotton, its share in the production of yarn is only 6.8 percent while its share of cloth production is less than 6 percent. Jiangsu, on the other hand, produces about 10 percent of China's cotton output but has a higher share of yarn production (14.7 percent) and cloth production (14.6 percent). Finally, the central plan has remained a significant instrument of policy in Henan given the importance of coal, crude oil and cotton to central procurement. Plan procurement prices for these items have served to transfer resources out of Henan, stunting its development potential. Table 1 indicates the growth targets for the two provinces. It indicates Henan's Eighth Plan slogan of "One High and One Low" which symbolizes the province's intention to achieve output growth higher than the national target and to control population growth rates to a level lower than the national target. Jiangsu's targets for GNP, NI and population are close to the national targets, although GVIO growth is pegged at a higher level. Table 1: EIGHTH PLAN TARGETS IN HENAN AND JIANGSU Growth rates Henan Jiangsu China GNP 6.5 6.0 6.0 NI 6.0 5.0 5.0 Population 0.98 1.2 1.25 GVIO 8.0 8.0 6.5 GVAO 3.5 3.0 3.5 Source: State and Provincial Planning Commissions. The two provincial plans do not suggest any significant difference in provincial development policy and appear to support the contention of the center that, rather than an explicit regional bias, this plan features an emphasis on integrating markets as a means of promoting development of lagging regions. Henan is in the process of forming a trading zone with five neighboring provinces (Shanxi, Anhui, Hunan, Hubei and Jiangxi) to reduce inter- provincial barriers while Jiangsu is focused on integrating its economy more closely with the proposed Pudong Development Zone in particular and with Shanghai in general. Both Henan and Jiangsu stress the role of industrial policy and this is seen to be consistent with cen- tral guidance. Henan's development plan focuses on the development of downstream industries in petrochemicals, nonferrous metals, electronics, machinery, food processing, and textiles as a means to capture value added that is currently lost to other provinces such as Jiangsu. Jiangsu stresses the achievement of grain and cotton output targets as well as the develop- ment of transport and energy infrastructure which are seen as bottlenecks on further devel- opment. In the area of reforms, Jiangsu intends to promote industrial restructuring by encouraging the development of ten large enterprise groups but has few other initiatives. Surprisingly, Henan, an interior province that, by the admission of provincial authorities, has not pushed reforms in the past, appears to be more active now. Experiments are designed to improve the enterprise CRS system, to separate profits and taxes, to promote share- holding, and reforms to the rural household responsibility system, social security, etc. are also in experimental process. - 89 - European countries with similar regional policies merits study in this regard, for it has been very expensive in terms of budget resources, without being noticeably effective. 3.46 Instead, the government should be looking to the positive aspects of the implementation of the coastal development strategy to address most of the issues involved in growing regional disparities, to the extent that they are growing. The areas of the country that have lagged behind are in the central area and in the northeast. These can be characterized as follows: (a) They are producers of raw materials or of major capital goods. In the former, prices are held low, and in both, the level of the man- datory plan remains relatively high. (b) They have been given fewer freedoms to set economic policy, includ- ing policies toward the outside world. (c) Their industrial sectors are dominated by state-owned industries, and in particular, those still managed centrally. (d) They tend to be self-reliant for their fiscal revenues, although losing profits of SOEs to the center. The potential benefits to the inland provinces of planned relocation would seem to be very small in comparison with the potential benefits from having the center address those few key issues. In this sense, the development plan is of less critical interest to the inland provinces than the reform plan, which is addressed in the following chapter. Emplovment Creation and the Services Sector 3.47 Absorbing a large number of new entrants to the labor market is one of the major tasks facing planners in the Eighth Plan period. China's labor force has been growing faster (2.5 percent per annum) than the population as a result of the age structure, and the size of the employed labor force is expected to rise from its current level of 570 million in 1990 to 640 million by 1995, adding 20 million to urban employment and swelling rural employment to 470 million. About 7 of the 20 million additional urban workers are expected to be the result of in-migration from rural areas. 3.48 Planners estimate the extent of surplus labor (open and disguised unemployed) in China in 1990 at about 29 percent of the total workforce.13/ The Eighth Plan tar-at is to reduce the extent of surplus labor to about 23 percent by 1995 (Table 3.3). This implies that an additional 88 million jobs have to be created during the eighth plan period--absorbing 68 of the 70 million new entrants while also reducing rural disguised unemployment by 20 million. Urban open unemployment, which is critical to political sta- bility, is expected to rise from 4 to 6 million, with the unemployment rate 13/ For comparative projections in this area, see World Bank (1992) "China: Strategies for Reducing Poverty in the 1990s", report No. 10409-CHA, esp. pages 49-56. - 90 - Table 3e3: LABOR AND EMPLOYMENT UNDER EIGHTH PLAN (millions) 1990 1995 Total emploved labor force 570 640 Urban 150 170 Rural 420 470 Surplus Labor 164 146 Urban unemployed 4 6 Urban underemployed 20 20 Rural underemployed 140 120 Source: SPC. expected to rise from its current 2.7 percent level to no more than 3.5 per- cent in 1995. 3.49 Significantly, urban disguised unemployment is expected to remain unchanged, suggesting that there will be little or no attempt to improve industrial efficiency by reducing overstaffing and featherbedding. Moreover, given the problems with the statistical coverage of the floating population, the unemployment estimates must be taken as an underestimate of the actual' rate of open unemployment in China. 3.50 The magnitude of the employment creation task that faces China can- not be exaggerated and the realism of the targets can only be assessed against China's own performance in recent years. China's employed labor force increased from an estimated 402 million in 1978 to 570 million in 1990, a growth of 168 million in 12 years implying a rate of growth of 2.5 percent per annum. Before the effect of the retrenchment policies slowed employment growth, agvicultural employment grew by 1.3 percent per annum while nonagri- cultural employment increased at 6.3 percent annually over the period 1978-88. Overall employment grew at 3 percent per annum, exceeding the rate of growth of the labor force and allowing some rural to urban labor transfer.14/ The average annual rate of employment growth over the period 1980-89 in the primary, secondary and tertiary sectors has averaged 1e4, 5.5 and 8.6 percent, respectively. This indicates a significant shift towards service sector employment relative to rates of 2, 6.3 and 2e5 percent over the period 1957-79.11 As Table 3.4 indicates, the employment elasticity of CNP has been highest in the tertiary sector and lowest in the primary sector which is known to feature sizable underemployment. 14/ See Judith Bannister, China's Population Changes and the Economy, iEI Joint Economic Committee Study Papers, 1991. - 91 - Table 3.4: EMPLOYMENT ELASTICITY OF GNP BY SECTORS, 1980-89 Primary Secondary Tertiary Employment growth 1.4 5.5 8.6 GNP growth 5.4 10.7 11.15 Elasticity 0.26 0.51 0.77 3.51 If the targeted growth rates for the primary, secondary and tertiary industry are achieved, the employment creation target should be attained.15/ Table 3.5 provides illustrative calculations. More than half the projected new jobs are in the service sector. The key question is whether the projected 9 percent growth in the service sector can be achieved, and the policies needed to achieve it. Table 3.5: POSSIBLE EMPLOYMENT GROWTH, 1991-95 Labor force Planned sector Employment Labor force New job 1990 growth growth 1995 1991-95 (millions) 1991-95 (Z) 1991-95 La (Z) (millions) (millions) Primary 340 18.8 4.9 357 17 Secondary 122 37.0 18.9 145 23 Tertiary 103 53.9 41.6 149 44 Total 567 34.0 14.8 651 84 (2.8 p.a.) La Sector growth and elasticity from Table 3.7. 3.52 As noted, overall economic growth is expected to average about 6 percent, while the service (tertiary) sector is designated to grow at average annual rates of 9 percent. Of the 18 million new jobs that are to be 15/ It should be noted in addition that China's elasticities of employment creation bear a close resemblance to those of other economies. For exam- ple, for South Korea, Taiwan and Singapore over the period 1960-70, employment elasticities in industry were 0.5, the same as China's, and at a relevant stage of their development. Evidence from Latin America sug- gests an elasticity for the tertiary sector of close to unity. - 92 - created to absorb uiban labor growth, 12.5 million are expected to be in ser- vice sector occupations.16/ Recent years have seen the rapid growth of employment in the service sector (at rates in excess of 5 percent) although the share of this sector in total employment in China (21 percent) remains well below the levels in other labor abundant countries such as India (38 per- cent) and Indonesia (40 percent).17/ Similarly, the share of the service sector in GDP in China is well below levels for a wide range of countries, as shown in Table 3.6. 3.53 Nevertheless, service sector GNP growth over the period 1980-89 has been very rapid, averaging 11.15 percent while, correspondingly, the secondary sector grew at 10.7 percent and the primary sector averaged 5.4 percent, reflecting partially the low base from which it started. The share of the service sector in real GNP has risen from 21 percent in 1980, to 23 percent in 1985, and 24 percent in 1990, but much more rapidly as a share of nominal GNP, as real wages have increased. As Table 3.7 indicates, the service sector has rapidly increased its share over the period at the expense of both the primary and secondary sectors. The present plan's projections for the high growth of the tertiary (service) sector extend its resemblance to the Seventh Plan. The service sector is targeted to grow faster than the primary and secondary sec- tors, raising its share in nominal GNP from 27 percent in 1990 to 30 percent in 1995. 3.54 Although the policy framework to support this growth has not been spelled out, the authorities indicated that favorable policies towards this sector are being designed and will be announced in 1992.18/ In May 1991, the State Council formed a Tertiary Sector Development Office to design poli- cies to facilitate service sector development, and this group recently submit- 16/ SPC staffers estimate that a one percentage point increase in tertiary industry share of GNP will provide employment for 15 million. Increasing tertiary share from 27 percent in 1990 to 31 percent by 1995 as planned will therefore provide 50-60 million jobs. These calculations are con- sistent with those in Table 3.4. 17/ While some service sector activities are classified under industry in China, this does not significantly affect the estimate of the sector's share of employment. Moreover, in such an international comparison, unrecorded service sector workers in China are less numerous than in India and Indonesia and would tend to offset any bias due to misclassifi- cation. See "China: Reforming the Urban Employment and Wage System," Report No. 10266-CHA, World Bank, 1992. It should be noted that the measurement of service sector GNP is subject to problems of coverage and classification which also affects the accuracy of growth estimates for the sector. See "China: Statistical System in Transition," Report No. 9557-CHA, World Bank, 1991, for a detailed discussion of the methodologi- cal issues involved in GNP measurement in China. 18/ In fact, just as this report was being finalized for publication, the State Council and the Central Committee of the Communist Party of China issued its "Decision on Speeding Up the Development of the Tertiary Industry," on June 16, 1992. - 93 - Table 3.6: SHARE OF SERVICES IN CURRENT GDP IN SELECTED COUNTRIES, 1965-90 1965 1990 India 34 41 Indonesia 31 39 Thailand 45 47 Turkey 41 48 Mexico 59 59 Brazil 48 48 Yugoslavia 35 48 Korea 37 46 Japan 46 56 United States 59 69 Low income (except China/India 37 39 Middle income 45 50 China 17 20 Source: World Development Report, 1991 Table 3.7: SECTORAL COMPOSITION OF CHINA'S GNP, 1979-90 Year Total Primary Secondary Tertiary 1979 100.0 31.5 47.9 20.7 1984 100.0 33.0 44.6 22.4 1988 100.0 27.3 46.9 25.7 1990 100.0 27.5 45.3 27.2 Source: Statistical Appendix, Table A2.10. ted its proposals to the State Council for approval. In the short term, this group is putting forward policies that favor employment generating tertiary industry, and service industries which "promote the market," as well as poli- cies to promote the "socialization of public facilities." However, it is expected that tertiary sector promotion will be primarily delegated to local governments. In particular, it is expected that the TVE sector, which has hitherto been concentrated in light industrial manufacturing, may have a greater focus on service sector activities. This is suggested by projected rates of growth of tertiary sector output of TVEs of 15 percent per annum, compared to secondary sector output growth of 11.4 percent. 12 3.55 Perhaps the most important policy action is to create an "enabling" environment that supports private initiative in the provision of business and - 94 consumer services. Policy actions in this area will have to focus on develop- ing the institutional capacity and the regulations to guide market based development. Among the key steps in this area would seem to be the following: (a) Licensing systems for the service sector should be rapid and effi- cient, especially for retail and personal services, including open and efficient systems for enforcing zoning, health and hygiene regu- lations. (b) Creation of institutional arrangements for the provision of access to credit gat commercial rates) for small-scale and individual enterprises in the service sector. (c) An aggressive program of removal of service provision from govern- ment and state-owned enterprises, with the consequent divestiture or contracting of such services to small and individual enterprises. (d) The provision of vocational educational training skills and the creation of certification agencies to provide the essential labor skills needed, especially in such areas as office teclnology, repair and consumer services. F. Planning for the State Sector 3.56 The third strand in planning is that of planning for the state sec- tor, and especially for the provision of infrastructure to relieve or prevent bottlenecks, and this is addressed in the case of transport in Chapter V. However, in China, production continues to be dominated by state-owned enter- prises, so the question becomes a wider one than merely the provision of infrastructure. It is to be noted, however, that the SOEs' share of industrial output has fallen dramatically from 65 percent in 1985 to 55 per- cent in 1990, with the share of individual enterprise and joint ventures rising from 3 percent to 10 percent, and this is paralleled by a rise in the share of light industry from 47 percent to 50 percent. 3.57 Such changes notwithstanding, significant structural problems remain. State enterprises have experienced declining profitability in the face of increased competition. Between 1985 and 1990, the proportion of SOEs that were unprofitable increased from 10.7 percent to 31.5 percent. Pretax net profit of SOEs as a proportion of sales revenue declined from 24 to 10 percent correspondingly. In large part, it must be acknowledged, this is the result of the strong recession of 1989/90, but it also reflects the effects of competition in shrinking profit margins, relative price changes and structural inefficiency in the state industrial sector. 3.58 The 8th FYP and ten-year program envision a continued key role for the state-owned enterprises as the "backbone" or "core" enterprises. The emphasis is on technology, investments and on enterprise reform to "revital- ize" the SOEs, and to make "the overwhelming majority become socialist commod- ity producers," which means state-owned enterprises operating within a market framework. As discussed further in Chapter IV, it is in this sense that China - 95 - Table 3.8: PERFORMANCE OF INDUSTRIAL SOEs IN CENTRAL BUDGET 1985 1988 1989 1990 Proportion of loss-making SOEs 10.7 12.2 16.3 31.5 Net pretax profit as % of revenue 23.8 18.7 15.8 10.4 Retained profit as % of net profit 18.3 18.5 16.7 15.3 Source: China Statistics Abstract, p. 87. is maintaining its socialist stance, as the plan defines the essence of socialism as being the continued "dominance" of the SOEs.19/ 3.59 The latest government initiative ("Eleven Measures to Revitalize the Medium and Large SOEs") defines some additional instruments to revive these- enterprises (see Box 3.3).20/ Among the measures are some that will impact favorably on efficiency by improving the economic environment for the SOEs. These include measures to reduce the share of mandatory quotas (item 2), the granting of direct foreign trading rights for enterprises (item 7), and efforts to reduce the burden of ad hoc levies and administrative interventions on enterprises (item 9). The attempt to adjust depreciation rates would also be a useful policy if it were applied in a nondiscriminatory way and with reference to the economic rate of depreciation of the assets. Other measures, such as those providing preferential interest rates and allocations of working capital, will have the effect of replacing an explicit subsidy to loss-making firms with numerous hidden subsidies, which should be avoided as it would reduce the visibility of the problem. Recent statements have also emphasized the need to restructure unviable enterprises or shut them down, if necessary. 19/ It should be noted, however, that more recent statements have taken a more moderate approach, closer to "market socialism". This question is likely to be revisited during the 14th Party Congress in late 1992. 20/ A recent decision by the State Council replaces the existing Production Committee with a Production Office headed by a Vice-Premier. The new Office has wide ranging powers to put this set of "revitalizing" policies into effect through its authority to set production targets (along with the SPC), influence material distribution, "coordinate" different sec- tors, "guide" enterprises on improving management, technical renovation, etc. This implies a strong reliance on administrative measures to address the problems of the SOEs. It should also be noted that the "Eleven Measures" were endorsed and extended by the Eighth Plenary Ses- sion of the 13th Central Committee, but this did not materially affect the main measures to be adopted, although it gave further impetus to the initiative. In June 1992,' this office was renamed the "State Council Economic and Trade Office". - 96 - Box 3.3: ELEVEN MEASURES TO REVITALIZE SOEs 1. Preferential treatment regarding retention of revenue from over- stocked goods and allocation of earmarked bank credit for renovation. 2. Reduction of mandatory plan quotas for selected enterprises with additional revenue to be earmarked for technical renovation, 3. Higher depreciation rates for selected enterprises (total revenue Y 3 billion) not subject to energy and transportation tax or budgetary regulation fund. 4. Higher retention rates on technical renovation fund for selected enterprises involved in new product development. 5. Y 40 billion increase in working capital for some enterprises--pro- vided by local and central government and enterprises themselves (?). 6. Preferential interest rates on loans for enterprises in priority activities. 7. Granting foreign trading rights to some enterprises. 8. Double guarantee for 234 enterprises. 9. Reduce and clear debts of enterprises. (?) (chain debts) 10. Form enterprise groups--100 pilot enterprise groups. 11. Reduce enterprise burden--eliminate ad hoc levies, reduce inspections and many meetings. Source: China Daily, May 1991. 3.60 These policies also illustrate the prevalence of the view that investment and better technology is a panacea for the most diverse problems. These attempts to "revitalize" industries and enterprises abound with calls to increase investment and improve product quality, reflecting faith in capital- intensive solutions. 3.61 This issue of industrial restructuring, especially of SOEs, is a complex one, beyond the boundaries of this report, but is raised here as a prime example of a planning issue for the future. While the task of restruc- turing SOEs must depend on improved market signals, it may also benefit from an activist role for the state, in areas where markets either fail or do not (yet) exist. The experience of Japan is useful in this regard and suggests a role for the government and industry cartels in managing declining industries and in switching factors to more profitable activities. It is instructive - 97 - that such intervention typically assisted rather than resisted the process of structural adjustment and focused on training and redeploying labor and scrap- ping or mothballing equipment and plant, thus assisting industries and workers through the necessary adjustments. 3 While the management of declining industries is a major feature of policy in Japan, industrial restructuring has focused also on "modernization," "upgrading" and "structural improvement" of small and medium enterprises. It should also be stressed, however, that at all stages, the door was gently but firmly shut on nonviable enterprises and industries after all organizational solutions were found to be inadequate. G. Conclusions and Issues for Future Plans 3.62 This chapter has reviewed the evolving role of planning in China, and has assessed the 8th Plan in the light of the role of the state in a reformed economy. In general, the present plan can be considered an advance upon past plans, in that it focuses on the macroeconomic framework and on policies--especially economic system reforms, as discussed in the next chap- ter--which are to be adopted to achieve the aims and targets of the plan. Nevertheless, in terms of the three roles for planning that have been sug- gested, the assessment would suggest three areas in particular where efforts would seem to be warranted. (a) The Macroeconomic Framework. While certain indicators about expected macroeconomic trends are presented, it is less than clear how such indicators have been derived. For example, the overall growth rate of 6 percent is substantially below the level of the 1980s, despite the fact that efficiency is expected to improve. However, 6 percent is the level necessary to achieve the target of redoubling 1980's GNP by the year 2000, so the suspicion remains that this is a target, rather than a macroeconomic assessment. Moreover, the absence of a framework for the external sector, or for monetary and fiscal policy reduces the usefulness of the framework that exists. As with the case of the 7th FYP, the first two years of the plan is seeing expansion, and government policy to that end, which is well above the planned level. Therefore, more effort is required to integrate the process of macroeconomic assessment and policy formulation into the planning process, or else such frame- works will continue to be of little use in their main function as a source of information to the nongovernment sector. Notably, if the plan analysis had called for a moderate initial growth period in 1991-92, this should have been reflected in tighter monetary poli- cies and a less aggressive expansion of public investment. More generally, the key role of the state is to foster a climate of macroeconomic stability within which economic agento can operate. The 1980s saw periods of quite severe instability in China and of "stop-go" policies, and one of the challenges for the planning authorities in the 1990s will be to improve macroeconomic planning and coordination and to strengthen the instruments of macroeconomic management, as discussed more in the following chapter. (b) The Policy Framework. The continued decline in the role of materi- als allocation and in the availability of fiscal resources for capi- tal investment mean that the plan will have to be increasingly con- cerned with policy formulation, and especially policies for market - 98 failure. While some progress has been made in this area, we observed in two major policy areas--employment generation and regional income generation--that the plan has made more progress in problem identification than in identification of solutions or poli- cies. Rather, such issues are also being addressed as a targeting issue--as with employment--or via planning solutions. For example, the role of the tertiary sector as a potential source of new employ- ment was identified, but without clear indications of policies to be used to promote it. Increasingly, it will be the responsibility of planning authorities to find solutions to these market failures that are more compatible with the use of markets or which correct the distortion rather than overlaying additional distortions in attempts to correct them. In addition, the planning authorities will also have to move forward in the area of planning the policy framework. Examples of policy areas where central actions may be appropriate are: (i) improving the functioning of industrial markets, either by removing restrictions such as licensing or by moving to elimi- nate monopolies or provincial protectionism; (ii) planning for the opening up of domestic industry to foreign trade, and for the impact of reduced protection and greater openness on the structure of production; (iii) establishing the new legal framework that will gradually replace administrative management of the economy. This relates in particular to the relative absence of legislation governing the enterprise sector, especially with regard to accounting, auditing and property rights; and (iv) fostering institutions for technological development and absorption. Instead of planning for technological upgrading of individual enterprises, the planning authorities should instead focus on creating institutions involved in "technological extension services," and on systems of standards, testing and certification. (e) The State Sector. The Plan continues to have large elements of targeting of outputs that are outside the state sector, and so long as this continues, large parts of the plan will be irrelevant. Therefore, those parts of the Plan concerned with sectoral issues will need to focus increasingly on planning for those sectors that remain primarily under state control, such as economic infrastruc- ture, and sector planning will have to be increasingly concerned with analyzing the demand of others for such economic services, and not simply the demand of the state sector for inputs. Of particular importance in this regard is "investing in people" and the role of the state in provision of education, whose share in government expenditure will need to rise in the future. 3.63 This means that while the 8th FYP has made progress, it falls far short of providing the sort of planning framework appropriate to the needs of the reformed Chinese economy, and it will probably prove ex post, to have been - 99 - of little more relevance to actual events than was the 7th Plan. Neverthe- less, some of the improvements are encouraging and are in the right direction, and during the process of carrying out this analysis it was evident that many of the staff in the planning authorities recognized its weaknesses and the need for further planning system reforms, and for the further integration of the planning process and the reform process, as discussed in the following chapter. - 100 - IV. THE REFORM PLAN A. Introduction 4.1 In Chapter II of this report, we assessed the impact that China's reform has had on its economy, and the major areas where more attention seemed to be necessary. We concluded that the approaches to reform in the 1990s, including both reform design and speed, were likely to be key determinants of the performance of the Chinese economy in the coming decade. Moreover, with the official completion of the 1988-91 rectification program, there is a new emphasis on economic reform by Chinese leaders, as shown most clearly in recent speeches by Deng Xiaoping, and by the decisions of the recently con- cluded Fifth Session of the Seventh National People's Congress. 4.2 The preparation of the development plan and reform plan offers an opportunity to assess the government's current reform intentions. Indeed, it should be stressed that it is itself a significant reform that the 8th FYP consists fundamentally of a development strategy and accompanying set of macroeconomic targets, and a reform plan, or more generally a policy framework to achieve these targets, and this is a very welcome change of approach. However, care should be taken in assessing this plan, as it remains very much a strategic outline, and much remains to be worked out in terms of details, timing and sequencing. The reform should thus be regarded as a statement of reform intentions at the time of plan preparation, not as a fixed blueprint for action. The reform program in China is very much an evolving process, and, as we have seen, the relative stress on reform issues can change quite rapidly. This said, the recent debate has been concerned essentially with the speed of reform implementation, with as yet, little indication of changes in design. 4.3 This is not to say that reforms did not continue during the rectifi- cation program, and these are reviewed briefly in paras. 4.4-4.11. Although these are perhaps less deep reforms than might have been desired, it is nota- ble that the government felt able to move on reform issues at all during this period of retrenchment, and to move on certain areas--such as grain and trans- port pricing--that had scarcely been touched in the previous 35 years. How- ever, these reforms were essentially ones which were supportive of the aims of the retrenchment program, notably measures to reduce government price and trade subsidies. The success in overcoming inflation and the overheated econ- omy created ideal conditions of stability within which to launch a bold pro- gram of reform, especially to tackle the more deep-rooted issuxes that generate improvements in economic efficiency. The question to be addressed in assess- ing the policy framework for the 1990s in the extent to which the government is signaling its intention to seize this opportunity. B. Reform in 1989-91 4.4 Reform measures introduced in 1989-91 may be grouped into two cate- gories. The first is the continuation of reforms that started before the austerity policy was adopted. This included experiments with the separation of profits and taxes for SOEs, and with the tax-sharing system between the center and provinces for their fiscal relationships. These experiments were - 101 - extended to 1,800 SOEs and 27 cities. There were also some improvements in the contract responsibility system of the SOEs when the second round of con- tracts were negotiated in 1990 and 1991, and by now over 90 percent of these contracts have been renewed. However, the improvements were primarily related to performance indicators, and fell far short of the goal of separation of profits and taxes, that could render greater autonomy and independence for the SOEs. In Shenzhen and in other major cities, limited experiments with joint- stock enterprises continued, and some existing SOEs were converted into joint- stock enterprises. 4.5 Stock exchanges were established in Shenzhen and Shanghai, with counters in some smaller cities, with active trading of part of the issued shares of a very limited number of listed companies, including joint ventures. The trading was originally highly restricted and localized. Shanghai inaugu- rated a Western-style open stock exchange in 1990, with Shenzhen following in May 1991. It was the initial intention that these would only serve as experi- ments in the localities concerned. However, more recently it has been decided to permit enterprises from anywhere in China be listed on the Shanghai exchange, and from the whole of South China in Shenzhen. However, the number of listed companies remains extremely small (less than twenty, relatively small companies in each). The related development was that in December 1991 the first "B" shares were issued in Shanghai, which are for holding by foreigners. The year 1991 also saw an expanded role for foreign banks in China, with new branches opening in Shanghai, Pudong and Hainan, with similar spheres of operation to the present branches of foreign banks in the special economic zones. 4.6 Since 1988 foreign exchange adjustment centers (FEACs) have been operating at provincial and subprovincial levels all over China, with a national center in Beijing. One major limitation to the impact of the PEACs was that local governments and enterprises, both Chinese and foreign-invested ones, did not have the liberty to trade outside the adjustment centers in their locality, while only central government organizations and local govern- ments were able to trade foreign exchange at the national center. In 1990, local rates and the national average rate were quoted publicly to provide traders at each local center information about rates at other centers, and this created a gradual tendency towards a unification of rates at the many local adjustment centers of the nation. As noted in Chapter I, the volume of transactions on the FEACs rose dramatically in 1990 and again in 1991. 4.7 Another round of foreign trade reform was formulated to replace the existing contract system that expired at the end of 1990. Two major measures increased the separation of foreign trade enterprises from government control and helped to foster competition among foreign trade enterprises. The first was the abolition of export subsidies from central budgetary sources.l/ The second was to unify the retention ratios of foreign exchange earnings of all localities. In the past, the large differential in retention ratios among foreign trade enterprises was the main source of rent-seeking behavior in the foreign trade sector. Artificially high retention ratios represented. a par- tial devaluation of the Chinese currency for foreign trade enterprises in I/ Import subsidies had been mostly removed in earlier reforms. -102 - specific localities, and this tended to compensate their low efficiency and penalize other highly efficient enterprises that were unfortunately located in low retention ratio areas.2/ By unifying retention ratios, a major area of administrative intervention in the operation of China's foreign trade enter- prises was removed, and this can be classified as a reform to "level the play- ing field." 4.8 The other reform area that saw renewed emphasis and expanded experi- mentation during this period was in social reform. In particular, there has been a renewed emphasis on both housing and social security. In those two cases, we see a classic demonstration of China's new reform style (see para. 4.63), in that there have been national guidelines on the approach to these two areas of reform approved by the State Council in the latter half of 1991, followed by reform experiments designed and implemented at the local level. Thus, the housing reform decision at the national level emphasized inter alia the adjustment of rents, and the creation of new institutions to generate funds for housing construction and purchase. Beijing Municipality has empha- sized the former, doubling housing rents in January 1992, while Shanghai has focused on the latter, introducing a forced savings scheme designed to emulate Singapore's Provident Fund. 4.9 The second group was reform measures that served or formed part of the austerity policy. The most notable of these was the aggressive use of indirect instrumernts of monetary policy, including interest rates, in reducing inflationary pressures in 1988/89. The impact of the index-linked deposits introduced in 1988 on retail sales and savings in 1989/90 clearly demonstrated the power of this indirect policy instrument. Although the austerity policy began with a heavy reliance on administrative means, the success of monetary policy in suppressing aggregate demand and inflation gained in importance, and this shift towards indirect means of macroeconomic management should be seen as an unexpected reform achievement in the austerity period. 4.10 Various price adjustments were made in 1989-91 at the same time as the government attempted to stop excessive fluctuations in market prices by imposing administratively set ceilings or controlled price ranges, and these were listed in Table 1.5. The price reform program has two elements: price adjustments are when the government adjusts by administrative fiat the level of prices for commodities or services subject to price control; and price liberalization is when government price control (or guidance) is lifted, leaving prices to be determined by the market. During the first phase of price reform in 1984-87, the emphasis was on price liberalization, and most consumer goods are now regulated by market forces. However, during that period, prices of intermediate goods and of government-provided services (such as transport and housing) were largely unchanged, and it has therefore been in this area that most emphasis has been placed during the rectification program. These price adjustments have,served three useful purposes: 2/ The new retention ratios are somewhat complex. The basis, however, is that 20 percent of foreign exchange earnings have to be surrender,ad at the official rate, and the central government has a right to buy a further 30 percent at the FEAC rate, except in those sectors that main- tain higher ratios, such as electronics. - 103 - (a) They reduced the gap between the market price and planned price of the same product under the two-tier price system by raising the planned price. (b) The relative prices of raw materials and services, which had been kept at an artificially low level, were raised. (c) Within certain sectors, relative prices of related products were distorted by the plan and by dissimilar characteristics of the two- tier system each was subject to, and the price adjustments corrected irrationality in relative prices. An example of this is the rela- tive rise of railway freight rates compared to trucking in 1990. 4.11 While the price adjustments did not render the price system more market-oriented, and the frequent use of administrative adjustments might be seen to have delayed the more urgently needed market liberalization, they were compatible with the anti-inflationary aim of the austerity policy, by reducing fiscal pressures. At the same time, they represented improvements in the price system that reduce obstacles to a more genuine price reform at a later date, in particular by reducing differentials in the two-tier price structure. C. The Reform Plan 4.12 The reform plan which comes as an integral part of the 8th FYP and the Ten-Year Development Program focuses on six main areas, and these are described in paras. 4.18-4.57 below, First, however, it is important to attempt to understand the guiding principles of the reform strategy, in order to see how these specific reform proposals fit into that strategy. The Guiding Principle of the "Integration of Plan and Market" 4.13 The general objective of the reform plan is described as being to "initially establish a new system based on the socialist planned commodity economy and an economic operating mechanism which integrates the planned econ- omy with market regulation."13/ The question of the relative roles and mean- ing of the plan and the market in China has caused great debate among Chinese economic circles in the last two years, and great confusion among outside observers. The reform plan and related background documents attempt to clar- ify this concept, and bring some specificity to what has appeared to be a compromise generalization. 4.14 First, it is stressed that the differences between "plan" and "market" are not the same thing as the differences between capitalism and socialism. "Planning" in socialist countries has come to be associated with mandatory allocation of resources, while "market" is associated with private ownership of property and with Western-style democratic institutions. It is these stylizations that the Chinese model is attempting to reject and rede- fine. In the reformed Chinese economy, the role of planning is essentially a macroeconomic regulation function, and especially of ensuring "balance" and 3/ Decision of the 7th Plenum of the 13th CCP. - 104 - stability in economic development, while the role, of the market is in micro- economic resource allocation. 4.15 Therefore, planning will essentially deal with drawing up medium- and long-term plans for the economy at the aggregate level, and develop poli- cies and operate indirect economic instruments to ensure balance between the major sectors and ratios, notably overall supply and demand, the proportion of various sectors such as industry, agriculture and services, fiscal balance, the external accounts and the price level. However, in a few sectors, specifically "those products and construction projects vital to the national economy and people's livelihood," it is envisaged that the system of command planning and allocation of resources by administrative means should have a larger role to play. This said, it is the clear intention that even this level of mandatory planning should be conducted on a more reasonable basis than the past, with the emphasis on the placement of contract orders for com- modities rather than a command plan. Market regulation would therefore guide the majority of production activities at the microeconomic level. 4.16 What must be clearly understood, however, is that "socialist" refers to the public ownership of the means of production. While China is prepared to tolerate and experimenit with various forms of ownership, there is currently no intention to alter the situation in which the state or collectives dominate ownership, and there is therefore no discussion in any of the documents of the concept of privatization of SOEs. Rather, there are a set of proposals for how the ownership, regulatory and management functions can be separated more effectively, and how the state can exercise its ownership function in a more rational and "arm's length" way. This insistence on the role of public owner- ship continues to distinguish the Chinese approach to economic reform from the approach in Eastern and Central Europe more than anything else. 4.17 Therefore, this concept of the meaning of "planned commodity econ- omy" and of integrating planning and market must be seen as the core of the reform effort in China, and each of the specific reform measures discussed in the following paragraphs must be seen in the way that they contribute to the achievement of this target. For example, how well reforms in finance and taxation contribute to the aim of equipping the planning authorities with the necessary regulatory instruments, and how well the price ;:-form proposals would strengthen the ability of the market to allocate resources rationally. Enterprise Reform 4.18 The future of the large- and medium-sized state-owned enterprises continues to dominate the thinking of policymakers in China, and enterprise reform is at the very heart of the reform program. This is the area where all other reforms--price, fiscal, finance, investment, planning, labor and trade-- come together. The Eighth Plenary Session of the 13th CCP in December 1991 renewed the emphasis on further enterprise reform, and on the "revitalization" of the SOEs, not least through efforts to "push the enterprises to the mar- ket." The declared aim of the reform is to create a dynamic and efficient system of management and budget constraints for SOEs while preserving the nature of their public ownership. Five main reform approaches have been identified. - 105 (a) Contract Responsibility System. This system, which was implemented in 1988 for three years, is being renewed with minor changes, such as adjustments to the contracted base and remittance ratios and sub- stituting profit with a more comprehensive index as the main target of the contract. The second contract for the SOEs will last for another three to four years and it means the basic enterprise system would not be changed before the Ninth Plan period. By late 1991, over 90 percent of contracted enterprises had negotiated and signed these new contracts. (b) Separation of Taxation and Profits. This experiment is being extended to a larger number of SOEs and is being accelerated in 1992. With the separation, contracts between the enterprise and the government are made on an after-tax basis, so that taxes have to be paid first before any repayment of principle of loans, or profit remittance. To compensate for higher taxable income, enterprise profit taxes are lowered to 33 percent under the experiments, which also serves the purpose of lowering the gap in tax rate between SOEs and other types of nonstate-owned enterprises. This change is designed to be tax-neutral. Every province now has designated a city where this system is to be tried out during the 8th FYP period, and it is being applied at the national level on a sector-by-sector approach. (c) Joint-Stock Enterprises. Experiments with the conversion of SOEs into joint-stock enterprises are continuing, and are to be conducted on a larger, but still limited, scale. The forms of joint-stock enterprises include the issuing of shares to legal persons (enter- prises), employees and to the public, as well as a combination of these. A company law for limited companies will be introduced in 1992/93 by the government, which will give a uniform legal framework for the various forms of joint stock enterprises.4/ This would permit trading in shares held by enterprises. However, this is not expected to be a generalized form for enterprises, as it is consid- ered that "conditions are not ripe to translate this into reality," so 8th FYP activity in this regard will essentially be preparatory. (d) Enterprise Groups. The government has encouraged leasing and sales of small SOEs and mergers, contracting, and take-overs among other larger SOEs. These have been undertaken in earlier years as an alternative to bankruptcy as well as a genuine attempt to allow property transfer. In the process, some enterprise groups have been formed. However, they generally lack clarity over ownership rights and they are not governed by a set of well-defined regulations or legislation. The new initiaiive of the reform plan for the 1990s is to set up a different type of enterprise group. The government has begun to form 100 such groups at the national level from among large central and local SOEs. Each of them is being empowered to engage 4/ In fact, several regulations on the management of joint stock companies, and issuance of shares were approved by the State Council on May 15, 1992. - 106 - in industrial, trading and even foreign trade and finance activities that will not be restricted by present regulations, or by the admin- istrative jurisdiction of ministries and local governments. They are also being dissociated one by one from their present administering authorities in the government, so as to become fully independent and competitive. These enterprise groups will remain publicly owned, but with a joint-stock ownership system that allows shareholding by government organizations, enterprises outside and inside the group, employees and outside individuals. It has also been suggested that after the completion of the formation of the 100 national enterprise groups, local governments will be encouraged to form more localized enterprise groups in the same way. It is to be noted that each group has one "core" enterprise around which others will be linked either "closely" or I'loosely.15/ While, to date, each such enterprise is a large or medium SOE, the possibility that this would be a collective or a TVE has not been ruled out. (e) Restructuring and BankruptcY. The government recognizes the prob- lems that derive from the present structure of the SOEs, including product mix, technology, internal organization, plant size, etc. Many such enterprises inefficiently produce goods that no one wants to purchase. Renewed efforts are being made, especially via the Production Office, to reorient these enterprises towards new prod- ucts and markets, and by subjecting them to merger via enterprise groups. However, after proving unwilling to resort to bankruptcy in the rectification period, this is now recognized again as one instrument of enterprise reform, albeit only to be used as a last resort.6/ The Economic and Trade Office has a target of declaring 2,000 SOEs bankrupt in 1992, and it is understood that about half this number suspended operations in the first quarter of 1992. It is clear, therefore, that restructuring rather than bankruptcy will be the policy to be stressed. Ownership Reform 4.19 As noted earlier, ownership reform does not refer to privatization of public enterprises. Rather the authorities recognize three challenges in ownership reform: finding better ways to represent the state ownership func- tion and separate ownership from management; diversifying state ownership in order to dilute sectoral or provincial interests; and promoting alternative ownership forms. These have received different degrees of attention in the plan. 5/ This is similar to the Western concept of economies of scale and of scope. "Close" links are in the same sector, vertically or horizontally, while "loose" links provide economies in management and finance. 6/ @"For the sake of the workers and administrative staff, we should try to have unsuccessful enterprises shift to a different lin eof production or merge with others, rather than suspending operations or closing down." Report of the Work of Government delivered by Premier Li Peng to 5th Session of 7th NPC on March 20, 1992. - 107 - 4.20 The first challenge may be taken up by the institutional development of holding companies and investment companies. Six state investment corpora- tions were set up in 1988 under the SPC, but they are yet to assume the func- tions of investment agents on behalf of the central government. In the eyes of the government, the present time is still one ior the preparatory stage of checking the assets of SOEs, and for defining their property rights and finan- cial responsibilities. No attempt is planned to extend the number of invest- ment companies to beyond the existing six, but there is to be an attempt to convert them into holding companies whose role and functions are yet to be defined. 4.21 However, in a less planned manner, mainly because of the inadequate financing ability of the central government, a considerable number of the key investment projects approved under the Development Plan will take the form of joint-stock companies. Central and local governments, large SOEs and indivi- duals are eligible as shareholders of these companies. Although such a method does not fully separate investment functions from the government, it allows large SOEs to assume the role of investors and to cross sectoral and provin- cial boundaries. Participation by individuals would provide the basis for a later conversion of the companies into ones that would be listed in stock exchanges for their shares to be publicly transferrable. 4q22 The 100 national enterprise groups that can operate across sectoral and local boundaries are also another institutional development that serves to diversify state ownership. Given their right to invest in new projects and in other enterprises, the core enterprises of these groups may evolve into hold- ing companies representing diversified local, sectoral and individual inter- ests. 4.23 As for the development of alternative ownership forms, the Chinese government has already promulgated regulations governing collective and pri- vate enterprises. These nonstate-owned enterprises will be promoted further in the 1990s alongside with foreign-invested enterprises, but the reform plan is essentially silent with respect to changes in the policy framework for these enterprises. Price Reform and Market Development 4.24 The Chinese government has decided, on the basis of the failed com- prehensive price reforms of 1985 and 1988, not to attempt any further compre- hensive reform of a "shock therapy" style. Price reform will therefore pro- ceed in steps, with the government paying more attention to its possible impact on economic and social stability. Nevertheless, it will be a major focus of attention during the first half of the 8th FYP. In general, price reform is seen to provide a mixed or dual management system, in which a few strategic and important products and services are still to be priced by the government while the rest will be freed, subject only to market forces. The reform in the 1990s is to reduce further the scope of government pricing and to put into place the mixed system in the second half of the 1990s. It includes the following: (a) Adiustment of Prices of Important Raw Materials. This means the raising of the planned prices of these products, including coal and - 108 - oil, so as to narrow the gap between planned prices and market prices with the aim of eventually merging the two prices and abol- ishing the two-tier price system. Indeed, as noted earlier, this is the area that has seen particular progress in the last two years. Prices of some raw materials, e.g., oil, are to be adjusted to approach international prices. However, no schedule is set for the abolition of the two-tier system, nor for removing the partial plan- ning control over prices of these products. (b) Adjustment of Prices of Infrastructural Facilities and Urban Ser- vices. Partly this is in order to reduce or remove government sub- sidies, and partly it is hoped that the increased revenues from price adjustments would provide capital for investment in these sectors, as described further in Chapter V. (c) Adjustment of Agricultural Procurement Prices. This refers to price increases for those products still under government purchase arrangements, like foodgrains, edible oils, cotton, sugar, tobacco and silk cocoons. An average 18 percent increase in grain prices for 1992 was announced on April 1, 1992. For foodgrains and edible oils, there will also be a similar rise in their selling prices to urban residents under the government rationing system to "do away with the irrationality of selling prices lower than state purchasing prices." It is hoped that by mid-1990s they will approximate market prices, and there are signs that this target may be reached sooner. The prices of grain to consumers were raised 45 percent on April 1, making the total adjustment 144 percent in one year. This equalizes procurement and selling prices, although it does not cover the heavy distribution costs, although deeper experiments in moving to a mar- ket system are being launched in Guangdong and Hainan. (d) Besides the above three categories of products and services that will continue to be subject to government control, prices of the rest, including consumer durables that are still under some form of pricing regulation, are being gradually liberalized, starting with those that had been liberalized earlier, but were temporarily "deliberalized" in 1989. 4.25 Progress in price reform is also, by necessity, being accompanied by reforms of the domestic trading systemp particularly in the case of trade in capital and intermediate goods. The trading system in China includes two parts, the system of distribution that is being transformed gradually from administrative redistribution into allocation by markets, and the trading enterprises that have operated within the system. 4.26 Reform in the distribution system has proceeded quite rapidly. Consumer goods are mostly allocated through markets and even raw materials and intermediate goods that have long been under strict planning controls have over 50 percent of transactions being conducted in markets. The next reform is to set up specialized markets for trading in large volumes and in futures. These include the national trading centers in agricultural products in Zhengzhou, in nonferrous metals in Shanghai, and other more localized markets like those in Suzhou, Shenyang, and Shenzhen. More will be set up to substi- - 109 - tute the former planned distribution networks and the present ad hoc trading fairs, with properly managed permanent trading centers or specialized markets that handle futures. To avoid unnecessary fluctuations in these markets, the Ministry of Materials is beginning to experiment with active trading via gov- ernment-controlled buffer-stocks of industrial goods to balance market demand and supply. The recently set-up State Reserve of Food Grains has also given the government a means to stabilize prices at grain trading centers. 4.27 Most agricultural products (in number) have already been taken out of government's direct pricing and distribution controls. Even foodgrains and edible oils are traded in markets for production over and above the amount contracted for government procurement. However, four cash crops--cotton, sugar, tobacco and silk cocoons--are still under exclusive pricing and distri- bution control of the government. It is planned that the central government will first stabilize its procurement amount and allow lccal governments to use the surplus for intergovernmental barter trade. This is certainly far from being market exchange, but it is a significant breakthrough that might lead to further erosion of central government's monopoly of these cash crops, paving the way for some degree of allocation by market forces. 4.28 In the past, relatively little attention has been paid to the reform of the trading enterprises, but this is beginning to change. At present, the Chinese market has been demarcated administratively into three segments, those managed respectively by government's commerce, materials allocation and for- eign trade departments. Trading enterprises are also defined administratively as commercial enterprises, materials allocation enterprises and foreign trade enterprises and their operations are strictly restricted to only one of the three segments. The recent reforms that allow trading enterprises greater autonomy and more market sales have taken place mostly within each segment. 4.29 Since 1990, the Ministry of Materials has begun an --periment with comprehensive trading enterprise groups. The two enterprise groups chosen in Suzhou and Shenyang were originally materials allocation enterprises, but the experiment, which was approved by the central government, granted them addi- tional scope of operation, including trading in consumer goods, that had pre- viously been restricted to commercial enterprises, as well as finance and other services. They are also promised rights to engage in foreign trade and direct foreign investment. 4.30 These experimental enterprise groups are structured as joint-stock companies. For instance, the Suzhou one has more than one third of its shares subscribed by 58 national and local SOEs, including branches of state banks. As such, they are not directly controlled by any one government department. The aim of the experiment is to use the enterprise groups to break down the present market segmentation. The above experiment is also accompanied by the engagement of many materials allocation enterprises in border areas to begin actually participating in foreign trade, and the forming of joint ventures with foreign companies and foreign trade enterprises to overcome the restric- tion on foreign trade. 4.31 This experiment with comprehensive trading enterprise groups will become part of the central government's scheme of 100 enterprise groups. It will add a new dimension of reform of the trading system to the scheme. The - 110 - reform in this area is not well-planned and coordinated, but could neverthe- less begin a chain reaction to liberalize the highly segmented market, and be instrumental in breaking the monopolistic grip of the central ministries over the three segments of the market. Macroeconomic Management 4.32 A key target of the reform plan is to establish a macroeconomic regulation system "which combines direct and indirect regulation with the emphasis on the latter, and central and provincial regulation with the empha- sis on the former" (Chen Jinhua, 1991). The role of planning was discussed earlier (paras. 4.13-4.17), reflecting the declining role of mandatory plan- ning and growing role for guidance plans and policy planning. The following paragraphs discuss the other key reforms in the area of public finance, bank- ing and investment. 4.33 It should also be noted that a major s.trand of the reform program is zo increase the role of the legal system, and a wide range of economic laws and regulations are scheduled to be implemented to standardize and codify reform measures. These include laws on planning, budget, banking, investment, company law, pricing, markets, labor, wages, auditing, monopoly and illegal competition, social security and management of state assets. All these are to be formulated within the Eighth Plan period. (a) Public Finance 4.34 No major changes have been proposed to the enterprise contract responsibility system or the fiscal contract system, and therefore no major taxation reforms can be expected, although the tax system will continue to be developed. The only exception to this could be with respect to the large- and medium-sized SOEs, where it is intended, as noted, to speed up the separation of taxes and profits, lowering the tax rate to 33 percent. The value-added tax will be extended to industrial production and wholesale trading. This is intended to broaden the tax base and to distribute tax burdens more equitably. A special consumption tax will be applied to a selected number of commodities to enforce governments' industrial and consumption policies, and the coverage of the resources tax will be broadened with the aim of reducing waste in the use of scarce natural resources. 4.35 All these represent individual attempts to improve and reform the tax system. A more concerted effort is said to be going to be given to apply- ing a uniform tax rate to enterprises of different ownership forms that are at present under widely different rates of profit or income taxes. The same is said of the proposal to separate the collection and management of taxation. However, neither has been substantiated with concrete steps and explicit time- tables. Without a coordinated framework for reforming the taxation system, the introduction of new taxes or enlarging the scope of existing taxes look more like efforts primarily aimed at increasing revenues to meet fiscal needs of the government, and it is not clear how they can fit within the contract responsibility framework, until the separation of taxes and profits is put into effect. 4.36 The government will adopt several measures to strengthen its control over revenue collection. One is to remove part of the power of local govern- ments in cutting or exempting taxes. The other is to increase the central government's supervision over tax collection. Unfortunately, the latter falls short of the development of a national tax service by the central government. Nevertheless, they represent steps toward the establishment of a more stan- dard, less arbitrary tax system under central administration. Another reform measure in this area is the adoption of a double budgeting system at the cen- tral and provincial levels of government. The capital budget is separated from the current budget, and the government aims to attain a balance in cur- rent incomes and expenditures. This "double budgeting" system was introduced in the 1992 budget presentation as a first step, although this was essentially a presentational change. 4.37 The more significant public finance reform relates to the fiscal relationships between central and local governments. This is often regarded as one of the most difficult areas of reform, as fiscal relationships have political implications. Any change to the existing pattern will involve a redistribution of revenues between the center and localities that would change their respective capacity in investment and economic control. The present fiscal contract responsibility system is not a uniform system, as provinces are assigned different contract amounts or ratios of remittance or subsidies. Either the contracted amount or the ratio is a product of negotiations that is inevitably arbitrary in nature. 4.38 There have been proposals to replace the present fiscal contract responsibility system with less arbitrary and more predictable arrangements. However, this system is tied in with the enterprise contract responsibility system, as revenues from enterprises, either in the form of profit remittance or taxes, are used as the base for the calculation of revenue-sharing under the fiscal contract. In fact, in the discussion about the fate of the fiscal contract system in Fall 1990, provincial authorities used the signing of the second round of enterprise contracts as a reason against its abolition. Despite the obvious shortcomings of the fiscal contract and the central gover:,.-ent's determination to raise its share of fiscal revenues, opposition from local governments was successful in extending the term of the present fiscal contract system for one more year until the end of 1991, and it seems unlikely that the fiscal contract system would be completely abandoned during the 8th FYP period. The alternative for the reform is the experiment with a tax-sharing system, a method of "getting enterprises to divert taxes and profits into different channels," which involves identifying different taxes which will "belong" to the central and local governments, respectively, and those which are still to be shared, such as product taxes. It will be tried out in a number of provinces and municipalities, including notably Zheijiang, Xinjiang and Tianjin from 1992, and will be for national application in the second half of the 1990s.7/ 7/ In May 1992, the State Council approved "Measures to Experiment with the Tax Separation System." - 112 - (b) Banking Reform 4.39 Reform in this area lies in two areas: the strengthening of the macroeconomic regulation functions of the central bank and the setting up of a competitive and efficient commercial banking and insurance system. Regulation by the central bank through more indirect means such as the use of reserve money management, base discount rate and open-market operations will be increased, although direct controls are unlikely to be abandoned in the near term. This is to be strengthened through the passing of various laws and regulations, including a banking law. In addition, the branches of the PBC will have reduced rights to issue credit to the rest of the banking system. 4.40 Commercial banks are being asked to "explore" a separation of policy lending and commercial lending. However, there is no suggestion that this should go beyond accounting and application of different appraisal methodolo- gies. The main thrust of reform in the coming years will be the gradual set- ting up of proportional management of assets and liabilities and an assets risk management system. 4.41 The revival of the Bank of Communications (BOCOM) in 1987 and the creation of the CITIC Industrial Bank in 1988 introduced new competitors for the specialized banks. In 1991, BOCOM formed a subsidiary insurance company that became the second insurance company, and poses the first direct challenge to the monopoly of the People's Insurance Company. Other insurance companies of a specialized or local nature will also be set up to enhance the degree of competition and specialization in the insurance business, but "state organs are forbidden to engage in insurance." 4.42 While there appear to be few intended structural or institutional changes to the state banking system during the period of the Plans, a process of financial deepening is being pushed forward. This should be seen as part of the process of "pushing enterprises to the market" by increasing the direct reliance of enterprises on the capital market for financing, rather than rely- ing on banks for such financing. The interbank market and FEACs, which at present operate only at the provincial level, under the guidance of local PBC branches, will be linked up in national networks. More bonds and stocks will be issued, and there are to be experiments with investment funds. There will be an expansion of the number of housing finance facilities to accompany hous- ing reform, albeit primarily within existing institutions. Retirement insu- rance funds have also begun to be set up to supplement the social security reform. Stock exchanges may be established in cities other than Shanghai and Shenzhen and might be partially open to overseas investors, through the expanded issuance of the recently introduced "B" shares, the dividends and sale proceeds from which can be exchanged for foreign exchange in the FEACs.8/ The sales of treasury bonds will continue to be partly handled by commercial banks and even nonbanking institutions, as was initiated in 1991, and the range of maturities may be extended to include treasury bills of less 8/ There continues to be considerable variation in the degree of enthusiasm for development in shares and stock exchanges. While some regard it as the most important direction, others remain dubious and concerned about unleashing the forces of speculation. - 113 - than one year. Treasury bonds held by enterprises may follow the example of those held by individuals and be permitted to be traded on the secondary market. (c) Investment System 4.43 The investment system has already been radically reformed during the past decade, so the coming period will see smaller changes. However, three changes are envisaged. First, the continuing decline of budget finance is foreseen, although there will continue to be a large state investment program. Therefore, the state will continue to impose a high volume of "policy lending" on financial institutions and provincial governments. 4.44 Secondly, the government will reform its control over investment in two ways. The first was discussed in Chapter II, the introduction of the Investment Orientation Tax. Second, the present system of approval authority will be revised from its present one of limits by project value (or production capacity addition) to one whereby power and management are determined for different industries according to the industrial policies. Thus, low-priority projects of all sizes would have to be approved centrally, while high-priority projects of any size could be approved locally. 4.45 It was already noted that the six investment corporations may become holding companies. The plan also notes the intention to set up specialized long-term investment banks charged with fund-raising through bond issues for long-term investment in the State's priority projects. It is not clear how these two proposals would coexist. Finally, although not included in the reform plan, there cont.nues to be discussion about the conversion of the People's Construction Bank of China away from its present main role of chan- neling budget funds towards becoming a national development bank. Social Sector Reforms 4.46 To facilitate and in response to enterprise reform, which aims to create a system of independent, efficient and competitive enterprises, includ- ing SOEs, the traditional system of permanent state employment with a uniform national wage system has to be reformed. Enterprises, government departments and public organizations will each h&ve their own wage systems. The wage system of enterprises will gradually change from a uniform grading system to one based on job and skill requirements. It is intended that the present level of nonwage benefits will be converted into wages, but the change will be coordinated with the progress of reforms in price, housing and medical insur- ance. 4.47 Housing reform has been experimented with for some time and there is now a major initiative to extend it to the whole nation, and with a lot of progress in this particular reform area in recent months. However, as presently being implemented, it will not turn subsidized housing into fully- fledged commercial housing for fear of social instability. The core of the housing reform being implemented in the short term is to raise the present low rental to one that would cover the costs of maintenance, management, deprecia- tion, interest payments and property taxes. The whole process is being put in place in stages and full completion is scheduled to take ten years. At the - 114 - same time, publicly owned housing may be sold to state employees at a dis- count, but the offer of a discounted price will give the government or enter- prise a claim to part of the ownership. It is hoped that 20 percent of the present housing stock can be commercialized during the 8th FYP. To facilitate 'house purchases, various schemes of housing savings, bonds, mortgage loans, and insurance are being introduced and expanded. The government is also encouraging the establishment of housing funds and housing cooperatives for the development of private housing. In addition, there is a suggestion for experimentation with saving banks for housing. Shanghai has put forth a more complicated housing reform proposal.9/ However, it includes compulsory pur- chases of bonds and obligatory provident funds, both representing forms of forced savings. 4.48 The other area of reform that converts nonwage benefits into wages is the social security reform, and a set of national guidelines was published in October 1991. The proclaimed direction of the reform is to move away from the present enterprise base system to a national system funded by contribu- tions from the state, enterprises and individuals. As a first step, old-age pension insurance is being introduced in Jiangxi, Guangdong, Shanghai, Dalian and Qingdao. Unemployment insurance will also be experimented with in a larger number of cities, while comprehensive social security reform will be introduced first in Special Economic Zones like Hainan and Shenzhen. In the meantime, most cities have introduced some form of pension pooling for con- tract workers. It is anticipated that these social sector reforms will begin to be implemented relatively early in the plan period. External Sector Reform 4.49 A new round of foreign trade reform was completed in early 1991, involving the abolition of all export subsidies and most of the import subsi- dies, and equalization of retention ratios. The new foreign trade reform is based on contracts of 3-4 years' duration. During the terms of the contracts, it is difficult to expect any drastic alteration to be made to the contracts, and thus to the contractual relationship between foreign trade enterprises and the government. The contracts preserve the exclusive right of the enterprises to engage in foreign trade, but this also turns round to restrict their scope of business only to the foreign trade area. Within the confines of the con- tract system, but probably as a potential threat to the preservation of the system, is the encouragement given to the formation of foreign trade enter- prise groups that will be multiproduct, multifunction and internationalized in nature. These enterprise groups will also be the model organizational form to be adopted by joint ventures of foreign trade enterprises and industrial, agricultural and other enterprises, and industrial enterprises that are granted direct trade rights in the overseas market. Interestingly, the reform plan makes no mention of any kind of reforms in the import regime. 4.50 However, while the broad institutional arrangements seem relatively fixed in the short-term, there are signs of movement with respect to incen- tives. The Chinese government has launched a renewed effort to resume its 9, See IBRD Report No. 9222-CHA, "Urban Housing Reform: Issues and Imple- mentation Options" for a fuller discussion, eap. paras. 2.10-2.14. - 115 - seat in the GATT, negotiations for which began in mid-1986, but which have been stalled since June 1989. Recently the Minister for Foreign Economic Relations and Trade signalled lo/ the government's intention to reduce the scope of import licensing by two-thirds, to reduce tariffs further (tariffs on some 225 items were reduced in January 1991) and to make all import regula- tions transparent by publishing them. As noted, this area was not included in the plan, and clearly represents a major push to complete the GATT negotia- tions successfully. 4.51 In the area of exchange rate policy, 1991 has already seen the prac- tice of a managed floating rate system. The Reform Plan says that this should lead to "favorable conditions for the abolition of the dual exchange rate." In the meantime, as noted, it is hoped to remove barriers to the creation of a national market basis for the adjustment centers. Rural Reform 4.52 The Chinese government plans to further deepen rural reform in the coming decade. Along with "revitalization of SOEs," agricultural development was the second major focus of the 8th Plenary Session of the 13th CCP. There are two major areas of reform that may be considered as part of the reform deepening process. 4.53 The first is to establish a two-tier management system for agricul- tural production that would combine both centralization and decentralization. The individual household contract responsibility system will be retained as the decentralized part of the management system. There is no dispute about it and no attempt to alter it, with the exception of a highly restricted call for collective farming in areas that demand an appropriate level of scale produc- tion, and when the farmers themselves voluntarily opt for it. 4.54 However, in many parts of the country, a gradual change in the con- tract responsibility system has been underway in the last few years. In these localities, farmers are now allocated two or three types of plots. One is allocated equally for everyone in the village community, similar to the pri- vate plots they were given during the People's Commune period. This type of plot is fixed and will not be open to reallocation. It is subject only to the agricultural tax. The second type is the "responsibility" plots that may be reallocated. These are contracted to individuals or individual households or via contracts that are open for bidding. Those taking up the contracts are required to pay, in addition to agricultural tax, grain in kind to fulfill the government's procurement quotas, and contributions to collective expenses that are administered by rural cadres. When there is a third type of plot, they are open for bidding, and the income from these contracts constitutes a main source of revenue for collective expenses in villages. 4.55 This change in the contract responsibility system is a further exam- ple of the "bottom-up" approach to reform, in that it has been carried out mostly at local (or local cadres') initiative, and has become quite extensive in the countryside. By imposing obligatory contributions to collective 10/ People's Daily, January 16, 1992. - 116 - expenses by farmers taking up plots under contract (with the likely sanction of taking away the plots from farmers who do not pay the contributions), local cadres are given a mechanism to extract payment in kind or in cash from farm- ers for fulfilling their procurement assignment from the state, and for build- ing up once again collective organizations and/or a collective economy at the village level. 4.56 One of the reasons given for the two-tier rural management system is to provide farmers better services in the rural sector. It is now considered that this can be achieved without a recollectivization of land or a collective rural economy that is tied to collective control over land. Examples within the Agricultural Experiment Zones show that farmers can be organized together through cooperativea on a share-capital basis to develop specialized services in the countryside without the need for land collectivization, and the empha- sis in this regard has clearly shifted of late to the provision of collective services funded through village taxation schemes, such as the one described above, through cost recovery, or throug;w central funding. 4.57 The other area of reform in the rural sector is with respect to the distribution system for agricultural products. Wholesale markets--some including futures contracts--at national, regional and local levels have been set up recently and will be increased further. The government plans to set up reserves of cotton, edible oils, sugar, pork, wool and rubber in addition to that of foodgrain formed in 1990, to be used as the resource base for govern- ment's intervention in wholesale markets to maintain price stability. It also plans in the first few years of the 8th FYP to abolish procurement contracts for sugar and oil and remove restrictions on their sale. Towards the end of the 8th FYP, it hopes to decontrol prices of all agricultural products other than foodgrain and cotton. Sales in agricultural products will then be deter- mined by market forces. D. The Implied Shape of the Reformed Chinese Economv 4e58 The reform plan for the 1990s as described above is an ambitious program of reform across the entire spectrum of economic policies. As noted earlier, while the recently renewed emphasis on reform may alter the speed with which these changes are put in place, it as yet does not seem to question the basic design as set out in the Plan. However, beyond the general slogan of "planned socialist commodity economy," no clear description is made of the sort of economy that is being designed. Indeed, one of the characteristic features of government policy during the last three years has been the absence of any clear vision for the end-target of reform, and the ad hoc nature of decision-making. The preparation of the plan in a relatively comprehensive version permits us to interpret the implications of the plan, if fully imple- mented over the ten-year horizon. 4.59 The various reform plans in the six areas described have three com- mon themes: (a) To reduce the reliance on administrative means of economic manage- ment by the government and to increase the use of indirect instruments. - 117 - (b) To develop the nascent market into a unified and competitive one. (c) To reform the state-owned enterprises, including by the formation of enterprise groups that are relieved of administrative controls and constraints and enjoy economies of scale and scope. When these three themes are applied to each of the main reform areas, wB get the sort of picture described 11/ in Box 4.1. 4.60 The key question to be addressed is how far this plan would go towards creating a vital, efficient economy. It seems to us that the ultimate difference between the implied future Chinese economy and a "Western" market economy is revealed in three areas: ownership of large-industrial enter- prises; the role of the banking system; and the role of the external sector. Enterprises would continue to be state-owned, and subject to government influ- ence. In view of this, and of the government's view of the banks' role as supporters of the government's industrial policy, banks would be expected to maintain a high level of policy lending; and because of the nationalistic nature of Chinese socialism, it appears that policymakers find it hard to assign a role for the external sector as a source of competition, instead of merely a source of capital, technology and demand for exports. While some softening has been seen in import policy in recent months (para. 4.50), this appears to be motivated more by concerns governing international relations than a different attitude to the role of the external sector. 4.61 In short, the fundamental difference between the Chinese reform approach and other reforming socialist economies has little to do with speed or with the design of most institutions or the role of prices, but it comes down as noted (para. 4.15) to the fact that China has no intention at present of changing the socialist aspect of the economy in terms of public ownershbp, even though it would continue to be diluted as other forms of ownership grow, and would continue to be subject to improvements in the way such ownership was represented. Rather, the question should be whether, within the framework described, the reform plan goes as far as it can to incorporate efficiency- enhancing measures, and whether there are further steps that can be taken to reduce administrative management and interference. This is discussed in sec- tions F and G. First, however, the plan as it stands raises issues related to timing, sequencing and style, and with respect to its links to the development plan. E. Timing. Sequencing and Reform Style 4.62 From the above description and interpretation of the reform plan, it can be seen that in general its contents are encouraging and appropriate, and could be expected to continue to generate the sorts of efficiency gains enjoyed during the past decade (see Chapter II). If our interpretation is correct of the sort of economic system that would result from the full 11/ This is drawn up on the basis of the framework suggested in Gelb and Gray "The Transformation of Economies in Central and Eastern Europe": World Bank Policy and Research Series #17. D 118 - Box 4.1: THE FUTURE CHINESE POLICY FRAMEWORK 1. Macroeconomic Management * Planning is based on macroeconomic framework and on the formulation of sectoral priorities. o Tight fiscal budget with revenue on a broad base, but divided between central and local taxes, and central expenditure focused on key service and infrastructure. e Strong central bank uses indirect instruments of monetary control to prevent infla- tion. o Exchange rate policy and tight debt management to maintain external balance and creditworthiness. * Exports are unsubsidized, but imports continue to be subject to strict licenses and high tariffs. 2. Price and Market Reform * Most domestic prices determined by unified competitive markets with state fixing a few, such as electricity, coal and grain, but with full cost recovery. * Mandatory materials allocation disappears and is replaced by widespread system of wholesale markets backed up by government buffer stocks. * Housing, pension and medical benefits are converted into wages, and these services are provided by services, enterprises and/or the state outside the SOEs. * Wages more market determined, subject to aggregate growth limits. * The financial system deepens, with new institutions, but major banks remain state- owned, operating two "accounts", for policy and commercial lending. * Interest rates are key instruments of monetary management, but commercial rates cross-subsidize policy rates. 3. Enterprise Structure and Private Sector * Most major enterprises remain state-owned, but become joint-stock enterprises, with state shares vested in holding companies, and banks and individuals also as owners. Enterprise property rights defined by law. * Entry of collective and private enterprises to all sectors is free and encouraged. * Land use rights become classified as a "commodity" and can be transferred on basis of long lease. a Most housing becomes property of individuals or joint-stock housing corporations owned by enterprises, banks, government and individuals. o In place of bankruptcy, nonviable enterprises are absorbed by use of mergers and workers are retrained. * Investment needs of state enterprises come from profits and banks, but subject still to state direction. 4. Role of the State • Broad legal framework replaces the administrative framework to manage economic relations. * State manages the economy by indirect levers and guidance plans, plus the alloca- tion of policy lending to implement industrial policy. * State investment focuses on provision of economic and social infrastructure. * Current expenditure focuses on providing the social safety net, education and training and price and enterprise subsides disappear. implementation of the plan, it should certainly contain sufficient incentives to generate the pace of development being sought. 4.63 Yet there is a long way from the reform measures proposed to reach a full implementation in practice. At least in the Eighth Five-Year Plan period, partly because of the inflexibility of the contract responsibility system in major areas, fundamental changes in the areas of enterprise reform, public finance and taxation, may not take place unless present intentions are - 119 - changed.12/. The various reform measures to be implemented in the next five years, especially price adjustments and more immediate reforms like those in housing and social security and the more seemingly unrelated attempt to create independent enterprise-groups that break through existing institutional constraints, may be regarded as preparing for fundamental reforms to be launched in the second half of the 1990s. In terms of timing, the plan itself is relatively silent on specific steps. In some cases, this is because of the nature of the plan as a general document, but in other cases, such as tax- sharing for example, this reflects the absence of any detailed design. In the recent calls for accelerated reforms and greater opening, there has been little or no discussion of which reforms should go faster. 4.64 In general the cautious and gradualist approach to reform, in many cases to be preceded and guided by relevant legislation and regulations, is an improvement in reform style over the previous reform period. One of the par- ticular features of this reform style is that the central government will increasingly focus its reform efforts on the design and publication of central guidelines, leaving the "when, where and how" for local governments to decide upon within those guidelines. Nevertheless, without adequate attention to sequencing issues, serious issues can arise which can halt reform progress, just as in 1988 inadequate attention to monetary issues led to the slowdown of price reforms. In addition, the extensive use of contracts as a vehicle of reform itself can become an obstacle to later reforms. It breeds arbitrary negotiations between the government and economic agents on the basis of narrow vested interests, and the fixed tenure of the contracts could cause the gov- ernment to miss opportunities for speeding up the pace of reform in response to changes in the economic environment. 4.65 This would lead us to recommend four aspects of the reform plan which deserve early attention by the government: (a) The present macroeconomic conditions continue to offer opportunities for advancing reforms, and many reforms are ready and should be implemented in the very near future, especially in pricing, housing and social security (see Matrix 4.1). (b) The reform plan offers many principles for reform, but the govern- ment is much less clear on specific reform intentions, and should increase attention on the practical steps to the implementation of reforms--regulations, laws, training, new reporting forms, etc. (c) The biggest threat to economic reform progress in the recent past has been economic instability. The macroeconomic framework of the 8th FYP calls for more steady, inflation-free growth which would create a much more appropriate backdrop to reforms. A feature of the recent debate on accelerating reforms has also been a call for raising the rate of growth. While adequate growth is necessary to permit enterprise restructuring, rapid reform and growth of 10 per- 12/ As noted elsewhere in the report, the reform momentum has been building rapidly since Spring 1992, although this remains to be converted into explicit reform plans. - 120 - cent or above would be likely to generate inflation, and such high growth is not to be recommended. (d) If the experiments and trials of the 8th Plan are to lead to con- crete results, they must be carried out on a more methodical basis. Baseline data sets need to be established in reform trials and in control (nonreform) areas; reporting timetables need to be estab- lished and monitoring criteria established. Finally, each reform trial should have a specific period for the experimentation period, after which concerned officials should evaluate results to determine next steps and formulate designs for nationwide implementation. F. Links with the Development Plan 4.66 The development plan and the reform plan should be mutually and explicitly supportive. The reform plan should create the policy framework that will facilitate the achievement of the main targets and strategies of the plan, and the development plan should create the right macrbeconomic framework to support reform. In addition, of course, some reforms need investments of various kinds to ensure their success, notably those related to market devel- opment. 4.67, The development plan calls for a moderate pace of economic growth and lays great stress on balance. If more even-paced, balanced growth can be achieved, without the swings of the last decade, this will lay the perfect foundation for the further deepening of reforms. This said, achieving stable, balanced growth itself depends critically on reforms to strengthen the ability to manage the economy through indirect economic levers, and to improve the enterprise control system, notably via hardened budget constraints. Similarly, the development plan is supportive of reforms because of the empha- sis of the investment program on the building of economic infrastructure, especially in agriculture and transport, and this infrastructure is critical to the development of markets in general and to interprovincial trade in par- ticular. 4.68 There are four aspects in which the reform plan can be seen to be supportive of the aims and objectives of the development plan: (a) Price reforms will generate financial resources to assist invest- ments in energy, agriculture and in transport, and this is the strongest direct support to infrastructure reform and develop- ment.l3/ Indeed, it would appear to be a sine qua non for the successful achievement of the plan's targets. (b) Leveling the playins field in trade, foreign investment, and tax rates will assist in reducing income disparities and promoting regional development. Of course, the natural comparative advantage of coastal areas would suggest that these areas would in any event 13/ See, for example, the discussion of the Railway Investment Fund in paras. 5.32-5.33). - 121 do better than interior regions, but these coastal areas have also enjoyed advantages in incentives in the recent past. (c) Investment system reforms will contribute to the government's aim of raising incentives for high priority sectors (by reducing adminis- trative barriers) and will further discourage low priority sectors. (d) Public finance and banking reforms are designed to strengthen the ability of the government to manage the economy, and thus to improve the overall macroeconomic framework within which the plan will be carried out. 4.69 However, in general it is the financial difficulties facing the public sector that are framing reform design. In particular, there are four key areas of the development program where the reform plan has little to say, or offers no help: (a) Financing the Plan. The plan continues to suffer from the fact that the investment plan has a large unfinanced gap. This can be addressed either through public finance reform, to generate addi- tional fiscal revenues, or by investment system reform, to adjust investment responsibilities. Neither is proposed, so a large volume of "policy lending" remains. (b) Nonstate Enterprises and the Service Sector. Aside from general statements about encouraging diversified forms of ownership, the plan has little to say about TVEs, except some things that indicate that some incentives may be reduced. In particular, this affects the service sector, which is a key to the achievement of the plan targets. The development plan had little to say, and the reform plan is silent on this sector. (c) Regional Development. Although the reform plan has encouraging things to say about market development in general, it does not address the question of interprovincial trade, and of fiscal and regulatory reforms to facilitate this aspect of development policy. (d) Efficiency Enhancing Reforms. The reform plan is essentially prep- aratory so far as the 8th FYP is concerned, and, therefore, little can be expected in terms of efficiency gains from the reform side, and we already expressed skepticism about the efficiency impact, especially on SOEs, of recent development measures, 4.70 Overall, therefore, while the reform plan has elements of a support- ing framework for the aims and objectives of the plan, these are weak in key areas. In particular, what is distinctive about this plan is its emphasis on infrastructure and on the development of the services sector, and it is here that more attention of the reform designers is needed, especially with respect to investment system reform and nonstate enterprises. This goes to reinforce the discussion of Chapter III, that policy planning is an area where continued efforts and reorientation of the planning system will be necessary. - 122 G. Specific Reform Areas 4.71 This reform plan is the most detailed and comprehensive that has yet been drawn up. In Chapter II, we attempted to assess progress in the differ- ent reform areas, and from this to assess the reform priorities for the coming decade in six main areas of economic policy. In Matrix 4.1, we bring together the conclusions from Chapter II in these six areas, together with the Plan's statement of intent, and our consequent suggestiontls for continued attention to reform design or reform speed. To take contrast±i'g examples, the price reform proposals seem to be well-designed, but unnecessarily extended, while the financial reform proposals seem as yet inadequate in terms of scope. 4.72 Within this group, there are three that merit particular attention, in terms of the extent to which the present proposals do not seem as yet to match up to the assessment of Chapter II: enterprise reform, and especially questions related to ownership reform and enterprise groups; financial sector reform, and the related issue of investment system reform; and external sector reform, and the issue of "opening up to the outside world." These three areas are addressed in some depth in paras. 4.74-4.89. 4.73 We raise these observations so that they can be taken into consider- ation as the reform program evolves. For the reform plan should not be seen as an end in itself or as something set in stone, but rather as an evolving reform program that is adjusted in the light of experience and of economic conditions. Indeed, the strength of the past reform style in China has been its pragmatism, and the willingness of policymakers to act flexibly as oppor- tunities rise. (a) Enterprise Reform Ownership and Management 4.74 It has been repeated many times that enterprise reform and the hard- ening of enterprise budget constraints lie at the very heart of China's reform program, and that it will be the success or failure of efforts in this area that will ultimately determine whether China will succeed in building its new economic system with a high degree of economic efficiency. But given that this is regarded as the most important area of reform, the government has surprisingly little to say about it, and plan statements display a clear ambivalence in this area. For example, the government has emphasized the role of the market in regulating the SOEs in the future, and yet the recent deci- sions include measures such as higher budgetary allocations for working capi- tal, more rapid depreciation rates, and exemption on taxes, all of which reduce the strength of market forces and make the ties between government and these enterprises even closer. Moreover, the continued reluctance to rely on bankruptcy 141 reveals the dilemma of the absence of negative incentives within the socialist framework of public ownership and the public duty to provide employment. 14/ See footnote "5." - 123 - 4.75 While the reform plan has much to say about the framework within which enterprises will operate--especially pricing, the provision of social services, investment financing and industrial policies--it is notably reticent on the question of ownership reform. While it makes the welcome reiteration that nonstate forms of ownership are welcome, it has much less to say on the form in which the state will continue to exercise its ownership function. The present system of administrative representation continues to be the key obstacle for the achievement of improved efficiency in enterprises, and to the creation of factory directors who truly take responsibility for profits and losses. The key issues are raised in a general way in the reform plan, such as via the conversion of enterprises into joint-stock companies, the formation of holding companies and, perhaps more Important, the separation of profits and taxes so that the ownership function can begin to be translated into financial return targets. What is called for is an aggressive program of trial reforms within the next few years to find ways in which the public own- ership function can be exercised in a more economic, less administrative way. 4.76 Such a program would seem to call for coordinated actions and reform experiments in a number of sectors. It is to be noted that some local govern- ments--notably those in Shanghai, Hainan, Shenzhen and Shenyang--are already beginning to address these issues and to institute experiments, but this is an area where a national framework could be very helpful, but where, as yet, it is lacking. The key areas of focus would seem to us to include: (a) The development of laws and regulations, notably a company law, not least to define clearly the property rights of the government, enterprise managers and shareholders. (b) The development of a set of regulations and systems, not least being clear guidelines for accounting standards and auditing requirements, especially with respect to enterprises which issue shares to the public. (c) The launching of experiments in the creation of new institutions to represent the public ownership function. This would include the use of holding companies which could take over the functions of repre- senting the government as owner (and, in particular, take over from the industrial ministries and bureaus). (d) The conversion of several maior state-owned enterprises into joint- stock companies, with the ownership of such enterprises diversified between a government holding company, workers and provincial govern- ments. (e) The launching of institutional development programs in two main areas: in the central government, to develop skills to regulate markets, especially with respect to antimonopoly; and in local gov- ernment, to convert industrial bureaus from being administrative regulators, to performing consulting functions, such as market information, technology development and restructuring advice. Clearly, sucih experiments would be most appropriate in those areas where holding companies are to be established. - 124 - 4.77 Of course, all this presupposes action in other areas, such as hous- ing and social security reforms. But even so, the actions that are needed to prepare the way for ownership reform are so extensive that postponing even these preparations pushes implementation very far into the future. The recent experience of Central and Eastern Europe suggests that even with a strong will, the technical difficulties (especially of valuation in a half-reformed system) are enormous and cannot be left to the end of the reform process. This is an area where well-designed and controlled experiments deserve the earliest attention, especially in those locations, such as Shanghai, where financial innovation is also proceeding. 4.78 There is no doubt that there are large incremental efficiency gains to be achieved in China's state-owned enterprises, or that there is scope for such gains within the framework of public ownership through better means of representing such ownership. Nevertheless, international experience casts doubts on the ability of the SOEs to attain the same level of efficiency as private enterprises, so long as they remain dominant. That is to say, the systems to achieve this have yet to be devised and this remains the fundamen- tal reform design challenge in China. What is being suggested here is that the key to moving towards such an end lies in institutional reforms to sepa- rate regulation, ownership and management, while at the same time removing restrictions to the role of the nonstate sector as the essential source of competition to the SOEs. Enterprise Groups 4.79 As noted earlier, an essential defect in the enterprise control mechanism in China is that it has developed several positive inducements to reward good performance, and notably the contract responsibility system, but it has found it much more difficult to devise clear negative incentives to harden the budget constraints of poorly performing enterprises. In some cases, such as enterprises whose prices are held below market levels, actions on these other fronts will first be required. But for others, the problem ultimately remains the softness of budget constraints given the unacceptabil- ity of bankruptcy. The Chinese solution to this is the use of mergers, for it may be that the threat of takeover, and of loss of management status can be, within a socialist framework, at least as powerful as the threat of bank- ruptcy. Given, in addition, the need to improve economies of scale and scope, and to break down administrative and provincial barriers, the Chinese have developed a key role in enterprise reform for enterprise groups. 4.80 The importance to be attached to the enterprise groups is that they will be freed from most of the administrative restrictions and controls imposed by the planning system on SOEs, and this may make them a viable chal- lenger to the contract responsibility system, which defends the status quo. Unlike previous experiments in enterprise reform that often started with small enterprises, the 100 national enterprise groups will be chosen from among the biggest and most efficient SOEs in the nation. The greater autonomy and busi- ness diversification that they will enjoy would allow them to use their econo- mies of scale and scope for rapid expansion, taking over or coopting other enterprises into the group by legitimate means such as mergers, takeovers, leasing, contracting and even purchase. Their respective share in the national economy is already quite sizable, and there is a high probability - 125 that it would be increased further. Their mere size and scale would enable them easy entry into most sectors and regional markets in China. The experi- ment, if followed by the formation of similar enterprise groups at the local level, could bring a dramatic change to the present enterprise system, cur- rently preserved by the contract responsibility system, and could create a need for speeding up other institutional reforms. 4.81 However, the fact that most of the enterprise groups are to be formed from existing large state-owned enterprises, and will be given special policy privileges, will further enhance their monopolistic positions vis-&-vis other enterprises. International experience has shown that, in the absence of competition, monopolistic enterprise groups may not be under pressure to improve their efficiency and rationalize their investments, and their special relationship with the government can facilitate the persistence of soft-budget constraints in them. It will therefore be critical to ensure that there is no exclusivity between such groups, and rather that competition between them should be encouraged. In particular, nonstate enterprises should also be permitted to compete with such groups within their market niches, and nonstate enterprises should be permitted to become leading enterprises of such groups. More generally, successful nonstate enterprises should be permitted and encouraged to take over inefficient or poorly run state-owned enterprises. 4.82 Finally, those groups that are formed as comprehensive trading enterprises will be dissociated from any direct government administration. The state will only exercise its right of ownership through the authority of a board of directors and its control over the appointment of the senior manage- rial staff of the enterprise groups. This leads to the important issue of corporate governance. As individual shareholders will be in the minority and institutional shareholders similar to pension funds in the West are yet to be born, the main burden of supervision lies with the government, which is also the largest shareholder. In other words, the comprehensive tr-ding enterprise groups and other independent enterprise groups will not eliminate the problems of government-SOE relationships, but transform it into a more delicate issue of corporate governance and the new role of government as majority share- holder, which demands a more comprehensive reform in the area of public owner- ship, as previously discussed. (b) Financial Sector Reform 4.83 As discussed in Chapter II (paras. 2.76-2.77), financial sector reforms, and especially those related to the banking system, appear to have become "stuck." Partly, no doubt, this is due to nonmovement on the question of SOE reform, for so long as SOEs are required to continue to operate with inflated workforces, but with inadequate budget funding, and so long as people continue to save at such high levels, the banks are bound to be compelled to lend to the SOEs, even to cover losses. Thus, the key issue facing the bank- ing system is so-called "moral hazard": the banks cannot be expected to be responsible for that part of their lending which is dictated by government, although financed with individuals' and enterprises' deposits. At the same time, it would not be realistic to say that all such lending should come directly under the budget. The difficulty is to find nonbudgetary ways of financing deserved investments without prejudicing the function of banks as banks. As noted, the reform plan has little to say about this directly, and - 126 - it only discusses experiments in separating "policy lending" from commercial lending in terms of accounts. This may require different approaches, depend- ing on whether we are referring to the financing of production enterprises, or projects, such as roads and airports, of high economic but not (necessarily) viable financial merit. 4.84 One approach to the latter issue is raised briefly in the reform plan, and this deserves renewed attention, and it could address two issues in one. First, the plan mentions the possibility of creating specialized invest- ment banks that would issue bonds to finance key investment project. At the same time, mention is made in another part of the plan of the possibility of converting the State Investment Corporations (SICs) into holding companies. What should be considered urgently is to combine these two approaches: The SICs could be converted into specialized investment banks, issuing bonds gua- ranteed by the government to finance the priority projects that are at present forced upon the commercial banking system. This would create a real rationale for the SICs--which is lacking at present--and would relieve much of the pres- sure for policy lending from the banking system. 4.85 The question of financing for the SOEs raise the question of capital market development, for the problem in general requires that the market, and not banks of the type China has at present, should be the source of funding for these enterprises. Moreover, for the stability of savings, it seems appropriate to diversify the range of instruments available in financial mar- kets, and not least via those instruments that are more closely connected to physical assets. This, then, is a powerful argument for two types of institu- tional development within capital markets. (a) The use of bonds and securities issued by enterprises, but subject to some form of ratings agency. (b) The continued development of well-regulated institutions such as trust and investment corporations specializing in enterprise lend- ing. However, one word of caution in terms of reform sequencing: it seems most unlikely in the short term that stock exchanges and stock markets could con- tribute significantly to this issue of efficient mobilization and allocation of financial savings, if the experience of other countries is a guide. This would suggest that the relative emphasis being placed on this aspect of the capital market compared with these other issues is misplaced. 4.86 Finally, the government has one key role it could play. The finan- cial sector has an inadequate range of financial instruments avrailable at present, not least with respect to facilitating indirect management by the People's Bank. Simultaneously, the government is compelling the banking sys- tem to cover the operating losses of enterprises. It would be a better result for the financial system as a whole--and for the transparency of government decision-making--if the government were to diversify its range of domestic debt instruments, especially via short-term treasury bills, and finance these losses via the budget, rather than through compulsory bank loans. - 127 - (c) External Sector Reform 4.87 Reforms in the external sector have been deep and wide-ranging. Indeed, it can be cogently argued that it has been China's approach to the role of the external sector in reform that has distinguished its economic performance from that of other socialist countries, and that the external sector has served as the catalyst to successful gradual reform. With each step in reform of the external sector, including 1989's reform of the joint venture law and the new 1991 trade contracts, the external regime has become more rational and appropriate. 4.88 But one area remains to be addressed: the role of the external sector as a source of competition. On the contrary, foreign investment policy continues to stress that outside involvement is not welcome in those areas where sufficient capacity--regardless of quality--is deemed to exist. More- over, nothing is said about the further liberalization of the import regime, and the replacement of the present strong quantitative restrictions by tar- iffs. The external sector can not only serve to provide a source of economic growth and of foreign exchange to purchase improved technology, but also as a source of competitive pressure to generate efficiency in those enterprises producing for the domestic markets. This pressure can be provided equally by imports or by foreign investment, but in the case of the latter it can only serve its full effect if joint ventures are also subject to competitive pres- sure from imports. 4.89 This is most obvious in the area of import competition, which should be seen as a integral component of overall competition policy. As noted ear- lier (para. 4.50), there are signs of movement in this area. And yet, it seems clear that movements in policy towards the role of imports are not moti- vated by real belief that imports have a greater role to play in generating efficiency, but rather by political motives to resume China's seat in the GATT and avoid measures being imposed on China's exports. While the end-result may appear to be the same, it has different implications for the considerations that will be applied with respect to management of the trade system. This is an area where further work and effort is needed to convince policymakers of the benefits in terms of economic efficiency gains of actions in this area. H. Conclusions 4.90 There has been a strong, positive impact of reform in the Chinese economy in the last decade, and, as was argued in Chapter II, such reform policies have translated into efficiency gains. It is also clear that China' s leaders intend to maintain the momentum of reform in the 1990s. Moreover, even as the economy now stands in its half-reformed state, it seems likely that China could continue to enjoy satisfactory rates of growth for quite some time, given the present savings propensity in China, and the likelihood that this will continue. 4.91 It seems to us less likely, however, that the strong cyclical pat- tern of the 1980s can be avoided, and that major efficiency gains can be achieved without further reforms. Indeed, it would be our contention that these two goals cannot be achieved without further, deeper reforms. The issue then, is not whether China can achieve its broad goal of redoubling 1990s GNP Matrix 4.1: REFORM PRIORITIES AND THE REFORM PLAN Reform priority Reform plan intention Bank suggestions on timing or design Enterprise Reform 1. Property rights remain vague and no 1. Extension and "perfection" of the 1. Separation of taxes and profits is a institutional mechanism for separa- contract responsibility system. key step in enterprise reform, that tion of ownership and management. 2. Separation of taxes and profits, with should be implemented as soon as pos- 2. The regulatory and legal framework contracts on an after-tax basis, to sible for all SOEs. remains undeveloped. be tested in 8th FYP and implemented 2. Ownership reform not addressed aggres- 3. SOEs not subject to adequate compe- in 9th. sively enough. Launch reform experi- tition from nonstate enterrises or 3. Experiments with conversion of SOEs ments for conversion of large SOEs from imports and FDI, and bankruptcy to joint-stock companies. into joint-stock companies and forma- not used. 4. Formation of 100 enterprise groups tion of holding companies to represent crossing administrative and provin- owner. cial boundaries. 3. No program to reform existing owner- 5. Restructuring of enterprises with ship institutions. Launch experimen- ultimate threat of bankruptcy. tal program to reorient industrial 6. Formation of "holding companies" to bureaus to consultancy functions. be owner of state assets. 4. Accelerate regulatory framework, espe- cially on accounting standards and antimonopoly regulation. 5. Proceed with enterprise group program, but permitting nonstate enterprises to participate. 6. Improve legal framework protecting rights of nonstate enterprises. Financial Sector °° 1. Need for alternative methods of 1. Call for "exploration" of separation 1. Need alternative approaches to problem financing policy objectives, espe- of policy and commercial lending in of moral hazard. Finance government cially via capital market. banks. priority projects via bond issues, and 2. Strengthening of central bank in reg- 2. Strengthening of central bank by pas- push SOEs to direct access to capital ulatory capability and strength and sing regulations and training, to market. in policy formulation. emphasize use of indirect instru- 2. Technical strengthening of PBC urgent 3. Increased use of indirect instruments me-ats. and not to be delayed. of management. 3. Expansion of NBFIs, especially in 3. In capital market, extension of bond 4. Issue of deterioration of banks' insurance , and extension of inter- markets has highest priority, and portfolios. bank market and FEACs to national stock exchange, while useful should basis. not be regarded as a panacea. 4. Increased role for stock exchanges, 4. Banks should increase loss provision- operating of national level. ing and write-offs. Public Finance 1. Need to replace contracts with tax 1. Government aims to deepen experiments 1. As noted, accelerate the separation of systems, both at the enterprise level with separation of taxes and profits, taxes and profits, especially for and provincial level. especially for large and medium SOEs, SOEs. 2. Need to diversify the tax base beyond reducing tax rates to 33 percent. 2. Tax-sharing experiments need to be enterprises, especially via income 2. Experiments with tax-sharing arrange- pursued aggressively so that a new taxes and final sales point taxes. ments between central and local gov- system can be ready by 1994. 3. Indirect tax system lacks transpar- ernments. 3. Increased attention is merited for new ency, not least due to exemptions, 3. Strengthened tax administrations and tax system, especially income taxes and needs to be replaced with a VAT. in particular central control over and VAT. exemptions. 4. Introduction of "double-budgeting" systems. Matrix 4.1 (cout'd) Reform priority Reform plan intention Bank suggestions on timing or design External Sector 1. Need to reform the import regime, 1. Reform plan silent on import regime, l. Timing seems appropriate for rapid essentially by moving from direct but recent NOFERT statements indicate movement on import liberalization, control to indirect control via tar- intention to reduce licensing and which could assist fiscal problems, iffs. publish regulations. although analysis needed urgently. 2. Continued institutional reform of 2. Encouragement to formation of foreign 2. Further opening of export markets to foreign trade corporations, opening trade enterprise groups, and unifica- producers seems warranted. up trade to production enterprises. tion of exchange rate. 3. Need for change in attitude and reg- 3. Open domestic market further to joint 3. Development of Pu.dong area, and ex- ulations towards access to domestic ventures and SEZ enterprises. tension of Shenzhen SEZ. market for foreign enterprises. Prices and Markets 1. Adjustment to market levels of re- 1. Program to adjust these major prices 1. Price reform program very much in line maining distorted prices--energy, "as circumstances permit" to elimi- with assessed priorities, but current transport, raw materials, grain--fol- nate two-tier differentials, and market conditions suggest some accel- lowed by removal of most price con- price controls to be retained only on eration possible. trols. a few key commodities such as power. 2. New market channels are well-designed 2. Conversion of price subsidies into 2. Rapid development of wholesale mar- and need investment backing. wages and consequent reduction of kets and new system of distribution 3. If price reform proceeds, so can dis- state distribution. of materials that bypass ministerial mantling of distribution channels, constraints, including for grain and cotton, but 3. Rapid program of conversion of price government can retain buffer stock. to wage subsidies and no agricultural distribution by state except grain and cotton by 9th Plan. Role of the State 1. Continued shift away from direct to 1. Extension of FYP to cover policies 1. Direction and policy broadly appro- indirect control of economy, and of and replacement of direct controls priate. Main issue is institutional the role of planning from investment with indirect instruments, reduction mechanism for financing investment and enterprise planning to policy of mandatory plan, and replacement of (see finance section). planring. investment controls with IOT and 2. Housing reform should be accelerated 2. Conversion of nonwage into wage bene- industrial policies. with more emphasis on rent reform and fits, and establishment of systems 2. Housing reform to be accelerated and ou creation of joint-stock housing outside enterprises, especially in completed over 10 years, via rent corporations to manage existing stock housing, social security and health adjustments and new financing mecha- and less emphasio on commercialization care. nisms to encourage home ownership. and compulsory provident funds. 3. Removal of antiemployment policies, 3. Creation of pension pooling arrange- 3. Social security needs clear national and gradual relaxation of labor al- ments and experiments with health framework and national administration location system. insurance. if it is to achieve pension transfer- 4. Extension of labor contract system. ability. 4. Labor mobility issues are not ad- dressed yet and will be an increas- ingly important issue as floating population inevitably increases. - 130 - by the year 2000, but in what way this will be achieved. It certainly can be achieved by high rates of savings and investment being maintained while the economy fluctuates dramatically around its trend growth; or it can be achieved by relatively stable growth, with a gradual improvement in economic effi- ciency, which permits greater gains in average welfare at the same level of income. 4.92 The areas of reform where the program is weakest are in just those two areas which would contribute more to these goals: the absence of strong fiscal and banking reforms to strengthen macroeconomic management, and the absence of a clear, aggressive strategy to address the issue of SOEs' effi- ciency. We have indicated in this Chapter the sort of reforms that could be advanced in these areas, and we attempt to illustrate in Chapter V the sort of impact that, in our judgment, this could have on the economy. - 131 - V. THE PLAN FOR THE TRANSPORT SECTOR 5.1 This Chapter reviews the Eighth Five-Year Plan for the transport sector, and aims to analyze how this sector is expected to develop and reform during the 8th FYP, transport being identified as a major bottleneck to eco- nomic development, and to illustrate how Plan objectives and instruments are applied in the sector. The Chapter focuses on Plan directions and priorities (Section B), financing objectives and approaches (Section C), and sectoral and institutional reforms (Section D). The chapter also includes a brief back- ground section, focusing on the Seventh Plan, and a closing section with main conclusions. 5.2 As noted in Chapters III and IV, the 8th FYP intends to continue the trend of investments and reforms set in motion over the last two five-year plans. While the process will continue to be gradual and no radical depar- tures from recent past directions are envisaged, it will have significant implications for the transport sector, as new investments in transport trans- form the quality of the system, economic development changes the structure of tran4port demand, and the 8th FYP places more emphasis on competition, decen- tralization, interprovincial trade and small enterprises' role in the provi- sion of services. 5.3 Transport has long been one of the main bottlenecks in the economy, serving not only as a constraint to the achievable rate of growth, but also as an impediment to efficiency gains through greater integration of the national market. As such, the plan for the transport sector should be seen very much in the light of the reform and development objectives outlined in the previous two chapters, and as its analysis can provide an example of the sort of plan- ning that is to be encouraged in China. A. Background Achievements of the 7th FYP 5.4 The 7th FYP (1986-90) targeted and achieved a substantial improve- ment and expansion of China's transport system, but such developments were insufficient to make up for several decades of underinvestment in the sector. Selected sectoral reforms were initiated and helped to improve the management of the transport system and to make better utilization of the system's facili- ties. 5.5 Thanks to the new investments, and to increased efficiency in the use of existing capacity, total freight turnover reached 1,825 billion ton-km, or an increase of 43 percent during the Plan period, while total passenger turnover reached 561 billion pass-km, representing an increase of 27 percent during the period (see Statistical Appendix Tables 15.2 and 15.3). Traffic growth would have been even stronger if transport demand had been fully met; this was not possible due to transport bottlenecks, severe in some routes and for some commodities such as coal. 5.6 Total investment in transport during the 7th FYP amounted to Y 85.7 billion (in constant 1987 prices). While this represented a - 132 - substantial 73 percent increase over the previous plan, such level of invest- ments was insufficient to catch up with a longstanding, accumulated deficit in transport sector investment (see Table 15.4). In relative terms, only in ports did new capacity come close to meeting existing demand and relieving users from excessive wait. 5.7 Implementation of reforms during the Plan was either more limited, or measures made effective later, than originally foreseen, especially as regards pricing. Despite this, some difficult and noteworthy structural changes were initiated, particularly in breaking up the integrated monopoly of air transport services and facilities (Box 5.1), and in launching experiments with decentralization and financial autonomy in ports. Institutional and decentralization reforms also spread to other transport modes, and allowed more private individuals and collective enterprises to provide passenger and freight transport services on roads and inland waterways. Box 5.1: ORGANIZATIONAL REFORMS IN AIR TRANSPORT AND PORTS Air Transport Despite rather rapid growth of air transportation in China, averaging 20 percent each year during the 1980s, China's civil aviation system has not been able to keep up with the even faster growing demands of its modernizing econ- omay Th government regarded ite centralized systm, run by the Civil Aviation Adm tration of Chin ("CAAC"), a a key barrier to development of air services In 1984, it decided to break up CAAC. Up to that point, CAAC acted as an integrated moaopoly, owning and operating all aircraft, airports, routes, air catering services, pilot, maintenance and service training facilities. CMC also selected air routes and negotiated arrangements with outside entities, such as travel agencies, foreign airlines, and freight companies. The deentraliza- tion of CAAC was intended to separate the operational from the regulatory functions of a civil aviation system, ultimately allowing CMC to evolve into a purely regulatory body, similar to the US Federal Aviation Administration ("FAM"). The first step in the decentralization proceas was to break off CAAC's regional divisions into separate airlines and do away with provincial and local air administrations all together. Eight airlines came iuto existence from this stage: Air China (Beijing), China Northwest Airlines (Xian), Chins Southwest Airlines (Chengdu), China Eastern Airlines (Shanghai), China North Airlines (Shenyang), China Southern Airlines (Guangzhou), China United Airlines, and China Xinjiang Airlines (Urumqi). Almost immediately following the initial breakup, nue, more localized airlins also began operations, independent from CAAC, such as Shanghai Airlines. As autonomous, profit-making entities, the seven CAAC-originated airlines are responsible for their financial performance and perform a combination of services: passenger and cargo transport, air catering services, hotels and guesthouses, restaurants, advertising, and ground maintenance functions. The airlines must also finance any aircraft pur- chases they wish to make, although 0GC atill tightly controls aircraft purchases for the entire system. Very little direct competition has affected thee airlins as yet, but that time is soon approaching, particularly as several differ- ent airline vie for access to major Chinese cities as vell as Hong Kong. Airports have also been detached from CMA. By letting localities decide on and build their own airports, China hopes to speed up their expansion because, at present, China still lags far behind. With almost four times the population of the US, China only has one-fourth the number of airports and many of those airports cannot handle wide-bodied planes. The need for rapid expansion of China's civil aviation system is obvious; the old system could not handle the necessary pace of change. The initial results indicate an increas in competition, as two or three regional airlines offer services on many trunk routes. While tariff rates are fixed, consumers are starting to show their preferences for those airlines which have better quality service. On several routes, competition will soon intensify as sevsral different airlines vie for access to other major Chinese cities as well as to Hong tong and other international destinations. Over time, domestic and international tariffs should be deregulated. The safety, operational and financial peoiormance of the regional CAAC airlines merits scrutiny over the coming years, especially given the tendency of airlines in other parts of the world to consolidate and creat larger companies. This consolidation process, now underway in the US, for instance, is offsetting the initial surge of new airlines which entered the market after deregulation passed in 1978, although there is still more competition, at least in the trunk routes, and lower prices than before deregulation. The complexity of the technology and huge sums of money needed to purchase equipment in the air transport industry requires government to stay involved to ensure competition and prevent uneconomic fragmentation of the industry. Improvement of basic iufrastructurs, such as air traffic control, navigation and approach control systems, i still urgently needed throughout China and deserves full government attention. Designing CMC's role in a modernized Chins air transport system must continue to be considered carefully. Ports The first and most substantive port reform was the decentralization and increased autonomy for Tianjin port, in 1984. Under thia process, Tianjin Port Authority (TPA) was put under the primary responsibility of Tianjiu Municipality, rather than the linietry of Communications. TPA was authorized to: (a) retaiu the income tax and the profit remittance due from its subordinate enterprises, and to utilize the funds for capital expenditures instead of paying them over to the State; (b) raise the ceiling to Y 10 million per investment project without requiring approval from the central govern- ment; and (c) retain the foreign exchange generated by its subordinated enterpriss for application to the purchase of imported plant and equipment. In addition, the TPA was empowered to set up and indapendent import copany tO purchas all major equipment needed, thus enabling the port to bypass the state foreign-trade companis. TPA bas used its increased managerial and financial autonomy to make a speedy expansion of the port to reduce ship delays, step up penalties for cargo lying in the port area, and institute bonuses for personnel handling unpopular cargoes such as cement. Decentralization of other ports followed later, but the conditions wore more reatricted, especially as regards financial autonomy. These ports are: Shanghai, Dalian, Yantai, Qingdao, Lienyngang, Nantong, Huangpu and Nanjing. The contract agreements between the central governments and the ports expired in 1990. Th agreements were then renewed on the same terms, for two more years, despite requests by the ports to have their terms equalized with Tianjin. - 133 - 5.8 Although implemented later than originally envisaged, hefty tariff increases in railways, 113 percent for passengers (1989) and 31 percent for freight (1991),1 coupled with earlier adjustments in 1985, removed some of the major tariff distortions, and paved the way for future selective restruc- turing of the rail and other transport tariffs. The Transport Network and Its Utilization 5.9 China's transport network is small by international standards. Chart 5.1 compares the density of China's land transport networks both in relation to population and to area, with those of other relevant countries.2 To account for China's large desert areas, only arable areas are considered. Of the 12 countries in the graph (including China and five other developing countries), China has the smallest network when both population and areas are considered together. A comparison limited to railways shows that only the former Soviet Union had a smaller system relative to area, but relative to population it was much bigger than China's. The smallness of the network is the result of historic underinvestment. This situation worsened in the last ten years. During the period 1980-90, investments in transport infrastructure represented only about 1.4 percent of GNP (Table 15.4) compared to about 2-3 percent for countries such as Korea, India and Brazil. 5.10 The high freight intensity--ton-km per unit of GNP--that character- izes China, as well as most other centrally planned economies, continued dur- ing the period of the 7th FYP. In 1990, China moved 5.1 ton-km per dollar of GNP, which placed it highest in the world and three times as much as India or Brazil (see Table 15.1).3 China could carry this traffic thanks mainly to the high utilization of its railway track capacity, at a rate about 3 times higher than US railroads (Table 15.6). While recent and future transport price adjustments will constrain demand, distortions in industrial location and other structural factors determining the high freight intensity will only change slowly. Thus, it seems unlikely that substantial reductions in freight intensity can be achieved within the next five to ten years. 5.11 Conversely, the mobility of people in China is among the lowest in the world. In 1990, average annual intercity travel in China was about 550 km per person, which compares with 4,570 km for the USSR, 23,580 km for the US and 10,560 km for Germany.4 Low mobility is in part the result of saturated transport capacity; in 1989, express passenger trains had at least 30 percent more passengers than seats available. This problem threatens to frustrate government objectives to increase interprov4ncial trade and to allow citizens better access to markets and services. B. The Eighth Five-Year Plan (1991-95) Oblectives and Principles 5.12 Investments in transport under the 8th FYP will focus on high return projects designed to relieve bottlenecks for key commodities such as coal, to reduce congestion, and to improve and extend the network in areas where there is already proven transport demand. In contrast to previous Plans, the 8th FYP is more "indicative," and neither a complete list of Plan investments, nor the investment ceilings in the various transport modes, was available in 1991, - 134 - Chart 5.1: International Comparison of Transport Networks International Comparisons of Railway Networks (Coun0es *M ovew 1 5.000 Ibn of ral) ~~~, 208 s 1 00-1600 z 10- 0.0 j 0.soj '100 I 0 zz w 0. { ePgao x7tAAsAz 060-1s L600yCmot ne 00 I. C;ItO ar1 oae -600ne 0 r 0. Z 0. 40 I C Gentlanv ~~U.K j 3 th Q0 0 0.20- -i200 0.20 0 Cata PLM u.K. Maly Argentia India Braai Pafa rance Jzaran U3A U3sR M830co Cmlna L.ngVPo~.t~on Lei~JAb1oCOUNTRIES Lenftopuitn MLoqft%14eArea e*- N.twoek Long1i O.nsfty-COMosda~e Index fl(flvew)orQ (Kgn.i 0 ~Cr1oIn.aor of LangfVPOCogtEo and LenWVAIea. scaie suc* that raiag to trio oooguLson flgur. C.aiaa -l I.00 aid reIovi t0 mIe wea flguw. GOfmlanv -1.00 International Comparisons Of Road Networks (Cout.wtie ~Wmt over IS.00 imnof raL) ;x ~40000 LU 36.000 0 c 90.eo- F.00 o.eor25. 000 Iz Lu v16.000m uLu 0.20 0.00 JwI UA France Poiai inaa Meiwo CA" Gfn , rn AJgetui US3R C*iina COUNTRIES LwVIVPMaUn MLwvArae A Ce 0* WNefIrkLwiWuIIs,gUanea SC111 suc cm now" l a to WMwe cwans" -I .00 vam 14I11 W go am jueau-I.00 - 135 - the first year of the Plan. Only the railways' plan and total ceiling had been approved, but investment priorities for all modes had been laid out. 5.13 Transport demand projections assume that, in line with GDP growth estimates and past experience of transport elasticity to GDP, transport turn- over for freight (ton-km) and passenger (pass-km) will grow by about 47 per- cent during the five-year period. The 8th FYP investments are intended to help meet the need of the increased demand and are expected to contribute to industrial productivity improvements by reducing transport costs, diversifying and generally improving the quality of transport services. 5.14 Plan priorities indicate that while transport, and railways in par- ticular, will receive higher allocations than in the past, total sectoral investments would still not reach international levels. This would require, some 2.5 percent of GDP, representing an investment of about Y 260 billion (in 1990 prices) during the 8th FYP, which appears unlikely. Yet, even if such a figure would be about double the proportion of GDP that has been invested in the past, it would not allow the sector to make up for a history of under- investment. This signals the need for conducting careful analysis of proposed plan investments, and the use of analyses as refined as possible to ensure that priorities are correctly identified--by mode, location, design standards and timing.5 It also lends further urgency to the need for government atten- tion to the needs of the transport sector for investment financing. 5.15 Together with the planned, key projects, designed to relieve bottle- necks and congestion, smaller investments and operational management improve- ments, assisted by modern technology, can make a substantial contribution to stretching the use of existing facilities and equipment. This is possible in all transport modes, but appear especially attractive in aviation, where the recent, large purchases of aircraft have provided additional capacity but flying hours are restricted due to lack of modern support facilities, and in river transport if fleet can be modernized. Investments should be accompanied by reforms of pricing, to make it an effective tool for managing demand and improving allocative efficiency, and by institutional measures to improve sectoral, agency and enterprises' productivity, and the Plan does contemplate reforms in these areas. 5.16 Outstanding transport bottlenecks from past underinvestment mainly affect bulk commodities such as coal, fertilizers and grains. Coal is the key commodity in China's transport system, as it represents some 40 percent of total ton-km carried on the railways system. These commodities are primarily served by rail and river transport. An example of the effect of such bottle- necks is the diversion of coal from railways to trucking, at substantially higher costs; in Shandong, a coastal province and a major consumer of coal, the average market price for "outside plan" steam coal, transported by truck, is reported to have reached Y 200/ton, compared to Y 115/ton if capacity existed to carry this coal by rail. The priority assigned to railway invest- ments is primarily to relieve such bottlenecks, and to expand capacity to transport the increased output of these commodities.6 5.17 An additional important objective of the 8th FYP is to increase market integration and to foster interprovincial trade. This will lead to a substantial increase and diversification of the traffic flows, particularly of - 136 - consumer goods and of intermediate products. Such flows increasingly will be carried by the roads, and by local railways. It is envisaged that provincial and local authorities will have a substantially greater control than in the past over investment decisions, and in the financing and management of such links (see Box 5.2). Box 5.2: TRANSPORT DEVELOPMENT AND MARKET INTEGRATION The expected key role of transport development in supporting the 8th FYP priority to accelerate market integration may be illustrated by an example from Guangdong Province Transport Study (GATS).1/ In this province, light industry is expected during the 1990s to have the largest growth of any sector, with an average annual growth rate of 12.5 percent, compared to 7.5 percent for heavy industry, and 3.0 percent for agriculture. In the past, Guangdong's light industry was concentrated in Guangzhou, the prov- ince's capital, with lesser intensities in other population centers. Since 1980, light industry has grown rapidly and became diffused throughout the Pearl River. Access to Hong Kong appears to be the principal criterion for the location of industry, and rural townships appear to be favored with higher growth in value of industrial output than cities. New technology from Hong Kong, as well as from other sources, will be the key factor in the projected high growth rate for this sector. Thus, light industry development typifies the need for market integration, for the necessary provision of materials as well as technology, and for adequate access to domestic and external buyers. Road transport, with its ability for fast delivery, careful loading and unloading, and door-to-door services, is particularly suited to light industry, and the construction of modern highways could, therefore, be expected to influence economic growth. Local railways, managed independently and generally responsive to local demand needs, can be important complements. An example of the impact of improving transport facilities and services on market integration and economic growth may be taken from Eastern Guangdong. Presently, this region is poorly connected with the center of the province, and, consequently, with Hong Kong. A proposal to build two new connections from the center to the East, a coastal expressway and a local railway to the Heixian Prefecture, would change this. The GATS study estimated that the growth of economic output between 1990 and 2000 (about three quarters of which would be in light industry) would be greatly influenced by these two investments. In the Eastern Guangdong corridor, economic output, if the expressway and railway are built, would be expected to be about 30 percent higher than without these investments. 1/ This box draws heavily from Guangdong Province Comprehensive Transport Study, Trans- portation Division, Country Department III, Asia Regional Office, World Bank, July 7, 1991. 5.18 There are no indications that the Plan intends to bias the composi- tion of the transport investments in favor of specific regions, but rather, investments are to be selected on the basis of economic needs. Removing the main transport bottlenecks will require increasing capacity in a number of key, saturated links between interior, coal-producing areas and the coastal consumer areas. Plan objectives to encourage interregional trade, however, will require the development of more intra and interprovincial highways, and substantial improvements of trucking services, both through investments and through restructuring of the industry.. - 137 (a) Main Modal Priorities Railways 5.19 Diversion of nonbulk freight, and of short-distance passengers, mainly to the road, has been taking place steadily over the last 40 years (Chart 5.2), and this will continue in the future. However, bulk commodities and long-distance freight and passenger transport needs will continue to be more cheaply served by the rail (and water transport where available). The railways' main priority is to continue to relieve coal transport bottle- necks,' which will be done by increasing capacity of existing lines (through double-tracking, electrification, and improving signaling and telecommunica- tions), building new lines, and upgrading motive power and rolling stock. Other investments will include the expansion of local railways, and the estab- lishment of fast passenger services in key corridors (see Box 5.3). Overall, 8th FYP rail investments are estimated at Y 116 billion and will therefore continue to be the main call on investment resources for the transport sector. 5.20 While the general structure of the program appears to reflect eco- nomic priorities, all key investments should be carefully analyzed through network-wide analysis, complemented with individual feasibility studies. Special attention should be paid in the analysis to the justification of new line construction, especially those intended to serve frontier regions. In the case of new lines to serve enclave mining and or industrial operations, ' appropriate analysis should assess the economic return of the complete invest- ment package, including the railway line, the industrial/mining investments and any complementary transport investments.8 Highways 5.21 Th-e Plan anticipates that highway traffic will on average continue to develop at the high annual growth rates of the 1980s (15.5 percent for freight and 14.0 percent for passengers). Over the next five to ten years, even though the railways will continue to require higher levels of funding, roads, more than any other mode, will play a crucial role in the logistical support required by light and high-tech industry, and for the projected increased exchange of commodities stemming from the 8th FYP's objective to promote development of intra- as well as interprovincial trade. To meet this demand, 60,000 km of new road are expected to be built, of which half are within the national trunk road plan of the Ministry of Communications, which covers Class I and II roads, as well as expressways. Provincial roads, including trunk as well as county and rural roads, will comprise the bulk of the new mileage to be built during the Plan. The Plan will also give priority to the construction of the national road system, and this will include 500 km of expressways and some 3,500 km of roads exclusively for motorized traffic, with a view to avoid the congestion caused by the high proportion of slow- moving, nonmotorized traffic and to provide fast road connections among major cites.9 5.22 The plans of Henan Province provide an illustration of provincial road development projected for the 1991-95 period. The province plans to build 3,500 km of new roads, representing an 8.1 percent increase over the 43,000 km network in 1990. This will include 200 km of single carriageway - 138 - Chart 5.2: Traffic Volumes in China LFreight Traffic Volume [1951 21980- [1 990 pie ) Waterways (1980%) Pipelines (3.5%) Woterwyr (16.1Z.) . RPod (1.97) Waterways (17.9%) N ad W r %o (1 8.9% (0.0% Aviaton (0.0%) "ONI Aviation (0.0%) .. . '-Rail (82.0") - Lar (67.3%) Rail (57.9%) Total: ~73.4 billion tons-kms 1 Total: 849.6 billion tons-kms Total: 1,825.4 billion tons-kms Passenger Trcffic Volume 19521 [ 0 99 Waterways (3 2%)< Waterways (5. 7%) t W.wn (Io0')-Rail (46.6%) > (so.7) Road (46 3%) Aviation (3.9%) Total; 24.9bilna gTal281lTotal: 561.2 billion passenger-kpkr1s - 139 - Box 5.3: GROWING ROLE FOR LOCAL RAILWAYS From the time of their first development in 1958, local railways were seen by the government as a means to enlarge China's national rail network. Now, 30 years later, with rapid modernization severely straining China's transport system, China is actively exploring a variety of less centralized means of expanding its transport network. As part of this effort, local railways are again being consciously promoted. The growth of the local railways in the last decade signifies the renewed impor- tance placed on them. By 1990, local railways represented almost 8 percent of the total Chinese rail network, covering approximately 4,400 km. By the year 2000, the government expects another 6,000 km to be built. The new-emphasis on local administration of railways reversed a previous trend, which dominated up until 1980, where the government regularly incorporated many of the local railways into the centralized system. As indicated by the name, local railways are developed, financed and operated by local governments and enterprises, rather than by the State, although the Ministry of Rail- ways may lend technical advice. Turning away from its previous policy of heavily taxing profits or subsidizing losses, the government's economic reforms now only require local railways to remit a 3 percent business tax on gross revenues, less than the 5 percent rate now charged to the State railways. Due to their smaller size and the looser regulations governing them, local rail- ways generally operate quite efficiently and flexibly. Among their many advantages over more centralized forms of transportation, they can mobilize more quickly the local popula- tion for work, local land for construction, and the local governments for funding. Also, local railways do not need to conform to the strict design standards of the Ministry of Railways, and they are allowed to employ used rails and equipment. Local railways are allowed to set their own tariffs. These are higher than the State rates, despite greater efficiency of the local railways, because the national rail- ways' rates cross-subsidize the types of traffic generally carried by the local railways. Because local railways handle mainly light traffic over short distances, their total traffic is a small proportion (about 1 percent) of total China railways traffic. However, the 121 percent growth in local rail freight traffic in the last ten years (mea- sured in ton-km), which is greater than the 74 percent growth of local rail length--and than the 86 percent growth of traffic in the national rail system--over that same time period, testifies to the strong desire for this service. As China modernizes, more short-distance freight and passenger traffic will proba- bly move to the highways as they are considered more efficient for short distances. Long- distance passenger traffic will most likely move more towards airline travel. Rail is seen, instead, as most efficient for medium- to long-distance freight transport. Thus, connecting the local railways to the national rail system is essential for their long-term success. Presently, approximately two-thirds of the local railways are sufficiently standardized that they are compatible with the national network. Efforts to maintain a high level of stan- dardization must continue. Decentralization reforms in other forms of transportation and in other countries should be watched, analyzed and when appropriate, followed. In China, many new, independent airlines are starting up following the decentralization of the Civil Aviation Administration of China (CAAC). In Japan, the government has recently privatized its nationally owned rail corporation. And, in the US, smaller railways are growing. China's local railways should certainly be capable of growing and adding to the national rail network, perhaps in a manner similar to these other reforms. expressways and 100 km of paved roads with separate lanes for nonmotorized traffic. An additional 3,500-4,000 km will be upgraded or improved. The total road investment by the province will amount to'Y 4.85 billion, of which about 43.5 percent is for expressways and other high standard roads. This appears as a balanced road development program, one that initiates a prudent development of modern facilities but which gives preference to maximizing road - 140 - access and coverage throughout the province. However, there is no evidence that an appropriate financing plan has been devised to fund these investments. Inland Waterways 5.23 - Demand for inland waterways freight grew at 9.2 percent annually during 1980-90, while passenger demand grew at a rate of only 3.3 percent during the same period, as some of this traffic was diverted to roads. Freight traffic by waterways is heavily concentrated on four key routes: the Yangtze river system (53 percent); coastal shipping (20 percent); the Grand Canal (14 percent) and the Zhujiang system in southern China (13 percent). The 8th FYP will focus on improvements to the Yangtze system, both the trunk line and tributaries, as well as improvements to the Zhujiang system. These investments are designed to enhance China's waterways good potential for increasing their contribution to serving bulk, long-distance traffic, which presently are underutilized.'0 Ports 5.24 Substantial investments during the 1980s provided large increases in capacity in all major ports. By the end of the 7th FYP most of the heavy congestion caused by the large increases in foreign trade and consequent port traffic--annual growth of 9.8 percent over the 1980 decade--had been elimi- nated, and ports were handling very large volumes, led by Shanghai with nearly 150 million tons (Table 15.7). However, as trade continues to grow, more will need to be done, and so the 8th FYP envisages the construction of 180 new berths (100 in deep water and 80 medium-sized), mainly for coal, containers and roll-on/roll-off operations. (There are about 1,100 berths at present at the major ports.) Total port investments during the 8th FYP are estimated at about Y 10 billion. 5.25 While construction of new port capacity during the 8th FYP will be required given the projected increases in exports and imports, investments in new infrastructure need to be carefully analyzed. First, because port effi- ciency in Chinese ports is generally below international standards--particu- larly as regards handling of containers--there is obvious room for extracting higher throughputs from existing facilities. Second, expansion of the rail and especially of the road networks is allowing shippers more choice in port selection, inducing competition among the ports which may result in readjust- ments in demand among them, and in improving utilization of their infrastruc- ture. Therefore, comprehensive master plans, including analysis of potentially competitor ports, need to be conducted for proposed new port developments. Civil Aviation 5.26 For the 8th FYP, the Government forecasts a continued high growth in air traffic, growing at possibly twice the rate of the economy; this is based on the experience during 1980-90, when the average annual growth rates were 19.0 percent for freight and 18.8 percent for passengers. During the last five years, more than 40 airports were built, renovated or expanded, and air- lines added more than 100 aircraft to their fleets. In the 8th FYP, emphasis will not be in construction, but mainly in renovating and expanding some 20 - 141 - airports that today handle about 80 percent of the passengers and cargo trans- ported by air. In addition, the three major airports at Bei3ing, Shanghai and Guangzhou will be provided with the most advanced facilities and support equipment, while other trunk route airports will also be modernized. Consis- tent with the projected growth in demand, large purchases of aircraft are also envisaged, probably reaching some Y 20 billion during the Plan period. Investments in en-route navigational aids and air-traffic control are essen- tial to improving utilization of aircraft and airports and the investment program should accord them high priority. C. Financing of the Plan Key Directions 5.27 Financing of the transport component of the 8th FYP has two main aims: (i) to redress the perennial underfinancing of transport investments; and (ii) to achieve this objective without causing excessive strains on the central governments's budget. 5.28 The first of the two aims requires an increase in real terms of the total allocation for transport. As noted in the preceding section, although full Plan details and sectoral ceilings were not available at the start of the Plan in 1991, indications are that the Plan does, indeed, give the transport sector a high priority and envisages an increase in investments in real terms over the previous Plan. However, the 8th FYP is more an instrument to guide provincial (e.g., highways and ports) and enterprise (e.g., railways) invest- ments than to allocate central government resources. Thus, it proposes that, through increased tariffs and user charges, enterprises and state and local governments should secure themselves a significant part of the financial resources, with the central government generally providing a minority share of the key investments. 5.29 In addition to its direct financing for key investments, the gov- ernment will use its new Investment Orientation Tax (IOT) to guide investments in all sectors, including transport (see paras. 3.31-3.34). For example, the IOT, as applied to new expressways, is zero for the construction costs of the road itself, but may vary from 5 percent to 30 percent for ancillary invest- ments such as administrative buildings or toll booths, signaling the priority the government allocates to new transport capacity, and discouraging invest- ments which are not considered directly productive." 5.30 The mix of central, state and local governments and other financial sources will vary among and within the transport modes. This chapter will not examine all transport modes, but will be limited to the railways, as the larg- est revenue-earning entity and with the highest level of investments, and the highways, as the fastest growing transport infrastructure component. Financing for the Transport Modes 5.31 The 8th FYP intends to continue reforming the way railway invest- ments are financed, the general direction being more accountability and more use of internally generated funds. Such evolution started during the 6th FYP when in 1984 Government ceased to provide grant capital funds for the railways - 142 - and began to finance railways investment with loans from the Treasury, as well as onlending of funds from the World Bank and Japan, at interest rates of between 3 and 4 percent. Subsequently, the Government exempted the railways from a 55 percent corporate tax, to enable it to increase cash generation to fund future investments, and limited the railways' contribution to the trea- sury to a 5.3 percent business tax on gross revenues. The 8th FYP intends to drastically reduce the funding from the State, and replace it by increased user contributions, through higher railway tariffs. A Railway Investment Fund (RIF) has been created to channel the additional internally generated resources. The provinces will finance most of the local railways development, which during the 8th FYP will be larger than in the past. 5.32 As noted in Chapter III, the Railways Investment Fund is one of the six Investment Funds to be created during the 8th FYP. Creation of the RIF is a positive initiative. The railways needs to make substantial investment during the Plan. The railways already generate a large net operating surplus, and have potential for substantially increasing revenues while correcting distortions in transport pricing. In this situation, the railways ought to be able to generate all the cash required for their investment needs, without recourse to government investment subsidies. Preliminary estimates prepared by the Ministry of Railways indicate that during the five-year period the Fund could generate an additional Y 15-25 billion, over and above net operating revenues at current tariffs, representing 13-22 percent of total financing required for the 8th FYP. 5.33 The operating rules for the Fund had not been established at the start of the Plan period. As such rules are developed, it would be important for certain key features to be incorporated: (a) The level of funding to be earmarked for the Fund should be care- fully assessed. The RIF may not need to collect all the funds required for the investments during the period, yuan for yuan. A proper financial package ought to be devised to fund the Railways' investment plan, including internally generated funds and debt financing, both domestic and foreign. (b) Utilization of the Fund's moneys ought to be carefully scrutinized, including proper investment analysis of the projects to be funded, and auditing of the use of the funds. (c) The level of the RIF's resources, as compared to the railways' investment needs should be closely monitored, particularly if there is the potential for generating more funds than can be economically justified. This situation is unlikely to happen in China at least during the 8th FYP, but the setting up of the Fund should consider such an eventuality for the longer term. 5.34 Financing for local railways development is solely with provincial funds, but the sources may vary from province to province. In the case of Henan province, 8th FYP local railway development will be financed through a mix of the province's capital budget, funding from prefectures and counties, and loans from users, such as coal and electricity companies. The government has also been developing a new concept of "joint-venture" railways. These - 143 - would be for trunk railways linking to national system, but serving specific localities. While they would operate at full cost-recovery tariffs, they would need development finance, and central government funding would be mixed with funding from those who would benefit from the new railways, either via local government contributions or via enterprises. Experiments in this type of venture have begun in Guangdong and could provide a useful additional chan- nel for raising funding for the sector. 5.35 In the case of highways, the central government budget will con- tribute 50-60 percent of total financing, covering roads included in the national road network, and for selected provincial roads in poor areas. The proportion in the latter case will vary from province to province, with the Western Provinces and Tibet reaching higher percentages (up to 100 percent) and the richer coastal provinces receiving a lower government share. The remainder of the costs for these roads, and the full cost of other roads, will be financed mainly with provinces' own funds, domestic loans from the State Communications Investment Corporation (SCIC) and foreign loans from multi- lateral and bilateral sources. Provincial funding, in turn, includes the province's budget and earmarked user charges. An example from Henan province is given in Table 5.1. Table 5.1: FINANCING OF 8th FYP HIGHWAY PROGRAM HENAN PROVINCE (Y billion) User charges Maintenance fee, vehicles la 2.80 Maintenance fee, tractors /a 0.20 Surcharge tax on freight /b 0.30 Tolls (2 bridges) 0.15 Provincial budget 0.25 Central government (MOC) 0.60 Foreign loans 0.60 Total 4.90 /a The maintenance fee consists of a tax of 15 per- cent on the revenue of passenger and freight com- panies, and of Y 130/ton of capacity for own- account vehicles, including a proportional fee for private passenger cars. Total receipts amount to Y 5.1 billion for vehicles and Y 0.35 billion for tractors, are earmarked for the Energy and Commu- nications Investment Fund, but the province only expects the amount shown in the Table to be returned by the Central Government for use in transport investments. /b The surcharge, to be paid by the owners of the freight, is Y 0.02/ton-km. Collection of this surcharge started in 1991. - 144 - 5.36 While the sharing of highway inveastment costs between the center and provinces is a good policy generally, road financing is becoming increasingly critical, and there is a need for studias and consequent improvements in three areas: (a) Formulation of a structure of road user charges that is economically efficient, provides the necessary resources, and is cost-effective to operate. For example, beyond generic product taxes, China levies no additional road user tax on motor fuels, which is considered as the most efficient way to charge road users and which is commonly used in other countries, nor does it levy an annual fee on vehicle ownership, which is considered an appropriate complement to motor fuels, especially for large trucks with heavy axle loads. For exam- ple, motor fuel taxes and annual ownership taxes, respectively, as percentage of total road user charges, amount to 65 percent and 13 percent in the USA, 49 percent and 22 percent in India and 39 percent and 22 percent in Japan. 12 (b) Preparation of guidelines for setting up toll roads and toll rate structures. Guidelines are needed as provinces are increasingly resorting to tolling as a cost recovery and financing device, and there is increasing evidence that tolls are being established where traffic levels are too low. Setting up of tolls is leading to high road design standards resulting in high construction costs and to diversion of traffic to lower quality roads, thus negating the ben- efits of the better roads. (c) Analysis and reformulation of the financial flows between user charges, central and provincial governments, and the road authori- ties, to ensure that fund arrive in time and at adequate levels to finance the roads maintenance and investment plans. 5.37 The financing of highway maintenance will become increasingly cri- tical and needs to be paid closer attention. A recent study'3 concluded that under present criteria for allocation of maintenance funds, during the period 1990-2000 there would be shortfall of at least 30 percent in the amount of funds available to carry out maintenance at an adequate standard. Role of Investment Corporations 5.38 A potentially important source of finance for transport infrastruc- ture projects is the State Communications Investment Corporation (SCIC), one of the six investment corporations created in the 7th FYP. The SCIC has been operational since mid-1988. Its intended main business is to serve as inter- mediary for the provision of financing for projects in all transport modes, and to ensure that high standards of project economic, financial and technical analysis are used in project selection, appraisal and implementation. Its main sources of financing are central government funds allocated to it by the State Planning Commission, earmarked taxes on purchase of motor vehicles (30 percent of total revenues, the remainder going to the MOC) and fees on loading/unloading of cargo at the ports. SCIC funding for revenue-earning entities is on a loan basis, but it makes equity contributions in other cases (e.g., SCIC lends funds for construction of new berths, but provides grants for marine works). - 145 - 5.39 With only about two years of operations, the SCIC is still looking to define and assert its role better. In principle, an investment corporation such as SCIC could make an important contribution to helping establish high- level standards in the whole project cycle and to raising finance through bonds. Its main problem appears to be its small size, with only about 100 staff, to cover a broad spectrum of transport projects, and to conduct a vari- ety of business activities. It seems unlikely, given such staff limitations, that SCIC can have the ability to conduct detailed analysis of projects in a variety of modes, and to be able to have a level of economic and technical expertise equal to or higher than the planning departments of the various transport agencies. There is also an apparent duplication of functions, as all projects receiving SPC financing are reviewed by China's International Engineering Consulting Corporation (CIECC). Thus, it would seem important to conduct soon an assessment of the SCIC, particularly on how best to focus its work in relation to its stated objectives and to the size of the organization; such review ideally should be done in the wider context of examining the per- formance of all state investment corporations, and of possible duplication of efforts with entities such as the CIECC. Moreover, this further strengthens the argument raised in Chapter III about the possible conversion of the SICs into investment banks or corporations. Box 5.4: THE BANK FOR PUBLIC WORKS, MEXICO There is little experience in other countries with investment corporations for public works, with which to compare the SCIC. One relevant to China is the Bank for Public Works, Banobras, in Mexico. Banobras serves as an intermediary for external funds going to Federal, state and municipal governments, where Banobras' main role is to transfer resources but not to assess the projects these funds support; it acts as a development bank, mobiliz- ing external and domestic funds, and relends them mainly for urban infrastructure projects, for which Banobras conducts investment analysis; and it serves as a fiduciary for several trust funds. Banobras loans bear interest rates that, as a minimum, cover the cost of its funds. The experience with Banobras has been mixed. Its financial position is satisfac- tory, mainly because its large number of operations as intermediary where it derives a com- mission without bearing any risks. Its development banking function, the most relevant to SCIC, requires expensive overhead for the whole project cycle, from assessment of the proj- ects, to disbursements, monitoring and collection. Banobras does not enjoy special salary or benefits advantage that would allow it to recruit the highly-qualified, above-average personnel necessary to take a lead role in its development banking function and to provide guidance in the evaluation and implementation of investment projects. Use of Bonds 5.40 In the 7th FYP, experiments with bond financing were made for vari- ous transport investments. For example, bonds were issued to help finance the Jimei highway bridge in Xiamen, Fujian Province. The experiment failed because the bonds had short maturities of three years, and the toll revenues were not enough to repay the bonds within three years. Henan Province issued five-year bonds, at 3.6 percent interest paid at maturity to help improve and pave provincial roads, but only transportation companies purchased bonds as a way to contribute to the Province's road improvement efforts. Such attempts to introduce bonds with short maturities- -apparently on the assumption that there would be no demand for longer term bonds--are not useful for the finan- cing of long-term infrastructure investments. As a result of these and other similar experiences, the 8th FYP does not envisage the use of bonds for - 146 - financing infrastructure. However, bonds might have a potential to mobilize savings to finance a few, high quality, high utilization facilities, where tolls, or other charging methods could generate enough revenues to repay interest and principal if maturity were to be longer term, for example, over ten years. As noted, the issue of such bonds could be coordinated by the SCIC or its successor. Role of Small Entrepreneurs and Joint Ventures 5.41 Given the generally high cost of transport infrastructure invest- ments and the still monopolistic nature of most transport services in China, the private sector will not become an important source of financing in the near future. Yet, private operators increasingly are taking a role in the provision of trucking and shipping services, and this role is likely to be expanded under 8th FYP policies to promote the services sector and further develop the collectively-owned town and village enterprises (TVEs). Their further involvement in trucking, which offers the largest potential for man- agement and investment by small enterprises, requires, however, a drastic industry restructuring to establish the notion of common carriers as opposed to the prevailing industrial and commercial enterprises' practice of owning and operating trucks to meet their own transport needs. 5.42 At the same time, foreign direct investment may contribute financing for ancillary facilities through joint ventures, in practically all transport modes, following the experience of Tianjin and other ports 14 or, excep- tionally, for large infrastructure projecta such as a proposed 180-mile toll road in southern China. In the latter, a private investor and external com- mercial loans would contribute most of the financing.15 D. Sectoral and Institutional Reforms 5.43 The 8th FYP intends to continue the gradual process of sectoral and institutional reforms initiated in the previous plan, aimed to enhance eco- nomic efficiency in the use of transport assets and resources.16 The context of such reforms will be somewhat different, however, as: (i) structural changes in the economy lead to a higher proportion of manufacturing relative to raw materials, requiring more diversified transport services; (ii) further development of the road system and of aviation services will start to create the potential for competition among modes, at least for selected routes and commodities; (iii) collective enterprises--mainly the town and village enter- prises (TVEs)--and private individuals will play a larger role in the provi- sion of road and shipping services, and will normally offer such services at market-determined prices; and (iv) barriers to interprovincial trade start to fall. These gradual, but key changes affecting the operations of the trans- port system will lead to more competition and less central control. Pricing and Competition 5.44 P.rlier studies of the Chinese transport system noted that inade- quate pri<:4ng was a major factor distorting utilization of the modes and inducing excessive demand, especially for railways. As already noted, signif- icant corrections were introduced during the 7th FYP. Funding for the Rail- ways Investment Fund will require additional, substantial tariff increases. - 147 - Implementation during the 8th FYP of a new costing system will allow the rail- way to properly cost services and propose tariff adjustments which full reflect costs for the various services it provides. 5.45 Similar efforts for assessing the cost structure are underway in ports and should allow a restructuring of tariffs. At present, there is too little differentiation in prices to reflect differences in costs and to encourage efficiency. For example, shipping companies earn a fixed price per ton shipped, and ports also charge a fixed fee per ton handled, irrespective of the size and form of the shipment, with the result that no one has an incentive to implement cost-modernization in cargo handling. As a first step, private boats should be permitted to set their own tariffs, and for adminis- tered tariffs the range of flexibility around posted prices should be increased to give shipping companies and port authorities greater leeway to reflect cost differences in their fee schedules.'7 5.46 Trucking tariffs, currently some five to ten times those of the railways, are aberrantly high, but this is more the result of an inefficient industry organization, management and inadequate vehicles than of government- imposed rates. Substantial reforms of the trucking sector are essential to bring down road transport costs and rates, thus setting the conditions for increased road-rail competition. As noted below, the government has given indications that it plans to tackle this issue during the 8th FYP. As with the services sector in general (paras. 2.50-2.53) the most important steps are to establish an efficient licensing procedure and access to credit for small operators. 5.47 There is great scope for an increased role for TVEs in China that will allow a growing share of transactions, both in manufacturing and in ser- vices, to be operated outside the Plan. This will also apply to transport services, and will result in a gradual but sustained increase in the tonnage of goods, and number of people, being moved at fully commercial prices. 5.48 While current transport bottlenecks prevail, hampering the movement of coal and other key commodities, there is little scope for systemwide compe- tition. For such key commodities, the government allocates traffic to the transport modes and, in the case of coastal shipping, it decides which commo- dities will go to which port; over the medium term, it will be necessary to continue to search for optimal rationing and routing rules base on economic efficiency. Increasingly, however, more freedom should be given initially for movements of other commodities, and, as the bottlenecks are removed, for the bulk commodities. 5.49 Changes in the factors mentioned above are creating the conditions for some competition among transport modes, at least in some routes and for the haulage of mainly light industry products. The construction of express- ways and provincial roads will play an essential role, although the benefits will be constrained until the trucking sector modernizes. The experience in the industrial world is that the availability of modal choice to shippers is the foremost factor for government and public acceptance of deregulating and decontrolling transport services. In turn, deregulation and decontrolling has led to diversification of services and in prices, giving the shippers more choice, generally at lower prices.18 - 148 5.50 Benefits from competition in the construction of transport facili- ties, such as roads, in the form of lowering costs and encouraging a commer- cial orientation for the construction industry are widely acknowledged, and the Government would like to enhance this competition during the 8th FYP. Competitive bidding for civil works isŁ gradually being extended, even in proj- ects solely financed with local funds. For example, in the Kaifeng-Zhengzhou expressway in Henan province, that will be financed by province's and central government's funds and where works started in early 1991, contractors were selected through competitive bidding. The bids received were about 10 percent below what would have been paid if provincial construction companies had been assigned the work under average costs of works. This competition in civil works needs to be continued, and extended to the procurement of engineering services. Sectoral Restructuring 5.51 Sectoral restructuring during the 8th FYP should focus on trucking, because: (i) trucking is, in relative terms, the most backward subsector ln China's transport system, as shown by operating costs abnormally higher than in the rest of the world; and (ii) the diversification of transport demand and the needs of agriculture and light inidustry for door-to-door transport of breakbulk cargo, and the growth of China's road network urgently calls for increasing the efficiency, lowering costs and prices, and improving the qual- ity of services of road transport. 5.52 The trucking industry's main problems are organizational and tech- nological.l/ The first is characterized by a very small common carrier sec- tor, as the large majority of trucks and services are by own account, that is, industrial, agricultural and commercial concerns meet their transport requirements by owning and operating their own trucks. This situation is partly a reflection of the lack of reliable commercial trucking services-- mainly operated by provincial and local governments--and partly the tradi- tional business culture of self-sufficiency among China's large companies. One consequence of this organizational structure is low load factors for the vehicles, as trucks only carry the companies' supplies and products, and often carry no loads on the return trips. The latter problem is mainly the small capacity of trucks, normally 5-6 tons, mostly manufactured in China, which are highly inefficient for intercity transport."9 The combined effect of these factors is high operating costs and, in the case of commercial trucking, very high tariffs. The government has expressed its intention to give priority to reforming the trucking industry during the 8th FYP. 5.53 The major organizational reforms already undertaken in the aviation sector should be consolidated during the 8th FYP, in particular by encouraging greater competition among the regional airlines, including on international routes. In addition, it would be appropriate for China to study the various ways aviation support services, such as air traffic control, air navigation 1/ The World Bank is collaborating with the provincial government in Henan to study the trucking industry in more depth and to prepare a policy framework for its future development. This should be completed in 1993. - 149 - aids, and meteorological information, are operated in other countries and whether further restructuring of CAAC would therefore be warranted. Decentralization, Autonomy and Economic Contracts of Modal Enterprises 5.54 The 8th FYP will continue the efforts initiated during the last two five-year plans to devolve planning, investment and management responsibili- ties from the central to the provincial and local governments and to the transport sector enterprises. 5.55 One of the most successful decentralization reforms in transport in the 7th FYP was in the ports, and is exemplified by the case of Tianjin Port (see Box 5.1). The 8th FYP does not envisage any significant expansion of its autonomy, or extension of it to other ports. However, in light of the suc- cessful experience of Tianjin, and the interest of other ports to follow the same path, the Government should consider revising the Plan's position on port reform. The Government, through the appropriate central agencies, such as the Ministry of Communications, should retain a key role for investment planning, and endeavor to improve analysis of the port system and of individual ports. At the same time, the government should encourage a greater market orienta- tion, especially to give port managements progressively more leeway with regard to operational and commercial decision-making. Successful experiences from other countries indicate the need to provide greater management autonomy in such matters as organization, staffing and salaries, ability to contract work out, equipment and investments. Such experiences also point to the importance of letting individual port managements market their services and make agreements with port users, e.g., leasing, concessions, special discounts and other agreements which affect prices and costs, and of letting them have the choice of rendering services directly or through third parties. The cen- tral authorities role during the transition would be to provide advice and to 20 monitor progress. 5.56 The encouragement for the development of local railway lines (Box 5.3) fits well with government's policy of decentralization. These lines are managed independently from the national railways, although there is coordina- tion in a number of areas. Some of the most successful reforms in railways in other countries are in the management of local lines, where local management can be smaller, more effective, and have a better knowledge of the demand and of the services required. This was, for example, the experience in the US during the 1980s 21 and there is a growing number of recent cases in other countries. Iti Thailand, since 1989, high-quality passenger services in three branch lines have been operated on a pilot basis by individual, private opera- tors, rather than by the central railways, leading to important increases in traffic, mostly diverted from the road.22 5.57 The essential role being played by China's railways justifies the government's approach of attaching priority to improving economic and finan- cial policies with respect to the railways, with less emphasis on organiza- tional issues. This implies a focus of reforms during the 8th FYP on setting up and management of the Railways Investment Fund, implementing costing changes and tariff restructuring to put in place cost-based tariffs, and on completing and implementing comprehensive computer-based models to prioritize investments system-wide. However, changes in the structure of demand, and in - 150 the development of competition from roads and other modes, should induce the management to think strategically of the impact of such changes on its organi- zation. Most major railways in market economies are evolving an organiza- tional structure which focuses on market segments served, and on the policies and investments needed to serve these segments; these railways are moving away from the traditional, production-led form of organization, and are adopting a market-oriented approach. Changes in this direction are taking place in the national railways of Britain, France, Sweden, Finland, and Japan, among others. In such railways, the tendency broadly is to divide the organization into passenger and freight lines of business, with related revenue and cost reporting. Depending on the specific circumstances of the railway, the broad freight line of business may be further subdivided into the various major commodity and/or customer segments, and the passenger line of business into intercity passengers segment as well as a series of separate commuter ser- vices 23 5.58 The first round of contracts between the state and the enterprises, economywide, began in 1985, is now being completed. Signing of second round contracts started in 1990 and is expected to be completed soon. Contracts in the second round will need to be more detailed and with more precise targets, and be more incentive-driven and encourage decentralization, than were first round contracts, which generally targeted bottom line financial results, and in the case of transport, aggregate levels of traffic. One significant change envisaged in the contract for the railways is to allocate payroll amounts-- from the center to the various enterprise levels--based on output, that is, ton-km and pass-km produced, (appropriately adjusted to compensate for dis- tricts' differences in type of traffics, line saturation, etc.) rather than on the level of staffing as was in the first contract. Such change should allow the railways to streamline the system of bonuses which supplement staff sala- ries, to reward increases in productivity rather than continuing to be auto- matic additions to salary. 5.59 The second round of contracts will also need to make a start on economywide reforms envisaged for the provision of social services. This is important for all large enterprises, including the railways, where some 1.5 million staff out of its total labor force of 3.3 million work in the provision of services to staff, such as housing, health and education. The Ministry of Railways intends to gradually start raising the charges to staff for the social services it provides, and to include compensatory payments. This is a necessary first step for future reforms, which eventually should lead to enterprises such as the railways bowing out altogether of direct pro- vision of social services. Intermodal Transport 5.60 The 8th FYP investments and reforms in individual modes will be insufficient to make the best use of the system until intermodal transport is modernized, particularly for the movement of containers and other unitized cargo. This implies not only physical investments for intermodal transfers, but improvements in the management, organization and commercial documentation in transport and related agencies, such as customs. Some 450 intermodal transport companies exist in China today, mostly serving domestic traffic and offering station-to-station, rather than door-to-door services. Less than - 151 - 50 percent of the containers move beyond the port, thus severely reducing the benefits of containerization. Of the domestic container traffic carried by rail, less than 6 percent moves door-to-dvoor.24 Key constraints hampering improvements in container movements have been identified by Chinese authori- ties, notably: loading and unloading equipment, storage facilities are inadequate and management information systems for organizing and following-up container movements need to be developed. 5.61 Improvements of intermodal transport would need to be selective and focus initially on routes and commodities where the potential is greatest. One approach would consist of identifying priority container corridors that are strategically important in order to provide faster, more reliable and cheaper transport services for exports, and, based on this, to formulate an intermodal transport plan for those corridors, including investments, organi- zational and documentation improvements. E. Conclusions 5.62 The 8th FYP reaffirms the view that transport bottlenecks are a key constraint to economic development and endeavors to tackle this problem by allocating to this sector an albeit slightly higher proportion of central government investment than in previous plans, and by encouraging higher extra- budgetary investments. 5.63 In contrast to previous plans, the 8th FYP is more indicative, and, at the beginning of the Plan in 1991, sectoral and subsectoral allocations and identification of key projects had not been finalized. Available indications were that practically all modes would see higher investments, and this appears as a sound decision given the high economic costs of current bottlenecks, longstanding underfinancing for transport and the projected further integra- tion and diversification of the economy, all of which point to the need for more diverse transport services. 5.64 In view of the fact that most transport bottlenecks countrywide stem from coal and other bulk commodities hauled over long distances where the railways offer the lowest costs, the Plan sensibly allocates to this mode the highest share of investments. But the plan also envisages substantial expan- sion of the road network in all provinces, and continued improvements in ports, inland waterways and aviation. Demand for the latter had the largest increases during the 7th FYP and the current Plan envisages significant investments in equipment and infrastructure. 5.65 Plan directions to modernize and introduce new technology appear to be well conceived, as such efforts will be limited and will be directed to the use of cost-effective designs rather than wasteful, overbuilt facilities. Special interest will be focused on railway and highways construction oriented to allowing faster transport services, such as expressways and faster speed railways, but only for a few key links and with prudent design standards. This is the case, for example, with planned faster railway speeds of up to 160 km/hr (which can be achieved with modern but conventional technology) and only a limited number of new highway expressways, including some initially to be built with two lanes only. - 152 - 5.66 While the overall direction of transport investments appear to be appropriate, increasing efforts should be put into analyzing investments systemwide and to both broaden and refine the use of cost-benefit analysis, for which studies and appropriate tools have recently been developed or are being tested. The railways, in particular, should be particularly careful with plans for construction of new lines, which are long-life investments. The railways are key to providing the capacity needed for the millions of tons of coal and other bulk commodities which are essential for China's industrial development. Yet, China's high transport intensity relative to its national product, will have to fall gradually over time, in part as a result of increased energy conservation and efficiency. 5.67 The Plan envisages a substantial increase in enterprises', provin- cial and users' participation in the financing of new investments. This approach should enhance accountability and cost recovery. A Railways Invest- ment Fund, to be financed through incremental tariff increases, is expected to provide some 13-22 percent of total Plan railway investments; local railways will be further developed and will be financed by provincial and other local resources. Provinces will also bear the brunt of developing their road sys- tems, as cost-sharing with the central government (on average 50-50) will be limited to the national road network and selected rural roads in high- priority, poverty-stricken areas. 5.68 Improving cost recovery and financing needs to be given priority in all modes. While recent large tariff increases for rail services, both freight and passenger, corrected some of the most serious underpricing, more is needed both for economic efficiency and for mobilizing resources. The focus should be more on structure than on level of tariffs. During the 8th FYP, studies on costing will be completed for railways and ports which should allow the government to implement new costing systems and restructure tariffs. Improving cost-recovery and financing in highways has not been a priority in the past, as the road system was not a major factor in China's transport sys- tem. However, this is changing rapidly following substantial expansion of the network during the 7th FYP and further developments envisaged in the current' Plan. The government should assign priority to modernizing its system of road user charges and financial sources for road construction and maintenance, as well as issuing guidelines for appropriate use of tolls. 5.69 Despite these various initiatives, however, it is not clear that there will be an adequate level of financing for the transport sector. As both domestic and international trade increase, the consequences of transport investment falling behind could be severe. The government will therefore need to monitor progress with the transport plan and intervene as appropriate. If such intervention proves necessary, three main avenues would seem appropriate: (a) as price and enterprise reforms ease budget pressures, infrastructure investment allocation could be increased; (b) transport price adjustments could be accelerated to generate higher surpluses in the sector; and (c) the government could authorize, with government guarantees, increased issuance of long-term bonds for the financing of transport investments. 5.70 Competition among transport modes, at least for some commodities and where the system has some slack capacity, has good potential for increasing during the 8th FYP, and to lead to more commodities being transported outside - 153 - plan prices and modal allocations. This increased competition will result from four main factors: the diversification of the economy, with more light agro- and light-industry products; the further development of road and air transport; the larger role of township and village enterprises (TVEs) in the provision of services; and the reduction of barriers to interprovincial trade. 5.71 The most urgent sectoral reform is in road transport services for freight. Trucking costs and rates are aberrantly high (five to ten times those of the railways), mainly as a result of inadequately small trucks, and inadequate trucking industry organization, which lacks commercial trucking services and forces industrial companies to rely on their own truck fleets. Trucking offers a good potential for involvement by TVEs, but such potential can only be fully realized if the trucking industry organization provides adequate conditions for entry and competition, as well as access to credit which does not happen at present. 5.72 The second round of economic contracts between the state and the enterprises will coincide with the start of the 8th FYP. Such contracts are a key vehicle for promoting increases in efficiency, but the first round of contracts were too general. It appears that the second round will be more focused but may still also fall short of setting adequate, well-defined pro- ductivity targets. 5.73 In summary, the 8th FYP appears to give the transport sector the increased priority it requires and, within budget constraints, attempts to remedy longstanding neglect of the sector, The Plan does not fully identify all projects from the beginning, and this offers an opportunity to ensure that new, major investments are subject to rigorous economic analysis. Sectoral and institutional reforms will continue gradually, and the priorities for reforming costing and pricing are correct. It is however, essential that such reforms are effectively implemented during the Plan period, as they are vital to ensure a more efficient use of the system, to improve cost recovery, and to help transport enterprises and infrastructure enhance self-financing for capi- tal and current expenses. An early start to reforms in the organization of the trucking industry is needed to improve road transport service s, facilitate entry by small entrepreneurs such as town and village enterprises, and to promote competition. - 154 - VI. SCENARIOS FOR THE CHINESE ECONOMY A. Introduction 6.1 The first five chapters of this report reviewed recent economic developments, China's development strategy, the results of past reform efforts and prospects for reform in the future. In reviewing these issues, we found that there were uncertainties in three areas in particular: (a) It was unclear what would happen to inflation in the short term, and thus whether China would continue to enjoy inflation-free, moderate growth, or whether the economy would once again overheat and return to an inflationary upswing. (b) The medium-term macroeconomic policy framework was not fully expli- cit, and consequently, it was unclear what would be the policy stance over time, particularly in the light of the fact that the current economic policy was at variance with the policy as stated in the framework, in that the framework called for moderate growth, while the actual policy was encouraging a rapid expansion. This is compounded by recent statements calling for accelerated growth. (c) While the reform plan put forward a relatively comprehensive program of steady change over time, we found it wanting in certain key respects, particularly those related to the improvement of &,acroeco- nomic management via indirect economic levers, and the framework for improved management and performance of the state-owned enterprises. 6.2 It therefore seems appropriate to consider a range of possible out- comes for the economy over the coming period.1/ It should be stressed that these are not forecasts for the economy. Rather, they are consistent scenarios that we would associate with any particular set of policies. There- fore, while not being forecasts, they are intended to illustrate quantita- tively the possible consequences of different policy choices over the next few years. This should be helpful in assessing alternatives and in sequencing and timing reforms. 6.3 China's macroeconomic prospects have been considered under three separate policy frameworks. The base case assumes that China makes good prog- ress with a wide range of economic reforms, on a somewhat accelerated schedule in comparison with the program set out in the reform plan, as this seems to be the present intention. In particular, this assumes reasonable progress with the policy framework for the SOEs, and improved policy for the financial 1/ These scenarios have been constructed by using a RMSM-X model, a new standard projections model of the World Bank. The structure of the model and the assumptions for the various scenarios are provided in the Annex. It should be noted in particular that these scenarios were drawn up prior to the very strong growth statistics for the first half of 1992 being available, and this goes to reemphasize that these are not to be regarded as forecasts. - 155 - sector and public finance to improve macroeconomic management. It should be noted that this base case assumes growth performance somewhat better than the relatively modest 6 percent target of the 8th Plan. The rapid reform case assumes even more acceleration and development of the reform program, along the lines suggested in Matrix 4.1, and this has consequent impact in terms of high efficiency. The slow reform/economic cycles case assumes poor macroeco- nomic management in the short term, leading to a new bout of overheatinig and inflation and related slow progress on reform. 6.4 In the base case and the rapid reform case, we have not attempted to model the fluctuations around the trend that would be bound to occur, and thus the scenarios portray a steadiness that is most unlikely to happen. However, this is because these are scenarios not forecasts, and are meant to illustrate changes in fundamentals. The slow reform case, in contrast, does have fluctu- ations around a trend, but that is to illustrate the fundamentals of such a case, reflected in a repeat of the strong macroeconomic cycles of the 1980s. However, it will be seen that the range of differences in the economic growth performance between these scenarios is not so large: rather, the key distinc- tions are reflected in the degree of efficiency improvement, and consequently, in the level of welfare. Table 6.1: THE BASE CASE, 1989-2000 1989 1990 1991 1993 1995 1997 2000 GDP growth rate (Z) 4.6 5.6 7.0 7.5 7.5 7.5 7.5 Total consumption growth rate (x) 6.5 2.2 7.4 10.3 8.2 8.9 8.5 Incremental capital output ratio 9.60 7.10 5.00 4.87 4.80 4.60 4.40 Investment/GDP (%) 38.4 36.6 35.7 36.5 36.0 34.5 33.0 Inflation (GDP deflator) 9.0 5.1 4.1 6.0 6.0 6.0 6.0 Imports growth rate (2) 7.8 -12.8 12.5 16.9 8.8 8.5 8.5 Exports growth rate (Z) 7.8 12.6 15.9 7.6 7.8 8.0 9.4 Current account balance ($ m) -4,460 11,935 12,236 -1,511 -5,918 -8,924 -10,328 Current account balance/GDP (2) -1.1 3.2 3.3 -0.3 -1.0 -1.3 -1.0 Total Debt ($ m) 44,847 52,554 57,197 68,078 82,221 95,837 112,902 - Total Debt/GDP (2) 10.6 14.2 15.4 14.9 14.4 13.5 11.4 Direct foreign investment ($ m) 2,613 2,660 3,340 3,753 4,217 4,738 5,643 Total debt service/exports (2) 9.8 10.3 11.5 9.2 8.6 8.3 7.7 Source: Mission estimates. B. The Base Case 6.5 The results of the base scenario are shown in Table 6.1. As noted, the key assumptions for this scenario are that the reform program is imple- mented on a somewhat accelerated schedule, permitting further improvements in - 156 - macroeconomic management and in the enterprise control mechanism. The recov- ery of 1991 continues, and the economy is then able to repeat the growth per- formance of the 1980s, with average growth around 7.5 percent per annum. This would mean that the target of redoubling GNP by the year 2000 would be achieved one year ahead of schedule. More importantly, with efficiency gains, this could be done at a growth rate of investment below this rate (in fact, below the planned growth of 5.7 percent) as the capital-output ratio would gradually fall from 7.1 in 1990 to 4.9 in 1995 and 4.4 in the year 2000, when the investment rate would be down to 33 percent of GDP. The sectoral growth pattern is, however, expected to be somewhat different than in the recent past. Industry is expected to show more moderate growth, at about 6-8 percent in GDP terms, while the services sector, and especially transport, finance and information services, are expected to be the leading source of growth, at around 9 percent per annum. 6.6 One particularly positive result of this scenario relates to con- sumption growth. The plan's projections look for 3 percent per capita gains in consumption over the period. However, the economy is almost certain to generate much better results than this, for two reasons. First, the very high trade surplus of 1991 can be expected to be eliminated during 1992-93, via growth of imports at very high rates, after which they level off on a basis of affordability (i.e., a balance of payments constraint). Second, government consumption declines slightly in real terms, and quite sharply as a share of GDP. The consequence of this is that total consumption is able to grow faster than GDP, at an average of 8-9 percent per annum in this scenario. To some extent, of course, this is to compensate for very low consumption growth in 1989/90. 6.7 Given the very strong external picture at the start of the plan period, with a current account surplus of 3.3 percent of GDP and reserves at 9 months of imports of goods and services, it is no surprise that the external sector does not prove to be a constraint. Indeed, if we were to construct a scenario simply on the basis of today's situation, with growth in imports based on general economic growth, it would be virtually impossible to elimi- nate the current account surplus for many years with any "reasonable" set of elasticities. However, the Chinese economy is not entirely "reasonable" and so it can be observed that imports which grew at almost 20 percent in 1991, are projected to continue to grow strongly in 1992, at about 21 percent in nominal terms. After this burst of import expansion to eliminate built-up unsatisfied demand, imports and exports settle into a pattern of growth at about 10 percent per annum in value terms. While this rate of export growth is below the level of the 1980s, it seems more reasonable given world trade prospects, and the much higher base from which China is now operating. Imports of capital goods are projected to be above average, reflecting the priority attached to technical transformation projects in the Plan, and import liberalization is expected to permit growth in consumer goods imports to sat- isfy the projected high level of consumption demand. Nevertheless, the cur- rent account deficit stays in the range of 1-1.3 percent of GDP throughout the decade, and while external debt grows, it actually falls as a share of GDP, and debt service ratios stay well under 10 percent. 6.8 Given the present high level of reserves, it seems reasonable to project that the ratio of reserves to imports will gradually fall to about - 157 - four months' equivalent by the end of the decade. This requires relatively modest additions to the level of reserves, and so the net external financing requirement barely exceeds the current account deficit. In the base case, about $4 billion of this amount is expected on average to come from foreign direct investment and thus the net external borrowing requirement is about $6 billion per annum on average over the course of the decade. This is lower in real terms than the average level of net borrowing during the 1980s, which was about $5 billion per annum. The distribution of such borrowing between official and private sources is expected to be a bit more favorable to China than the last decade, as more and larger sources of official financing are now available, notably already committed additional Japanese credits, and access to Asian Development Bank ordinary resources, expected to rise to $1 billion per annum on a commitment basis by 1993. Thus, just over half of the external financing requirement is expected to come from official sources, and the bal- ance from private sources, compared with the 40-60 split to date. However, it should be noted that we are still talking of very large absolute sums to be borrowed, and over the decade China will probably be among the largest inter- national borrowers among developing countries. 6.9 On the fiscal and monetary accounts, the plan projects a slow reduc- tion in the fiscal deficit, which restricts the government's use of credit. Therefore, the monetary authorities would be able to achieve the targeted ceiling on growth of money supply at about 12 percent per annum, without crowding out the private sector. In the Chinese context, however, 'private sector' includes the state-owned enterprises and we are projecting a gradual improvement in their performance, and therefore a reduction in their demands on the banking system, permitting a slow growth in credit, and a higher share of such credit for nonstate enterprises. Inflation control is assumed to remain a priority for the government--hence the lower rate of growth than in the 1980s--and inflation is expected to be in the 5-6 percent range over the period. Any sign of a return to double-digit inflation is expcted to gener- ate the sort of firm policy response that was witnessed in 1988/89. 6.10 Overall, therefore, this scenario would suggest bright prospects for the decade ahead if the requisite reforms to improve both macroeconomic per- formance and the efficiency of the SOEs are put in place. The natural ten- dency of the economy towards high savings and investment guarantees the achievement of the growth target, and the strong opening position permits major welfare gains to be achieved, especially given incremental efficiency gains as reforms proceed. This scenario, therefore, is based very much on the experience of the 1980s and the sort of growth performance and efficiency gains that were generated in that decade through the stimulus of improved incentives generated by reforms. It assumes, however, some "learning by doing," so that the mistakes in macroeconomic management are not repeated. The difficulty with this scenario lies in two respects: (a) It assumes that the government will be able to move relatively quickly with the necessary enterprise and macroeconomic reforms; and (b) While this reform package delivers substantial economic benefits, the economy still displays a considerable degree of inefficiency even in the year 2000. It is these two issues that are the focus of the two alternative scenarios. - 158 - C. Scenario 2: Slow Policy Change/Macroeconomic Instability 6.11 In this scenario, we assume that the government still carries out reforms, but only on a rather gradual schedule. This means that the effects of reforms are not felt at the beginning of the decade. In particular, this derives from reform intentions in three major areas: tax reform, financial sector reform, and state-owned enterprise reform. As we argued in Chapters I and IV, without further reforms in these areas, it is not clear how the government can improve macroeconomic management capability, or the responsive- ness of enterprises to such signals. In the absence of improvement in this area, which entails the strengthening of both the management and the impact of indirect economic levers, there is no reason to believe that the economy will be able to avoid repeating the cyclical pattern that we have observed in the 1980s, Indeed, there is clear evidence of growing amplitude in these cycles: the upswing of 1987/88 was the strongest of the decade, and it consequently took a downswing of the magnitude seen in 1989/90 to eliminate inflation. This said, Chinese downswings yield growth rates better than many other econo- mies' upswings, so this does not imperil the basic targets, but rather it suggests the likelihood of continued tendencies towards instability. 6.12 Indeed, there continues to be concern in China that the economy could move quite rapidly back towards overheating and inflation in the short term, as was discussed in Chapter I. This would pose the biggest threat not only to the achievement of the economic targets of the decade, but more impor- tantly to the success of the reform program. It thus bears repeating that the current calls in China for accelerating economic growth towards 10 percent Per annum would not create a climate conducive to reform, and would be likely to lead directly to the sort of stop-go cycle witnessed in the 1980s and illus- trated in this scenario. A key underlying assumption is that growth above 9 percent causes inflation pressure through bottlenecks. 6.13 The results of this scenario are shown in Table 6.2. The strong recovery that began in mid-1990 continues through 1992, and causes serious overheating by 1993, when inflation is around 15 percent and GDP growth around 9 percent. This causes the authorities to slow credit sharply once again, and the economy again goes into a downswing in 1995-97, with 4.5 percent average growth, while inflation falls back to under 5 percent. This permits the brakes to be released again in 1998, and again too quickly, so that we get another peak in the year 2000. 6.14 As we have observed in the last few years, this strong cyclical pattern raises the rate of inflation, which would average 9-10 percent per annum in this scenario, as the size of the credit expansion in the booms can- not be totally recouped in the downswings. This, of course, has a second consequence: the pace of price reform is dependent in China on the overall rate of inflation, as the government has clearly indicated that it will make progress on price reform dependent on moderate price rises. 6.15 The consequence of slow progress on price reform would be reflected in the absence of significant efficiency gains, and consequently in the level of investment required for the output target. As a consequence, consumption (welfare) gains are not much higher than GDP growth, and no higher after the initial boom in 1991/92, associated with the import boom. While investment as - 159 - Table 6.2: THE SLOW REFORM SCENARIO, 1989-2000 1989 1990 1991 1993 1995 1997 2000 GDP growth rate (Z) 4.6 5.6 7.0 9.0 5.0 5.2 8.2 Total consumption growth rate (x) 6.5 2.2 7.4 10.1 1.9 6.7 8.2 Incremental capital output ratio 9.60 7.10 5.00 4.00 9.70 4.85 6.10 Investment/GDP (Z) 38.4 36.6 35.7 38.0 38.8 37.8 36.6 Inflation (GDP deflator) 9.0 5c1 4.1 15.0 7.0 3.0 12.0 Imports growth rate (%) 7.8 -12.8 12.5 18.6 0.7 5.2 8.2 Exports growth rate (%) 7.8 12.6 15.9 6.9 7.1 7.2 7.5 Current account balance ($ m) -4,460 11,935 12,236 -4,177 -4,786 6,983 -14,004 Current account balance/GDP (Z) -1.1 3.2 3.3 -0.9 -0.8 1.0 -1.5 Total debt ($ m) 44,847 52,554 57,197 67,618 80,856 89,998 116,323 Total debt/GDP (Z) 10.6 14.2 15.4 14.6 14.0 13.3 12.0 Direct foreign investment ($ m) 2,613 2,660 3,340 3,613 3,907 4,226 4,754 Total debt service/exports (%) 9.8 10.3 11.5 9.3 8.9 8.6 8.3 Source: Mission estimates. a share of GDP falls to about 33 percent in the base case, it remains in the 36-38 percent range under this scenario. 6.16 On the external side,2/ the instability of GDP growth :is of course mirrored in the balance of payments, which moves from surplus to deficit and back again several times. This has two consequences for external debt. First, the instability means that on average the authorities must have a higher level of foreign exchange reserves to be able to always have a reason- able cover, so we assume that reserves cannot fall below six months of imports. Second, the macroeconomic instability and absence of rapid reform-- especially of price reform--deters foreign investors, and as a consequence, foreign investment does not rise from its present level in real terms. Both of these factors necessitate a relatively higher level of external debt, although it stills remains within reasonable proportions, with debt service around 9 percent of exports, and total debt averaging 14 percent of GDP. 2/ The issue in terms of downside risk that we have not attempted to project is that of a serious deterioration in export markets, and especially the removal of MFN status for China in the United States. This is for two reasons: first, the probability of this occurring is judged to be low on the experience of the last two years; second, we consider that the impact of such a step would be felt primarily through a reduction in the capital goods' import level in China, and thus in the pace of modernization, rather than in creditworthiness indicators, as China would be sure to react to such an event with tightened import restrictions. - 160 - 6.17 Thus, in this scenario, there is no serious doubt that the basic plan targets can be achieved, but the projections show quite vividly the impact of continued instability in the absence of reforms to strengthen eco- nomic management capability and to generate efficiency gains, which puts wel- fare gains in this scenario some 40 percent below those of the base case. D. Scenario J : Accelerated Reform 6.18 In Chapter II, we examined how past reforms have had a strong impact on productivity gains since 1979. In Chapter IV, we reviewed current reform intentions, and identified several areas where we believed efficiency could be enhanced further through accelerated reforms. The difference between this scenario and the base scenario is thus essentially one of speed of reform implementation. However, we did note above (para. 6.10) that although the base scenario saw considerable economic achievements, it still left the econ- omy with a high degree of inefficiency. Therefore, the distinguishing element of the accelerated reform scenario is that efficiency-enhancing reforms--nota- bly price reform, trade reform, nonstate sector development, and financial sector (especially banking and capital market) reforms--are brought forward and improve the efficiency of investment. This is reflected in somewhat higher growth, but also lower investment rates and capital-output ratios. 6.19 This generates economic growth very close to the frontier of infra- structure capacity at about 8.5 percent per annum after 1992. However, under this scenario, the investment/GDP ratio would fall to close to 30 percent, a more "onormal" ratio. This is made possible by a rapid decline in the capital- output ratio to finish the decade at 3.5, which is much closer to efficient levels.3/ 6.20 There should be other, perhaps less obvious gains that can be mea- sured. China imports raw materials, and wastes so much energy that its petro- leum exports have been falling, and may become negative in the absence of price reforms. It seems reasonable to assume that correction of low prices for energy and raw materials would not only induce declines in demand and improvements in efficiency, they would also improve domestic supplies. There- fore, unAer an accelerated reform case we can project higher petroleum exp. rtsS, -nd a lower elasticity of demand for impo7rted raw materials. This, in turn, permits a higher level of capital goods mports, which has a further positive impact on modernization and thus on efficiency. Price reforms would also remove certain anti-export biases in the economy, by reducing the rela- tive profitability of domestic and external markets, If this were combined with trade reforms, this could be expected to raise the level of exports. 6.21 There could be additional external effects, which are the opposite of those described in the slow reform case. First, the greater stability expected permits the present excess level of reserves to be reduced even fur- 3j/ Alternatively, it could be that the increased efficiency makes resources available to improve the quality of investments, for example, through enhanced environmental controls, in which case, the I/O iatio would not fall so far. The current scenario is drawn to demonstrate the resource gain, not its use. - 161 - ther over the decade. Second, the improved policy environment should attract more foreign investment, and we are projecting that this would grow by about 8 percent a year, averaging about $5 billion. Both of these factors mean a relative decline in external debt over the decade, despite improv'-.: creditwor- thiness. The debt/GNP ratio would be only 9 percent in the year .'!O0, and debt service would fall from 11.5 percent in 1991 to 7.3 percent in 2000. 6.22 The results of this scenario are shown in Table 6.3. As can be seen, GDP is projected to grow steadily over the decade, as the government Table 6.3: THE ACCELERATED REFORM SCENARIO, 1989-2000 1989 1990 1991 1993 1995 1997 2000 GDP growth rate (%) 4.6 5.6 7.0 8.5 8.5 8.55 8.5 Total consumption growth rate (%) 6.5 2.2 7.4 12.4 10.4 10.0 9.7 Incremental capital output ratio 9.60 7.10 5.00 4.40 4.10 3.90 3.60 Investment/GDP (Z) 38.4 36.6 35.7 37.4 34.9 33.2 30.6 Inflation (GDP deflator) 9.0 5.1 4.1 6.0 6.0 6.0 6.0 Imports growth rate (%) 7.8 -12.8 12.5 16.9 9.7 9.4 9.4 Exports growth rate (Z) 7.8 12.6 15.9 7.9 8.1 9.1 9.8 Current account balance ($ m) -4,460 11,935 12,236 -831 -5,056 -7,967 -9,355 Current account balance/GDP (%) -1.1 3.2 3.3 -0.2 -0.9 -1.1 -0.9 Total debt ($ m) 44,847 52,554 57,197 67,040 77,576 88,414 99,713 Total debt/GDP (Z) 10.6 14.2 15.4 14.5 13.2 11.9 9.4 Direct foreign investment ($ m) 2,613 2,660 3,340 3,824 4,460 5,202 6,553 Total debt service/exports (Z) 9.8 10.3 11.5 9.1 8.5 8.1 7.3 Source: Mission estimates. would desire, and improvements in economic management mean that cycles can be largely avoided. However, the key figure is the gain in consumption of over 10 percent per annum as a result of the efficiency gains. This means that while GPP is doubled over the decade, incomes are much more than doubled. It is to be noted that in this scenario we do not project any increase in the rate of inflation above the base case of 5-6 percent rate, associated with the higher growth rate. This is because it is assumed that the accelerated reform would strongly impinge upon fiscal and financial areas, which would reinforce the effectiveness of macroeconomic management under conditions of rapid growth. 6.23 The external sector is, on the whole, stable, but continues to expand as a proportion of the total economy. Exports grow at over 12 percent per annum (in value), and imports at about 14 percent. Of particular note, the composition of imports is different in this scenario from the low case. - 162 - The greater openness and higher consumption rate is reflected in increased consumer goods imports as well as the higher level of capital goods. E. Conclusions 6.24 It must be repeated that these are merely scenarios, but we consider that the storyline underlying the scenarios is reasonably strong and coherent, and that they serve to illustrate the possible impact of different policies. This estimated impact is not based on economic theory, but rather derives from the experience of the last 12 years of reform in China. The highly decentra- lized economy is likely to continue to show instability unless instruments of macroeconomic management are improved, and economic reforms have proved their power to generate real productivity gains, especially when they foster the development of the nonstate sector. It is therefore our clear presumption that a slower pace of reform will generate a scenario more like Scenario 2, and that more rapid reform would generate a picture more like Scenario 3. 6.25 This said, there can be little doubt on two things. First, the basic GDP target is very achievable, and the Chinese economy will continue to show its tendency for high growth under most conceivable scenarios. Indeed, the potential for growth above this rate, without inflation, is clear and debirable, although moving to rates around 10 percent would be imprudent. Second, the economy will continue to have moderate external debt and continue to be highly creditworthy. Thus, on two basic counts, the future is bright under all scenarios. But that is not really the question. The scenarios suggest that there are policy choices to be made that can significantly affect the level of welfare of the Chinese people over 'the next decade. The report has suggested a set of reform and development policies that we believe could have a major impact on the level of efficiency and on the pace of employment creation in China over the next decade, and significantly change the face of the economy. - 163 - ghater I 1. The cyclical nature of the economy and its performance in 1988/89 are discussed in detail in IBRD "Between Plan and Market," 1990. 2. See Chen Yuan, "Strengthening of Macro Control is a Requirement of the Deepening of Reform: Seeking Truth," 1991, #9. 3. See M. Blejer et al., China: Economic Reform and Macroeconomic Manage- ment, IMF Occasional Paper 76, Washington, D.C., January 1991. 4. For a fuller analysis of changing savings functions see IBRD, "Macroeco- nomic Development Under Decentralized Socialism": Report #7483, 1989, especially pp. 101-113. 5. The age profiles of wealth, income and savings in China show a pattern consistent with the life-cycle hypothesis of saving. It has also been shown that the level of pensions is not sufficient to maintain the con- sumption level of retirees without drawing from previously accumulated savings, being a powerful incentive to increase savings during their working age. See "Saving and Wealth Accumulation of Chinese Rural and Urban Household: A Cross-Sectional and Comparative Study," Yan Wang, MacNamara Fellowship Program, IBRD, October 1990. 6. See J.B. Stepanek, "China's Enduring State Factories: Why Ten Years of Reform Has Left China's Big State Factories Unchanged," in China's Eco- nomic Dilemmas in the 1990s: The Problems of Reforms. Modernization and Interdependence, Joint Economic Committee, Congress of the United States, Vol. 2, April 1991. 7. For a discussion of possible evidence pointing to the existence of upward bias in measuring China's real industrial output growth during the past decade, see T.G. Rawski, "How Fast Has Chinese Industry Grown?", mimeo, March 1991. 8. In some sense this a similar argument miade by Kinds for the unworkability of decentralized socialism in Eastern Europe when there is no "interested party" to represent the owners of capital in enterprises. See "Issues in the Introduction of Market Forces in Eastern European Socialist Econo- mies", in S. Commander, op. cit., pp. 121-154. 9. "Inflation in China: Patterns, Causes and Cures", op. cit., p. 155. 10. See IBRD, "Between Plan and Market," pp. 17-18. 11. fLB wed from Yun-wing Sung in "China Review," on. cit. 12. See Ma Kai, "Retrospect of China's Price Reform in 1990," in China Reform, Vol. 4, #1. 13. For a fuller discussion, see IBRD, op. cit., and forthcoming China Department Working Paper. "Reforming Intergovernmental Fiscal Relations." - 164 - 14. "As central government requirements increased in mid-1980s, they threat- ened to crowd out the new decentralized investments that were fueling China's economic growth. At this point, the government,.unwilling either to reduce its own borrowing or to crowd out decentralized investment, instead shifted to a much more expansionary credit policy. This shift was the proximate cause of inflation," B. Naughton, "Why Has Economic Growth Led to Inflation?," AEA Papers and Proceedin*gs, AER, Vol. 81, No. 2, May 1991. 15. This point is cogently argued by Hsueh and Woo in "China Review", pp. cit. 16. Evidence from Jiangsu suggest that about half of provincial export reve- nues were generated by TVEs in 1990. See China: Economic Development in Jiangsu Province, IBRD, Washington D.C., June 1991. At the national level, rural enterprises in 1990 exported about $13 billion worth of goods, almost 21 percent of China's total. See "The Performance of China's Economy," L. Zinser, in China's Economic Dilemmas in the 1990s, op. cit., p. 117. Chapter II 1. See World Bank's "China: Socialist Economic Development," 1981. 2. See McMillan and Naughton "How to Reform a Planned Economy: Lessons from China," Oxford Review of Economic Policy (1992), and Lindblom "The Science of Muddling Through" (1959). 3. See World Development Report 1991, "The Challenge of Development," Box 6.2, p. 117. 4. See Yusuf (1991) "The Case for Gradualism," mimeo. 5. Sec 41orld Bank "China: Between Plan and Market." 6. Figures from a CASS Survey quoted in MacMillan and Naughton, op. cit. 7. MacMillan and Naughton, op. cit. 8. Among these, two are particularly recommended: Carl Riskin "China's Political Economy," and the Chinese University of Hong Kong "China: Modernization in the 1980s," the latter being the closest to a textbook as we have seen. For an excellent shorter review, see Dwight Perkins "Reforming China's Economic System," Journal of Economic Literature, June 1988. 9. The first three documents referred to in this section have been repro- duced in "Major Documents of the People's Republic of China, 1978-88", China Foreign Languages Press, 1991, and the fourth in "China's Economic Structure Reform" July 1991. - 165 - 10. See Byrd and Lin "China's Rural Industry" and Anthony Ody "Rural Enterprise Development in China, 1986-90," Staff Discussion Paper No. 162. 11. See Yun-Wing Sung "The China-Hong Kong Connection" (1991). 12. See Fernando Montes-Negret "Financial Reform Priorities," World Bank Discussion Papers (forthcoming). 13. Several studies have purported to estimate a high degree of repressed inflation in China, but they ignore the fact that rapid institutional development and financial deepening has reduced velocity. See Feltenstein and Ha "Measurement of Repressed Inflation in China," Journal of Development Studies (1991). 14. For a thorough review of trade reforms, see Nicholas Lardy "Foreign Trade and Economic Reform in China, 1978-90"1 (1992), and World Bank "External Trade and Capital" (1988). 15. While many statistics used in this section are available in various gov- ernment publications, those selected are drawn heavily from other sources, notably: Geng Xiao "What is Special about China's Economic Reforms?" World Bank Socialist Economies Research Unit, Research Paper 23; Chen, Jefferson and Singh "Lessons from China's Economic Reform"; and Jefferson, Rawski and Zheng "Growth, Efficiency and Convergence in China's State-Owned Industry." These papers were drawn up as part of an ongoing World Bank-Chinese Academy of Social Sciences Research Project: "Industrial Reform and Productivity in Chinese Enterprises." 16. World Bank (1992) "Strategies for Reducing Poverty in the 1990s", Report No. 10409-CHA. 17. See Perkins, "Reforming China's Economic System," Journal of Economic Literature, June 1988; and Chen, Jefferson, Rawski, Wang and Zheng, "New Estimates of Fixed Investment and Capital Stock for Chinese State Indus- try," China Quarterly, 1988. 18. See Nicholas Lardy "Foreign Trade and Economic Reform in China, 1978-90" (1992), Chapter 3. 19. See Zafar Khan "Patterns of Direct Foreign Investment in China," World Bank Discussion Papers #130, and Yun-Wing Sung "The China-Hong Kong Con- nection: The Key to China's Open-Door Policy" (1991). 166 - Chapter II 1. China's recent experience with planning is well discussed in Barry Naughton's "China's Experience with Guidance Planning" Journal of Comparative Economies (141, 1990). In particular, he points out that "since the central government could not provide credible projections of its own behavior, the entire planning exercise was undermined." 2. See William A. Byrd, The Market Mechanism and Economic Reforms in China, M.E. Sharp Inc., 1991. Byrd notes that given limits on monitoring such activity, producers and commercial intermediaries have a number of ave- nues to capture the arbitrage profit implicit in the two-tier price sys- tem--inflation of input output coefficients, extracting side payments, levying service fees, etc. He suggests that, largely as a result of shortfalls in plan-allocated inputs, the level of plan fulfillment for several major industrial producer goods in 1987/88 fell to below 95 per- cent whereas earlier periods had seen levels of close to 100 percent. 3. For a discussion of these, see World Bank "World Development Report 1983" and World Bank "Finance and Investment." 4. Providing for production does not mean they must be produced by the state. See Stiglitz (op. cit), p. 40. 5. See Peter Harrold, "Investment System Reform in China: The Role of the State Investment Corporations," and Peter Dittus, "The State Investment System of China: Development Issues and Options," World Bank background papers, 1989. Also see Wang Jiye, "The Investment System" in Nolan and Fureng (eds.), The Chinese Economy and its Future, 1990. 6. The extrabudgetary construction tax applied at a 10 percent rate on investment out of retained earnings financed outside the state budget. See Resource Mobilization and Tax Policy: Issues and Options, World Bank Report #7605-CHA, 1989. 7. For more on the fiscal situation, see Chapter I. Also see Blejer and Szapary, "The Evolving Role of Tax Policy in China," Journal of Compara- tive Economics, 14:1990; Naughton, "Why has Economic Reform led to Infla- tion?" AEA Papers and Proceedings, May 1991; and "Prime Taxation Reform in China's Public Finance" in JEC Study Papers, 1991. 8. See World Bank "China: Reforming the Urban Employment and Wage System," Report No. 10266-CHA. 9. See Cannon, "Spatial Inequality and Regional Policy" in Cannon and Jenkins (eds.), The Geographv of ContemRorarv China: The ImPact of Dent Xiao Pin Is Decade. 10. See Fuh-Wen Tzeng, "The Political Economy of China's Coastal Development Strategy: A Preliminary Analysis" in Asian Survey, March 1991. 11. See China: Socialist Economic Development, Volume 1, p. 74. - 167 - 12. See "The Prospect for TVE Development in the 8th FYP Period" in Economic Forecast and Information (English translation in RMC Economic Research Monitor, July 1991). 13. See R. Dore, Flexible Rigidities: Industrial Policy and Structural Adjustment in the Japanese Economy 1979-80, 1986. ChaRter v 1. A major reason for the delay was government fears of further igniting inflation, which was double-digit most of the time from 1987 to 1990. 2. Since China relies heavily on the railways, the countries selected for comparison are those having the largest railway systems. 3. The high transport intensity is caused by several structural factors: low energy efficiency, demanding a large amount of coal; a large heavy industrial sector; a small service sector; suboptimal location of indus- try, stemming from long-standing, systemic distortions in prices of transport and raw materials; and from past industrial and regional devel- opment policies. 4. A Study of the Soviet Economy, IMF, World Bank, OECD, EBRD, Vol. 3, February 1991. 5. Further, the flexibility built in the 8th FYP should be used to economic advantage, notably to allow engineering design, and therefore investment costs, to be determined by economic analysis rather than by definition at the formulation of the Plan. This approach should allow to enhance the effective utilization of Plan funds for transport. This is especially important regarding Plan's objectives for introduction of modern facili- ties; decisions in roads on establishing tolls, control of access and on number of lanes, or, in railways design speed of fast train services, should be made as result of, and that prior to, the conduct of economic studies. 6. A recent, comprehensive study of coal transport has developed a model that allows to assess the optimal location, type, capacity and type of energy and energy-related transport investments, optimal coal routings and optimal use of mining technologies. Source: China. Coal Transport Study, Asia Region, World Bank and State Planning Commission, China, draft report, June 28, 1991, 7, On almost 26 percent of China's railway network lines (13,841 km), coal constitutes over 40 percent of the freight tonnage carried. Of these heavy coal lines, 48 percent were running at capacity at the beginning of the 8th Plan. Pricing reforms, energy system approaches (e.g, more mine- mouth power plants) and technical measures such as more coal washing are being studied ahd may reduce transport demand but are not expected to lead to significant reductions in rail capacity bottlenecks. - 168 - 8. The need for careful analy6is of future railway capacity expansion, par- ticularly of new lines, is eapecially important in light of recent expe- riences in centrally planned economies. For example, the Soviet Ministry of Railways predicts that railway freight traffic will decline by 12 per- cent through 1991; similarly, during 1989 and 1990, railway traffic in German Democratic Republic, Poland and Rumania dropped by about one third. In all these cases, the main reason appears to be structural changes in the economy, rather than the (temporary) economic downturn. Because China has already implemented substantial economic reforms and transformation of its structure over the last 10-15 years, the situation in China and the CPEs is not fully comparable. The situation is also not comparable due to the higher share of railways in total traffic in other CPEs, for example, in the former Soviet Union 90.9 percent in 1988. China has already diverted much short-distance traffic to the road, and the railways modal share was 57.9 percent in 1990. (Source: A Study of the Soviet.Economy, International Monetary Fund/The World Bank/ Organization for Economic Cooperation and Development/European Bank for Reconstruction and Development, February 1991). 9. Altogether, during the 8th Plan, 60,000 km are expected to be built, aiming at a network of 1.1 million roads by 1995. Emphasis will be given to the construction of the national road system, expected to consist at full development of 110,000 km, divided in some 70 main roads. During the 8th Plan, 4,000 km of national roads will be built, including some 500 km of expressways and an additional 3,500 km of roads exclusively for motorized traffic (Classes I and II roads). These priority roads are selected from 30,000 km of heavily trafficked, highly congested roads. Key 8th Plan projects include: Beijing-Guangzhou; Beijing-Shanghai; Beijing-Harbin; Lianyungang-Lanzhou; Shanghai-Nanjing; Haikou-Sanya; and Kaifeng-Zhengzhou-Luoyang. 10. Traffic densities on these routes range from 17.1 million ton-km/km for the Changjiang main stem to 3.4 million ton-km/km for the Grand Canal. These densities are substantially lower than in other major waterways of the world. For example, the Rhine has 29 million ton-km/km, the St. Lawrence Seaway about 54 million, and the Lower Mississippi about 76 million. Source: China: Water Transport Study, World Bank, 1987. 11. For example, in the recently started construction of the domestically- financed Kaifeng-Zhengzhou Expressway, in Henan Province, highway authorities have been asked to identify the investment components according to the IOT categories, so that taxes will be paid accordingly. 12. Source: Ian Heggie, "Pricing, Cost Recovery and Accountability for Roads in Developing Countries: An Agenda for Reform," World Bank Discussion Paper, Draft Version, March 20, 1991. 13. Road Funding Study, Ministry Of Communications, June 1991. 14. In Tianjin, for example, a foreign venture with a Japanese company pro- vides chassis for the movement of containers and another with a Hong Kong subsidiary of a Dutch company for the construction of bonde6 warehouses within the port. The latter may serve as a model for future bonded ware- houses in other ports. See, "Ports," by Paul Jensen, in China Business Review, November-December 1989. - 169 - 15. Engineering New Record, Vol. 220 #25, June 23, 1988. 16. Based on experience elsewhere with key transport reforms, the 8th Plan's gradualistic approach seems to be a realistic one. For example, deregu- lation of transport industries in the US took about 20 years (or 10 years if the count is started with the collapse of the Penn Central Railway in 1970, which triggered faster action), and deregulation of the bus indus- try took 13 years in the United Kingdom. See The Politics of Deregula- tion, M. Derthic and P.J. Quirk, Brookings Institution, 1986. 17. China: Water Transport Study, World Bank, February 1987. 18. For example, in the United States, although railways, trucking and air- lines were privately-owned, they were severely regulated until the late 1970s, with prices, routes and commodities fully under the control of the federal government. Many such regulations are still in effect in Western Europe, and are expected to be drastically reduced, but not totally eli- minated, when the Common Market takes full effect in 1992. 19. For a detailed analysis of China's automotive policies and operations, .see "China, Industrial Organization and Efficiency Case Study: The Automotive Sector," World Bank, confidential draft, June 20, 1991. 20. "Port Administration: Should Public Ports Be Privatized?" Zvi Raanan, draft Working Paper, World Bank Latin America Region, March 1991. 21. J.F. Doe. Update as of October 1986 in New Railroads Formed to Take Over Lines Abandoned or Spun-off by Major Railroads. Bureau of Economics and Business Research. College of Commerce and Business Administration, University of Illinois, Champlain, Illinois, 1986. 22. See "Privatization in Transport: Contracting-Out the provision of pas- senger railways services in Thailand." Hernan Levy and Aurelio Menendez, Economic Development Institute Working Paper, 1990. 23. "The Changing Role of Railways in Central and Eastern Europe: New Investment Priorities." Lou Thompson, Draft Working Paper, World Bank, 1991. 24. Mission notes. Discussions during Round-Table on Intermodal Transport, June 5, 1991. - 170 - A RMSM-X MODEL FOR CHINA Table of Content. A. Introduction B. The RMSM-X Model for China B. 1 Consistency Framework B.2 Behavioral Structure C. The Debt Module D. Closing the Model 171 - A. Introduction 1. The RMSM-X (Revised Minimum Standard Model - eXtended) is a macroeconomic model with an elementary economic structure. The World Bank' s country operations divisions use the results of this model for several macroeconomic reports, such as Country Economic Memoranda, Country Strategy Papers, and creditworthiness assessments. The present Annex is an outline of the RMSM-X model for China, used to develop the projections presented in Chapter VI of the main report. This model shares a common accounting framework with models developed for other countries, that ensures economic consistency among economic sectors. 2. The RMSM-X macroeconomic model has four components; a consistency framework, a projections module, a debt module, and a module to produce standard tables. It was developed to use "Javelin Plus" software, which is a financial planning and analysis program. Javelin Plus is a variable based software, unlike Lotus 1-2-3 which is space-based, where information is entered directly into the cells of the spreadsheet. The model has a central database with different "views". Data or formulae can be changed in any "view", which will be reflected in other views. For data bass management, including transfer of data, Javelin Plus has a useful import building block option, which can be used, for example, to interact with the Bank's Debt Reporting System. B. The China RMSM-X Model 3. The historical data required by the RMSM-X fall into seven groups that are linked together through the Model: National Accounts, Balance of Payments, Debt tables, Fiscal Accounts, Monetary tables, Trade and an additional worksheet consisting of the data required by the RMSM-X model but not available in other sectors. Whenever data in any of the tables are updated, the model automatically recalculates and generates new projections. 4. The RMSM-X model for China includes four sectors. Government (non financial public sector), Private (non financial private sector), Monetary and Foreign sector. Government includes both central government and local governments, but excludes State-Owned Enterprises. The Monetary sector consists of the Peoples Bank of China (PBC), and the banking sector. B.1. The Consistency Framework 5. The RMSM-X model is based on the flow of funds methodology which assures consistent projections. In a flow of funds model, each source of funds for one sector is also a use of funds for another sector. This system of double entry accounting portrays income, expenditure, savings and investment in such a way that consistency among sectors is achieved by requiring the budget constraints of all economic sectors to be satisfied simultaneously. Each sector must satisfy one of the following budget constraints: Sources of Funds - Uses of Funds or Current Income + Accumulation of Liabilities - Current Expenditure + Accumulation of Assets This Annex is essentially a technical presentation of the model, and does not attempt to describe the economic forces underlying the assumptions or the outcomes of the three scenarios, as these were presented in Chapter VI of the main report. - 172 - or Current Income - Current Expenditure = Accumulation of Assets - Accumulation of Liabilities or Net Savings = Net Accumulation of Wealth 6. Since we have chosen four sectors for China, there are four budget constraints. In. addition there is one overall budget constraint representing the national accounts. In a flow-of-funds framework, sources of funds must equal uses of funds, therefore one equation out of five is linearly dependent on the rest. Thus, if we balance four budget constraints, by definition the fifth one will automatically be eatisfied. All these budget constraints are of identical form. They can also be written as: Current Sources = Current Uses Capital Sources = Capital Uses This separation of current account and capital account, which is sometimes referred to as "above" and "below" the line, focusses on how different sectors finance their current and capital expenditure (savings). 7. There are three stages in building a consistency framework. The first step is identification of total flows in each sector. The next step is to disaggregate each flow based on factor ownership. For instance, interest payments on bonds is a use for the government and a source for private sector. In Table 1 this relationship is reflected by entering interest payments in the column of the government and the row of the private sector. The third step is the sequence in which different sectors are closed. This is determined by the hierarchy of original data sources. Usually, the foreign sector is chosen as the first sector to be closed and this sector would be given priority over other sources in closing other sectors. 8. Table 1 presents the flow of funds matrix for the current account and Table 2 for the capital account. As mentioned earlier, the rows represent the sources of revenue ("incomings") to a sector and the columns represent uses of revenue of that sector ("outgoinga"). FOREIGN SECTOR: Current Account 9. Current revenues of the foreign sector are imports (IMt), interest payments from government (iF,), private (iFp) and monetary sector (iF.); transfer payments from government (TO) and private sector (Ti,); profit remittances from private sector (PR,,) (profit that overseas Chinese send back home), and other factor service payments (OTHFSPf). Similarly current expenditures of the foreign sector are equal to the exports (Xt), transfers from abroad to the government (Tf) and the private sector (Tfp); workers remittances (WR) and profit remittances on Chinese investment from abroad (PRy,,), current official grants (COG), interest payments on foreign reserves (iRES.) and finally foreign savings (Sf) (current account deficit). Foreign savings (Sf) is the residual in the current account of the foreign sector. It is a use for the foreign sector and a source for the. national accounts (see Table 3). IMt + iF, + iFp + iFm + Tgf + Tf + PR. + OTHFSPf= Xt + T4 + Tfp + WR + COG + PRfp + iRESm + Sf - 173 - Exports are introduced at the intersection of the production accounts with the foreign sector with a negative sign. Cap,ital Account 10. The capital account of the foreign sector states that foreign savings (Sf) plus changes in foreign reserves (dARES.) must equal the net financing flow of the foreign debt to the government (dAF,), private (dAFp) and monetary sectors (dAFm); foreign direct investment (DFI),, other long term flows (OTH LT), net flow from the IMF (NDFt), net short term flow (NDSTt), capital flows not elsewhere included (Capf low), official capital grants (KOG) and errors and omissions (E&O). Sf + dARESm = dAF& + dAFp + dAFm + DFI + OTH LT + NDFt + NDSTt + Capflow + KOG + E&O Here net financing inflow to the private sector (dAFp) is the residual. GOVERME: Current Account 11. The governmentIs current revenues consist of direct (TD) aiid indirect tax revenue (TI) less subsidies (Sub), non tax revenue (NTR) current official grants (COG) and transfer payments from abroad (Tf,). Revenues are used to finance interest payments on the foreign debt (iF5), and domestic debt which includes the loans from PBC (iCRg), and domestic bonds (i-B); transfer payments to the private sector (T,) and abroad (Tr), other factor service payments (OTHFSP.), government consumption (C.) and savings (E). Government savings (Sg) is the residual i.e. this is the balancing item betwaen the excess resources over uses (see Table 4). TD + TI - Sub + NTR + COG + Tf = iF5 + iCR9 + iBw + TP + To + OTHFSPO + Cg + S3 Capital Account 12. The government aavingz (S.) together with the increase in net foreign (dAF,) and domestic indebteelness which includes loans from PBC (dCR) and sale of domestic bonds (dB,); and foreign capital grants (KOG) to finance the gross investment of the government (I,) and its capital transfers to the private (dKT.) and monetary sectors (dKT"). Se + dBE + dCRg + dA + NDFt + KOG = Iz + dKT, + dKTp Here dB, is the residual. MONETARY SECTOR: Capital Account 13. For the monetary sector, we start with the capital account and determine its savings (change in net worth) and shift up to the current account. Assets and liabilities, denominated in local currency, are extracted from the balance sheets of Peoples Bank of China and Specialized Banks, and are used to derive the financing flows which are simply the changes in local currency stocks. In the case of foreign debt, to reconcile the stocks and flows three effects have to be considered - the timing effect, the revaluation effect and the cross- currency effect. Timing Effect = (E* - Ea) * $Flow Revaluation Effect = (E - Ew1) * $Stock, Cross-currency Effect = ($Stock - $Stock, - $Flow) * E* - 174 - where E0P = end-of-period exchange rate El = period average exchange rate $Flow US dollar f low of capital reported in the balance of payments $Stock,= last periods debt stock The revaluation and timing effects occur only when stock sources denominated in one currency are converted to flows in another. But these effects don't appear in flow accounts. In order to compensate for these effects in the foreign debt and reserve figures, an item in the liability side of the monetary flow account called "total revaluation effect" is created. This item is equal to the difference between the summation of the three efffects for reserves and summation of the three effects for debt. 14. Liabilities (sources) include increases in demand (dDD,) and time deposits (dTDp), currency in circulation (dCU.), capital grants from government (dKTe>), foreign borrowing (dAF,m) and changes in net worth (dNWm). Assets (uses) are increases in domestic credit to government (dCR) and the private sector (dCR,) (including State-Owned enterprises), plus increase in reserves (dARES.). The monetary sector's changes in net worth (dNWm) closes the capital account. Details are given in Table 5. dDDp + dTDp + dCUp + dKTgm + dAFm + dNWm = dCRa + dCRp + dARESm Current Account 15. Current revenue includes interest payments received from the government (iCRl), private (iCRp), and foreign sectors (iRES.). It is used to pay interest on demand (iDDp) and time deposits (iTDp), interest on the foreign debt ( iFm), changes in net worth (dNWm)x and profits or loss (P&Lm). Given that changes in net worth of the monetary sector was determined in the capital account, profit or loss (P&Lm) becomes the adjusting residual in the current account. It is a use for the monetary sector and is transferred as current source to the private sector. iCR9 + iCRp + iRESm = iDDp + iTDp + iFm + diNWm + P&L,m NATIONAL ACCOUMiS Current Account 16. Consumption by the government (C.) and private sector (CP), savings by the government (S,), private sector (SP), and foreign sector (Sf), and changes in net worth of the monetary sector (dNWm) should equal GDP at factor cost (GDPfc) plus indirect taxes (TI) less subsidies (Sub), plus the resource balance: imports (IMt) minus exports (Xt). This equation is the current price national income (see Table 6). Ct + Cp + Sg + Sp + Sf + dNW= = GDPfc + TI - Sub + (IMt - Xt) Capital Account 17. Investment expenditure by the government (Ig) and private sector (I.) is financed by the savings from the government (S,), private (S.) and foreign sectors (Sf) plus changes in net worth of monetary sector (dNWm). I + Ip = St + Sp + Sf + dNWE - 175 - PRIVATE SECTOR Current Account 18. The private sector receives interest on government bonds (iBp), demand (iDDp) and time deposits (iTDp); transfer payments from governmment (Tsp) and abroad (Ttp), workers remittances from overseas Chinese (WR), profit remittances on overseas Chinese investments (PRfp), output (GDP at factor cost: GDPfc) and profit or loss from monetary sector (P&Lm). It pays direct taxes (TD), depreciation funds and losses of state owned enterprises (NTR), interest on credit from monetary sector (iCRp), interest on foreign loans (iF.), and profit remittances on foreign investment in China (PR1), transfer payments (Tf), consumption (Cp) and the rest is saved (Sp). iBo + iDDp + iTDp + Tp + Tp + WR + PRp + GDPfc + P&Lm= TD + NTR + iCR, + iFp + PRf + Tf + Cp + Sp Private savings (Sp) is the residual. It closes the current account of the private sector. See Table 7 for details. Capital account 19. The private sector capital sources include foreign direct investment (DFI), net foreign loans (dAF,), other long term loans (OTH LT), net short term loans (NDSTt), capital not elsewhere included (Capflow), errors and omissions (E&O), plus increase in capital grants from government (dKT.) and increase in credit from monetary sector (dCRp) plus savings (SP). It is used to finance investment (Ip), purchase of government bonds (dB,), increase in demand (dDDp) and time deposits (dTDp), increase in currency holding (dCUp). DFI + dAFp + OTH LT + NDSTt + Capf low + E&O *- dKTW + dCR + Sp = Ip + dB1p + dDDp + dTDp + dCUp B.2 Behavioral Structure 20. The flow of funds framework developed above for China, is linked to the RMSM-X model that contains the behavioral and technical relationship among variables. These rules describe how income, expenditures, and financial asset holdings of each economic sector in China will evolve over time. The projection period for the model is 1991-2000 and the base year is 1990. Detailed base case assumptions are given in Table 8, and it is these assumptions that are referred to below. Assumptions for the two alternative scenarios in comparison with the base scenario can be found in Table 9. The Real Economy 21. Production in the Chinese domestic economy is broken down into three types of goods - agriculture, industry and services. K GDP = K AGR + K IND + K SER where the prefix K denotes real values. On the supply side GDP and agriculture are assumed to grow at a constant rate of 7.5% and 3.0% p.a respectively, while industry is assumed to grow at faster in the beginning of the decade (ranging from 13.0% to 9.0% p.a) and levels off at 7.5% at the end of the decade (starting from 1998). Given these assumptions the growth rate of services is determined residually/endogenously in the model. 22. On the demand side there are four expenditure items - consumption, investment, exports and imports. The following behavioral rules are used - - 176 - a). Exgorts: Exports are disaggregated into four typos - food, petroleum, manufacturing, and other. Food exports are assumed to grow at 5.0 percent p.a and petroleum exports are expected to decline at 2.0 percent p.a. Manufacturing exports start at 9.5 percent p.a during the beginning of the decade and rise to 10.0 percent by the end of the decade. Other exports and non factor service exports are assumed to grow at 9.0 and 8.5 percent respectively. b). ImRorts: Imports are broken down into five categories - food, consumer goods, petroleum, intermediate goods, and capital goods. Imports are linked to GDP through import-GDP elasticities. Food and petroleum elasticities are assumed to be unity, which translates into a real growth rate of 7.5 percent (real GDP growth rate). Intermediate and manufactured goods elasticities are projected at 1.1. and 1.2 respectively. These five components are added to get the value of total imports on a cif basis, which therefore has an overall elasticity of about 1.1. c). Investment: Investment is linked to GDP through assumption on the incremental capital output ratio (ICOR). GDP is already determined above and given the assumptions on the ICOR, total investment is determined endogenously. ICOR is assumed to decline from 5.2 in 1992 to 4.4 by 2000. Government investment is assumed at 3.5 percent of nominal GDP and thus private investment is the difference between the total investment and government investment. d). Consumption: In the following income equation K GDP = K Ct + K It + K Xt - K IMt all other variables are defined before and thus total consumption is calculated as residual. We assumed government consumption to grow at 10.0 percent p.a, thus making private consumption the true residual. 23. These are the behavioral rules for real variables. Nominal variables are just the product of the respective real variables and the corresponding deflator. This applies to nominal GDP, investment, imports and exports. The deflators for imports and exports are calculated using world market prices projected by the World Bank's commodities division. Consumption deflator is obtained as residual. Fiscal Accounts: All taxes are projected as a fixed percentage of nominal GDP. on the revenue side, direct taxes are calculated at 5.0 percent of nominal GDP, indirect taxes 13.0 percent, non tax revenue at 3.0. Government expenditures in addition to direct consumption and investment noted above, for example subsidies and transfers, are assumed to remain at 5.0 percent of nominal GDP. Assets Market 24. The RMSM-X model integrates both real and monetary blocks. This is the advantage over the earlier RMSM model which included only the real block. There are four assets in the model - money, credit from Peoples Bank of China, domestic bonds. and foreign debt. 25. In the money market, money supply (M2) is projected as a ratio of GDP - the inverse of velocity of circulation - - and it is fixed exogenously at 1.30. This money supply is split into currency, demand deposits and time deposits using ratios that add up to unity (17.0, 41.5, and 42.5 percent respectively). 26. In the domestic bond market, various types of bonds are issued by the government and they are bought by the private sector (both individuals and enterprises). - 177 - 27. In the domestic credit market, total credit of the Peoples Bank of China equals the credit to the government and to the private sector. 28. In the foreign market, the net demand for foreign credit is calculated in the balance of payments current account, which should equal the total supply of foreign credit to the government, monetary and private sectors. 29. We assume that China is not credit constrained in the foreign market. The amount of foreign financing required is transferred to the private commercial borrowing category in the debt model which in turn calculates the interest payments. C. The Debt Module 30. The World Bank's Debt Reporting System (DRS) contains detailed debt information by different types of creditors. The debt module for China consists of 12 types of creditors: 1). IDA, 2). Other Multilateral Concessional, 3). IBRD, 4). Other Multilateral Non-concessional, 5). Bilateral Concessional, 6). Bilateral Non-concessional, 7). Private Bonds, 8). Private Commercial Banks, 9). Other Private, 10). Private Non-Guaranteed, 11). IMP, and 12). Short-term. 31. China has been a creditworthy country in the international capital market and has been in current status regarding its payments on international debt. A simple debt module is developed for China and debt restructuring and other complex options are not considered since they are not relevant for China. 32. The debt module takes into account both the existing (pipeline) debt and new commitments by credit and projects debt stocks, amortization, and interest payments. This data is passed on to the RMSM-X model through import building block option. Then RMSM-X model calculates the required additional foreign borrowing needed, which is referred to as "Gapfil". Finally this Gapfil is transferred to the debt module again. 33. The private commercial borrowing (category 8) is assumed to be the "marginal creditor" for China. This is the category to which the unidentified debt is assumed to be contracted with. The debt module then projects the debts stock, amortization, and interest payments on the unidentified debt or Gapfil. D. Closing the Model 34. There are two types of closing rules - normative, and positive. The purpose of the normative closure rule is to find the fiscal, monetary, and exchange rate policies that are consistent with a given set of macroeconomic policy objectives. This closure rule is relevant for our purpose. The other closure rule is applied to find the effect on the target variables of given fiscal, monetary, and exchange rate policies, and since China has not announced explicit future policies in this area, we have not formulated positive cases. 35. In the goods market private consumption is determined endogenously. Given the money supply in the money market, credit to the private sector and the purchase of government bonds, balances the domestic market. The total inflow of foreign borrowing (after taking pipeline debt into account) is derived in the foreign sector and passed on to the private sector. Closure in this case, given a set of base assumptions and relationships, is ultimately a matter of judgement with respect to these residual variables in relation to past experience and trends in other variables, for example by examining marginal savings rates and debt service ratios. 12 Pay 1992, 10:43 AM C H I N A MATRIX OF SOURCES AND USES OF FUNDS for 1990 (Billion Yuan) CURRENT Govermnent Private Monetary Foreign Production Total ACCOUNT: Sector Sector Sector Sector Account Sources Govermnent TO 71.9 COG 0.0 TI 227.6 250.7 Sector NTR 47.0 Tfg 0.0 -Sub 95.8 Private Tgp 59.0 I P&Lm 56.9 WIR 0.5 GDPfc 1642.2 1833.0 Sector iBgp 2.9 j iDDp 37.6 Tfp 0.4 iTDp 33.3 PRfp 0.0 Monetary iCRg 0.0 iCRp 'i16.1 iRESm 7.4 123.5 FIA Sector Foreign OTHFSPgf 0.4 Tpf 0.0 iFm 1.1 IMt 255.2 -48.7 Sector iFg 2.5 iFp 8.9 -Xt 316.7 Tgf 0.0 PRpf 0.0 Consurntion Cg 146.2 Cp 876.5 dNWm -5.4 Sf -57.1 I 1712.5 & Savings Sg 39.6 Sp 712.7 I I Account TotalUses- -250.7 -1830 -1 5 - -48.7 ---- Total Uses 250.7 1833.0 123.5 -48.7 1712.5 -- - -- - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12 May 1992, 10:43 AN C H I N A MATRIX OF SOURCES AND USES OF FUNDS for 1990 (Billion Yuan) CAPITAL Govermnent Private Monetary Foreign Savings Total ACCOUNT: Sector Sector Sector Sector Account Sources Government I dBgp 10.2 dCRg 17.4 KOG 0.0 Sg 39.6 77.1 Sector jdAFg 11.6 NDFt -1.7 Private dKTgp 9.5 dCRp 261.3 DFI 12.7 Sp 712.7 967.0 Sector I dAFp 1.0 O 0TH IT -9.8 NDSTt -9.6 Capflowe 0.0 E&O -11.1 Monetary dKTgm 0.0 cDDp 105.2 dAFm 3.1 dNWm -5.4 332.3 -8' Sector dTDp 199.5 r Foreign dARESm 53.6 I Sf -57.1 -3.5 Sector Investment Ig 67.6 lp 622.2 IH I689.8 Account Total Uses 77.1 967.0 332.3 -3.8 689.8 - 180 - STATISTICAL APPENDIX 1. National Accounts 2. Balance of Payment. 3. Exports 4. Imports 5. Debt 6. Money, Credit and Interest Rates 7. Fiscal Accounts 8. Agriculture 9. Industry 10. Wages 11. Employment 12. Prices 13. Investment and Inventories 14. Energy 15. Transport - 181 - 1. National Accounts: 1.1. in Current Prices. 1.2. in Constant 1980 Prices. 1.3 Implicit Price Deflators 1980=100 1.4 Percentage Shares to GNP in Current Prices. 1.5 Percentage Shares to GNP in Constant 1980 Prices. 1.6 Percentage Growth Rates in Current Prices 17. Percentage Growth Rates in Constant 1980 Prices. 1.8. Percentage Growth Rates of (1980 based) Implicit Price Deflators. 1.9. Sources of Growth in Constant 1980 Prices. 1.2b. in Constant 1987 Prices. 1.3b. Implicit Price Deflators 1987=100. 1.7b. Percentage Growth Rates in Constant 19e7 Prices. 1.8b. Percentage Growth Rates of (1987 based) Implicit Price Deflators. 1.9b. Sources of Growth in Constant 1987 Prices. 2. Balance of Payments: 2.1. in Billion US$. 2.2. Percentage Growth Rates. 2.3. Factor and Non-factor Services 2.4. Foreign Transfers. 2.5. International Reserves. 3. Exports: 3.1. Merchandise Exports in Million US$). 3.2. Percentage Shares of Merchandise Exports. 3.3. Percentage Growth Rates of Merchandise Exports. 3.4. Exports in Current and Constant 1980 Prices in Million US$. 3.5. Exports in Current and Constant 1987 Prices in Million US$. 3.6. Exports in Current and Constant 1980 Prices in Billion Yuan. 3.7. Exports in Current and Constant 1987 Prices in Billion Yuan. 3.8. Exports of Goods & Non Factor Services in Million US$ & Yuan 3.9. -Implicit Price Indices of Exports of Goods & NF Services. 3.10. Total Exports and its Relative Share in the World Exports. 4. Imports: 4.1. Imports in Million US$). 4.2. Percentage Shares of Imports. 4.3. Percentage Growth Rates of Imports. 4.4. Imports in Current and Constant 1980 Prices in Million US$. 4.5. Imports in Current and Constant 1987 Prices in Million US$. 4.6. Imports in Current and Constant 1980 Prices in Billion Yuan. 4.7. Imports in Current and Constant 1987 Prices in Billion Yuan. 4.8. Imports of Goods & Non Factor Services in Million US$ & Yuan 4.9. Implicit Price Indices of Exports of Goods & NF Services. S. External and Domestic Debt: 5.1. External Debt: Disbursements and Repayments. 5.2. External Debt: Interest and Debt Outstanding. 5.3. External Borrowing: Growth Rate., Ratios and Terms. 5.4. Domestic Debt: Bonds Issued - 182 - 6. Mney. Credit an Ctereut Raste: 6.1. Monetary Survey 1934-91. 6.2. Operations of the People's Bank, 1985-91. 6.3. Monetary and Velocity Developments, 1984-91 (% Growth Rate). 6.4. Specialized and Universal Banks' Assets & Liabilities. 6.5. Balance Sheets of Rural Credit Cooperatives 1986-91. 6.6. Assots of the Specialized Banks. 6.7. Liabilities of the Specialized Banks. 6.8. Profit & Losses of the Specialized Banks. 6.9. Banking System: Nominal Annual Interest Rates on Deposits. 6.10. Banking System: Nominal Annual Interest Rates on Loans for Working capital. 6.11. Banking Syatem: Nominal Annual Interest Rates on Loans for Fixed Capital. 6.12. Banking System: Nominal Annual Interest Rates on Loans for Other Purposes. 7. Pisaal AcountX: 7.1. Structure of Government Revenue in Billion Yuan. 7.2. Structure of Government Revenue as a % of Total Revenue. 7.3. Structure of Government Revenue as a % of GNP. 7.4, Structure of Government Expenditure in Billion Yuan. 7.5. Structure of Government Expenditure as a % of Total Revenue. 7.6. Structure of Government Expenditure as a % of GNP. 7.7. Budget and Its Financing 1978-91. S. AgLriCU1re: 8.1. Production of Major Crops in Million Tons. 8.2. Production of Major Crops in Percentage Growth Rates. 8.3. Total Sown Area in Million Hectares. 8.4. Total Sown Area in Percentage Growth Rates. 8.5. Average Unit Area Yield of.Major Crops in Kg/Hectare. 8.6. Average Unit Area Yield of Major Crops in % Growth Rates. 9. Industrt: 9.1. Gross Output Value of Industry in Billion Yuan. 9.2. Gross Output Value of Industry in Percentage Shares. 9.3. Output of Major Industrial Products in Million Tons. 9.4. Output of Major Industrial Products in % Growth Rates. 9.5. Profits of State Owned Enterprises in Billion Yuan and Percentage Growth Rates. 9.6. Losses of State Owned Enterprises in Billion Yuan and Pe'rQentage Growth Rates. 9.7. Net Profits of State Owned Enterprises in Billion Yuan and Percentage Growth Rates. 9.8. Taxes paid by the State Owned Enterprises in Billion Yuan and Percentage Growth Rates. - 183 - 10. Wages: 10.1. Total Wage Bill of Staff and Workers in Billion Yuan, Percentage Shares and Percentage Growth Rates. 10.2. Average Annual Wage by Sector and Ownership of Staff and Workers, Staff and Workers in State Owned Enterprises and in Urban Collective Owned Enterprises in Billion Yuan. 10.3. Average Annual Wage by Sector and Ownership of Staff and Workers, Staff and Workers in State Owned Enterprises and in Urban Collective Owned Enterprises in % Growth rates. 11 EaDloyMent: 11.1. Social Labor force by Sector in Millions. 11.2. Social Labor force by Sector in Percentage Shares and Growth Rates. 11.3. Social Labor force by Ownership. 12. Prices: 12.1. General Price Indices and Percentage Growth Rates. 12.2. Percentage Growth Rates of Overall Retail Sales Price Index for the Whole Nation. 12.3. Percentage Growth Rates of Overall Retail Price Index. 12.4. Percentage Growth Rate of Cost of Living Index of Goods and Services of Staff and Workers e 12.5. Monthly and Annual Rates of Inflation. 12.6. Price Adjustments during 1990. 13. Investment and Inventories: 13.1. Investment in Fixed Assets: Total and for State Owned Enterprises: in Billion Yuan and Percentage Shares. 13.2. Investment in Capital Construction of State Owned Enterprises by Sector of National Economy in Billion Yuan and Percentage Shares. 13.3. Investment in Capital Construction of State Owned Enterprises by Branch of Industry in Billion Yuan and Percentage Shares. 13.4. Percentage Shares of Investment by Sector. 13.5. Percentage Shares of Investment of State Owned Enterprises by Sector. 13.6. Inventories of Commodities hold by the Agencies Under the Ministry of Commerce: Inventories that have Increased. 13.7. Inventories of Commodities held by the Agencies Under the Ministry of Commerce: Inventories that have Decreased. 13.8. Inventories of Commodities held by the Agencies Under the Ministry of Commerce: Stocks at the end of Period in Billion Yuan and Percentage Shares. 13.9. Inventories of Industrial Products by Branch of Industry in Billion Yuan and Percentage Shares. 14. Energv: 14.1. Total Production and Consumption of Energy and Its Composition. - 184 - 15. Tran20ort: 15 .1. FreigIft Traffic: International Comparisono. 15.2. Freicit Traffic Composition of China. 15.3. Passenger Traffic Composition of China. 15.4. Transport Investment vs. Economic Output. 15.5. Transport Investment by Five Year Plan Periods. 15.6. Railway Asset Utilization: International Comparison. 15.7. Cargo Throughput in Coastal Ports. 15.8. Freight Traffic Volumes: International Comparisons. 15.9. Passenger Traffic Volumes: International Comparisons. 15.10. Railway Traffic Volumes: International Comparisons. 15.11. Railway Network: International Comparisons. 15.12. Road Network: International Comparisons. Table 1.1 : CHINA: National Accounts (in bllitons of yuan in Current prices) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 199 1991 GDP at market prices 358.82 398.88 446.71 477.03 518.93 579.50 693.83 B54.95 9169.95 1133.04 1404.42 1598.58 1774.01 1976.03 GDP at factor cost . . . . . . . , . .. Agrfculture 101.91 126.05 135.80 154.56 175.92 195.87 228.96 253.92 276.44 321.78 383.41 425.22 503.82 531.55 Industry 160.75 177.10 199.68 204.65 215.88 237.02 278.23 344.54 396.71 460.01 578.62 650.62 700.73 822.03 Nfining and quarrying 16.72 18.42 20.77 21.28 22.45 24.65 28.94 35.83 40.46 43.24 62.49 59.21 68.67 80.56 NManfacturing 144.03 158.68 178.91 183.36 193.42 212.37 249.29 308.71 356.24 416.77 516.13 591.41 632.06 741.47 Services, etc. 96.16 95.73 111.23 117.83 127.14 146.61 186.64 256.48 296.80 351.24 442.39 522.73 569.46 622.45 Imports of GNFS 18.33 24.38 29.89 37.52 36.49 42.26 63.59 124.08 148.14 160.85 205.74 222.67 255.18 339.59 Exports of GNFS 17.70 23.40 30.10 41.61 '47.44 49.35 67.12 89.31 120.44 163.11 192.63 211.93 316.74 403.16 Resource balance -0.63 -0.98 0.20 4.09 10.95 7.08 3.53 -34.78 -27.69 2.26 -13.11 -10.74 61.56 63.58 Total Expenditures 359.46 399.86 446.51 472.94 507.98 572.42 690.30 889.72 997.64 1130.78 1417.53 1609.32 1712.46 1912.46 Total consumption, etc 239.66 260.65 302.67 333.65 353.86 396.41 466.13 543.14 602.03 685.52 862.41 994..95 1063.38 1207.07 Generalt goverrment 27.32 33.88 36.93 38.70 42.46 47.17 61.06 71.15 84.28 94.60 1121.11 131.33 152.06 172.61 Private, etc 212.34 226.77 265.74 294.94 311.40 349.23 405.07 471.99 517.75 590.92 750.30 863.62 911.31 1034.46 Statistical discrepancy . . . . . . . . . .. Gross domestic Investment 119.810 139.21 143.84 139.29 154.12 176.01 224.18 346.58 395.61 445.26 555.12 614.37 649.08 705.39 GDFI 96.28 100.69 107.39 96.10 123.04 143.01 183.29 254.32 301.96 364.09 449.65 413.77 445.10 527.85 Nonfinaclat Pub. Sector 66.87 69.94 74.59 66.75 84.53 95.20 118.52 168.05 197.85 229.80 276.28 253.55 292.68 355.82 00 General Government . . . . .. . . ... .. tj State and Local Govt. . . . . . . . . . .. Nonffnaciat Pub. Enterp. . . . . . . . . Private Sector 29.40 30.75 32.80 29.35 38.51 47.81 64.77 86.27 104.11 134.29 173.38 160.23 152.42 172.04 Changes In stocks /a 23.52 38.52 36.45 43.19 31.08 33.01 40.89 92.26 93.65 81.17 105.47 200.60 203.98 177.54 Gross domestfc saving 119.17 138.23 144.04 143.39 165.07 183.10 227.70 311.81 367.91 447.52 542.01 603.63 710.63 768.96 Net factor income -0.01 -0.07 0.29 0.27 0.37 1.40 2.37 0.81 -0.32 -2.94 -2.60 -6.95 -540 -0.16 Not current transfers 1.01 1.02 0.96 0.79 1.00 0.86 0.71 0.50 0.88 0.93 1.55 0.90 0.93 1.73 Gross national saving 120.16 139.18 145.29 144.45 166.U 185.36 230.78 313.12 368.46 445.51 540.96 597.58 706.17 770.53 Net Indirect Taxes . . . . . . . . . .. Indirect Taxes . . . . . . . . . .. Gross national product 358.81 398.81 447.00 477.30 519.30 580.90 696.20 855.76 969.63 1130.10 1401.82 1591.63 1768.61 1975.87 IFS conversion factor 1.6836 1.5550 1.4984 1.7045 1.8925 1.97,57 2.3200 2.9367 3.4528 3.7221 3.7221 3.7651 4.7832 5.3234 IEC conversion factor 1.6836 1.5550 1.4984 1.7045 1.5925 1.9757 2.3200 2.9367 3.4528 3.7221 3.7221 3.7651 4.83 5.3234 GDP at op (curr. mti. UiS$) 213129 256514 298123 279865 274205 293315 299065 291125 280916 304409 377320 424577 370884 371198 REF: NABOP.WKI 06/23/92 Source: CHINA Statistical year book 1990 and 1988 pp.26, 44, 493, and 643 and IMF Recent Economic Developments 01/28/91. Exports and Imports of goods and non-factor services are fromn customs statistics. See Table 2.1 for explanation. Note: /a Includes Investment by enterprises not covered by the plan. Table 1.2 CHINA :NationaL Accounts (in billions of yuan in Constant 1980 prices) 1978 1979 1980 1981 1982 1983 1984 198! 1986 1987 1988 1989 1990 1991 GDP at market prices 385.38 414.73 446.71 466.85 507.39 558.71 639.66 722.67 783.61 871.76 969.55 1013.13 1070.22 1144.93 Met Indirect Taxes . . . ... .. . .*. GOP at factor vost . . . . . . . . . .. Agriculture 129.81 137.13 135.80 145.31 162.02 175.46 198.27 201.84 208.50 218.30 223.76 230.70 248.00 255.93 Industry 163.14 177.33 199.68 2013.07 214.85 235.69 270.81 320.10 351.15 397.50 458.32 481.69 509.15 567.19 Mining and quarrying 16.97 18.44 20.77 21.12 22.34 24.51 28.16 33.29 35.82 37.36 49.50 43.83 49.90 55.58 Nanufacturing 146.17 158.89 178.91 181.95 192.51 211.18 242.65 286.81 315.33 360.13 408.82 437.86 459.25 511.60 services, etc. 92.43 99.67 111.23 118.47 130.53 147.56 170.58 200.73 223.97 255.96 287.47 301.35 313.08 321.81 lwports of GNFS 19.69 25.35 29.89 32.85 29.16 30.07 36.25 53.76 54.44 55.13 69.67 78.09 67.94 77.08 Exports of GNPS 19.01 24.33 30.10 36.78 39.60 39.12 46.34 50.86 63.18 74.52 85.96 90.56 100.27 116.48 Resource balance -0.68 -1.02 0.20 3.94 10.44 9.65 10.08 -2.90 8.13 10.79 16.29 12.48 32.33 39.40 Total Expenditures 386.06 615.75 446.51 462.92 496.95 549.06 629.58 725.57 774.88 852.97 953.25 1001.25 1037.89 1105.53 Total consLaIption, etc 254.93 271.01 302.67 326.59 346.25 379.36 422.91 435.51 458.40 510.37 570.01 611.62 646.32 696.83 General government 29.06 35.23 36.93 37.89 41.55 45.14 55.40 57.05 64.18 70.63 74.10 83.79 91.78 98.95 Private, etc 225.87 235.78 265.74 288.71 304.70 334.22 367.51 378.46 394.23 439.94 495.90 527.83 554.54 597.88 Statistical discrepancy.. . . . . . .. . .. .. . Gross domestic investment 131.13 144.74 143.84 136.32 150.70 169.70 206.67 290.06 316.48 342.60 383.25 389.63 391.57 408.71 GDFI 103.40 104.69 107.39 94.05 120.30 137.87 168.97 214.96 243.96 280.14 310.43 262.41 268.52 305.84 0 NonffnaciaL Pub. Sector 71.8 72.71 74.59 65.33 82.65 91.78 109.26 142.05 159.84 176.82 190.74 160.80 176.57 206.16 r General Government . . . .. . . . .. .. State and Local Govt. . . . . . . . . . .. Nonfinscial Pub. Enterp. . . . . . . . . . .. .. Private Sector 31.5 31.97 32.80 28.72i 37.65 46.09 59.71 72.92 84.11 103.33 119.70 101.61 91.95 99.68 Changes in stocks 27.73 40.05 36.45' 42.27 30.39 31.82 37.70 75.09 72.52 62.46 72.81 127.22 123.05 102.87 Net factor income -0.01 -0.07 0.251 0.26 0.36 1.34 2.16 0.66 -0.25 -2.22 -1.75 -4.32 -3.27 -010 Net current transfers 1.08 1.06 0. 96 0.77 0.98 0.83 0.65 0.41 0.68 0.70 1.04 0.56 0.57 1.00 Gross nationaL product 385.37 414.66 447.00 467.11 507.75 560.05 641.82 723.33 783.37 869.54 967.80 1009.41 1066.95 1144.84 gross domestic saving 130.45 143.12 144.04 139.90 159.45 174.74 208.68 274.99 306.30 343.38 378.81 385.87 407.96 423.14 Gross national saving 131.51 144.71 145.29 140.94 160.79 176.90 211.48 276.06 306.74 341.86 378.10 382.10 405.25 424.04 Capacity to irport 19.01 24.33 30.10 36.43 37.91 35.11 38.26 38.69 44.27 56.51 65.23 74.33 84.33 91.51 Terms of trade adjustment 0.00 0.00 0.00 -0.35 -1.69 -4.61 -8.07 -12.17 -18.91 -18.01 -20.13 -16.25 -15.94 -24.96 Gross domestic income 385.38 414.73 446.71 466.50 505.70 554.10 631.59 710.50 764.70 853.75 948.81 997.48 1054.28 1119.97 Gross national income 385.37 414.66 447.00 466.76 506.06 555.44 633.759 711.16 764.46 851.53 947.06 993.16 1051.01 1119.87 REP: NABOP.WKI1 06/23/92 Souirce: CHINA Statistical Year Book 1988, and Statistical Abstract 1989. Table 1.3: CHINA: National Accounts (Implfcit price deflators 1980=100) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 GOP at market prices 93.11 96.18 100.00 102.18 102.27 103.72 108.47 118.30 123.78 129.97 144.85 157.69 165.76 172.59 GDP at factor cost ., .. .. .. ,. .. .. .. .. .. .. Agriculture * 78.50 91.52 100.00 106.37 108.58 111.6 115.48 125.80 132.58 147.40 171.35 184.32 203.15 207.69 Industry 98.54 '99.87 100.00 100.77 100.48 100.56 102.74 107.64 112.98 115.73 126.25 135.07 137.63 144.93 Nining and quarrying 98.54 99.87 100.00 100.77 100.48 100.56 102.74 107.64 112.98 115.73 126.25 135.07 137.63 144.93 Manufacturing 98.54 99.87 100.00 100.77 100.48 100.56 102.74 107.64 112.98 115.73 126.25 135.07 137.63 144.93 Services, etc. 104.04 96.05 100.00 99.45 97.40 99.36 109.42 127.78 132.52 137.23 153.89 173.47 181.89 193.42 Imports of GNFS 93.11 96.18 100.00 114.23 125.15 140.56 175.41 230.80 272.10 288.63 295.30 285.13 375.59 440.55 Exports of GNFS 93.11 96.18 100.00 113.13 119.79 124.24 144.85 175.58 190.65 218.89 224.08 233.98 315.88 346.13 Terms of trade (Px/Pm) 100.00 100.00 100.00 99.04 95.72 88.39 82.50 76.07 70.07 75.84 75.88 82.06 84.10 78.57 Total Expenditures 93.11 96.18 100.00 102.17 102.22 104.25 109.65 122.62 128.75 132.57 148.70 160.73 164.W9 172.99 Total consuLptton, etc 94.01 96.18 100.00 102.16 102.20 104.49 110.22 124.71 131.33 134.32 151.30 162.68 164.53 173.22 General goverrnment 94.01 96.18 100.00 102.16 102.20 104.49 110.22 124.71 131.33 134.32 151.30 156.74 165.69 174.44 Private, etc 94.01 96.18 100.00 102.16 102.20 104.49 110.22 124.71 131.33 134.32 151.30 163.62 164.34 173.02 Gross domestic investment 91.36 96.18 100.00 102.18 102.27 io3.72 108.47 119.49 125.00 129.97 144.85 157.68 165.76 172.59 GDFI 93.11 96.18 100.00 102.18 102.27 103.72 108.47 118.31 123.78 129.97 144.85 157.68 165.76 172.59 Nonfinaciat Pub. Sector 93.11 96.18 100.00 102.18 102.27 103.72 108.47 118.31 123.78 129.97 144.85 t57.68 163.7t 172.59 General GoverrmTent .. .. .. .. .. .. .. . .. .. . .. .. .. Centrat Govt. .. .. .. . . .. .. .. .. .. .. State and Local Govt. , .. .. .. .. . .. .. .. .. .. J .. Nonfinecial Pub. Enterp. .. .. .. .. .. .. .. .. .. Private Sector 93.11 96.18 100.00 102.18 102.27 103;72 108.47 118.31 123.7 129.97 144.85 157.68 165.76 172.59 Changes In stocks 84.84 96.18 100.00 102.18 102.27 103.72 108.47 122.87 129.12 129.97 144.85 157.68 165.76 172.59 Met factor income 93.11 96.18 100.00 102.17 102.22 104.25 109.65 122.62 128.75 132.57 148.70 160.73 164.99 172.99 Met current transfers 93.11 96.18 100.00 102.17 102.22 104.25 109.65 122.62 128.75 132.57 148.70 160.73 164.99 172.99 Gross natfonal product 93.11 96.18 100.00 102.18 102.27 103.72 108.47 118.31 123.78 129.97 144.85 157.68 165.76 172.59 Gross domestic saving 91.35 96.18 100.00 102.49 103.53 104.78 109.12 113.39 120.11 130.33 143.08 156.43 174.19 181.73 Cross national savifn 91.36 96.18 100.00 102.49 103.52 104.78 109.12 113.42 120.13 130.32 143.07 156.39 174.25 181.71 REF: NABOP.WKI 06/23/92 Source: Table 1.1 divided by Table 1.2. Table 1. CHINA : Mational Accounts (Percentage SHARES to GNP in Current prices) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 GDP at market prices 100.0 100.0 99.9 99.9 99.9 99.8 99.7 99.9 100.0 100.3 100.2 100.4 100.3 100.0 GDP at factor cost Agriculture 28.4 31.6 30.4 32.4 33.9 33.7 32.9 29.7 28.5 28.5 27.4 26.7 28.5 26.9 Indmstry 44.8 44.4 44.7 42.9 41.6 40.8 40.0 40.3 40.9 40.7 41.3 40.9 39.6 41.6 Nining and quarrying Manufacturing Services, etc. 26.8 24.0 24.9 24.7 24.5 25.2 26.8 30.0 30.6 31.1 31.6 32.8 32.2 31.5 Imports of GNFS 5.1 6.1 6.7 7.9 7.0 7.3 9.1 14.5 15.3 14.2 14.7 14.0 14.4 17.2 Exporta of GNFS 4.9 5.9 6.7 8.7 9.1 8.5 9.6 10.4 12.4 14.4 13.7 13.3 17.9 20.4 eource balance -0.2 -0.2 0.0 0.9 2.1 1.2 0.5 -4.1 -2.9 0.2 -0.9 -0.7 3.5 3.2 Total Expenditures 100.2 100.3 99.9 99.1 97.8 98.5 99.2 104.0 102.9 100.1 101.1 101.1 96.8 96.8 Total consuption, etc 66.8 65.4 67.7 69.9 68.1 68.2 67.0 63.5 62.1 60.7 61.5 62.5 60.1 61.1 General goverrmnent 7.6 8.5 8.3 8.1 8.2 8.1 8.8 8.3 8.7 8.4 8.0 8.3 8.6 8.7 Private, etc 59.2 56.9 59.4 61.8 60.0 60.1 58.2 55.2 53.4 52.3 53.5 54.3 51.5 52.4 Statistical discrepancy Gross domestic investment 33.4 34.9 32.2 29.2 29.7 30.3 32.2 40.5 40.8 39.4 39.6 38.6 36.7 35.7 GDFI 26.8 25.2 24.0 20.1 23.7 24.6 26.3 29.7 31.1 32.2 32.1 26.0 25.2 26.7 1 Norifinacial Pub. Sector 18.6 17.5 16.7 14.0 16.3 16.4 17.0 19.6 20.4 20.3 19.7 15.9 16.5 18.0 1- Generat Governnent , 00 Central Govt. . State and Local Govt. Nonfinacial Pub. Enterp. .. e .. . * Private Sector 8.2 77 7.3 6.1 7.i 8.2 9.3 10.1 10.7 11.9 12.4 10.1 8.6 8.7 Changes in stocks 6.6 9.7 8.2 9.0 6.0 5.7 5.9 10.8 9.7 7.2 7.5 12.6 11.5 9.0 Gross domestic saving 33.2 34.7 32.2 30.0 31.8 31.5 32.7 36.4 37.9 39.6 38.7 37.9 40.2 38.9 Not factor incom -0.0 *0.0 0.1 0.1 0.1 0.2 0.3 0.1 -00 -0.3 -0.2 -0.4 -0.3 -0.0 Net current transfers 0.3 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Gross nstional saving 33.5 34.9 32.5 30.3 32.1 31.9 33.1 36.6 38.0 39.4 38.6 37.5 39.9 39.0 Net Indirect Taxes Indirect Taxes . Subsidies Gross national product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 IFS conversion factor . IEC conversion factor GDP at up (curr. mill. USS) REF: NABOP.WK1 06/23192 Source: Table 1.1. Table 1.5 : CHINA National Accounts (Percentage SHARES to GNP in Constant 1980 prices) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 GDP at market prices 100.0 100.0 9.9 99.9 99.9 99.8 99.7 99.9 100.0 100.3 100.2 100.4 100.3 100.0 Mot Indirect Taxes . .. . . .. .. .. . . . GDP at factor.cost .. . . . . . Agriculture 33.i 33.2 30.4 31.i 31.9 31.3 30.i 27.9 26.6 25.1 23.1 22.i 23.2 22.4 Industry 42.3 42.8 44.7 43.5 42.3 42.1 42.2 44.3 44.8 45.7 47.4 47.7 47.7 49.5 Mining and quarrying' 4.4 4.4 4.6 4.5 4.4 4.4 4.4 4.6 4.6 4.3 5.1 4.3 4.7 4.9 Manufacturing 37.9 38.3 40.0 39.0 37.9 37.7 37.8 39.7 40.3 41.4 42.2 43.4 43.0 44.7 Services, etc. 24.0 24.0 24.9 25.4 25.7 26.3 26.6 27.8 28.6 29.4 29.7 29.9 29.3 28.1 Inports of GNFS 5.1 6.1 6.7 7.0 5.7 5.4 5.6 7.4 6.9 6.4 7.2 7.7 6.4 6.7 Exports of GNFS 4.9 5.9 6.7 7.9 7.8 7.1 7.2 7.0 8.1 8.6 8.9 9.0 9.4 10.2 Resource balance -0.2 -0.2 0.0 0.8 2.1 1.7 1.6 -0.4 1.1 2.2 1.7 1.2 3.0 3.4 Total Expenditures 100.2 100.3 99.9 99.1 97.9 98.0 98.1 100.3 98.9 98.1 98.5 99.2 97.3 96.6 Total consumption, etc 66.2 65.4 67.7 69.9 68.2 67.7 65.9 60.2 58.5 58.7 58.9 60.6 60.6 60.9 General government 7.5 8.5 8.3 8.1 8 2 8.1 8.6 7.9 8.2 8.1 7.7 8.3 8.6 8.6 Private, etc 58.6 56.9 59.4 61.8 60.0 59.7 57.3 52.3 50.3 50.6 51.2 52.3 52.0 52.2 Statistical discrepency . . . . . . Gross domestic investment 34.0 34.9 32.2 29.2 29.7 30.3 32.2 40.1 40.4 39.4 39.6 38.6 36.7 35.7 GDFI 26.8 25.2 24.0 20.1 23.7 24.6 26.3 29.7 31.1 32.2 32.1 26.0 25.2 26. Monfinacial Pub. Sector 18.6 17.5 16.7 14.0 16.3 16.4 17.0 19.6 20.4 20.3 19.7 15.9 16.5 18.0 GeneraL Government . . .. 0.0 Central Govt. State and Local Govt. . Nonfinaclal Pub. Enterp. .. .. . .. . . Private Sector 82 7.7 7.3 6.1 7.4 8.2 9.3 10.1 10.7 11.9 12 4 10.1 8.6 8.7 Changes In stocks 7.2 9.7 8.2 9.0 6.0 5.7 5.9 10.4 9.3 7.2 7.5 12.6 11.5 9.0 Net factor income -.00 -0.0 0.1 0.1 0.1 0.2 0.3 0.1 -0.0 -0.3 -0.2 '-0.4 -0.3 -0.0 Not current transfers 0.3 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 Groas nationat product 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Gross dnaestie saving 33.9 34.7 32.2 30.0 31.4 31.2 32.5 38.0 39.1 39.5 39.1 38.2 38.2 37.0 Gross national saving 34.1 34.9 32.5 30.2 31.7 31.6 33.0 38.2 39.2 39.3 39.1 37.9 38.0 37.0 Capacity to inort 4.9 5.9 6.7 7.8 7.5 6.3 6.0 5.3 5.7 6.5 6.7 7.4 7.9 8.0 Term of trade adJustment 0.0 0.0 0.0 -0.1 -0.3 -0.8 -1.3 -1.7 -2.4 -2.1 -2.1 -1.6 -1.5 -2.2 Gross domestc Income 100.0 100.0 99.9 99.9 99.6 98.9 98.4 98.2 97.6 98.2 98.0 98.8 98.8 97.8 Gross national income 100.0 100.0 100.0 99.9 99.7 99.2 98.7 98.3 97.6 97.9 97.9 98.4 98.5 97.8 ..........-.................-.-.....-........ ...-...-. .. .....-........ .....-........ . . . ... .---.....-........-......... ................ ... ... .- REF: NABOP.WK1 06/23/92 Source: Table 1.2. Table 1.6 :CHINA :National Accounts (Percentage GROW4TH RATES in Current prices) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 GDP at market prices .. 11.2 12.0 6.8 8.8 11.7 19.7 23.2 13.5 16.8 24.0 13.8 11.0 11.4 GDP at factor cost . . . . . . . . . . . Agriculture .. 23.7 7.7 13.8 13.8 11.3 16.9 10.9 8.9 16.4 19.2 10.9 18.5 5.5 Industry - . 10.2 12.7 2.5 5.5 9.8 17.4 23.8 15.1 16.0 25.8 12.4 7.7 17.3 Hining and quarrying .. 10.2 12.T 2.5 5.5 9.8 17.4 23.8 12.9 6.9 44.5 -5.3 16.0 17.3 Manufacturina. 10.2 12.? 2.5 5.5 9.8 17.4 23.8 15.4 17.0 23.8 14.6 6.9 17.3 Services, etc. .. -0.5 16.2 5.9 7.9 15.3 27.3 37.4 15.7 18.3 26.0 18.2 8.9 9.3 Imports of GNFS .. 33.0 22.6 25.5 -2.8 15.8 50.5 95.1 19.4 8.6 27.9 8.2 14.6 33.1 Exports of GNFS .. 32.2 28.6 38.3 14.0 4.0 36.0 33.1 34.9 35.4 18.1 10.0 49.5 27.3 Resource balance . . . . . . . . . . . Total Expenditures .. 11.2 11.7 5.9 7.4 12.7 20.6 28.9 12.1 13.3 25.4 13.5 6.4 11.7 Total consLmptlon, etc .. 8.8 16.1 10.2 6.1 12.0 17.6 16.5 10.b 13.9 25.8 15.4 6.9 13.5 General government .. 24.0 9.0 4.8 9.7 11.1 29.4 16.5 18.5 12.2 18.5 17.1 15.8 13.5 Privatet, etc .. 6.8 17.2 11.0 5.6 12.2 16.0 16.5 9.7 14.1 27.0 15.1 5.5 13.5 Statistcal discrepancy . . . . . . . . . . . Gross domestic finvestment .. 16.2 3.3 -3.2 10.6 14.2 27.4 54.6 14.1 12.6 24.7 10.7 5.6 8.7 GDFI .. 4.6 6.7 -10.5 28.0 16.2 28.2 38.8 18.7 20.6 23.5 -8.0 7.6 18.6 Monf nacfaL Pub. Sector .. 4.6 6.7 -10.5 26.6 12.6 24.5 41.8 17.7 16.1 20.2 -8.2 15.4 21.6 General Government .. . . . . . . . . . . . .. State and LocaL Govt. . . . . . . . . . . . . . . Nonfinacial Pub. Enterp. . . . . . . . . . . . Private Sector .. 4.6 6.7 -10.5 31.2 24.2 35.5 33.2 20.7 29.0 29.1 -7.6 -4.9 12.9 Changes in stocks .. 63.8 -5.4 18.5 -28.0 6.2 23.9 125.6 1.5 -13.3 29.9 90.2 1.7 -13.0Ł Gross domestic saving .. 16.0 4.2 -0.5 15.1 10.9 24.4 36.9 18.0 21.6 21.1 11.4 17.7 8.2 met factor fncome.. . . . . . . . . .. . Met current transfers . . . . . . . . . . . Gross national saving . 15.8 4.4 -0.6 15.2 11.4 24.5 35.7 17.7 20.9 21.4 10.5 18.2 9.1 Met Indirect Taxes . . . . . . . . . . . Indirect Taxes . . . . . . . . . . . Gross national product .. 11.1 12.1 6.8 8.8 11.9 19.8 22.9 13.3 16.5 24.0 13.5 11.1 11.7 IFS conversion factor .. -7.6 -3.6 13.8 11.0 4.4 17.4 26.6 17.6 7.8 0.0 1.2 27.0 11.3 IEC conversion factor .. -7.6 -3.6 13.8 11.0 4.4 17.4 26.6 17.6 7.8 0.0 1.2 27.0 11.3 GOP at up Ccurr. mfi. US$) .. 20.4 16.2 -6.1 -2.0 7.0 2.0 -2.7 -3.5 8.4 24.0 12.5 -12.6 0.1 REF: NABOP.WIIK 06/23/92 Source: TabLe 1.1. Table 1.7 : CHINA: National Accounts (Percentage GROWTH RATES in Constant 1980 prices) 1978 1979 1980 1981 1982 1983 1984 1985 1986 198? 1988 1989 1990 1991 GOP at market prices .. 7.6 7.7 4.5 8.7 10.1 14.5 13.0 8.4 11.2 11.2 4.6 5.6 7.0 Not Indirect Taxes . . . . . . . . . . . GDP at factor cost. .. . .. . .. . ... ... Agriculture .. 6.1 -1.4' 7.0 11.5 8.3 13.0 1.8 3.3 4.7 2.5 3.1 7.5 3.2 Industry .. 8.7 12.6 1.7 5.8 9, 7 14.9 18.2 9.7 13.2 15.3 5.1 5.7 11.4 Mining and quarrying .. 8.7 12.6 1.7 5.8 9.7 14.9 18.2 7.6 4.3 32.5 -11.4 13L8 11.4 Manufacturing .. 8.7 12.6 1.7 5.8 9.7 14.9 18.2 9.9 14.2 13.5 7.1 4.9 11.4 Services, etc. .. 7.8 11.6 6.5 10.2 13.0 15.6 17.7 11.6 14.3 12.3 4.8 3.9 2.8 Imports of GHFS .. 28.7 17.9 9.9 -11.2 3.1 20.6 48.3 1.3 2.4 25.0 12.1 -13.0 13.5 Exports of GNFS .. 28.0 23.7 22.2 7.7 0.3 16.7 9.8 24.2 18.0 15.4 5.4 10.7 16.2 Resource balance . . . . . . . . . . . Total Expenditures .. 7.7 7.4 3.7 7.4 10.5 14.7 15.2 6.8 10.1 11.8 5.0 3.7 6.5 Total consunption, etc .. 6.3 11.7 7.9 6.0 9.6 11.5 3.0 5.3 11.3 11.7 7.3 5.7 7.8 General govermvent .. 21.2 4.8 2.6 9.7 8.6 22.7 3.0 12.5 9.7 5.2 13.1 9.5 7.8 Private, etc,. 4.4 12.7 8.6 5.5 9.7 10.0 3.0 4.2 11.6 12.7 6.4 5.1 7.8 Statisticali discrepancy . . . . . . . . . . . Gross domestic investment .. 10.4 -0.6 -5.2 10.5 12.6 21.8 40.'4 9.1 8.3 11.9 1.7 0.5 4.4 GDFI .. 1.2 2.6 -12.4 27.9 14.6 22.6 27.2 13.5 14.8 10.8 -15.5 2.3 13.9 Nonfinaciat Pub. Sector .. 1.2 2.6 -12.4 26.5 11.0 19.0 30.0 12.5 10.6 7.9 -15.7 9.8 16.8 General Govermuent . . . . . . . . . . . state and Local Govt. . . . . . . . . . . . Nonffnacfat Pub. Enterp. . . . . . . . . . . . Private Sector .. 1.2 2.6 -12.6 31.1 22.4 29.5 22.1 15.4 22.8 15.8 -15.1 -9.5 8.4 Changes In stocks .. 44.4 -9.0 16.0 -28.1 4.7 18.5 99.2 -3.4 -13.9 16.6 74.7 -3.3 -16.4 Net factor income . . . . . . . . . . . Net current transfers . . . . . . . . . . . Gross national product .. 7. 7.8 4.5 8.7 10.3 14.6 12.7 8.3 11.0 11. 4.3 5.7 7.3 Gross domestic saving .. 10.2 0.2 -2.9 14.0 9.6 19.4 31.8 11.4 12.1 10.3 1.9 5.7 3.7 Gross nationat saving .. 10.0 0.4 -3.0 14.1 10.0 19.5 30.5 11.1 11.5 10.6 1.1 6.1 4.6 Capacity to Impoart . . . . . . . . . . . Terms of trade adjustment . . . . .. . . . . . ... Gross domestic Income .. 7.6 7.7 4.4 8.4 9.6 14.0 12.5 7.6 11.6 11.1 5.1 5.7 6.2 Gross national income . 7.6 7.8 4.4 8.4 9.8 14.1 12.2 7.5 11.4 11.2 4.9 5.8 6.6 REF: NABOP.WKI 06/23/92 Source: Table 1.2. Table 1.8 CHINA: National Accounts (Percentage GROWTH RATES of 1980 based Ilmpicit price deflators) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 GDP at market prices .. 3.3 4.0 2.2 0.1 1.4 4.6 9.1 4.6 5.0 11.4 8.9 5.1 4.1 GOP at factor cost Agriculture 16.6 9.3 6.4 2.1 2.8 3.4 8.9 5.4 11.2 16.2 7.6 10.2 2.2 Industry 1.4 0.1 0.8 -0.3 0.1 2.2 4.8 5.0 2.4 9.1 7.0 1.9 5.3 Mining and quarrying . . .. . Manufacturing Services, etc . -7.7 4.1 -0.5 -2.1 2.0 10.1 16.8 3.7 3.6 12.1 12.7 4.9 6.3 Imports of GNFS 3.3 4.0 14.2 9.6 12.3 24.8 31.6 17.9 6.1 2.3 -3.4 31.7 17.3 Exports of GNFS 3.3 4.0 13.1 5.9 3.7 16.6 21.2 8.6 14.8 2.4 4.4 35.0 9.6 Terms of Trade (Px/Pm) -0.0 0.0 -1.0 -3.4 -7.7 -6.6 -7.9 -7.9 8.2 0.1 8.1 2.5 -6.6 Totat Expenditures 3.3 4.0 2.2 0.1 2.0 5.2 11.8 5.0 3.0 12.2 8.1 2.7 4.8 Total consumption, etc 2.3 4.0 2.2 0.0 2.2 5.5 13.2 5.3 2.3 12.6 7.5 1.1 5.3 General government 2.3 4.0 2.2 0.0 2.2 5.5 13.2 5.3 2.3 12.6 3.6 5.7 5.3 Private, etc 2.3 4.0 2.2 0.0 2.2 5.5 13.2 5.3 2.3 12.6 8.1 0.4 5.3 Gross domestic investment 5.3 4.0 2.2 0.1 1,.4 4.6 10.2 4.6 4.0 11.5 8.9 5.1 4.1 GDFI . 3.3 4.0 2.2 0.1 1.4 4.6 9.1 4.6 5.0 11.5 8.9 5.1 4.1 Nonfinacial Pub. Sector 3.3 4.0 2.2 0.1 1.4 4.6 9.1 4.6 5.0 11.5 8.9 5.1 4.1 General Government .. . Centrat Govt.. , State and Local Govt. . Nonfinacial Pub. Enterp. . . .. Private Sector 3.3 4.0 2.2 0.1 1.4 4.6 9.1 4.6 5.0 11.5 8.9 5.1 4.1 Changes In stocks .. .. .. . 0.1 1.4 4.6 13.3 5.1 0.7 11.5 8.9 5.1 4.1 Net factor income .. 3.3 4.0 2.2 0.1 2.0 5.2 11.8 5.0 3.0 12.2 8.1 2.7 4.8 Not current transfers .. .. .. 2.2 0.1 2.0 5.2 11.8 5.0 3.0 12.2 8.1 2.7 4.8 Gross national product . 3.3 4.0 2.2 0.1 1.4 4.6 9.1 4.6 5.0 11.5 8.9 5.1 4.1 Gross domestfc saving .. 5.3 4.0 2.5 1.0 1.2 4.1 3.9 5.9 8.5 9.8 9.3 11.4 4.3 Gross notional saving .. 5.3 4.0 2.5 1.0 1.2 4.1 3.9 5.9 8.5 9.8 9.3 11.4 4.3 REF: NABOP.WK1 06/23/92 Source: Table 1.3. Table 1.9: CHINA: Sources of Growth (in Constant 1980 Prices) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 GDP growth rate (actual) .. 7.61 7.71 4.51 8.68 10.11 14.49 12.98 8.43 11.25 11.22 4.56 5.57 6.98 SUPPLY SIDE Agricultur, growth rate .. 6.10 -1.40 7.00 11.50 8.30 13.00 1.80 3.30 4.70 2.50 3.10 7.50 3.20 Industry growth rate .. 8.70 12.60 1.70 5.60 9.70 14.90 18.20 9.70 13.20 15.30 5.10 5.70 11.40 Other growth rate .. 7.83 11.60 6.51 10.18 13.05 15.60 17.68 11.58 14.28 12.31 4.83 3.89 2.79 Agriculture Share into GOP 33.68 33.21 30.40 31.12 31.93 31.40 31.00 27.93 26.61 25.04 23.08 22.76 23.17 22.35 Industry Share Into GOP 42.33 42.76 44.70 43.50 42.34 42.18 42.34 44.29 44.81 45.60 47.27 47.52 47.57 49.54 Other Share into GDP 23.98 24.03 24.90 25.38 25.73 26.41 26.67 27.78 28.58 29.36 29.65 29.73 29.25 28.11 Total Share 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Agr. Share of last year * weight .. 2.05 -0.46 2.13 3.58 2.65 4.08 0.56 0.92 1.25 0.63 0.72 1.71 0.74 Ind. Share of lost year * weight .. 3.68 5.39 0.76 2.52 4.11 6.29 7.71 4.30 5.92 6.98 2.41 2.71 5.42 0th. Share of last year * Weight .. 1.M 2.79 1.62 2.58 3.36 4.12 4.71 3.22 4.08 3.62 1.43 1.16 0.82 Weighted Average Growth rate .. 7.61 7.71 4.51 8.68 10.11 14.49 12.98 8.43 11.25 11.22 4.56 5.57 6.98 DENAND SIDE ........... Total Consuiption growth rate .. 6.31 11.68 7.91 6.02 9.56 11.48 2.98 5.26 11.34 11.69 7.30 5.67 7.81 Gross Domestic Investment gr. rate .. 10.38 -0.62 -5.23 10.55 12.61 21.79 40.35 9.11 8.25 11.86 1.67 0.50 4.38 Exports of goods & NFS growth rate .. 27.98 23.70 22.22 7.66 0.31 16.66 9.77 24.21 17.96 15.36 5.37 10.71 16.16 Imorts of goods * NFS growth rate .. 28.74 17.92 9.88 -11.24 3.13 20.57 48.29 1.27 2.36 25.01 12.09 -13.00 13.45 Total ConsuiRption Share into GDP 66.15 65.35 67.75 69.96 68.24 67.90 66.11 60.26 58.50 58.54 58.79 60.33 60.39 60.86 Gross Domestic Inv. Share Into GDP 34.03 34.90 32.20 29.20 29.70 30.37 32.31 40.14 40.39 39.30 39.53 38.44 36.59 35.70 Exports of GNFS Share into GDP 4.93 5.87 6.74 7.88 7.80 7.11 7.24 7.04 8.06 8.55 8.87 8.93 9.37 10.17 Imports of GNFS Share Into GDP -5.11 -6.11 -6.69 -7.04 -5.75 -5.38 -5.67 -7.44 -6.95 -6.39 -7.19 -7.70 -6.35 -6.73 Total Share 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Total Cons. Shere(-1) * Weight .. 4.17 7.63 5.36 4.21 6.53 7.79 1.97 3.17 6.63 6.84 4.29 3.42 4.72 Gross Dom. Inv. Share(-1)* Weight .. 3.53 -0.22 -1.68 3.08 3.74 6.62 13.04 3.66 3.33 4.66 0.66 0.19 1.60 Exports of GNFS Sher#(-1) * Weight .. 1.38 1.39 1.50 0.60 0.02 1.18 0.71 1.70 1.45 1.31 0.48 0.96 1.51 Irports of GIFS Share(-1) * Weight .. -1.47 -1.10 -0.66 0.79 -0.18 -1.11 -2.74 -0.09 -0.16 -1.60 -0.87 1.00 -0.85 Weighted Average Growth rate .. 7.61 7.71 4.51 8.68 10.11 14.49 12.98 8.43 11.25 11.22 4.56 5.57 6.98 SUPPLY SIDE Contribution to GDP growth In percent Agrfculture .. 26.98 -6.03 47.19 41.22 26.20 28.18 4.30 10.93 11.12 5.58 15.70 30.63 10.62 Industry .. 48.36 69.87 16.85 29.05 40.61 43.38 59.38 11 0.95 52.59 62.19 52.90 48.61 77.69 Other .. 24.65 36.16 35.96 29.73 33.19 28.44 36.32 38.13 36.29 32.23 31.40 20.76 11.69 Total .. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 DEMAND SIDE Totat consuiption .. 54.78 98.99 118.79 48.49 64.52 53.80 15.18 37.56 58.96 60.99 94.17 61.43 67.61 Gross domestic Investment .. 46.38 -2.82 -37.33 35.46 37.02 45.67 100.46 43.36 29.63 41.57 14.45 3.43 22.94 Exports of goods Ł NFS .. 18.13 18.03 33.20 6.95 0.24 8.17 5.45 20.20 12.87 11.70 10.44 17.17 21.69 Imports of goods N NFS .. -19.29 -14.20 -14.66 9.10 -1.78 -7.64 -21.09 -1.12 -1.46 -14.25 -19.06 17.97 -12.23 Total .. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 REF: NABOP.WK1 06/23/92 Source: Table 1.2. NOTE: Other is calculated as residual. Table 1.2b: CHINA: National Accounts (in billions of yuan in Constant 1987 prices) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 CDP at market prices 500.89 539.03 580.60 606.78 659.47 726.17 831.38 939.27 1018.48 1133.04 1260.14 1317.57 1390.99 1488.09 Not Indirect Taxes .. .. .. .. .. .* . .. .. . * GDP at factor cost .. .. .. .. .. .. .. .. .. .. .. Agriculture . 191.34 203.01 200.17 214.18 238.82 258.64 292.26 297.52 307.34 321.78 329.83 340.05 365.56 377.25 Industry 188.80 205.22 231.08 235.01 248.64 272.76 313.40 370.44 406.37 460.01 530.40 557.45 589.22 656.39 Nining and quarrying 19.64 21.34 24.03 24.44 25.86 28.37 32.59 38.53 41.45 43.24 57.28 50.73 57.74 64.33 Nanufacturing 169.16 183.88 207.05 210.57 222.78 244.39 280.81 331.91 364.92 416.77 473.11 506.72 531.48 592.07 Services, etc. 120.75 130.79 149.34 157.58 172.01 194.77 225.72 271.31 304.77 351.24 399.91 420.07 436.21 454.44 laports of GNFS 56.84 73.17 86.91 93.21 77.76 86.04 108.91 166.34 163.96 160.85 198.48 214.13 186.71 206.71 Exports of GNFS 41.61 53.25 68.01 85.20 91.66 93.68 107.68 112.11 138.00 163.11 187.19 201.94 227.25 258.92 Resource batance -15.23 -19.92 -18.89 -8.01 13.90 7.64 -1.23 -54.23 -25.95 2.26 -11.29 -12.19 40.54 52.21 Total Expenditures 516.12 558.95 599.49 614.79 645.57 718.53 832.61 993.50 1044.43 1130.78 1271.43 1329.76 1350.45 1435.88 Total consurption, etc 345.69 370.84 412.55 437.62 449.72 497.98 564.02 616.52 633.12 685.52 773.34 823.37 841.54 904.71 Genral goverrmnent 42.30 54.14 55.61 49.83 40.44 49.06 70.38 108.18 103.60 94.60 107.25 114.40 96.69 101.64 Private, etc 303.39 316.70 356.94 387.79 409.28 448.92 493.64 508.34 529.52 590.92 666.09 708.97 744.86 803.06 Statistical discrepancy . .. .. .. .. .. .. * .n .. *. Gross domestic fnvestment 170.42 188.11 186.94 177.17 195.85 220.55 268.59 376.97 411.32 445.26 498.09 506.39 508.91 531.18 GDFI 134.39 136.06 139.57 122.23 156.35 179.19 219.60 279.38 317.06 364.09 403.46 341.05 348.98 397.49 Nonfinacfal Pub. Sector 93.34 94.50 96.94 84.90 107.42 119.28 142.00 184.61 207.74 229.80 247.89 208.98 229.48 267.94 General Goverrmnent .. .. .. .. .. .. .. .. .. .. .. Centrat Govt... . .. . .. . .. . .. .... ... State and Local Govt. .. .. .. .. .. .. .. .. .. .. .. Nonfinacfal Pub. Enterp. .. .. .. .. .. .. .. .. .. .. Private Sector 41.04 41.55 42.62 37.33 48.94 59.91 77.60 94.77 109.32 134.29 155.57 132.06 119.50 129.55 Changes fn stocks 36.04 52.06 47.38 54.94 39.50 41.36 48.99 97.59 94.26 81.17 94.63 165.34 159.93 133.69 Net factor income -0.02 -0.10 0.39 0.35 0.48 1.78 2.86 0.88 -0.33 -2.94 -2.32 -5.73 -4.34 -0.13 Net current transfers 1.43 1.41 1.27 1.03 1.30 1.10 0.86 0.54 0.91 0.93 1.38 0.74 0.75 1.33 Gross national product 500.87 538.94 580.98 607.13 659.95 727.95 834.24 940.15 1018.15 1130.10 1257.82 1311.84 1386.65 1487.96 Gross domestic saving 168.46 185.16 187.53 187.34 219.19 234.97 274.63 330.35 380.66 447.52 485.44 496.06 553.94 569.8B Gross national saving 169.87 186.47 189.19 188.71 220.97 237.84 278.35 331.77 381.24 445.51 484.50 491.07 550.35 571.08 Capacity to ifrport 54.87 70.22 87.50 103.38 101.10 100.46 114.95 119.72 133.30 t63.1 125.83 203.80 231.75 245.41 Terms of trade adjuistment 13.26 16.97 19.48 18.18 9.43 6.78 7.27 7.61 -4.70 0.00 -1.36 1.86 4.50 -13.51 Gross domestic Income 514.15 556.00 600.08 624.96 668.90 732.95 838.65 946.88 1013.78 1133.04 1258.78 .!19.43 1395.48 1474.58 Gross natfonal fncome 514.13 555.90 600.46 625.31 669.38 734.73 841.52 947.75 1013.45 1130.10 1256.46 1313.70 1391.15 1474.46 Population (in millions) 962.59 975.42 987.05 1000.72 1016.54 1030.08 1043.57 1058.51 1075.07 1093.00 1110.26 1127.04 1143.33 1158.23 Labor Force (in millions) 401.52 410.24 423.61 437.25 452.95 464.36 481.97 498.73 512.82 527.83 543.34 553.29 567.40 583.64 REF: NABOP.WK1 06/23/92 Source; Table 1.1 divided by Table 1.3b. Table 1.3b CHINA: National Accounts (ImpticIt price deflators 1987=100) 1978 1979 1980 1981 1982 ' 1983 1984 1985 1986 1987 1988 1989 1990 1991 GDP at market prices 71.64 74.00 76.94 78.62 78.69 79.80 83.46 91.02 95.23 100.00 111.45 121.33 127.54 132.79 GDP at factor cost .. .. .. .. .. .. .. .. .. AgrIculture 53.26 62.09 67.84 72.16 73.6 75.73 78.34 85.35 89.94 100.00 116.24 125.05 137.82 140.90 Industry * 85.14 86.30 86.41 87.08 86.82 86.90 88.78 93.01 97.62 100.00 109.09 116.71 118.93 125.23 Ninfng and quarrying 85.14 86.30 86.41 87.08 86.82 86.90 88.78 93.01 97.62 100.00 109.09 116.71 118.93 125.23 Manufacturing 85.14 86.30 86.41 87.08 86.82 86.90 88.78 93.01 97.62 100.00 109.09 116.71 118.93 125.23 Services, etc. 79.64 73.19 74.48 74.77 73.91 75.27 82.69 94.54 97.39 100.00 110.62 124.44 130.55 136.97 Inports of GNFS 32.26 33.32 34.40 40.25 46.92 49.12 58.39 74.59 90.35 100.00 103.66 103.99 136.67 164.28 Exports of GNFS 42.54 43.94 44.25 48.84 51.75 52.67 62.33 79.65 87.28 100.00 102.91 104.94 139.38 155.71 Terms of Trade (Px/Pm) 131.86 131.86 128.64 121.34 110.29 107.24 106.75 106.79 96.59 100.00 99.27 100.92 101.98 94.78 Total Expenditures 70.23 72.55 75.41 77.06 77.11 78.64 82.71 92 50 97.12 100.00 112.17 121.24 124.46 130.49 Total consumption, etc 69.99 71.60 74.45 76.06 76.08 77.79 82.06 92.85 97.78 100.00 112.64 121.11 122.49 128.96 General govermnent 69.99 71.60 74.45 76.06 76.08 77.79 82.06 92.85 97.78 100.00 112.64 116.69 123.35 129.87 Private, etc 69.99 71.60 74.45 76.06 76.08 77.79 82.06 92.85 97.78 100.00 112.64 121.81 122.35 128.81 Gross domestic investment 70.30 74.00 76.94 78.62 78.69 79.81 83.46 91.94 96.18 100.00 111.45 121.32 127.54 132.80 GDFI 71.64 74.00 76.94 78.62 78.69 79.81 83.46 91.03 95.24 100.00 111.45 121.32 127.54 132.80 Nonfinaclal Pub. Sector 71.64 74.00 76.94 78.62 78.69 79.81 83.46 91.03 95.24 100.00 111.45 121.32 127.54 132.80 General Governent .. .. .. .. .. .. .. .. .. .. .. .. .. .. State and Local Govt. .. .. .. .. .. .. .. .. .. .. .. Nonfinaclal Pub. Enterp. .. .. .. .. .. .. .. .. .. .. .. .. .. .. Private Sector 71.64 74.00 76.94 78.62 78.69 79.81 83.46 91.03 95.24 100.00 111.45 121.32 127.54 132.80 Changes In stocks 65.28 74.00 76.94 78.62 78.69 79.81 83.46 94.54 99.35 100.00 111.45 121.32 127.54 132.80 Net factor Income 70.23 72.55 75.43 77.06 77.11 78.64 82.71 92.50 97.12 100.00 112.17 121.24 124.46 130.49 Net current transfers 70.23 72.55 75.43 77.06 77.11 78.64 82.71 92.50 97.12 100.00 112.17 121.24 124.46 130.49 Gross national product 71.64 74.00 76.94 78.62 78.69 79.81 83.46 91.03 95.24 100.00 111.45 121.32 127.54 132.80 Gross domestic saving 70.09 73.80 76.73 78.64 79.44 80.40 83.73 87.00 92.16 100.00 109.79 120.03 133.66 139.44 Gross natfonal saving 70.11 73.80 76.74 78.64 79.44 80.40 83.74 87.04 92.18 100.00 109.79 120.01 133.72 139.44 REF: NABOP.WK1 06/23/92 Source: Table 1.3 rebased to 1987. Tabte 1.7b: CHINA: National Accounts (Percentage GROWTH RATES rin Constant 1987 prfces) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 GDP at market prices .. 7.6 7.7 4.5 8.7 10.1 14.5 13.0 8.4 11.2 11.2 4.6 5.6 7.0 Net Indfrect Taxes * *. GOP at factor cost . . . . . . . . . . . Agricutture .. 6.1 -1.4 7.0 11.5 8.3 13.0 1.8 3.3 4.7 2.5 3.1 7.5 3.2 Industry . 8.7 12.6 1.7 5.8 9.7 14.9 18.2 9.7 13.2 15.3 5.1 5.7 11.4 Nining and quarrying . . . . . . . . . . . Nanufacturing . . . . . . . . . . . Services, etc. .. 8.3 14.2 5.5 9.2 13.2 15.9 20.2 12.3 15.2 13.9 5.0 3.8 4.2 lirprts of GNFS .. 28.7 18.8 7.2 -16.6 10.6 26.6 52.7 -1.4 -1.9 23.4 7.9 -12.8 10.7 Exports of GNFS .. 28.0 27.7 25.3 7.6 2.2 14.9 4.1 23.1 18.2 14.8 7.9 12.5 13.9 Resource balance . . . . . . . . . . . Total Expenditures .. 8.3 7.3 2.6 5.0 11.3 15.9 19.3 5.1 8.3 12.4 4.6 1.6 6.3 Total conaumption, etc .. 7.3 11.2 6.1 2.6 10.7 13.3 9.3 2.7 6.3 12.8 6.5 2.2 7.5 Oeneral goverrment .. 28.0 2.7 -10.4 -18.8 21.3 43.5 53.7 -4.2 -6.7 13.4 6.7 -15.5 5.1 Private, etc .. 4.4 12.7 8.6 !1.5 9.7 10.0 3.0 4.2 11.6 12.7 6.4 5.1 7.8 Statistfcal discrepancy . . . . . . . . . . Gross domestic investment .. 10.4 -0.6 -5.2 10.5 12.6 21.8 40.4 9.1 8.3 11.9 1.7 0.5 4.4 GDFI .. 1.2 2.6 -12.4 27.9 14.6 22.6 27.2 13.5 14.8 10.8 -15.5 2.3 13.9 Nonffnacfal Pubd. Sector .. 1.2 2.6 -12.4 26.5 11.0 19.0 30.0 12.5 10.6 7.9 -15.7 9.8 16.8 General Government . . . . .. . . . . . . . a State and Local Govt. . . . . . . . . . . . Nonffnacidt Pub~. Enterp. . . . . - . . . . . . Private Sector .. 1. 2.6 -12.4 31.1 22.4 29.5 22.1 15.4 22.8 15.8 -15.1 -95 8.4 Changes In stocks .. 44.4 -9.0 16.0 -28.1 4.7 18.5 99.2 -3.4 -13.9 16.6 74.7 -3.3 -16.4 Net factor income . . . . . . . . . . . . Net current transfers . . . . . . . . . . . Gross national product .. 7.6 7.8 4.5 8.7 10.3 14.6 12.7 8.3 11.0 11.3 4.3 5.7 7.3 Gross domestic saving .. 9.9 1.3 -0.1 17.0 7.2 16.9 20.3 15.2 17.6 8.5 2.2 11.7 2.9 Gross national saving .. 9.8 1.5 -0.3 17.1 7.6 17.0 19.2 14.9 16.9 8.8 1.4 12.1 3.8 Capacity to laport . . . . . . . . . . . Term of trade adjustment . . . . . . . . . . . Gross domestic Income .. 8.1 7.9 4.1 7.0 9.6 14.4 12.9 7.1 11.8 11.1 4.8 5.8 5.7 Gross national Income. 8.1 8.0 4.1 7.0 9.8 14.5 12.6 6.9 11.5 11.2 4.6 5.9 6.0 REF: NA30P.WK1 06/23/92 Souirce: Table 1.2b Table 1.8b : CHINA: National Accounts (Percentage GROWTH RATES of 1987 based Inypicft price deflators) 1976 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 GDP at market prices .. 3.3 4.0 2.2 0.1 1.4 4.6 9.1 4.6 5.0 11.4 8.9 5.1 4.1 GWP at factor cost .. .. .. .. .. .. .. .. .. .. .. Agrfeulture 16.6 9.3 6.4 2.1 2.8 3.4 8.9 5.4 11.2 16.2 7.6 10.2 2.2 Industry 1.4 0.1 0.8 -0.3 0.1 2.2 4.8 5.0 2.4 9.1 7.0 1.9 5.3 Nfning and quarrying .. .. .. .. .. .. .. .. .. .. .. Manufacturing . . Services, etc. . -8.1 1.8 0.4 -12 1.8 9.8 14.3 3.0 2.7 10.6 12.5 4.9 4.9 Imports of GNFS 3.3 3.2 17.0 16.6 4.7 18.9 27.8 21.1 10.7 3.7 0.3 31.4 20.2 Exports of GNFS . 3.3 0.7 10.4 6.0 1.8 18.3 27.8 9.6 14.6 2.9 2.0 32.8 11.7 Terms of Trade (Px/Pm) -0.0 -2.4 -5.7 -9.1 -2.8 -0.5 0.0 -9.5 3.5 -0.7 1.7 1.0 -7.1 Total Expenditures 3.3 4.0 2.2 0.1 2.0 5.2 11.8 5.0 3.0 12.2 8.1 2.7 4.8 Total consuffptlon, etc 2.3 4.0 2.2 0.0 2.2 5.5 13.2 5.3 2.3 12.6 7.5 1.1 5.3 General goverment .. 2.3 4.0 2.2 0.0 2.2 5.5 13.2 5.3 2.3 12.6 3.6 5.7 5.3 Private, etc . 2.3 4.0 2.2 0.0 2.2 5.5 13.2 5.3 2.3 12.6 8.1 0.4 5.3 Gross domestic investment 5.3 4.0 2.2 0.1 1.4 4.6 10.2 4.6 4.0 11.5 8.9 5.1 4.1 GDFI 3.3 4.0 2.2 0.1 1.4 4.6 9.1 4.6 5.0 11.5 8.9 5.1 4.1 Nonfinacial Pub. Sector 3.3 4.0 2.2 0.1 1.4 4.6 9.1 4.6 5.0 11.5 8.9 5.1 4.1 General Goverment . . .. . .. .. .. .. Central Govt.... State and Local Govt. . .. Nonfinaclal Pub. Enterp. . Private Sector 3.3 4.0 2.2 0.1 1.4 4.6 9.1 4.6 5.0 11.5 8.9 5.1 4.1 Changes fn stocks .. 13.4 4.0 2.2 0.1 1.4 4.6 13.3 5.1 0.7 11.5 8.9 5.1 4.1 Net factor income .. 3.3 4.0 2.2 0.1 2.0 5.2 11.8 5.0 3.0 12.2 8.1 2.7 4.8 Not current transfers 3.3 4.0 2.2 0.1 2.0 5.2 11.8 5.0 3.0 12.2 8.1 2.7 4.8 Gross national product .. 3.3 4.0 Z.2 0.1 1.4 4.6 9.1 4.6 5.0 11.5 8.9 5.1 4.1 Gross domestic saving .. 5.3 4.0 2.5 1.0 1.2 4.1 3.9 5.9 8.5 9.8 9.3 11.4 4.3 Gross natfonal saving . 5.3 4. 2.5 1.0 1.2 4.1 3.9 5.9 8.5 9.8 9.3 11.4 4.3 REF: NABOP.WK1 06/23/92 Source: Toble 1.3b. Table 1.9b: CHINA: Sources of Growth (in Constant 1987 Prices) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 ----------------------------..--.-----.-----------------------------------------------------------------------.-..-----------------r----------------------------- GDP growth rate (actual) .. 7.61 7.71 4.51 8.68 10.11 14.49 12.98 8.43 11.25 11.22 4.56 5.57 6.98 SUPPLY SIDE Agriculture growth rate .. 6.10 -1.40 7.00 11.50 8.30 13.00 1.80 3.30 4.70 2.50 3.10 7.50 3.20 industry growth rate .. 8.70 12.60 1.70 5.80 9.70 14.90 18.20 9.70 13.20 15.30 5.10 5.70 11.40 Other growth rate .. 8.32 14.18 5.52 9.16 13.23 15.89 20.20 12.33 15.25 13.86 5.04 3.84 4.18 Agriculture share Into GDP 38.20 37.66 34.48 35.30 36.21 35.62 35.15 31.68 30.18 28.40 26.17 25.81 26.28 25.35 Industry Share into GDP 37.69 38.07 39.80 38.73 37.70 37.56 37.70 39.44 39.90 40.60 42.09 42.31 42.36 44.11 Other Share into GDP 24.11 24.26 25.72 25.97 26.08 26.82 27.15 28.88 29.92 31.00 31.74 31.88 31.36 30.54 Total Share 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Agr. Share of last year * Weight .. 2.33 -0.53 2.41 4.06 3.01 4.63 0.63 1.05 1.42 0.71 0.81 1.94 0.84 Ind. Share of last year * Weight .. 3.28 4.80 0.68 2.25 3.66 5.60 6.86 3.83 5.27 6.21 2.15 2.41 4.83 0th. Share of last year * Weight .. 2.01 3.44 1.42 2.38 3.45 4.26 5.48 3.56 4.56 4.30 1.60 1.22 1.31 Weighted Average Growth rate .. 7.61 7.71 4.51 8.68 10.11 14.49 12.98 8.43 11.25 11.22 4.56 5.57 6.98 DEMAND SIDE ...... ........ Total ConsuTption growth rate .. 7.27 11.25 6.08 2.76 10.73 13.26 9.31 2.69 8.28 12.81 6.47 2.21 7.51 Gross Domestic Investment gr. rate ,. 10.38 -0.62 -5.23 10.55 12.61 21.79 40.35 9.11 8.25 11.86 1.67 0.50 4.381 Exports of goods & NFS growth rate .. 27.98 27.72 25.26 7.59 2.20 14.94. 4.12 23.09 18.20 14.76 7.88 12.53 13.94 lIorts of goods & NFS growth rate .. 28.74 18.77 7.25 -16.57 10.64 26.58 52.74 -1.44 -1.89 23.39 7.89 -12.81 10.71 Total Consumtion Share into GDP 69.02 68.80 71.06 72.12 68.19 68.58 67.84 65.64 62.16 60.50 61.37 62.49 60.50 60.80 Gross Domestic Inv. Share into GDP 34.02 34.90 32.20 29.20 29.70 30.37 32.31 40.13 40.39 39.30 39.53 38.43 36.59 35.70 Exports of GNFS share into GOP 8.31 9.88 11.71 14.04 13.90 12.90 12.95 11.94 13.55 14.40 14.85 15.33 16.34 17.40 Iports of GNFS Share into GOP -11.35 -13.57 -14.97 -15.36 -11.79 -11.85 -13.10 -17.71 -16.10 -14.20 -15.75 -16.25 -13.42 -13.89 Total Share 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 Total Cons. Share(-1) * Weight .. 5.02 7.74 4.32 1.99 7.32 9.09 6.32 1.77 5.15 7.75 3.97 1.38 4.54 Gross Don. Inv. Share(-)1* Weight .. 3.53 -0.22 -1.68 3.08 3.74 6.62 13.04 3.66 3.33 4.66 0.66 0.19 1.60 Exports of GNFS Share(-1) * Weight .. 2.32 2.74 2.96 1.07 0.31 1.93 0.53 2.76 2.47 2.12 1.17 1.92 2.28 lmports of ONFS Share(-1) * Weight .. -3.26 -2.55 -1.09 2.55 -1.26 -3.15 -6.91 0.25 0.30 -3.32 -1.24 2.08 -1.44 Weighted Average Growth rate . 7.61 7.71 4.51 8.68 10.11 14.49 12.98 8.43 11.25 11.22 4.56 5.57 6.98 SUPPLY SIDE Contribution to GDP growth in percent Agriculture .. 30.60 -6.84 53.52 46.74 29.72 31.96 4.88 12.39 12.61 6.33 17.80 34.74 12.05 Industry .. 43.06 62.21 15.00 25.87 36.16 38.63 52.87 45.36 46.82 55.38 47.10 43.28 69.18 Other .. 26.33 44.62 31.48 27.39 34.12 29.41 42.25 42.24 40.57 38.29 35.10 21.98 18.78 Total .. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 DEMAND SIDE Total consuhption .. 65.92 100.35 95.77 22.95 72.36 62.77 48.67 20.95 45.74 69.09 87.12 24.75 65.05 Gross domestic investment .. 46.38 -2.82 -37.33 35.46 37.02 45.67 100.45 43.35 29.63 41.57 14.45 3.43 22.94 Exports of goods L NES .. 30.53 35.51 65.63 12.28 3.03 13.30 4.11 32.68 21.92 18.94 25.69 34.47 32.61 Imports of goods & NFS .. -42.83 -33.05 -24.07 29.31 -12.41 -21.74 -53.24 3.02 2.71 -29.60 -27.26 37.35 -20.60 total .. 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 REF: NABOP.WKI 06/23/92 Source: Table 1.2b. NOTE: Other is calculated as residual. Table 2.1: CHINA: Balance of Paymeents (bitlions of US dollars) ----------------------------------------------------------------------------------------------------------------- 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Exp. of GS (inct. Wrkrs Remitt.) 11.346 16.009 21.237 25.574 26.624 26.951 31.265 32.063 36.077 45.016 53.386 57.725 68.348 79.623 Exports of GNFS 10.513 15.048 20.085 24.413 25.066 24.977 28.930 30.410 34.883 43.823 51.753 56.287 66.219 75.734 Merchandise (FOB) 9.750 13.660 18.188 22.010 22.330 22.230 26.129 27.350 30.942 39.437 47.518 52.537 62.063 71.911 Mon-factor services 0.763 1.388 1.897 2.403 2.736 2.747 2.801 3.060 3.941 4.386 4.235 3.750 4.156 3.823 Isports of GNFS 10.890 15.6a0 19.950 22.012 19.280 21.391 27.410 42.252 42.904 43.216 55.275 59.140 53.350 63.791 Merchandise (FOB) 9.986 14.379 18.294 20.185 17.680 19.616 25.135 38.745 39.343 39.629 50.687 54.231 48.922 58.496 Mon-factor services 0.904 1.301 1.656 1.827 1.600 1.775 2.275 3.507 3.561 3.587 4.588 4.909 4.428 5.295 Resource balance -0.377 -0.632 0.135 2.401 5.786 3.586 1.520 -11.842 -8.021 0.607 -3.522 -2.853 12.869 11.943 Net factor income -0.008 -0.045 0.195 0.158 0.194 0.707 1.021 0.277 -0.092 -0.790 -0.699 -1.845 -1.129 -0.031 Factor receipts 0.236 0.305 0.512 0.697 1.017 1.528 2.018 1.473 0.986 1.027 1.504 1.362 2.021 3.710 Factor payments 0.244 0.350 0.317 0.539 0.823 0.821 0.997 1.196 1.078 1.817 2.203 3.207 3.150 3.741 Totat interest DUE . .. 0.317 0.539 0.823 0.821 0.997 1.182 1.063 1.815 2.195 3.203 3.146 3.741 Other factor payments and dis .. .. .. .. .. .. .. .. .. .. .. Net current transfers 0.597 0.656 0.640 0.464 0.530 0.436 0.305 0.171 0.255 0.249 0.416 0.238 0.195 0.325 Current Receipts 0.597 0.656 0.640 0.464 0.543 0.446 0.317 0.180 0.266 0.260 0.428 0.247 0.200 0.331 Workers remittances 0.597 0.656 0.640 0.464 0.541 0.446 0.317 0.180 0.208 0.166 0.129 0.076 0.108 0.179 Other curr. transfers 0.000 0.000 0.000 0.000 0.002 0.000 0.000 0.000 0.058 0.094 0.299 0.171 0.092 0.152 Current Payments Q.OOO 0.000 0.000 0.000 0.013 0.010 0.012 0.009 0.011 0.011 0.012 0.009 0.005 0.006 Curr.A/C Bal before Off.Grants 0.212 -0.021 0.970 3.023 6.510 4.729 2.846 -11.394 -7.858 0.066 -3.805 -4.460 11.935 12.237 Off. Capftal Grants 1/ 0.000 -0.030 -0.070 0.108 -0.044 0.075 0.137 0.072 0.124 -0.025 0.003 0.143 0.065 0.134 Curr.A/C Bat after Off.Grants 0.212 -0.051 0.900 3.131 6.466 4.804 2.983 -11.s22 -7.734 0.041 -3.802 -4.317 12.000 12.371 LT Capital Inflows -0.830 0.822 1.830 0.523 0.453 1.097 1.471 4.264 6.934 5.815 7.053 3.212 3.900 2.900 Direct investment .. .. 0.057 0.265 0.386 0.543 1.124 1.031 1.425 1.669 2.344 2.613 2.660 3.340 Net LT Borrowing .. ., 1.926 0.596 0.535 0.986 1.070 4.005 4.851 6.131 6.781 6.023 6.249 3.108 dfabursements .. .. 2.539 1.800 1.837 2.375 2.357 5.302 6.725 8.047 9.130 8.424 9.620 7.425 rep4yments DUE 0.613 1.204 1.302 1.389 1.287 1.297 1.874 1.916 2.349 2.401 3.371 4.317 Other LT Inflows (net) .. . -0.153 -0.338 -0.468 -0.432 -0.723 -0.772 0.658 -1.985 -2.072 -5.424 -5.009 -30548 Adj. to Scheduled Debt Service 0 0 0 0 0 0 0 0 0 0 0 0 0 0 1 Debt Service Not Pald 0 0 0 0 0 0 0 0 0 0 0 0 0 0 a). Interest Not Paid 0 0 0 0 0 0 0 0 0 0 0 0 0 0 b). Principal Not Paid 0 0 0 0 0 0 0 0 0 0 0 0 0 0 2. Arrears Red/Prepayments (-)0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Other iteme (Net) -0.130 -0.168 -2.063 -1.447 -0.828 -2.334 -3.247 1.770 -1.345 -1.630 -1.588 -0.625 -4.330 -1.172 Met short-term capital 0.000 -0.000 0.000 0.000 -0.000 -0.000 0.000 0.819 -0.343 2.145 0.585 -1.89 -0.141 -3.000 Capital flows n.e.i. -1.231 -0.622 -3.734 -2.209 -1.121 -1.980 -2.358 0.860 -1.582 -2.325 -1.079 1.229 -0.976 2.684 Errors and omissions 1.101 0.454 1.671 0.762 0.293 -0.354 -0.889 0.091 0.580 -1.450 -1.094 0.045 -3.213 -0.856 Changes in net reserves 0.748 -0.603 -0.667 -2.207 -6.091 -3.567 -1.207 5.288 2.145 -4.226 -1.663 1.730 -11.570 -14.099 Met credit from IMF 0.000 0.000 0.000 0.524 -0.027 -0.496 0.000 0.000 0.731 -0.081 -0.083 -0.079 -0.490 -0.409 Reserve changes n.e.i 0.748 -0.603 -0.667 -2.731 -6.064 -3.071 -1.207 5.288 1.414 -4.145 -1.580 1.809 -11.080 -13.690 Escrow Account Gross Reserves (excld. Gold) 1.557 2.154 2.545 5.O58 11.349 14.987 17.366 12.728 11.453 16.305 18.541 17.960 29.586 43.674 Gross Reserves (1mt. Gold) 1/ 4.450 8.708 10.091 10.106 17.152 19.83a 21.281 16.881 16.417 22.453 23.751 23.053 34.476 47.500 Nom. Off. (AnM. avg.)(rf) 1.6836 1.5550 1.4984 1.7045 1.8925 1.9757 2.3200 2.9367 3.4528 3.7221 3.7221 3.7651 4.7832 5.3234 Mom. Off. (Endofyear)(ae) 1.5771 1.4962 1.5303 1.7455 1.9227 1.9809 2.7957 3.2015 3.7221 3.7221 3.7221 4.7221 5.2221 5.4342 NUVH-anuf (% change) .. .. .. .. .. .. .. .. .. .. .. . Index Real Eff.(IMF) .. .. .. .. . .. .. .. .. .. Source: CHINA Statistical Yearbook 1990 and IMF. Merchandise exports (fob), and merchandise fIports (cif) are from customs statistics. Exports of non factor services from IMF RED 01/28/91. Merchandise fob imports are calculated by multiplying cif irports by a constant factor 0.917 (from IFS) Imports of.non-factor services are calculated as the difference between CIF and FOB inorts. NOTE: 1/ Gold evaluated at London Price. Table 2.2 : CHINA : Balance of Payments (Percentage GROWTH RATES) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Exports of GNFS 43.1 33.5 21.5 2.7 -0.4 15.8 5.1 14.7 25.6 18.1 8.8 17.6 14.4 Merchandise (FOB) 40.1 33.1 21.0 1.5 -0.4 17.5 4.7 13.1 27.5 20.5 10.6 18.1 15.9 Non-factor services 81.9 36.7 26.7 13.9 0.4 2.0 9.2 28.8 11.3 -3.4 -11.5 10.8 -8.0 lIports of GNFS 44.0 27.2 10.3 -12.4 10.9 28.1 54.1 1.5 0.7 27.9 7.0 -9.8 19.6 Nerchandise (FOB) 44.0 27.2 10.3 -12.4 10.9 28.1 54.1 1.5 0.7 27.9 7.0 -9.8 19.6 Non-factor services 44.0 27.2 10.3 -12.4 10.9 28.1 54.1 1.5 0.7 27.9 7.0 -9.8 19.6 Resource balance . . . .. .. . . Net factor income . Factor receipts 29.2 67.9 36.1 45.9 50.2 32.1 -27.0 -33.1 4.2 46.4 -9.4 48.4 83.6 Factor payments 70.0 52.7 -0.2 21.4 20.0 -9.9 68.6 21.2 45.6 -1.8 18.8 Total interest paid 70.0 52.7 -0.2 21.4 18.6 -10.1 70.7 20.9 45.9 -1.8 18.9 Interest due but not paid . . . .. Other factor payments and dis . . . Net current transfers .. Current Receipts . -2.4 -2735 17.0 -17.9 -28.9 -43.2 47.8 -2.3 64.6 -42.3 -19.0 65.6 Uorkers remittances . -2.4 -27.5 16.6 -17.6 -28.9 -43.2 15.6 -20.2 -22.3 -41.1 42.1 65.6 Other curr. transfers . - .. Current Payments -23.1 20.0 -25.0 22.2 0.0 9.1 -25.0 -44.4 20.0 Curr.A/C Bal lbefore Off.Grants . . o Off. Capital Grants 1/ . . o Curr.A/C Bal after Off.Grants.. .. .. LT Capital Inflows n.e. Direct Investment 34. .934 45.7 40.7 107.0 -8.3 38.2 17.1 40.4 11.5 1.8 25.6 Net LT Borrowing (DRS) . , . .. .. . . . . . disbursements -29.1 2.1 29.3 -0.8 124.9 26.8 19.7 13.5 -7.7 14.2 -22.8 repayments 96.4 8.1 6.7 -7.3 0.8 44.5 2.2 22.6 2.2 40.4 28.1 Other LT Inflows (net) . . . . .. .. Total Other Items (Net) n Net short-term capital . . - . * -. . . - Interest Arrears , .. . Other Net ST Capital t . Capital flows n.e.i. . . . Errors anx omissions . .. .. .. .. .. .. . .. .. .. Changes in net reserves . . Net credit from IMF . Reserve changes n.e. f . - Escrow Account . . . Gross Reserves (exctd. Gold) 38.3 18.2 98.7 124.4 32.1 15.9 -26.7 -10.0 42.4 13.7 -3.1 64.7 47.6 Gross Reserves (ncL. Gold) 1/ .. 95.7 15.9 0.2 69.7 15.6 7.3 -20.7 -2.7 36.8 5.8 -2.9 49.6 37.8 Exchange Rates: Mon. Off. (Ann. avg.)(rf) .. -7.6 -3.6 13.8 11.0 4.4 17.4 26.6 17.6 7.8 0.0 1.2 27.0 11.3 Mom. Off. (Endofyear)(ae) -5.1 2.3 14.1 10.2 3.0 41.1 14.5 16.3 0.0 0.0 26.9 10.6 4.1 MUV/PAC Estimate . . . - . Index Real Eff.(IHF) e -. . - - .. .. .. - . ---***-----------------------*--------,------------ ------- ------- : ----------- --------- ---------- ------- ------- ------- --------*-------- ------- -----.--. REF: NABOP.WK1 06/23/92 Source: Table 2.1. Table 2.3: CHINA :Services (in millions of U.S. Dollars) 1978 1979 1980 1981 1982 1983 1984. 1985 1986 1987 1988 1989 1990 1991 A. Shipment of freight Credit .. 348 553 848 785 786 668 671 705 904 1308 1061 1 9.73 1265 Debit .. 906 118? 1181 635 739 761 1224 850 1186 1387 2382 2139 1975 B. Insurance Credit . . 68 127 225 202 203 224 196 229 252 34.5 332 227 185 Debit .. 32 66 176 89 110 121 69 62 147- 214 187 84 398 C. Other transportation Credit .. 33 106 113 140 171. 209 271 304 152 169 153 480 101 Debit .. 0 0 0 0 0 0 0 0 0 0 0 0 0 D. Port expenses Credit .. 316 385 422 388 381 376 360 306 289 301. 300 289 283 Debit .. 376 566 710 612 611. 560 300 670 1.56 889 370 1106 320 E. Travel receipts Credit .. 413 511 672 703 767 922 979 1227 1693 2078 1707 1738 2537 Debit . .. 69 66 53 150 314 308 387 633 429 1.70 368 F. Profits Credit . .. . . 20 31 2 6 0 10 0 6 0 21 Debit I. . . . 0 0 14 15 2 8 7 46' 9 0. Interest Credit . .. . ..5 707 925 484 216 177, 427 247 667 2005 Debit . . . .. 16 41 92 68 298 457 644 394 480 2351 H. Bank interest and charges 1. Credit .. 305 512 697 992 715 995 897 685 789 1042 1641 2350 2854 Debit .. 624 612 821 624 254 296 464 611 732 978 1264 1536 1752 I. Posts Credit . . . .0 0 0 0 15 12 24 118 159 180 Debit .. . .0 0 0 0 15 14 11 16 13 16 J. Interofficiat Credit . .. . . 36 13 28 130 215 204 137 151 107 84 Debit . . 159 154 223 263 251 150 277 337 239 55 K. Labor income Credit . .. . . 75 96 86 85 51 35 53 52 68 Debit .. . . . .0 0 0 0 0 0 0 0 0 L. Other services Credit .. 210 215 123 407 402 384 448 940 880 458 727 866 705 Debit .. 316 272 376 463 324 563 354 100 150 193 189 291 154 M. Total services NET .. -561 -294 -233 1088 1986 2053 1463 1727 1737 1094 922 2468 278 Credit .. 1693 2409 3100 3753 4275 4819 4533 4927 5413 6327 6497 8872 10187 D eb it .. 2254 21703 33233 22665 2289 2766 3070 3200 3676 5233 5575 6404 7400 N. Factor Services NET -- -319 -100 -124 376 1233 1630 927 62 -164 -126 -303 1226 -402 Receipts (Credit) .. 305 512 697 1017 1528 2018 1473 986 1027 1504 1362 3288 3710 Pavmlets (Debit) .. 624 612 821 641 295 388 546 924 1191 1630 1665 2062 4112 OTHER FACTOR RECEIPTS (ADJUSTMENT) 0 0 0 -585 219 -1238 0. Non-Factor Services NET Receipts (Credit) - 1388 1897 2403 2736 2747 2801 3060 3941 4386 4235 3750 4711 5057 Payments (Debit) IMF definition . 1630 2091 2512 2024 1994 2378 2524 2276 2485 3603 3910 4342 3288 Paymnents (Debit) IFS definition -. 1301 1656 1827 1600 1775 2275 3507 3561 3587 4588 4909 4428 5295 (Imports cif customs basis * 0.083) OTHER NON-FACTOR RECEIPTS (ADJUSTMENT) 0 0 -588 -1385 -873 . -1420 Source: IMF Recent Economnic Developments 01/28/91 pp. 120, 01/17/90 pp.69 for 1984-89, 10/24/85 pp.115 for 1981-83. 11/03/83 pp.100 for 1979-80; and BESD data base file IMFBOPFC (which is identical to the data in IMF Recent Developments). Table 2.4: CHINA : Transfers (In millions of U.S. Doltars) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Private unrequited transfers NET . 656 640 464 530 436 305 171 255 249 416 238 195 325 Credit .. 656 640 464 543 446 317 180 266 260 428 24? 200 331 Debit .. 0 0 0 13 10 12 9 11 11 12 9 5 6 Nonresident remittances NET .. 656 640 464 538 444 315 177 205 163 125 73 105 175 Credit .. 656 640 464 541 446 317 180 208 166 129 76 108 179 Debit .. 0 0 0 3 2 2 3 3 3 4 3 3 4 Migrants' transfers NET .. .. .. .. -8 -8 -10 -6 50 86 291 165 90 150 Credit .. .. .. .. 2 0 0 0 58 94 299 171 92 152 Debft .. .. .. .. 10 8 10 6 8 8 8 6 2 2 Public unrequited transfers NET .. -30 -70 108 -44 75 137 72 124 -25 3 143 65 134 Credit .. 0 21 156 129 174 279 259 250 129 140 230 123 204 Debit .. 30 91 48 173 99 142 187 126 154 137 87 58 70 International organizations NET .. .. .. .. .. .. . 21 96 24 42 82 61 102 Credit .. .. .. .. .. .. .. 63 140 58 61 120 63 104 Debit .. .. .. .. .. .. .. 42 44 34 19 38 2 2 Grants and aid NET .. .. .. .. .. .. .. 52 28 -49 -39 61 5 33 Credit .. .. .. .. .. .. .. 197 110 71 79 110 60 99 Debit .. .. . .. . .. .. 145 82 120 118 49 55 66 TOTAL TRANSFERS NET .. 626 570 572 486 511 442 243 379 224 419 381 260 459 Credit .. 656 661 620 672 620 596 439 516 389 568 477 323 535 Debit . 30 91 48 186 109 154 196 137 165 149 96 63 76 ---------------*------ ---,-------------------------.,---------------- --- ----------------------- ---------------------------------- --------,,-----------------we----s*"^ s----- w->--- REF: NABOP.WK1 06/23/92 Source: IMF Recent Economic Developments 01/22/91 p. 121 for 1986-90; 01/17/90 pp.70 for 1985,01/30/89 pp.89 for 84,10/24/85 pp.115 for 1981-3, 11/03/83 pp.100 for 1979-80. Table 2.5: CHINA: INTERNATIONAL RESERVES (US$ mittlon) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Totat Reserves (minus Gold) 1d) 1557 2154 2545 5058 11349 14987 17366 12728 11453 16305 18541 17960 29586 43674 SCRUB (lb.d) 0 0 92 275 214 335 406 483 569 640 58 540 562 577 Reserve Position with Fund(lc.d) 0 0 191 0 0 176 255 332 370 429 407 398 430 433 Foreign Exchange Reserves (ld.d) 1557 2154 2262 4783 11135 14476 16705 11913 10514 15236 17548 17022 28594 42664 G 0 L D Gotd (mill. fine troy ounces)(lad) 12.8 12.8 12.8 12.7 12.7 12.7 12.7 12.7 12.7 12.7 12.7 12.7 12.7 12.7 Gold (National valuation)1/ (land) 584 590 571 516 491 464 435 486 541 629 594 587 623 634 London Gold Price(USS per oz)(c) 226 512 590 398 457 382 308 327 391 484 410 401 385 354 Gold at London Price (Mflliton Uso 2893 6554 7546 5048 5803 4845 3915 4153 4964 6148 5210 5093 4890 4491 Total Reserves fnct. Gold (National 2141 2744 3116 5574 11840 15451 17801 13214 11994 16934 19135 18547 30209 44308 Total Reserves fnct. Gold (London P 4450 8708 10091 10106 17152 19832 21281 16881 16417 22453 23751 23053 34476 48165 REF: NABOP.WK1 06/23/92 Source: IFS 3/1991, IMF RED 01/28/91 p.113. Note: IFS line numbers fn perenthesis. 1/ Gold vaLued at SDR 35 per fine ounce. Table 3.1 :CHINA :Commodity Compositfon of Merchandise Exports (US $ million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 PRIMARY GOODS SO'S1+S2'S3+S4 9137 10251 10033 9623 11934 13828 1 1272 13231 14407 15077 15857 16213 FOOD S0 2999 2925 2909 2854 3232 3803 4448 4781 5890 6145 6592 7226 of which Live aninuls chiefly for food DOO .. . . 326 304 338 348 386 395 430 439 Neat and meat products DO . . .. . 456 445 483 520 585 657 791 906 Ffshes,shell-fish,motLuscs etc. D03 . . . . 305 283 491 721 969 1039 1370 1181 Grain and grain products D04 ... . . 444 1065 898 579 681 719 614 1169 Vegetables and fruits DOS an- . . 2 825 1092 129 1617 1623 1742 1946 Coffee, tea,cocoa etc. D07 . . .. 449 435 466 488 524 568 534 491 NON-FOOD S2 1726 2098 1810 2102 2421 2653 2908 3650 4257 4212 3537 3486 of which ofl seeds 9 oil-containing fruits D22 . . .. 505 487 580 674 684 645 619 741 Textile fibers etc. D26 .. . . 929 1145 1160 1508 1672 1546 1095 1125 Animal and vegetable raw materfias 029 60 89 78 10 442 398 486 645 724 845 809 705 MINERAL FUELS S3 4273 5228 5314 4667 6027 7132 3683 4544 3950 4321 5225 4821 of which Coal, coke and briquettes 032 - . . . 322 349 455 536 594 680 755 829 Petroteum,petroleium products etc. 033 . . .. 5701 6777 3224 4003 3350 3633 4460 3975 OTHER S1+54 139 0 0 0 254 240 233 256 310 400 503 679 MANUFACTURED GOODS S5es6+S7+S8.S9 9051 11759 12297 12607 14195 13522 19670 26206 33110 37460 46206 55698 CHEMICALS 9 RELATED PRODUCT& ~ S5 1125 1342 119 1251 1364 1358 1733 2235 2897 3201 3730 3818 of which Organic 051 - . . . 294 309 411 500 575 690 88 911 Inorganic D52 .. . . -- 283 287 379 553 762 791 842 913 LIGHT INDUSTRY S6 4019 4706 4302 4366 5054 4493 5886 8570 10489 10897 12576 14456 of which Yarn,fabrics,mamuf. goods etc. 065 . . . 3093 3243 4220 5790 6456 6994 6999 774 Won-metalitc minerals 066 -. .- . . 260 227 317 439 5719 79 1316 1668 MetaL pro&cts D67 . ... 477 426 553 797 1006 1210 1283 1669 MACHINERY 9 TRANSPORT EQUIPMENT 57 846 1087 1263 1220 1493 772 1094 1741 2769 3874 5588 7149 OTHER S8 2850 3725 3702 38S05 4687 3486 4948 6273 8268 10755 12687 16620 Clothing and garments 084 . . .. 2653 2050 2913 3749 4872 6130 6848 8998 PRODUCTS NOT CLASSIFIED ELSEWHERE 59 210 899 1834 1965 1597 3413 6009 7387 8687 8733 11625 13655 TOTAL 18108 22010 22330 22230 26129 27350 30942 39437 47518 52537 62063 71910 REF: EXPORTS.WK1 06/23/92 Source: CHINA Customs Statistics 1992.1 for 1990, 1991.1 for 1990; Statistical Yearbook 1990 pp.603 for 1988-9, 1988 pp.644 for 1987, 1986; 1987 pp.520 for 1985; 1986 pp.482 for 1984; 1985 pp.494 for 1983; 1984 pp.381 for 1982; 1983 pp.405 for 1981; 1981 pp.73 for 1980. Table 3.2 : CHINA :Coonuodity Composition of Merchandise Exports (Percentage Shares) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 199 1991 PRIMARY GOODS SO+S1+S2+S3+s4 50.2 46.6 44.9 43.3 45.7 50.6 36.4 33.5 30.3 28.7 25.5 22.5 FOOD s0 16.5 13.3 13.0 12.8 12.4 13.9 14.4 12.1 12.4 11.7 10.6 10.0 of which Live animals chiefly for food D0OO . .. . 1.2 1.1 1.1 0.9 0.8 0.8 0.7' 0.6 Neat and mea't products DOI . . . . 1.7 1.6 1.6 1.3 1.2 1.2 1.3 1.3 Flshes,shetl-flsh1,moLtuscs etc. D03 . . .. 1.2 1.0 1.6 1.8 2.0 2.0 2.2 1.6 Grain and grain products D04 . . . .. 1.7 3.9 ,2.9 1.5 1.4 1.4 1.0 1.6 Vegetables and fruits DO05 . . . 3.2 3.0 3.5 3.3 3.4 3.1 2.8 2.7 Coffee, tea,cocoa etc. DO07 . . . 1.7 1.6 1.5 1.2 1.1 1.1 0.9 0.7 NON -FOOD S2 9.5 9.5 8.1 9.5 9.3 9.7 9.4 9.3 9.0 8.0 5.7 4.8 of which Oft seeds & oil-containing fruits D22 . . . .. 1.9 1.8 1.9 1.7 1.4 1.2 1.0 1.0 Textile fibers etc. 026 . .. . .. 3.6 4.2 3.7 3.8 3.5 2.9 1.8 1.6 Animal and vegetable raw materials 029 0.3 0.4 0.3 0.5 1.7 1.5 1.6 1.6 1.5 1.6 1.3 1.0 MINERAL FUELS 83 23.5 23.8 23.8 21.0 23.1 26.1 11.9 1-1.5 8.3 8.2 8.4 6.7 of which Coal, coke and briquettes D32 . .. . .. 1.2 1.3 1.5 1.4 1.2 1.3 1.2 1.2 Petroteum,petroteum products etc. D33 . . . .. 21.8 24.8 10.4 10.2 7.0 6.9 7.2 5.5 OTHER 81I+S4 0.8 0.0 0.0 0.0 1.0 0.9 0.8 0.6 0.7 0.8 0.8 0.9 0n MANUFACTURED GOODS S5+s6+s7+s8's9 49.8 53.4 55.1 56.7 54.3 49.4 63.6 66.5 69.7 71.3 74.5 77.5 CHEMICALS & RELATED PRODUCTS 55 6.2 6.1 5.4 5.6 5.2 5.0 5.6 5.7 6.1 6.1 6.0 5.3 of which organic D51 . . . . 1.1 1.1 1.3 1.3 1.2 1.3 1.4 1.3 Inorganic D52 . .. . . 1.1 1.0 1.2 1.4 1.6 1.5 1.4 1.3 LIGHT INDUSTRY 86 22.1 21.4 19.3 19.6 19.3 16.4 19.0 21.7 22.1 20.7 20.3 20.1 of which Yarm fabrics,manuf. goods etc. D65 . . . .. 11.8 11.9 13.6 14.7 13.6 13.3 11.3 10.8 Non-ferrous metals D68 . - .. 1.0 0.8 1.0 1.1 1.2 1.5 2.1 2.3 MetaL products D67 . , . .. 1.8 1.6 1.8 2.0 2.1 2.3 2.1 2.3 MACHINERY & TRANSPORT EQUIPMENT S7 4.7 4.9 5.7 5.5 5.7 2.8 3.5 4.4 5.8 7.4 9.0 9.9 OTHER S8 15.7 16.9 16.6 17.1 17.9 12.7 16.0 15.9 17.4 20.5 20.4 23.1 CLothing and garments D84 .. . . . 1.2 7.5 9.4 9.5 10.3 11.7 11.0 12.5 PRODUCTS NOT CLASSIFIED ELSEWHERE S9 1.2 4.1 8.2 8.8 6.1 12.5 19.4 18.7 18.3 16.6 18.7 19.0 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 REF: EXPORTS.WK1 06/23/92 Source: Table 3.1. Table 3.3 :CHINA :Commnodity Composition of Merchandise E ports (Percentage Growth Rates) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 PRIMARY GOCODS SO+sl+s2+S3+S4 .. 12.2 -2.1 -4.1 24.0 15.9 -18.5 17.4 8.9 4.7 5.2 2.2 FOOD so -2.5 -0.5 -1.9 13.2 17.7 17.0 7.5 23.2 4.3 7.3 9.6 of which Live animals chiefly for food D0OO . . . . -6.7 11.2 3.0 11.0 2.3 8.8 2.2 neat and meat products D0OI . . .. . -1.8 7.8 7.7 12.5 12.2 20.5 14.5 Fishes,sheLt-fish,motLuscs etc. D03 .. . . . . -7.2 73.5 46.8 34.3 7.3 31.8 -13.8 Grain and grain products D04 .. . . . . 139.9 -15.7 -35.5 17.6 5.6 -14.7 90.5 Vegetables anvd fruits D05 .. . . . . -0.5 32.4 '18.1 25.3 0.4 7.3 11.7 Coffee, tea,cocoa etc. DOT .. . . . . -3.1 7.1 4.7 7.4 8.3 -6.0 -8.1 NOW-FOOD 52 .. 21.5 -13.7 16.1 15.2 9.6 9.6 25.5 16.6 -1.1 -16.0 -1.5 of which Oil seeds & oil-containing fruits D22 .. . . . . -3.6 19.1 16.2 1.4 -5.6 -4.1 19.8 TextiLe fibers etc. 026 .. . . . . 23.3 1.3 30.0 10.9 -7.5 -29.1 2.7 Animal and vegetable raw materials 029 .. 49'.1 -12.4 34.6 321.0 -10.0 22.1 32.7 12.3 16.6 -4.2 -12.9 MINERAL FUELS S3 .. 22.4 1.6 -12.2 29.1 18.3 -48.4 23.4 -13.1 9.4 20.9 -7.7 of which Coal, coke and briquettes 032 . . .. ... 8.4 30.4 17.8 10.8 14.6 11.0 9.9 Petroteum,petroteum products etc. 033 .. . . - . 18.9 -52.4 24.2 -16.3 8.4 22.8 -10.9 OTHER S14S4 -. . . . . -5.5 -2.9 9.9 21.3 28.8 25.7 35.1 0I. MANUFACTUREO GOODS S5+S6.S7.SS+S9 .. 29.9 4.6 2.5 12.6 -4.7 45.5 33.2 26.3 13.1 23.3 20.5 CHEMICALS & RELATED PRODUCTS S55 . 19.3 -10.9 4.6 9.0 -0.4 27.6 29.0 29.6 10.5 16.5 2.4 of which Organic D51 .. . . . . 5.1 33.0 21.7 15.1 19.9 21.5 8.7 Inorganic 052 .. . . . . 1.4 32.1 45.9 37.8 3.8 6.5 8.4 LIGHT INDUSTRY S6 .. 17.1 -8.6 1.5 15.8 -11.1 31.0 45.6 22.4 3.9 15.4 14.9 of which Yarn,fabrics,manuf. goods etc. 065 _. . . . . 4.8 30.1 37.2 11.5 8.3 0.1 10.5 Mon-ferrou.s metaLs D68 . . ... -2.7 39.6 38.5 31.9 36.7 66.2 26.8 Metal prodbcts 067 .. . . . . -10.7 29.8 44.1 26.2 20.3 6.0 30.1 MACHINERY & TRANSPORT EQUJIPMENT Si . 28.4 16.2 -3.4 22.4 -48.3 41.7 .59.1 59.1 39.9 44.3 27.9 OTHER s8e . 30.7 -0.6 2.8 23.2 -25.6 41.9 26.8 31.8 30.1 18.0 31.0 CLothing and garments D84 .. . . . . -22.7 42.1 28.7 29.9 25.8 11.7 31.4 PRODUCTS NOT CLASSIFIED ELSEWHERE S9 . .. 104.0 7.1 -18.7 113.7 76.1 22.9 17.6 0.5 33.1 17.5 TOTAL .. 21.0 1.5 -0.4 17.5 4.7 13.1 27.5 20.5 10.8 18.1 15.9 REF: EXPORTS.WKI 06/23/92 Source: Table 3.1. Table 3.4: CHINA: Merchandise Exports In Current Prices and Constant (1980) Prices Merchandise Exports in Current Prices (USS million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food (SO.S1+S4) 3138 2925 2909 2854 3486 4043 4681 5037 6200 6544 7094 7906 Petroleun (M3) 4273 5228 5314 4667 6027 7132 3683 4544 3950 4321 5225 4821 Manufacturing (S5S+S6+S7+S8.S9) 9051 11759 12297 12607 14195 13522 19670 26206 33110 37460 46206 55698 Other (S2) 1726 2098 1810 2102 2421 2653 2908 3650 4257 4212 3537 3486 Total 18188 22010 22330 22230 26129 27350 30942 39437 47518 52537 62063 71910 Source: Table 3.1. Price Indices (in US dollars) 1980=100 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food (SO+S1+S4) food 100.00 87.09 78.13 84.68 92.20 80.35 72.35 55.49 61.18 58.00 50.58 47.21 Petroleum (S3) petroleum 100.00 112.01 102.81 95.40 95.40 91.84 39.40 45.68 33.68 40.62 50.19 39.87 Manufacturing (S5.S6+S7+S8+S9) muv 100.00 100.41 98.87 96.62 94.56 95.32 112.39 123.45 132.44 131.47 139.28 141.73 Other (S2) non-food 100.00 86.55 77.42 88.99 84.67 70.56 54.37 61.43 58.14 58.51 55.79 52.30 Source: World Bank Comrodity Projections; IECCM 07/18/91 Growth Rate of Price Indices in US dollars (Percentage) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food (S0+S1+S4) food .. -12.91 -10.29 8.38 8.87 -12.85 -9.95 -23.30 10.24 -5.20 -12.79 -6.67 Petroleum (S3) petroleuL .. 12.01 -8.21 -7.21 0.00 -3.74 -57.10 15.95 -26.28 20.61 23.56 -20.56 Manufacturing (Ss+S6+S7+S8+s9) muv .. 0.41 -1.54 -2.28 -2.13 0.81 17.91 9.84 7.28 -0.73 5.94 1.76 other (S2) non-food .. -13.45 -10.54 14.95 -4.86 -16.67 -22.93 12.98 -5.36 0.65 -4.66 -6.24 Merchandise Exports in 1980 Constant Prices (USS million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food (50+S1+S4) 3138 3359 3723 3370 3781 5032 6470 9077 10136 11284 14027 16747 Petroleum (S3) 4273 4668 5169 4892 6317 7766 9348 9946 11729 10638 10411 12093 Manufacturing (S5+S6+S7+s8+S9) 9051 11711 12438 13049 15012 14186 17501 21228 25001 28492 33175 39298 Other (02) 1726 2424 2338 2362 2859 3760 5348 5942 7322 7198 6340 6664 Total 18188 22161 23668 23673 27970 30744 38667 46193 54188 57612 63953 74802 REF: EXPORTS.WK1 06/23/92 Table 3.5: CHINA: Merchandise Exports in Current Prices and Constant (1987) Prices Merchandise Exports in Current Prices (USS million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food (S0+SI+S4) 3138 2925 2909 2854 3486 4043 4681 5037 6200 6544 7094 7906 Petroleun (S3) 4273 5228 5314 4667 6027 7132 3683 4544 3950 4321 5225 4821 anufacturing (S5SS6+S7+S8+S9) 9051 11759 12297 12607 14195 13522 19670 26206 33110 37460 46206 55698 Other (S2) 1726 2098 1810 2102 2421 2653 2908 3-650 4257 4212 3537 3486 Total 18188 22010 22330 22230 26129 27350 30942 39437 47518 52537 62063 71910 Source: Table 3.4. Price Indices (in US dollars) 1987=100 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food SO+SI5+S4) food 180.21 156.94 140.80 152.60 166.15 144.79 130.38 100.00 110.24 104.51 91.15 85.07 Petroleim (S3) petroleun 218.89 245.17 225.05 208.83 208.83 201.03 86.24 100.00 73.72 88.91 109.86 87.27 Manufacturing (S5+S6.S7+S8+S9) nuv 81.01 81.34 80.09 78.26 76.60 77.21 91.04 100.00 107.28 106.50 112.6 114.81 Other (S2) non-food 162.79 140.89 126.03 144.87 137.83 114.85 88.51 100.00 94.64 95.25 90.81 85.15 ---- Source: World Bank Counodity Projections; IECCM 10/26/90 0o Growth Rate of Price Indices in US dotlars (Percentage) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food (SO+S1.S4) food .. -12.91 -10.29 8.38 8.87 -12.85 -9.95 -23.30 10.24 -5.20 -12.79 -6.67 Petroletn (S3) petroleun .. 12.01 -8.21 -7.21 0.00 -3.74 -57.10 15.95 -26.28 20.61 23.56 -20.56 NMaufacturing (S5+S6+s7+S8+S9) Nv .. 0.41 -1.54 -2.28 -2.13 0.81 17.91 9.84 7.28 -0.73 5.94 1.76 Other (S2) non-food . -13.45 -10.54 14.95 -4.86 -16.67 -22.93 12.98 -5.36 0.65 -4.66 -6.24 .-..... ,........... ......... ................. ...... .......... .......................... ..................................................... ..... ... .......... . Merchandise Exports In 1987 Constant Prices CUSS milLion) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food (S0+S1+S4) 1741 1864 2066 1870 2098 2792 3590 5037 5624 6262 7784 9293 Petroleun (S3) 1952 2132 2361 2235 2886 3548 4271 4544 5358 4860 4756 5525 Manufacturing (S5+56+S7+5B+S9) 11173 14457 15355 16108 18532 17512 21605 26206 30863 35173 40954 48513 Other (S2) 1061 1489 1436 1451 1757 2310 3285 3650 4498 4422 3895 4094 Total 15927 19942 21218 21664 25273 26162 32751 39437 46344 50717 57389 67425 REF: EXPORTS.WK1 06/23/92 Table 3.6: CHINA: Merchandise Exports in Current Prices and Constant (1980) Prices Merchandise Exports in Current Prices (Yuan million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 - - - - - - - - - - - .- - .--- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - O .. .. ---. ..... ...... ... .... @.......... . . . . . .. . . . . . . Food (SOsSi+S4) 4702 4986 5505 5639 8088 11873 16163 18748 23079 24641 33934 42085 Petroleum (03) 6403 8911 10057 9221 13983 20945 12717 16913 14702 16269 24993 25666 Manufacturing (55+S6+S7+S8+S9) 13562 20043 23272 24908 32932 39710 67917 97541 123240 141040 221014 296501 Other (S2) 2587 3576 3425 4153 5617 7791 10041 13586 15845 15859 16918 18555 Total 27254 37516 42260 43920 60619 80319 106837 146788 176866 197808 296859 382807 Source: Table 3.4. Price Indices (in Yuan) 1980=100 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food (S0+S1.S4) food 100.00 99.07 98.68 111.66 142.75 157.47 166.72 137.84 151.96 145.73 161.46 167.71 Petroleum (S3) petroleum 100.00 127.41 129.86 125.79 147.71 179.99 90.79 113.48 83.66 102.07 160.21 141.64 Manufacturing (5+S6+S7+S8+S9) nuv 100.00 114.22 124.87 127.39 146.40 186.82 256.99 306.65 328.98 330.36 44.61 503.53 Other (52) non-food 100.00 98.45 97.79 117.34 131.09 138.28 125.30 152.59 144.42 147.03 178.06 185.82 Source: World Bank Commodity Projections; IECCH 10/26/90 Merchandise Exports in 1980 Constant Prices (Yuan miltion) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food (SO+S1+S4) 4702 5032 5579 5050 5666 7540 9694 13601 15187 16908 21018 25094 Petroleum (53) 6403 6994 7745 7330 9466 11636 14007 14904 17575 15940 15600 18120 Manufacturing (S5+S6+S7+S8+S9) 13562 17548 18637 19552 22494 21256 26224 31808 37461 42692 49709 588J4 Other (S2) 2587 3632 3503 3539 4285 5634 8014 8903 10972 10786 9500 9985 Total 27254 33206 35464 35471 41910 46067 57939 69216 81195 86327 95827 112084 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Exchange Rate 1.4984 1.7045 1.8925 1.9757 2.3200 2.9367 3.4528 3.7221 3.7221 3.7651 4.7832 5.3234 REF: EXPORTS.UK1 06/23/92 Table 3.7: CHINA: Merchandise Exports in Current Prices and Constant (1987) Prices Merchandise Exports in Current Prices (Yuan million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food (SO+S1+S4) 4702 4986 5505 5639 8088 11873 16163 18748 23079 24641 33934 42085 Petroleun (S3) 6403 8911 10057 9221 13983 20945 12717 16913 14702 16269 24993 25666 nufacturing (S5+S6+S7+S8.S9) 13562 20043 23272 24908 32932 39710 67917 97541 123240 141040 221014 296501 Other (S2) 2587 3576 3425 4153 5617 7791 10041 13586 15845 15859 16918 18555 Total 27254 37516 42260 43920 60619 80319 106837 146788 176866 1978 296859 382807 Source: Table 3.6. Price Indices (in Yuan) 1987=100 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food (S0S1O+S4) food 72.55 71.87 71.59 81.00 103.56 114.24 120.95 100.00 110.24 105.72 117.13 121.67 Petroleun (53) petroleun 88.12 112.28 114.43 110.85 130.16 158.61 80.00 100.00 73.72 89.94 141.17 124.81 Nuowfacturing (S5+s6+S7+SB+S9) nuv 32.61 37.25 40.72 41.54 47.74 60.92 84.46 100.00 107.28 107.73 144.99 164.20 Other (S2) non-food 65.53 6.52 64.08 76.90 85.91 90.62 82.11 100.00 94.64 96.35 116.70 121.78 .- - - -- - - -- - - -- - - -- - - -- . - -- - - - -- - - -- . . . - . - - . -- . . . . . . - . . . - . . . . -- . - -- - - -- - - , - . . - . . . . . -. Source: World Bank Conmnodity Projections; IECCM 10/26/90 Merchandise Exports in 1987 Constant Prices - (Yuan million) ------------------------------------------------------Z---w----X----9----------*-------------@---- ---*-- ------------*-------------------------------ze 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Food (SO.SI+S4) 6482 6937 7690 6961 7810 10393 13363 18748 20934 23307 28972 34590 Petroleun (S) 7266 7937 8789 8318 10742 13205 15895 16913 19944 18089 17704 20563 Manufacturing (S5+S6+S7+S8+S9) 41588 53811 57152 59957 68979 65183 80416 97541 114876 130917 152435 180570 other (S2) 3947 5543 5345 5401 6538 8598 12228 13586 16742 16459 14497 15237 Total 59283 74227 78976 80636 94069 97379 121903 146788 172497 188772 213607 250961 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Exchange Rate 1.4984 1.7045 1.8925 1.9757 2.3200 2.9367 3.4528 3.7221 3.7221 3.7651 4.7832 5.3234 REF: EXPORTS.UK1 06/23/92 Table 3.8: CHINA: Exports of Goods and Mon Factor Services (in million US$ and Yuan) (US5$ million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 MERCHANDISE Current Prices 18188 22010 22330 22230 26129 27350 30942 39437 47518 52537 62063 71910 Constant 1980 Prices 18188 22161 23668 23673 27970 30744 3867 46193 54188 57612 63953 74802 Constant 1987 Prices 15927 19942 21218 21664 25273 26162 32751 39437 4344 50717 57389 67425 NON FACTOR SERVICES Current Prices 1897 2403 2736 2747 2801 3060 3941 4386 4235 3750 4157 4157 Constant 1980 Prices (use n Index) 1897 2393 2767 2843 2962 3210 3506 3553 3198 2852 2985 2933 Constant 1987 Prices (use muv index) 2342 2954 3416 3510 3657 3963 4329 4386 3948 3521 3684 3621 Total Current Prices 20085 24413 25066 24977 28930 30410 34883 43823 51753 56287 66220 76067 Constant 1980 Prices 20085 24554 26435 26516 30932 33954 42174 49746 57385 60465 66938 7735 Constant 1987 Prices 18269 22897 24634 25174 28930 30125 37080 43823 50291 54238 61073 71045 Exchange Rate 1.4984 1.7045 1.8925 1.9757 2.3200 2.9367 3.4528 3.7221 3.7221 3.7651 4.7832 5.3234 (Yuan miilion) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 GODS In Curent Prices 27254 37516 42260 43920 60619 80319 106837 146788 176866 197808 296859 382807 Constant 1980 Prices 27254 33206 35464 35471 41910 46067 57939 69216 81195 86327 95827 112084 Constant 1987 Prices 59283 74227 78976 80636 94069 97379 121903 146788 172497 188772 213607 250961 NON FACTOR SERVICES In Curent Prices 2842 4096 5178 5427 6498 8986 13607 16325 15763 14119 19884 22129 Constant 1980 Prices 2842 3586 4147 4260 4439 4810 5254 5324 4791 4274 4472 4395 Constant 1987 Prices 8716 10996 12716 13064 13611 14751 16112 16325 14693 13106 13714 13477 Total Current Prices 30096 41612 47437 49347 67118 89305 120444 163114 192629 211927 316743 404936 Constant 1980 Prices 30096 36792 39610 39731 46349 50877 63193 74540 85986 90600 100300 116478 Constant 1987 Prices 68000 85224 91692 93701 107680 112129 138015 163114 187190 201878 227320 264438 REF: EXPORTS.UK1 06/23/92 Source: Tables 3.4 to 3.7 TabLe 3.9: CHINA: Implicit Price Indices of Exports of Goods and Services in US dollars (1980=100) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 MERCHANDISE 100.00 99.32 94.35 93.91 93.42 88.96 80.02 85.37 87.69 91.19 97.04 96.13 NON FACTOR SERVICES 100.00 100.41 98.87 96.62 94.56 95.32 112.39 123.45 132.44 131.47 139.28 141.73 TOTAL 100.00 99.42 94.82 94.20 93.53 89.56 82.71 88.09 90.18 93.09 98.93 97.85 in Yuan (1980=100) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 MERCHANDISE 100.00 112.98 119.16 123.82 144.64 174.35 184.40 212.07 217.83 229.14 309.79 341.54 NON FACTOR SERVICES 100.00 114.22 124.87 127.39 146.40 186.82 258.99 306.65 328.98 330.36 444.61 503.53 TOTAL 100.00 113.10 119.76 124.20 144.81 175.53 190.60 218.83 224.02 233.91 315.80 347.65 1 ..-----------.------...----- ,,-- ------ .,- -- -,- -- -- -- -------,,----,-----------------,,,,,,,-,,,,,,,,-,-,-,,,------------------------------------------------------------------------------.......................... N in US doilars (1987=100) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 . 1991 ......... ......-,. ........ ......... ..-.,... ...-..... ......-. o .--..... - ........ ........ ......... ........ ......... ........ ......... ........ MERCHANDISE 114.20 110.37 105.24 102.61 103.39 104.54 94.48 f 1"00 102.53 103.59 108.14 106.65 NON FACTOR SERVICES 81.01 81.34 80.09 78.26 76.60 77.21 91.04 100.00 107.28 106.50 112.83 114.81 TOTAL 109.94 106.62 101.75 99.22 100.00 100.95 94.08 100.00 102.91 103.78 108.43 107.07 in Yuan (1987=100) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 .. ............. .......................... .. ....... ............. ..... ........ ... .... ....... ............. .... ...... *.... .. .................. ........................ .................... ........ ................ . MERCHANDISE 45.97 50.54 53.51 54.47 64.44 82.48 87.64 100.00 102.53 104.79 138.97 152.54 NON FACTOR SERVICES 32.61 37.25 40.72 41.54 47.74 60.92 84.46 100.00 107.28 107.73 144.99 164.20 TOTAL 44.26 48.83 51.74 52.66 62.33 79.64 87.27 100.00 102.91 104.98 139.34 153.13 REF: EXPORTS.AKI 06/23/92 Source: Tabte 3.8 - Table 3.10: CHINA: Total Exports and its Relative Share in the World Exports 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 (Bifllon USS in Current Prices) China Exports 18.2 22.0 22.3 22.2 26.1 27.4 30.9 39.4 47.5 52.5 62.1 71.9 World Exports 1892.5 1861.4 1724.7 1674.6 1775.8 1800.1 1981.4 2333.2 2679.6 309.0 3333.4 3441.7 (Growth Rate) China Exports 33.2 21.0 1.5 -0.4 17.5 4.7 13.1 27.5 20.5 10.6 18.1 15.9 World Exports 20.8 -1.6 -7.3 -2.9 6.0 1.4 10.1 17.8 14.8 15.3 7.9 3.2 (Percentage Share) Chira Exports into World Exports 1.0 1.2 1.3 1.3 1.5 1.5 1.6 1.7 1.8 1.7 1.9 2.1 China Exports into China GNP 6.1 7.9 8.1 7.6 8.7 9.4 1.0 13.0 12.6 12.4 16.8 19.4 Mow Itens: China GNP in Current Prices (Billion Yuan) 447.00 477.30 519.30 580.90 696.20 855.76 969.63 1130.10 1401.82 1591.63 1768.61 1975.87 Exchage Rate (Yuan per USS) 1.498 1.705 1.893 1.976 2.320 2.937 3.453 3.722 3.722 3.765 4.783 5.323 L China GNP in Current Prices (USS Billion) 298.3 280.0 274.4 294.0 300.1 291.4 280.8 303.6 376.6 422.7 369.8 371.2 1 REF: EXPORTS.WK1 06/23/92 Source: CHINA StatisticaL Year Book 1990 pp.603 for 1978-87 and Statistical Abstract 1989 pp.82 for 1988. InternationaL Financial Statistics for World Exports (June 1991 pp.72 for 1990) and Exchange rate. Table 4.1: CHINA Imports (CIF) Customs basis (US S million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOD SO'S1'54 3211 3932 4437 3238 2527 1881 2002 3055 4191 5269 4474 3718 Food So 2934 3620 4200 3122 2331 1553 1625 2443 3476 4192 3336 2799 leverages Si 36 213 130 46- 116 206 172 263 346 202 157 200 Animl fat S4 241 99 107 70 80 122 205 349 369 875 982 719 PETROLEUM (Mineral Fuels) S3 203 83 183 111 139 172 504 539 .787 1650 1272 2114 INTERMEDIATE S5+S2 .D61+063+D65 to D68 10639 10980 10091 12047 13856 19175 17552 16769 23391 23415 18327 23189 Chemicals and related products S5 2899 2617 2936 3183 4237 4469 3771 5008 9139 7556 6650 9277 Crude materials (non-food) S2 3574 4328 3250 2575 2542 3236 3143 3321 5090 4835 4107 5003 Leather+Cork-D61+D63=Light In.-D64 to D68 4165 4035 3905 6289 415 770 851 728 842 747 938 1267 Leather D61 .. .. .. 18 *. * 184 224 280 374 642 Cork D63 .. .. .. .. 544 618 467 564 625 Textile Yarn (yarn, fabrics etc.) D65 .. .. .. .. 953 1607 1632 1848 2388 2845 2748 3689 Non metallic minerals D66 .. .. .. .. 225 325 363 342 430 520 453 443 Iron and Steel D67 .. .. .. .. 4361 7120 6741 4787 4624 5797 2852 2694 Non-ferrous metats D68 .. .. .. .. 1123 1648 1051 735 878 1114 579 816 CONSUMER GOODS 064+D62+Da2 to D89 544 557 486 782 1423 2330 2431 1743 1757 1866 2051 2506 Paer (Paper and related products) D64 .. .. .. 241 428 554 727 610 634 745 969 D62+D82+D83+D84+D85 544 557 486 782 1182 1902 1877 108 150 165 186 205 Rubber D62 .. .. .. .. .. .. .. 45 51 50 50 76 Furniture D82 .. .. .. .. .. .. .. 42 61 68 72 49 Travel goods D83 .. .. .. .. .. .. .. 3 8 6 6 7 Clothing D84 ,. .. .. .. .. .. .. 17 28 38 48 61 Footwear 085 .. .. .. .. .. .. .. 1 2 3 9 11 Photo supplies D88 .. .. .. .. .. .. .. 432 365 398 361 441 Miscellaneous D89 .. .. .. .. .. .. .. 476 632 669 759 892 MANUFACTURED (Residual) 5353 6461 4083 5213 9465 18694 20415 21110 25150 26940 27225 32264 Totat 19950 22012 19280 21391 27410 42252 42904 43216 55275 59140 53350 63791 REF: IMPORTS.JK1 06/23/92 Source: CHINA Customs Statistics 1991.1 for 1990; Statistical Yearbook 1990 p.604 1988 pp.645 for 1987,1986; 1987 pp.521 for 1985; 1986 pp.483 for 1984; 1985 pp.495 for 1983; 1984 pp.i82 for 1982; 1983 pp.406 for 1981; 1981 pp.73 for 1980 (in yuan). Table 4.2: CHINA : Inports (CIF) Customs basis (Percentage Shares) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOW S0+S1+S4 16.1 17.9 23.0 15.1 9.2 4.5 4.7 7.1 7.6 8.9 8.4 5.8 Food So 14.7 16.4 21.8 14.6 8.5 3.7 3.8 5.7 6.3 7.1 6.3 4.4 leverages Si 0.2 1.0 0.7 0.2 0.4 0.5 0.4 0.6 0.6 0.3 0.3 0.3 Animal fat S4 1.2 0.4 0.6 0.3 0.3 0.3 0.5 0.8 0.7 1.5 1.8 1.1 PETROLEUN (Mineral Fuels) 53 1.0 0.4 0.9 0.5 0.5 0.4 1.2 1.2 1.4 2.8 2.4 3.3 INTERNEDIATE S5+S2 .D61+D63+D65 to D68 53.3 49.9 52.3 56.3 50.6 45.4 40.9 38.8 42.3 39.6 34.4 36.4 Chumicals and related products S5 14.5 11.9 15.2 14.9 15.5 10.6 8.8 11.6 16.5 12.8 12.5 14.5 Crude materifls (non-food) S2 17.9 19.7 16.9 12.0 9.3 7.7 7.3 7.7 9.2 8.2 7.7 7.8 Leather+Cork=D61+D63=Light In.-D64 to D68 20.9 18.3 20.3 29.4 1.5 1.8 2.0 1.7 1.5 1.3 1.8 2.0 Leather D61 .. .. .. .. .. .. .. 0.4 0.4 0.5 0.7 1.0 Cork D63 .. .. .. .. .. .. .. 1.3 1.1 0.8 1.1 1.0 Textile Yarn (yarn, fabrics etc.) D65 .. .. .. .. 3 3.8 3.8 4.3 4.3 4.8 5.2 5.8 Non metallic mInerals 066 .. .. .. .. 0.8 0.8 0.8 0.8 0.8 0.9 0.8 0.7 Iron and steel D67 .. .. .. .. 15.9 16.9 15.7 11.1 8.4 9.8 5.3 4.2 Non-ferrous metals D68 .. .. .. .. 4.1 3.9 2.4 1.7 1.6 1.9 1.1 1.3 CONSUMER GOODS D64+D62+D82 to D89 2.7 2.5 2.5 3.7 5.2 5.5 5.7 4.0 3.2 3.2 3.8 3.9 Paper (Paper and related products) D64 .. .. .. .. 0.9 1.0 1.3 1.7 1.1 1.1 1.4 1.5 062+D82+D83+D84+D85 2.7 2.5 2.5 3.7 4.3 4.5 4.4 0.2 0.3 0.3 0.3 0.3 Rubber D62 .. .. .. .. .. .. .. 0.1 0.1 0.1 0.1 0.1 Furniture D82 .. .. .. .. .. .. .. .1 0.1 0.1 0.1 0.1 Travel goods D83 e . . r . . 0.0 0.0 0.0 0.0 0.0 Clothing D84 .. . .. .. .. .. .. 0.0 0.1 0.1 0.1 0.1 Footwear D85 .. . .. .. .. .. .. 0.0 0.0 0.0 0.0 0.0 Photo supplies D08 .. .. .. .. .. .. .. 1.0 0.7 0.7 0.7 0.7 Miscellaneous D89 .. .. .. .. .. .. .. 1.1 1.1 1.1 1.4 1.4 MlANUFACTURED (Residual) 26.8 29.3 21.2 24.4 34.5 44.2 47.6 48.8 45.5 45.6 51.0 50.6 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 REF: IMPORTS.WK1 06/23/92 Source: Table 4.1. Table 4.3: CHINA Inlfforts (CIF) Custom basis (Percentage Growth Rates) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOD SO+S1.S4 .. 22.4 12.9 -27.0 -21.9 -25.6 6.4 52.6 37.2 25.7 -15.1 -16.9 Food so . 23.4 16.0 -25.7 -25.3 -33.4 4.6 50.3 42.3 20.6 -20.4 -16.1 leverages Si . 486.3 -38.8 -64.9 154.4 77.6 -16.5 52.9 31.6 -41.6 -22.3 27.8 AnimaL fat S4 . -58.9 8.1 -34.6 14.3 52.5 68.0 70.2 5.7 137.2 12.2 -26.8 PETROLEUMN (MineraL Fuels) 53 .. -59.0 120.5 -39.3 25.2 23.7 193.0 6.9 46.0 109.8 -22.9 66.2 INTERMEDIATE S5+S2 .061.D634D65 to 068 .. 3.2 -8.1 19.4 15.0 38.4 -8.5 -4.5 39.5' 0.1 -21.7 26.5 Chmicats and reLated products S5 .. -9.7 12.2 8.4 33.1 5.5 -15.6 32.8 82.5 -17.3 -12.0 39.5 Crude materials (non-food) 52 -. 21.1 -24.9 -20.8 -1.3 27.3 -2.9 5.7 53.3 -5.0 -15.1 21.8 Leather+Cork=O6l.D63uLfght In.-D64 to 068 .. -3.1 -3.2 61.0 -93.4 85.5 10.5 -14.5 15.7 -11.3 25.5 35.1 Leather 061 .. . . .- . . . . 21.7 25.1 33.3 71.9 Cork D63 - . . .. . . .. 13.6 -24.4 20.8 10.7 Textile Yarn (yarn, fabrics etc.) 065 -. . . . . 68.6 1.6 13.2 29.2 19.1 -3.4 34.2 Non metallic mineraLs D66 .. . . . . 44.4 11.7 -5.8 25.7 21.0 -12.9 -2.2 Iron anid Steel 067 .- . . . .. 63.3 -5.3 -29.0 -3.4 25.4 -50.8 -5.5 Non-ferrous metals 068 .- . . . .. 46.7 -36.2 -30.1 19.4 26.9 -48.0 40.9 CONSUMNER GOWDS 064+D62.D82 to 089 .. 2.5 -12.7 60.9 82.0 63.7 4.3 -28.3 0.8 6.2 9.9 22.2 Pase (Paper and reLated products) 064 .. . . . . 77.6 29.4 31.2 -16.1 4.0 17.4 30.0 D62e-0824D83+084.D85 .. 2.5 -12.7 60.9 51.2 60.9 -1.3 -94.2 38.9 9.8 12.8 10.3 Rubber D62 . . . . .. . .. 13.3 -2.9 0.9 52.7 Furniture D82 .. . . - . . . 45.2 10.8 7.1 -32.0 Travel goods D83 . . . .. . . . .. 166.7 -27.2 8.2 14.8a0 Clothing D84 .. - . . . . . 64.7 37.0 25.3 27.1 Footwear 085 . . . . . . . .. 100.0 68.0 167.9 21.4 Photo suppLies 08 . . - . . . . . -15.5 9.1 -9.2 22.0 Miscellaneous 089 .. . . . . . . .- 32.8 5.8 13.5 17.5 MANUFACTURED (Residual) .. 20.7 -36.8 27.7 81.6 97.5 9.2 3.4 19.1 7.1 1.1 18.5 TotaL . 10.3 -12.4 10.9 28.1 54.1 1.5 0.7 27.9 7.0 -9.8 19.6 REF: INPORTS.UKI 06/23/92 Source: Table 4.1. Table 4.4: CHINA: Imports in Current Prices and Constant (1980) Prices Imports (CIF) in Current Prices (US S million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 .. ............... ............................... ... .... .. ... .. .. ............. ........................... . ..................... .................................. ,......... ... .............. ... FO0 SO+S1+S4 3211 3932 4437 3238 2527 1881 2002 3055 4191 5269 4474 3718 PETROLEUM (Mineral Fuels) S3 203 83 183 111 139 172 504 539 787 1650 1272 2114 INTERNEDIATE 55S2 .D61+D63+D65 to D68 10639 10980 10091 12047 13856 19175 17552 16769 23391 23415 18327 23189 CONSUMER GOODS D64+062+D02 to D89 544 557 486 782 1423 2330 2431 1743 1757 1866 2051 2506 NU iFACTURED (Residual) 5353 6461 4083 5213 9465 18694 20415 21110 25150 26940 27225 32264 Total 19950 22012 19280 21391 27410 42252 42904 43216 55275 59140 53350 63791 Source: Table 4.1. Price Indices (in US dollars) 1980100 1980 W. 1 1982 1983 1984 1985 1S86 1987 1988 1989 1990 1991 FOOW 100.00 87.09 78.13 84.68 92.20 80.35 72.35 55.49 61.18 58.00 50.58 47.21 PETROLEUM 100.00 - 112.01 102.81 95.40 95.40 91.84 39.40 45.68 33.68 40.62 50.19 39.87 INTERMEDIATE llnports NUV) 100.00 103.80 107.74 111.84 116.09 120.50 125.08 129.83 134.77 133.96 140.12 151.47 CONSUMER GOODS (Inports MUV) 100.00 103.80 107.74 111.84 116.09 120.50 125.08 129.83 134.77 133.96 140.12 151.47 MANUFACTURED (Imports MUV) 100.00 103.80 107.74 111.84 116.09 120.50 125.08 129.83 134.77 133.96 140.12 151.47 Source: World Bank Comnodity Projections; IECCM 02/08/90 Percentage Growth Rate of Price Indices in US dollars . ........... ... ... .. ..... ........ ^... .. . . .... ^...................... ... ... . .. ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOD .. -12.91 -10.29 8.38 8.87 -12.85 -9.95 -23.30 10.24 -5.20 -12.79 -6.67 PETROLEUM .. 12.01 -8.21 -7.21 0.00 3.74 -57.10 15.95 -26.28 20.61 23.56 -20.56 INTERMEDIATE (Imports V) .. 3.80 3.80 3.80 3.80 3.80 3.80 3.80 3.80 -0.60 4.60 8.10 CONSUMER GOODS (Imports MUV) .. 3.80 3.80 3.80 3.80 3.80 3.80 3.80 3.80 -0.60 4.60 8.10 MANUFACTURED (Imports HUV) .. 3.80 3.80 3.80 3.80 3.80 3.80 3.80 3.80 -0.60 4.60 8.10 Imports (CIF) in 1980 Constant Prices (US S million) 1980 1981 1982- 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOO S0+S1+S4 3211 4514 5679 3823 2741 2341 2767 5505 6851 9086 8846 7876 PETROLEUM (MineraL Fuels) S3 203 74 178 116 146 187 1279 1180 2336 4063 2535 5302 INTERMEDIATE S5+S2 +D61+D63+D65 to D68 10639 10578 9366 10772 11936 15913 14033 12916 17357 17479 13080 15310 CONSUMER GOODS D64+D62+D82 to D89 544 537 451 699 1226 1934 1944 1343 1304 1393 1464 1655 MANUFACTURED (Residual) 5353 6224 3790 4662 8153 15514 16322 16259 18662 20111 19430 21301 Total 19950 21927 19463 20072 24201 35889 36344 37203 46509 52131 45355 51443 REF: IMPORTS.UKI 06/23/92 Table 4.5; CHINA: Inmorts in Current Prices and Constant (1987) Prices Inmorts (CIF) in Current Prices (US S million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOD SO+S1+S4 3211 3932 4437 3238 2527 1881 2002 3055 4191 5269 4474 3718 PETROLEUM (Nineral Fuels) S3 203 83 183 111 139 172 504 539 787 1650 1272 2114 INTERMEDIATE S5.S2 .D61.063+D65 to 068 10639 10980 10091 12047 13856 19175 17552 16769 23391 23415 18327 23189 CONSUMER GOODS D64+D62+D82 to 089 544 557 486 782 1423 2330 2431 1743 1757 1866 2051 2506 MANUFACTURED (Residual) 5353 6461 4083 5213 9465 18694 20415 21110 25150 26940 27225 32264 Total 19950 22012 19280 21391 27410 42252 42904 43216 55275 59140 53350 63791 Source: Table 4.4. Price Indices (in US dollars) 1987=100 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOD 180.21 156.94 140.80 152.60 166.15 144.79 130.38 100.00 110.24 104.51 91.15 85.07 PETROLEUM 218.89 245.17 225.05 208.83 208.83 201.03 86.24 100.00 73.72 88.91 109.86 87.27 INTERMEDIATE (Imports MUV) 77.02 79.95 82.99 86.14 89.41 92.81 96.34 100.00 103.80 103.18 107.92 116.67 CONC.ER GOODS (IlTports MY) 77.02 79.95 82.99 86.14 89.41 92.81 96.34 10000 103.80 103.18 107.92 116.67 MANUFACTURED (Imports MUV) 77.02 79.95 82.99 86.14 -89.41 92.81 96.34 100.00 103.80 103.18 107.92 116.67 Source: World Bank Con!nodfty Projections; IECCM 02/08/90 Percentage Growth Rate of Price Indices In US dollars 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOD .. -12.91 -10.29 8.38 8.87 -12.85 -9.95 -23.30 10.24 -5.20 -12.79 -6.67 PETROLEUM .. 12.01 -8.21 -7.21 0.00 -3.74 -57.10 15.95 -26.28 20.61 23.56 -20.56 INTERMEDIATE (Imports LIAV) . 3.80 3.80 3.80 3.80 3.80 3.80 3.80 3.80 -0.60 4.60 8.10 CONSUMER GOODS CImports U .. 3.80 3.80 3.80 3.80 3.80 3.80 3.80 3.90 -0.60 4.60 8.10 MANUFACTURED (Imports MUV) .. 3.80 3.80 3.80 3.80 3.80 3.80 3.80 3.80 -0.60 4.60 8.10 Inports (CIF) in 1987 Constant Prices (US S million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOD SO+S1+S4 1782 2505 3151 2122 1521 1299 1535 3055 3802 5042 4909 4371 PETROLEUM (Mineral Fuels) S3 93 34 81 53 67 86 584 539 1067 1856 1158 2422 INTERMEDIATE S5+S2 +D61'D63+D65 to D68 13813 13734 12160 13985 15496 20660 18219 16769 22534 22694 16981 19877 CONSUMER GOODS D64+062+D82 to D89 706 697 586 908 1591 2510 2523 1743 1692 1808 1900 2148 MIAFACTURED (Residual) 6950 8081 4920 6052 10586 20142 21191 21110 24229 26111 25226 27655 Totst 23344 25050 20898 23120 29261 44697 44053 43216 53325 57510 50175 56473 REF: !MPORTS.WK1 06/23/92 Table 4.6: CHINA: Imports in Current Prices and Constant (1980) Prices sIports (CIF) in Current Prices (Yuan million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOD SO+S1+S4 4812 6701 8397 6397 5863 5524 6913 11371 15599 19839 21402 19792 PETROLEUM (Mineral Fuels) S3 304 141 346 219 322 505 1740 2006 2928 6213 6085 11253 INTERMEDIATE S5+S2 +061+D63+D65 to D68 15941 18715 19097 23801 32146 56311 60604 62416 87063 88159 87662 123445 CONSUMER GOODS D64+062+D82 to 089 815 949 920 1545 3301 6843 8394 6488 6539 7024 9810 13343 MANUFACTURED (Residual) 8021 11012 7727 10300 21959 54899 70489 78574 93611 101432 130224 171754 Total 29893 37519 36487 42262 63591 124081 148139 160854 205739 222668 255182 339587 Source: TabLe 4.1. Price Indices (in Yuan) 1980=100 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOD 100.00 99.07 98.68 111.66 142.75 157.47 166.72 137.84 151.96 145.73 161.46 167.71 PETROLEUM 100.00 127.41 129.86 125.79 147.71 179.99 90.79 113.48 83.66 102.07 160.21 141.64 INTERMEDIATE (Inports MUV) 100.00 118.08 136.08 147.46 179.74 236.17 288.22 322.51 334.76 336.60 447.29 538.13 CONSUMER GOODS (Inports MV) 100.00 118.08 136.08 147.46 179.74 236.17 288.22 322.51 334.76 336.60 447.29 538.13 MANUFACTURED (Imports MUV) 100.00 118.08 136.08 147.46 179.74 236.17 288.22 322.51 334.76 336.60 447.29 538.13 Source: Uorld Bank Commodity Projections, IECCM 02/08/90 Imports (CIF) in 1980 Constant Prices (Yuan miltion) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOO S0+S1+S4 4812 6764 8509 5729 4107 3508 4146 8249 10265 13614 13256 11801 PETROLEUM (Mineral Fuets) S3 304 111 267 174 218 281 1917 1768 3500 6088 3798 7944 INTERMEDIATE S5+S2 +D61+D63+D65 to 068 15941 15850 14034 16140 17884 23844 21027 19353 26007 26191 19598 22940 CONSUMER GOODS D64+D62+D82 to D89 815 804 676 1048 1837 2897 2912 2012 1953 2087 2193 2480 MANUFACTURED (Residual) 8021 9326 5678 6985 12217 23246 24456 24363 27963 30134 29114 31917 Total 29893 32855 29164 30076 36263 53775 54458 55745 69689 78114 67960 77082 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Exchange Rate 1.4984 1.7045 1.8925 1.9757 2.3200 2.9367 3.4528 3.7221 3.7221 3.7651 4.7832 5.3234 REF: IMPORTS.WK1 06/23/92 Table 4.7: CHINA: Imports in Current Prices and Constant (1987) Prices Imports (CIF) in Current Prices (Yuan million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOD SO+S1+54 4812 6701 8397 6397 5863 5524 6913 11371 15599 19839 21402 19792 PETROLEUM (Nineral Fuels) 53 304 141 346 219 322 505 1740 2006- 2928 6213 6085 11253 INTERMEDIATE S5+S2 +D61+D63+D65 to D68 15941 18715 19097 23801 32146 56311 60604 62416 87063 88159 87662 12345 CONSUIER GOODS 064+D62+D82 to D89 815 949 920 1545 3301 6843 8394 488 6539 7024 9810 13343 MUFACTURED (Residcul) 8021 11012 m7 10300 21959 54899 70489 78574 93611 101432 130224 171754 Total 29993 37519 36487 42262 63591 124081 148139 160854 205739 222668 255182 339587 Source: Table 4.6. Price Indices (in Yuan) 1987-100 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOD 72.55 71.87 71.59 81.00 103.56 114.24 120.95 100.00 110.24 105.72 117.13 121.67 PETROLEUIM 8.12 112.28 114.43 110.85 130.16 158.61 80.00 100.00 73.72 89.94 141.17 124.81 INTERMEDIATE (Inports Miv) 31.01 36.61 42.20 45.72 55.73 73.23 89.37 100.00 103.80 104.37 138.69 166.86 CONSIIER GOODS (Inports NUV) 31.01 36.61 42.20 45.72 55.73 73.23 89.37 100.00 103.80 104.37 138.69 166.86 MANUFACTURED SImports MV) 31.01 36.61 42.20 45.72 55.73 73.23 89.37 100.00 103.80 104.37 138.69 166.86 Source: World Bank C fodity Projections; IECCN 02/08/90 Imports (CIF) in 1987 Constant Prices (Yuan million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 FOOD SO+S1+S4 6633 9324 11729 7897 5661 4835 5715 11371 14150 18766 18272 16267 PETROLEUM (Mineral Fuels) 13 345 126 303 198 248 318 2175 2006 3972 6908 4310 9016 INTERMEDIATE S5+S2 4061+D634065 to D68 51412 51118 45259 52054 57679 76899 67813 62416 875 84468 63207 739 CONSIDER GOODS D64.62+D82 to D89 2627 2593 2180 3379 5924 9344 9392 648 6299 6730 7073 7997 MANUFACTURED (Residual) 25870 30077 18313 22527 39400 74970 78874 78574 90184 97186 93895 102935 Total 86887 93238 77784 86055 108912 166366 163970 160854 198480 214059 186758 210198 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Exchange Rate 1.498 1.705 1.893 1.976 2.320 2.937 3.453 3.722 3.722 3.765 4.783 5.323 REF. IMPORTS.K11 06/23/92 Table 4.8: CHINA: Total Inports of Goods and Services (in million USS and Yuan) (USS million) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 MERCHANDISE (91.7X of Total) Current Prices 18294 20185 17680 19616 25135 38745 39343 39629 50687 54231 48922 58497 Constant 1980 Prices 18294 20107 17848 18406 22193 32910 33328 34115 42649 47804 41590 47173 Constant 1987 Prices 21406 22971 19163 21201 26832 40987 40397 39629 4889 52737 46011 51786 SERVICES (8.3X of TotaL) Current Prices 1656 1827 1600 1775 2275 3507 3561 3587 4588 4909 4428 5295 Constant 1980 Prices 1656 1820 1615 1666 2009 2979 3017 308 3860 4327 3764 4270 Constant 1987 PrIces 1938 2079 1735 1919 2429 3710 3656 3587 4426 4773 4165 4687 TOTAL Current Prices 19950 22012 19280 21391 27410 42252 42904 43216 55275 59140 53350 63791 Constant 1980 Prices 19950 21927 19463 20072 24201 35889 36344 37203 46509 52131 45355 51443 Constant 1987 Prices 23344 25050 20898 23120 29261 44697 44053 43216 53325 57510 50175 56473 Exchange Rate 1.4984 1.7045 1.8925 1.9757 2.3200 2.9367 3.4528 3.7221 3.7221 3.7651 4.7832 5.3234 (Yuan miLlion) -------- ----- ---------------------------...-----.-.----..- ... --..-- - ............ --------..--..------------....---.--....----- .... -........------.-. ..---.- 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 NERCHANDISE (91.7X of Total) Current Prices 27412 34405 33459 38754 58313 113783 135843 147503 188663 204187 234002 311401 Corntent 1980 Prices 27412 30128 26743 27580 33253 49312 49938 51118 63905 71630 62319 70684 Constant 1987 Prices 79675 85500 71328 78912 99872 152558 150360 147503 182006 196292 171257 192752 SERVICES (8.3X of Total) Current Prices 2481 3114 3028 3508 5278 10299 12296 13351 17076 18481 21180 28186 Constant 1980 Prices 2481 2727 2421 2496 3010 4463 4520 4627 5784 6483 5641 6398 Constant 1987 Prices 7212 m79 56 7143 9040 13808 13609 13351 16474 17767 15501 17446 TOTAL Current Prices 29893 37519 36487 42262 63591 124081 148139 160854 205739 222668 255182 339587 Constant 1980 Prices 29893 32855 29164 30076 36263 53775 54458 55745 69689 78114 67960 702 Comtant 1987 Prices 86887 93238 7784 86055 108912 166366 163970 160854 198480 214059 186758 210198 REF: INPORTS.WKI 06/23/92 Source: TabLes 4.4 to 4.7. TabLe 4.9: CHINA: ImpLicit Price Indices of Imports of Goods and Services in US doLlars (1980=100) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 ME--C --ANDISE ---100.00----100.39---99.06 106.57-- 113.-26 117.73 118.05---------116--16 118---85--113.44 117-----63--124.00- SERCHNICES 100.00 100.39 99.06 106.57 113.26 117.73 118.05 116.16 118.85 113.44 117.63 124.00 SERTALE 100.00 100.39 99.06 106.57' 113.26 117.73 118.05 116.16 118.85 113.44 117.63 124.00 in Yuan (1980=100) 1980 198.1 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 --ERCH-A ---ISE --1--0.00- 114.20- 125----11- 140.52-- 175.36---230.74 272.02- 288.55--- 295.23-- 285.06-- 375.49 440.55------ MSERCHNICES 100.00 114.20 125.11 140.52 175.36 230.74 272.02 288.55 295.23 285.06 375.49 440.55 TOTALCE 100.00 114.20 125.11 140.52 175.36 230.74 272.02 288.55 295.23 285.06 375.49 440.55 fn US doLLars (1987=100) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 199 1991 MERC.HAND ....S ...85.46 87.87.....92.26....92.52...93.67...94.53...97.39....100.00...103.66....102.83.... 106..33.. 112.96.. NERCV NICES 85.46 87.87 92.26 92.52 93.67 94.53 97.39 100.00 103.66 102.83 106.33 112.96 TOTALCE 85.46 87.87 92.26 92.52 93.67 94.53 97.39 100.00 103.66 102.83 106.33 112.96 fn Yuan (1987=100) 198 1981 1982 1983 1984 1985 1986 1987 1988 1989 199 1991 NERCHANDISE 34.40 40.24 46.91 49.11 58.39 74.58 90.35 100.00 103.66 104.02 136.64 161.56 SERVICES 34.40 40.24 46.91 '49.11 58.39 .74.58 90.35 100.00 103.66 104.02 136.64 161.56 TOTAL 34.40 40.24 46.91 49.11 58.39 74.58 90.35 100.00 103.66 104.02 136.64 161.56 REF: INPORTS.UK1 06/23/92 Source: Table 4.8 Table 5.1: CHINA: External Debt: Disbursements and Repayments C(in USS million) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 DISBURSEMENTS Public & Publicty Guar. LT 583 1779 2539 1800 1837 2375 2357 5302 6725 8047 9130 8424 9620 9590 1. Officfal Creditors 27 199 245 573 665 678 888 1166 1444 1126 1848 2741 2566 2624 a. Multilateral 0 0 0 0 1 78 208 599 620 720 1124 1149 1146 1320 of which IDA 0 0 0 0 1 67 124 212 0282 399 557 486 495 611 of which IBRD 0 0 0 0 0 4 73 354 324 306 553 604 591 668 b. Bflateral 27 199 245 573 664 600 680 567 824 405 724 1592 1420 1305 2. Private Creditors 556 1580 2294 1227 1173 1697 1470 4137 5281 6921 7282 5684 7054 6966 a. Bonds 77 531 50 560 0 21 84 971 1333 1064 782 450 277 275 b. Comiercial Banks 480 965 159 97 90 269 303 722 1776 4598 4484 2007 3217 3200 c. Other Private 0 83 2085 571 1083 1408 1084 2443 2172 1260 2016 3227 3560 3491 Private Non-Guaranteed LT 0 0 0 0 0 0. 0 0 0 0 0 0 0 0 Total LT Disbursements 583 1779 2539 1800 1837 2375 2357 5302 6725 8047 9130 8424 9620 9590 IMF Purchases 0 0 0 896 0 0 0 0 701 0 0 0 0 0 Net Short-Term Capital 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total Disbursements 583 1779 2539 2696 1837 2375 2357 5302 7426 8047 9130 8424 9620 9590 REPAYMENTS Public & Publicly Guar. LT 0 0 613 1205 1302 1389 1287 1297 1874 1916 2349 2401 3371 4799 1. Official Creditors 0 0 50 78 77 56 57 49 279 395 493 486 861 790 a. Multilateral 0 0 0 0 0 0 0 0 2 99 41 63 220 146 of which IDA 0 0 0 0 0 0 0 0 0 0 0 0 0 1 r of which IBRD 0 0 0 0 0 0 0 0 0 97 39 62 216 130 t b. BlateraL 0 0 50 78 77 56 57 49 277 296 452 422. 641 644 2. Private Creditors 0 0 563 1127 1226 1334 1230 1248 1595 1521 1856 1916 2510 4010 s. Bonds 0 0 0 475 17 17 0 0 0 24 37 38 329 334 b. Comnercial Banks 0 0 161 333 313 168 126 77 331 469 754 870 831 2204 c. other Private 0 0 401 318 896 1149 1104 1171 1265 1029 1065 1008 1349 1472 Private Non-Guaranteed LT 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Adjust: Principal not paid Adjust: Arrears Red/Prepay C-) Total LT Repayments 0 0 613 1205 1302 1389 1287 1297 1874 1916 2349 2401 3371 4799 IMF Repurchases 0 0 0 0 0 481 0 0 36 81 83 79 490 451 Total LT Repay + IMF Repur. 0 0 613 1205 1302 1870 1287 1297 1910 1997 2432 2480 3860 5251 Net Flows: 1. Official Creditors of which IDA of which IBRD COMMITMENTS IBRD commntments 0 0 0 100 165 299 616 660 672 692 856 1221 75 of which fast Disbursing 0 0 0 0 0 0 0 0 0 0 0 0 0 0 IDA comnitments 0 0 0 96 165 139 343 432 448 613 576 539 878 of which fast Disbursing 0 0 0 0 0 0 0 0 0 0 0 0 0 0 REF: DEBT.WK1 06/23/92 Source: World Debt Tables 1991-2. Table 5.2 : CHINA: External Debt : Interest and Debt Outstanding (in USS mitlion) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 INTEREST Public & Publicly Guar. LT 0 61 318 518 541 523 610 586 644 1126 1610 2508 2534 3147 1. OfficIal Creditors 0 5 17 55 78 104 131 172 262 402 434 456 531 696 a. Nultilaterat 0 0 0 0 0 3 9 30 76 126 143 179 226 315 of which IDA 0 0 0 0 0 1 3 4 8 12 15 14 18 23 of hich IBRD 0 0 0 0 0 3 6 26 66 111 126 161 200 228 b. Bilateral 0 5 17 55 78 101 121 142 186 276 290 278 305 380 2. Private Creditors 0 56 301 463 463 418 479 414 382 723 1176 2051 2003 2451 a. Bords 0 0 3 118 2 5 4 20 91 212 288 342 362 365 b. Comn rciaL Banks 0 56 140 110 72 45 40 50 66 138 458 1063 963 1135 c. Other Private 0 0 158 235 388 368 436 343 225 373 431 647 677 951 Private Non-Guaranteed LT 0 0 0 0 0 0 0 0 0 0 0 0 0 0 AdJust: interest not paid Adjust: Reduction in arrears Total LT Interest 0 61 318 518 541 523 610 586 644 1126 1610 2508 2534 3147 IMF Service Charges 0 0 0 21 34 21 2 2 2 50 51 67 65 24 Interest Paid on ST Debt 0 0 0 0 248 277 386 594 417 640 534 628 547 707 Total Interest Paid 0 61 318 539 823 821 998 1181 1063 1815 2195 3203 3146 3878 DEBT OUTSTANDING & DISB. (DOD) Public & Publicly Guar. LT 623 2183 4504 4913 5221 5301 6179 9963 16598 25927 32588 37032 45319 49097 1. Official Creditors 27 226 446 919 1453 2028 2812 4724 7028 9495 10533 12015 14466 15595 a. MuLtilateral 0 0 0 0 1 77 271 983 1810 2852 3753 4761 6076 6845 of which IDA 0 0 0 0 1 67 181 431 774 1330 1819 2274 2981 3670 of which IBRD 0 0 0 0 0 4 73 498 965 1427 1831 2330 2865 3494 b. Bilateral 27 226 446 919 1452 2104 2541 3741 5218 6642 678 7254 8390 8750 2. Private Creditors 596 1957 4057 3994 3768 3121 3367 5239 9570 16432 22054 25017 30853 33602 a. Bonds 82 572 50 1041 17 65 140 1234 2811 4471 5129 5177 5366 5300 b. Comnercial Banks 514 131 1514 632 369 406 546 802 1806 6111 10431 11454 14489 15329 c. Other Prfvate 0 84 2492 2321 3383 2650 2681 3203 4953 5850 6495 386 10998 12973 Private Non-Guaranteed LT 0 0 0 0 0 0 0 0 0 0 0 0 0 0 Total LT DOD 623 2183 4504 4913 5221 5301 6179 9963 16598 25927 32588 37032 45319 49097 Use of IMF Credit 0 0 0 884 838 324 303 340 1072 1155 1013 908 49 0 Short-Term Debt 0 0 0 0 2300 3984 5600 6419 6076 8221 88W 6907 6766 8000 Total External Debt 623 2183 4504 5798 8359 9609 12082 16722 23746 35303 42406 44847 52555 57097 Nemorandwn Item: X Debt on Concessional Terms 0 0 0.5 1.1 8.1 9.6 11.6 14.7 15.5 15 14.9 17.4 18.4 X Debt at Variable Int. Rates .. .. .. . .. .. .. .. .. .. .. Preferred Creditor DS .. .. .. .. .. .. .. .. .. .. .. Share of IBRD Portfolio .. .. .. .. .. .. .. .. .. .. .. .. .. .. REF: DEBT.WK1 06/23/92 Source: World Debt Tables 1991-2. Table 5.5 CHINA: External Borrowing: Growth rates, Ratios and Terms of Borrowing 1978 1979 '980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Percentage Shires Official Creditors 4.3 10.4 9.9 15.9 17.4 21.1 23.3 28.3 29.6 26.9 24.8 26.8 27.5 27.3 Private Creditors 95.7 89.6 90.1 68.9 45.1 32.5 27.9 31.3 40.3 46.5 52.0 55.8 58.7 58.9 Total LT DOD 100.0 100.0 100.0 84.8 62.5 55.2 51.1 59.6 69.9 73.4 76.8 82.6 86.2 86.0 of which ConcessionaL 0.0 0.0 0.5 0.0 8.1 17.4 22.7 24.6 22.2 20.5 19.3 21.1 21.4 23.4 Short term 0.0 0.0 0.0 0.0 27.5 41.5 46.3 38.4 25.6 23.3 20.8 15.4 12.9 14.0 Total External Debt 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 of which Concessional 0.0 0.0 0.5 0.0 5.0 9.6 11.6 14.7 15.5 15.0 14.9 17.4 18.4 20.1 Percentage Growth Rates Official Creditors .. 743.3 97.3 106.1 58.0 39.6 38.6 68.0 48.8 35.1 10.9 14.1 20.4 7.8 Private Creditors .. 228.3 107.3 -1.6 -5.6 -17.2 7.9 55.6 82.7 71.7 34.2 13.4 23.3 8.9 Total LT DOD .. 250.4 106.3 9.1 6.3 1.5 16.6 61.2 66.6 56.2 25.7 13.6 22.4 8.3 of which Concesional .. .. .. 119.0 51.9 74.9 50.4 43.7 18.8 24.1 23.7 18.5 Short term .. .. .. . .. 3.2 40.6 14.6 -5.3 35.3 7.1 -21.6 -2.0 18.2 Total External Debt .. 250.4 106.3 28.7 44.2 15.0 25.7 38.4 42.0 48.7 20.1 5.8 17.2 8.6 Average term of new borrowing All Creditors .... . - . . Interest (K) .. .. 10.4 8.2 7.0 7.6 7.5 7.5 6.4 6.7 7.2 7.4 7.6 Maturity (years) 10.8 13.0 18.5 16.7 18.2 11.5 14.7 15.0 14.3 18.0 16.8 Grace period (years) . . 3.3 3.6 5.5 4.5 4.8 4.0 5.0 4.0 3.8 4.5 3.9 Grant element (X) .. .. 4.1 17.3 17.4 13.2 20.1 18.7 15.1 16.6 15.0 Official Creditors Interest (X) .. .. 4.9 5.2 4.3 5.6 5.9 5.8 5.5 4.9 5.0 5.9 3.8 Naturity (years) . .. 18.8 22.8 28.1 25.9 28.2 26.6 26.6 29.4 24.1 24.9 27.7 Grace period (years) . .. 7.7 7.0 8.5 6.9 7.1 6.8 6.5 6.7 7.0 6.8 7.9 Grant eleent tX) .. .. 35.3 33.7 32.6 32.3 34.5 40.3 37.3 30.3 49.0 Private Creditors Interest CX) .. .. 12.5 9.9 10.3 9.6 8.9 8.0 6.8 7.1 7.9 8.4 8.8 Maturity (years) .. .. 7.7 7.5 7.0 7.3 9.0 6.6 11.0 11.7 11.3 13.1 13.5 Grace period ( ears) ., .. 1.6 1.7 2.0 1.9 2.7 3.0 4.5 3.4 2.8 3.0 2.7 Grant elemnt CX) .. .. -8.0 0.4 3.8 7.0 15.5 13.8 8.4 7.0 4.7 REF: DEST.WK1 06/23/92 Source: lorld Debt Tables 1990-1 and Table 5.1 & 5.2. Table 5.4: CHINA: DOMESTIC DEBT: BONDS ISSUED MINISTRY OF FINANCE STATE KEY ENTERPRISES STATE PLANNING C ONMIS. -- ---------------------------------------------------------------------- ....... a-------------I GRAND INSTRUMENT BUYER 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1987 1989 1988 1989 TOTAL AJIOUNT (Billion Yuan) T BONDS-- - - - - - - - - - Enterprises/institutions 4.86 2.41 2.07 2.05 2.18 2.29 2.26 3.49 5.61 9.30 . ... . 36.52 Individuast.. 1.97 2.09 2.21 3.88 3.96 4.03 5.72 . ... ... ..23.86 KEY CONSTRUCTION BONDS Locat bovermuentsfEnterprises . .. . .. . .. 4.90 .. . .3.00 3.50 0.50 ..11.90 Individuals . .. . . . . 0.50 .. . .. .. .0.50 FISCAL BONDS Financial Institutions .. . . . . . . 6.61 .. 7.10 . ... ..13.71 STATE CTWSTRUCTION BONDS Indivfduals .. . . . . . . 3.05 . . . . ..3.05 INDEX BONDS Indivfduals . . . . . . . .. 12.50 ... .. .12.50 SPECIAL STATE BONDS Enterprises . . . . . .. . .. 4.28 3.20 . ... .7.48 CAPITAL CONSTRUCTION BONDS Financial Institutions . .. . . . . . . . . . . 8.00 ..8.00 individuasts . . . .. . . . . .. .. 1.00 1.00 TOTAL OF ALL INSTRUMENTS BY YEAR 4.86 4.38 4.16 4.26 6.06 6.25 11.69 18.87 22.39 19.60 3.00 3.50 8.50 1.00 118.52 STOCK OF DOMESTIC DEBT 4.86 9.24 13.40 17.66 23.72 29.97' 41.66 60.53 82.92 102.52 3.00 6.50. 8.50 9.50 STOCK OF DOMESTIC DEBT(mi/SKE&SPC) 4.86 9.24 13.40 17.66 23.72 29.97 44.66 72.03 98.92 115.52 BOND REPAYMENTS. 1.80 2.10 3.50 12.10 19.50 " OUTSTANDING DOMESTIC DEBT 4.86 9.24 13.40 17.66 23.72 29.97 42.86 68.13 91.52 99.02 99.02 INTEREST (K) T BONDS Enterpr Iselns/Irt itut ions 4.0 4.0 4.0 4.0 5.0 6.0 6.0 6.0 14.0 14.0 . . Individuals .. 8.0 8.0 8.0 9.0 10.0 10.0 10.0 . .. KEY CONSTRUCTION BONDS Local goverrmmnts/Enterprfsas . . . . . 6.0 .. . . Nego. 7.2 6.0 FISCAL BONDS FinanfctalInstitutions .. . . . . . . 8.0 .. 10.0 STATE CONSTRUCTION BONDS Indivfduas . . ..s . . . 9.5 . .. INDEX BONDS Individalns . . . . . . . .. 1.0 /b .. SPECIAL STATE BONDS Enterprises . . .. . . . . 15.0 15.0 . CAPITAL CONSTRUCTION BONDS Financial Institutions , . . . . . . . . . . . 7.5 individuals MATURIiTY (Years) 10/ T BONDS 5-10 5-10 5-10 5-10 5 5 5 3 3 3 . KEY CONSTRUCTION BONDS . . . . . .. 3 .. . .Nego. S FISCAL BONDS .. . . . . . . .. . STATE CONSTRUCTION BONDS .. . . . . . . 2 . . INDEX BONDS . . . . . . . . 3 .. SPECIAL STATE BONS .. . . . . . . . 5 5 CAPITAL CONSTRUCTION BONDS . . . . . .. . . . . . ..5 3 REF: DEBT2.UKI 06/23/92 Source: Ministry of Finance & Peoples Bank of China. SKEuState Key Enterprises; SPC=State Plamving Coamissfon NOTE /a:Key enterprises are those in the electrical9 metallurgical, nonferrous, Ł petrochemical Induastries.Bonds sold to their customers. /b + inflation allowance Table 6.1: CHINA : Monetary Survey, 1984-91 1984 1985 1986 1987 1988 1989 1990 1991 Dec. March June Sept. Dec. March June Sept. Dec. (in biltlions of yuan; end of period) Not foreign assets 35.1 20.8 3.9 23.0 30.2 37.1 57.0 67.6 80.1 92.7 115.4 116.3 133.3 137.0 Peoples Bank of China 28.0 12.4 3.7 15.0 20.9 33.0 45.1 59.6 68.3 68.5 96.6 106.6 122.3 Gold 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 1.2 Foreign Exchange Claims 26.4 9.3 3.8 13.2 15.8 26.5 38.2 52.5 60.5 60.0 58.3 98.4 113.3 Clainrs on Intl. Inst. (net) 0.4 1.9 -1.3 0.6 3.9 5.3 5.7 5.9 6.6 7.3 7.1 7.0 7.7 Bank of China 7.1. 8.4 0.2 8.0 9.4 4.2 11.9 8.0 11.8 24.2 18.7 9.7 11.1 Foreign Exchange 17.3 29.7 31.4 45.8 52.8 54.2 61.6 63.9 68.4 91.4 87.6 8.6 104.8 Forelgn Liabilities 10.2 21.2 31.2 37.8 43.4 50.0 49.7 55.9 56.6 67.2 68.9 78.9 93.7 Net domestic assets 408.9 499.3 668.3 812.0 979.7 1158.7 1191.9 1252.1 1343.8 1437.7 1508.6 1588.6 1690.9 1797.0 Loans to enterprises and individuals 509.9 628.9 814.5 980.3 1141.0 1346.9 1378.6 1436.2 1526.9 1653.6 1689.3 1750.5 1847.0 1981.0 Net Credit to Govermnent 2/ 9.5 -9.3 5.8 20.8 30.5 24.7 26.6 27.9 37.0 42.1 36.3 43.2 47.0 58.0 Other items (net) 3/ -110.4 -120.4 -152.1 -189.1 -192.7 -212.9 -213.3 -211.9 -220.1 -258.3 -216.5 -205.3 -203.1 -242.0 Money plus quasi-money 444.0 520.0 672.2 835.0 1009.9 1195.9 1248.9 1319.7 1423.9 1530.4 1625.0 1704.7 1824.2 1935.0 Honey 340.0 374.0 474.1 568.5 695.0 744.2 714.2 739.6 502.4 879.3 895.3 926.2 1009.0 i122.0 Currency 79.2 98.8 121.8 145.4 213.3 234.2 215.2 209.4 229.8 264.1 258.1 251.4 272.7 318.0 Household demand deposits 31.4 39.7 50.6 70.8 94.8 94.6 93.2 9.8 106.3 115.0 124.0 131.0 139.0 145.0 Enterprise deposits 197.0 203.0 262.1 307.3 347.7 367.0 356.8 378.4 411.5 438.6 454.7 483.0 530.0 584.0 Officfal institutions 32.4 32.6 39.6 44.9 39.3 48.4 49.1 52.1 54.9 61.0 58.0 61.0 67.0 75.0 Uasi -money 104.1 145.9 198.0 266.5 314.9 451.6 534.6 580.0 621.2 651.1 729.3 778.5 815.2 812.0 Capital construction deposits 14.0 23.5 25.1 30.9 31.2 42.0 53.0 60.2 65.3 65.1 75.4 87.5 92.7 52.0 Household term deposits 90.1 122.4 172.9 235.6 283.7 409.6 481.6 519.9 556.2 586.0 653.9 691.0 722.5 760.0 (Percent change from same period of the preceeding year) Net domestic assets 31.1 22.1 33.9 21.5 20.7 18.3 20.2 21.1 24.9 24.1 26.6 26.9 25.8 25.0 Of which: Loans to enterprises end individuals 33.5 22.3 29.5 20.3 16.5 18.0 19.7 21.7 24.8 22.8 22.5 21.9 21.0 19.8 Honey and quasi-money .. 17.1 29.3 24.2 21.0 18.4 22.5 24.9 29.5 28.0 30.1 29.2 28.1 26.4 Of which: Currency .. 24.7 23.3 19.4 46.6 9.8 2.6 0.7 10.4 12.8 19.9 20.1 18.7 20.3 Memorandu Itemrn Ratio of currency to deposits (X) 21.9 19.0 18.1 17.4 21.1 19.6 17.2 15.9 16.1 17.3 15.9 14.7 14.9 16.4 (seasonally adjusted) 20.4 21.8 17.0 16.4 19.8 18.4 17.3 16.6 16.4 16.2 15.9 15.5 15.2 15.4 REF: MONEY.WKI 06/23/92 Source: IMF Recent Economic Developments 05106/92. I/ Covers the operations of the People's Bank, the four specialized banks the two universal banks, and the rural credit cooperatives. 2/ Claims related to state budget operations less government deposits, which incliue extrabudgetary deposits of local governments. 3/ Includes financial bonds issued by banks. Table 6.2: CHINA : Operations of the People's Bank, 1985-91 (in billions of yuan; end of period) 1985 1986 1987 1988 1989 1990 1991 Dec. March June Sept. Dec. March Jure Sept. Dec. Met foreign assets 12.4 3.7 15.0 20.9 32.9 45.1 59.6 68.3 68.5 96.6 96.5 122.3 131.7 Clm on financial institutions 224.9 269.4 277.4 338.8 420.7 417.9 415.9 440.3 514.8 494.0 480.7 520.0 599.2 Other domstic assets -8.7 9.6 29.9 45.8 48.1 57.6 58.9 65.8 74.0 85.2 105.8 70.0 94.2 Loas 8.6 13.0 22.7 30.6 34.5 35.0 36.1 37.5 40.7 40.8 41.6 42.5 4.9 Budgetary borrowing, net 1/ -9.3 5.8 20.8 30.5 24.7 26.6 27.9 37.0 42.1 36.3 43.2 47.0 58.2 Other items, net -7.9 -9.3 -13.6 -15.3 -11.1 -4.0 -5.0 -8.8 -8.7 8.2 21.0 -19.5 -8.9 Reserve Money 228.6 282.7 322.3 405.5 501.7 520.5 534.4 574.3 657.2 675.9 683.0 712.2 825.2 Liabilities to banks 96.4 120.1 127.4 145.4 208.1 243.6 258.3 273.3 312.7 336.5 345.1 344.0 400.0 Required deposfts 42.0 56.5 67.0 84.1 104.2 111.4 119.6 128.8 139.1 148.7 158.2 168.6 181.0 Other deposits 47.0 55.8 52.8 50.9 91.2 119.5 126.0 132.2 159.2 173.0 172.1 160.4 203.1 1 Cash in vault 7.3 7.8 7.6 10.4 12.8 12.7 12.7 12.3 14.4 14.8 14.8 15.0 15.9 Liabilities to nonbanks 132.2 162.6 194.8 260.1 293.6 276.9 276.1 301.0 344.6 339.4 337.9 368.3 425.2 ,o Currency In circulation 98.8 121.8 145.4 213.3 234.2 215.2 209.4 229.8 264.1 258.1 251.4 272.7 317.4 Deposits 33.4 40.8 49.4 46.9 59.3 61.7 66.8 71.3 80.5 81.2 86.5 95.6 107.8 Total Liabilities 228.6 282.7 322.3 405.5 501.7 520.5 534.4 574.3 657.3 675.9 683.0 712.2 825.2 Nemorandu Itam: Noney iultipli.r 2/ 2.3 2.4 2.6 2.5 2.4 2.4 2.5 2.5 2.3 2.4 2.5 2.6 2.3 Natio of excess reserves to deposits (X) 3 12.1 10.1 7.7 6.8 10.1 12.3 12.1 11.8 13.4 13.5 12.6 11.0 13.5 Currency deposit ratio 26.8 24.4 20.8 18.9 19.2 20.9 18.9 17.3 17.6 (seasonally adjusted) 24.8 22.6 21.0 20.2 19.7 19.3 19.0 18.5 Required Reserve Ratio 11.2 11.5 11.5 11.5 11.5 11.7 11.6 11.6 11.6 REF: NONEY.WK1 06/23/92 Source: IMF Recent Economic Developments 05/06/92. 1I Ctaims related to state budget operations less goverment deposits, which include extrabudgetary deposits of local govermnents. 2/ The ratio of money and quasi-money to reserve money. 3/ Deposits exclude deposits with the PIC. Table 6.3: CHINA: Monetary and Velocity Developments, 1984-1991 (Percentage fcurth quarter to fourth quarter) 1984 1985 1986 1987 1988 1989 1990 1991 Momy and quasi-money 42,4 17.1 29.3 24.2 20.9 18.4 28.0 26.4 Currency 494 24.7 23.3 19.4 46.7 9.8 12.8 20.4 Household deposits 32.6 33.4 37.9 37.1 23.5 33.2 39.0 29.1 Demand 44.0 26.4 27.5 39.9 33.9 -0.2 21.6 26.1 Time 29.1 35.8 41.3 36.3 20.4 44.4 43.1 29.7 Enterprise deposIts 1/ 62.9 3.0 29.1 17.2 13.1 5.6 19.5 33.2 Other deposits 2/ -14.3 0.6 21.5 13.4 -12.5 23.2 26.0 23.0 Velocity (ratio) 3/ 1.52 1.65 1.44 1.35 1.39 1.33 1.16 1.02 /4 (percent change) -16.5 8.3 -12.4 -6.2 2.6 -4.1 -13.2 -11.6 Nmorandum item: Auunented money and quasi-money 5/ .. .. 32.3 26.8 23.2 14.8 .. .. /6 GNP (Billion Yuan, Current Prices) 696.2 855.8 969.6 1130.1 1401.8 1591.6 1768.6 1975.9 REF: MONEY.WKI 06/23/92 Source: IF Recent Economic Developments 05/06/92. 1/ Includes deposits with the People's Construction Dank of China (PCBC). 21 Deposits of official inatitutions. 3/ Ratio of GNP to the end-year mony and quasi-money. 4/ Adjusted for seasonal factors. S/ Includes deposits held at trust and Investment conpanles and urban credit cooperatives. 61 June 1989 over Jure 1988. Table 6.4: CHINA Specialized and Universal lanks' Domestic Currency Assets ad Liabilities,1986-90 (billions of yuan; end of period) *- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -- ;. . .. ............. ............... .. . .... .... -................... *. ...... ........ -.... ...... 1986 1987 1968 1989, 1990 1991 ........ --- --- --- -- --- --- --- -- ......-------------..----.-....----------.........-................ Dec. March June Sept. Dec. March June Sept. Dec. Total deposits 463.5 573.9 668.6 798.3 860.7 921.4 991.6 1045.9 1130.4 1199.5 1282.9 1330.0 Enterprises 223.9 268.8 293.2 308.1 325.9 346.8 378.7 399.3 427.6 462.0 504.8 505.0 Sight 198.8 237.9 262.0 267.0 273.9 287.8 314.6 335.5 353.7 376.2 413.9 454.. Term 25.1 30.9 31.2 41.1 52.0 59.0 64.0 63.7 73.9 85.8 90.9 50.3 Saving 146.4 202.8 258.9 363.0 407.7 440.7 473.4 500.9 554.0 586.9 616.7 647.1 Sight 28.0 41.0 59.7 61.4 60.5 65.6 70.2 76.4 82.5 88.2 93.9 101.7 Term 118.4 161.8 199.2 301.6 347.2 375.0 403.2 424.4 471.6 496.7 522.8 545.4 Township enterprises 4.6 5.6 6.2 6.0 5.2 5.8 6.1 7.1 6.6 7.6 8.3 9.2 Agricultural collectives 1.1 1.2 1.8 1.7 1.5 1.6 1.6 1.9 1.8 1.9 2.1 2.5 Rurat credit cooperatives 50.2 56.3 58.8 63.9 68.2 69.3 70.6 75.9 77.6 75.7 80.0 91.8 Other deposits 37.3 39.2 49.7 55.6 52.2 57.2 61.3 60.9 62.8 65.4 70.9 74.5 Liabilities to the PBC 268.4 275.0 336.1 420.1 412.2 406.9 433.2 508.3 484.3 478.0 512.0 590.6 Self-owned funds of banks 74.1 81.5 91.4 91.4 102.3 102.3 102.3 111.5 102.3 102.3 102.3 102.3 Other liabitities, net 54.5 67.9 56.7 66.8 58.9 60.7 59.3 74.1 58.6 42.5 34.6 96.0 Total Liabilities 857.6 993.0 1152.7 1384.5 1434.1 1491.3 1586.4 1739.8 15.6 1822.2 1931.7 2118.8 Loans 748.9 884.2 1023.9 1206.4 1222.0 1266.1 1346.4 1476.0 148.8 1533.3 1621.0 1759.5 Industrial 189.4 221.2 260.4 330.5 348.6 364.4 394.8 421.0 432.0 449.0 470.6 493.0 Comuercial 308.4 350.0 409.5 476.6 469.3 477.9 509.4 575.7 564.8 566;5 592.5 668.1 Contruction 36.9 46.7 49.5 60.1 59.9 61.9 64.3 67.2 70.1 71.3 70.0 71.5 Urban collectives 41.5 53.6 63.6 69.3 71.1 74.1 77.8 81.5 83.6 87.4 90.5 93.3 lusiness loans to individuals 1.1 1.5 1.9 1.5 1.6 1.5 1.6 1.6 1.6 1.7 1.8 2.0 Agricultural loans 52.8 65.4 77.9 86.0 88.1 94.3 97.5 100.0 103.1 110.6 115.9 116.7 Loans to rural credit coops. 4.3 3.8 3.5 3.5 4.0 4.8 4.6 3.8 4.6 5.9 5.7 4.2 Fixed investment loans 88.6 111.9 138.7 157.0 157.1 162.9 172.2 198.2 200.6 211.1 243.4 274.4 Other loarn 26.0 30.2 18.7 21.8 22.5 24.2 24.3 27.1 28.3 29.7 30.6 36.6 Cash In vault 7.8 7.6 10.4 12.8 12.7 12.7 12.3 14.4 14.8 14.8 15.0 15.9 Required deposits 56.3 65.8 80.9 100.8 107.7 115.6 124.3 133.7 142.8 151.9 161.7 173.5 Other deposits at the PBC 47.5 40.5 37.6 64.5 91.6 96.9 103.5 115.8 129.2 122.3 134.0 170.0 Total Assets 860.5 998.2 1152.7 1384.5 1434.1 1491.3 1586.4 1739.8 1775.6 1822.2 1931.7 2118.8 ......... ................ O0.... ....... .-... ,...... ..... ........ ...... . .... ....... ............. OO...... .......... ... .X,...... 9........ .... ...... ....... REF: NONEY.UK1 06/23t92 Source: INF Recent Economic Developments 05/06/92. Table 6.5: CHINA Balance Sheets of Rural Credit Cooperatives, 1986-90 (in billions of yuan; end of period) 1986 1987 1988 1990 1991 Dec. March June Sept. Dec. March June Sept. Dec. Deposits 75.5 103.7 140.0 166.9 178.6 190.3 200.6 214.5 232.4 243.1 253.2 270.9 Rural collective enterprises 8.4 9.0 9.8 9.2 7.5 7.8 8.2 10.7 9.3 9.6 10.5 13.6 Townhip enterprises 9.2 10.5 12.8 12.6 10.6 11.6 12.5 15.0 13.5 14.9 16.3 19.2 Individual deposits 62.0 86.6 114.2 141.2 156.8 167.0 175.5 184.1 204.9 213.4 220.6 231.7 Sight 22.6 29.7 35.1 33.2 32.6 34.2 36.1 38.7 41.7 42.9 44.9 43.4 Term 54.0 70.8 79.2 108.0 124.1 132.8 139.4 145.4 163.2 170.6 175.7 188.3 Other deposits 2.1 2.5 3.1 3.9 3.7 3.9 4.4 4.7 4.7 5.1 5.8 6.5 Loans from banks 4.2 3.8 3.6 3.8 4.2 5.2 5.1 4.2 5.1 6.5 6.6 5.1 Other liabilities, net 5.8 10.0 5.2 4.6 9.6 10.8 10.9 -0.2 2.6 5.8 6.7 -3.6 Total liabitities 84.7 117.9 148.8 175.3 192.4 206.3 216.6 218.5 240.1 255.4 266.5 272.5 Domestic credit 49.0 75.5 90.9 109.5 125.6 138.8 147.7 141.1 164.4 161.6 189.2 180.9 Loans to cotlective enterprises 4.5 7.2 8.0 10.7 11.5 12.6 13.3 13.4 14.7 16.0 16.9 17.0 Loans to townhip enterprises 26.6 35.9 45.6 57.2 62.4 67.4 72.5 75.9 83.6 91.2 96.5 100.7 Loans to individutls 35.8 34.0 37.2 41.6 51.7 58.9 61.9 51.8 66.1 74.4 75.9 63.1 Itedeposits at banks 49.3 59.1 58.0 65.8. 66.9 67.4 68.9 77.4 75.8 73.8 77.2 91.6 Totatl assets 84.7 117.9 148.8 175.3 192.4 206.3 216.6 218.5 240.1 255.4 266.5 272.5 ........................................................................................................ REF: NONEY.UK1 06/23/92 Source: INF Recent Economic Developments 05/06/92. Table 6.6: CHINA: ASSETS OF THE SPECIALIZED BANKS (Million RNB) PCBC ABC ICBC SOC ASSETS 1987 1988 1989 1990 1987 1988 1989 1990 1987 1988 1989 1990 1987 1988 1989 1990 LIWJID ASSETS i/ 13341 10147 16330 26383 4333 18152 30958 45371 12677 1377 22131 41013 726 1252 2009 2470 CASH 288 944 1436 1699 4333 4888 5958 6594 2854 4014 4710 5244 728 1252 2009 2470 DEPOSITS WITH PBC 23057 20871 29399 45235 n.e. 33497 50875 7279 46195 53953 69899 101912 . (of which MRs) 10004 11668 14505 20551 ..20233 25875 34015 36372 44192 52478 66143 DUE FROM BANKS 5589 9026 13630 35977 . .. 10496 16810 .. . . 4305 91337 118009 150157 210600 LOAN PORTFOLIO 99267 121297 14992 192805 232314 263155 305796 377434 444817 496976 575190 687190 167106 190730 259842 346053 Of which: FIXED ASSETS 54951 66260 76852 102072 4688 5846 6560 7643 57230 57530 63689 74998 . WORKING CAPITAL 23069 31588 37010 46595 227626 257309 387587 439446 .. 608737 . Induistrfat . . . . 13348 15443 18920 24954 216885 242298 341174 ... Cawnerc !al t. . . . 138873 156939 187337 235928 1,16M6 137622 159130 ... TYEs . .. . .. 34969 40769 42061 46218 . .. Urban CotLlectives . .. . ... . . .. 37112 47900 & Ind.Ent:rprises RuraL Collectives . .. . .. 18320 21688 26022 31661.. . *.. & Rural SOEs Loans to farmers . . .. 7926 8679 9060 9941 . . . . . . . Loans to RCCS . . . . 3646 3369 3398 3747.. ... . .. . OTHER LOANS 2/ .. . . . . 10422 12438 17342 .. . 991 3455. . . . SECURITIES .. 77 794 2303 .. . . . . . . 10247 23899 29360 27453 43458 TRUST PORTFOLIO 142333 173419 193253 220958 . . . ... .. 2206 33600 GOY. ENTRUSTED LOANS 33196 54116 127968 139687 . . . .. . . .. WVY. INVEST. LOANS 109137 119303 65285 81071 . . . .. . . .. AGENCY 3UJSINESS .. . . . . . . . . . .59027. LETTERS OF CREDIT 3/ .. . . . . . . . . . .21750 95609 103004 132894 127202 RECEIVABLES & . . . ... .. . ... .. . .. 17250 21690 39631 47051 FORWARD CONTRACTS COLLECTIONS 9 TRUSTS . . . .. . . . . . . 43254 92584 56935 70208 OTHER ASSETS 4/ 7266 13114 19029 18861 .. . . 6748 .. 6709 7358 15093 2785 3072 8488 12060 TOTAL ASSETS 277800 339446 407493 517838 236647 301540 373125 480378 493866 561652 657157 938368 441968 559701 677410 859113 of which Own Assets 135467 166027 214240 296880 . . . .. . . .. TOTAL ASSETS Growth Rate% . 22.2% 20.0K 27.1K . 27.4K 23.7K 28.7K . 13.7K 17.0K 42.8K . 26.6K 21.0K 26.8K ------------------------------------------------------------------------------------------------------------------------------------------------ REF: NONEY2.WKI 06/23/92 Source: Balance sheets of the banks. 1/ Cash plus Deposits at PlC (excLuding RRs). 2/ Includes Special and Devetopnent Loans, Poverty Alleviation Subsidies and Other Loans. 3/ Includes International Businesses. 4/ Includes Net Value of Fixed Assets. Tabte 6.7: CHINA: LIABILITIES OF THE SPECIALIZED BANKS (Million Yuan) PCBC ABC ICIC SWC LIABILITIES 1987 1988 1989 1990 1987 198 1989 1990 1987 1988 1989 1990 1987 1988 1989 1990 TOTAL DEPOSITS 62351 96860 115157 158049 149795 171373 205546 264055 314459 356169 413109 517349 196070 214435 276347 390581 Enterprise 71434 76018 75817 93191 24717 28155 29466 34481 134631 144389 148007 .223039 . Indtstrial . . . .. 2836 2843 3463 . . . . . Co ime rclal .. . . . . 25319 26623 31018 . .. individuLt .. ..6 ..62 50S 29694 3778 35917 n.e. Other 8590 9170 9713 13208 .. 5 . .. . .. TVEs . . . .. 5428 6215 5625 6633 . . . .. Agr.Cotlect. A SOEs . . . .. 10699 10731 11096 13424 . . . .. ICC DEPOSITS . . . .. 55000 56491 61156 71943 . . . .. SAVINGS DEPOSITS .. . . 42619 59371 84851 121210 125856 142956 194080 n.s. . TOTAL HOUJSEHOLD DEPOSITS . .. . ... .. . . 155550 180737 22999?' 294310 . OTHER DEPOSITS . .. . . 11332 10360 13352 16364 24278 29529 34027 ... LIABILITIES WITH PBC 6019 10503 25273 43962 23437 99380 116287 143888 115769 140783 173654 202436. LIABILITIES WITH.GOV. 105504 114309 126159 140002. . . ... . . ... . . . LI, INTERNATIONAL BUSINESS .. . . . . . . . . . . 21203 .. . . . FINANCIAL BONDS 1062 1982 1933 2761 . . .. 2779 3085 2464 3239 795 9509 11704 13576 OTHER LIABILITIES 1788 23310 25895 34593 61115 477 6384 16890 42424 29461 32588 43617 13029 20961 24074 23416 GUARANTEES 1/ A LCs . . . . . .. . .. . . 62129 95609 103004 132894 12720 DUIE TO OTHER BANKS 2/ 6076 9161 13705 22303 . .. 15981 27588 . .. . 3785 51333 72358 102176 140276 PAYABLES Ł FORW.CONTRACTS . . . .. .. . ... . . .. 17791 2221 37002 51060 TRUSTS & INVESTMENTS 34744 55416 67535 83777 .. . . . . 1514 1078 29290 43254 92583 56935 7020 CAPITAL 3/ 24583 26314 27900 30229 .. 26012 26927 27957 18435 32154 35342 55320 5000 10000 15000 15000 SURPLUS & RESERVES 1578 -1591 1735 1923 . . ... .. . .. 11956 14638 21276 27771 PROVISION FOR BAD DEBTS .. 161 203 239 . . . .. . . .. TOTAL LIABILITIES & NWJ 277800 339446 407493 517835 236647 301540 373125 480378 493866 561652 657157 938368 44196 559701 677410 859113 TOTAL LIABILITIES Growth% . 22.2% 20.0Z 27.1K . 27.41 23.7K 28.7K . 13.7K 17.0% 42.8K . 26.6Z 21.0K 26.81 ----------------------------------------------------------------------------------------------------------------------------------------------- REF: HONEY2.WKI 06/23/92 Source: Balance sheets of the banks. I/ includes Agency Businesses. 2/ Interbank Borrowing. 3/ Credit Fund plus Setf-Owned funds and Retained Earnings. Table 6.8: CHINA: PROFIT & LOSSES OF THE SPECIALIZED BANKS (Million Yuan) PCBC ABC ICBC BOC 1987 1988 1989 1990 1987 1988 1989 1990 1987 1988 1989 199 1987 1988 1909 1990 GROSS INTEREST Income 6967 9889 15528 17739 . .. 28911 27342 29667 37457 60270 .. 15024 20866 377 44611 Expenes 1937 4081 8902 9995 .. .. 9009 9726 15147 21400 31899 11675. 17065 32318 3843 NET INTEREST INCOME 5030 5808 6626 7714 .. 19902 17616 14520 16057 28371 .. 3350 3S01 5466 6768 COMMISSION & OTHER Income 35 67 133 181 .. .. 47434 47592 297 366 1689 .. 3291 3715 3888 4942 Expenses 1/ .. 161 46 45 .. .. 57179 58168 3312 5095 14784 .. 2254 2576 3282 4102 OPERATING & OTH. EXPENSES 886 1500 1591 2193 .. .. 6733 5885 604 759 62 .. 511 715 1011 147 (Expenses) OPERATING PROFIT 4179 4214 5122 5687 .. .. 3424 1155 10901 10569 15214 .. 3875 4224 5060 6161 (Sfore Taxes) INCOME & ADJ. TAX 2601 2623 3387 3764 .. .. 2198 n.e. n.a. n.o. n.a . n.s. n.e. n.s. n.m. MET PROFIT 2/ 1578 1591 1735 1923 n.a. n.a. 1226 1155 n.a. n.s. n.s. n.e. n.o. n.s. n.e. n.s. (After Taxes) ----------------------------------------------------------------------------------------------------------------------------------------------- REF: MONEY2.WK1 06/23/92 tource: ailance sheets of the banks. 11 Inctudes Provisions for Bad Debts. 2/ ICBC and SOC do not Indicete taxes paid, however they report "Net Profits". It is possible that such payments are classified es Mother Expnees", ln hich case the tabe 's "Operating Profits" would correspond to the banks' reported "Net Profits"l. Table 6.9: CHINA: BANKING SYSTEN: Nominal Annual Interest Rates on Deposits 1971 1979 1980 1982 1983 1985 1985 1986 1986 1987 1987 1988 1989 1990 1990 1991 10/01 04/01 04/01 04/01 12/21 04/01 08/01 03/01 08/01 06/21 08/14 09/01 02/01 04/1S 08/21 04/21 HOUSEHOLD DEPOSITS I Sight 2.16 2.16 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.88 2.16 1.80 Time Fixed IN, Fixed OUT 1/2 Year 3.60 4.32 4.32 4S32 5.40 6.12 6.12 6.12 6.12 6.12 6.48 9.00 7.74 6.48 5.40 1 Year 3.24 3.96 5.40 5.76 5.76 6.84 7.20 7.20 7.20 7.20 7.20 8.64 11.34 10.08 8.64 7.56 2 Years 9.18 12.24 1O.96 9.36 7.90 3 Years 4.80 6.12 6.84 6.84 7.92 8.28 8.28 8.28 8.28 8,28 9.72 13.14 11.88 10.08 8.28 5 Years 5.04 6.84 7.92 7.92 8.28 9.36 9.36 9.36 9.36 9.36 10.80 14.94 13.68 11.52 9.00 8 Years 5.04 6.84 9.00 9.00 9.00 10.44 10.44 10.4 10.4 10.44 12.42 17.64 16.20 13.68 10.08 Flexible IN, Fixed OUT & Flexible OUT 1 Year 3.60 4.32 4.68 4.68 5.40 6.12 6.12 6.12 6.12 6.12 7.20 9.54 8.28 7.20 6.12 3 Years 3.96 5.40 6.12 6.12 6.84 7.20 7.20 7.20 7.20 7.20 8.64 11.34 10.08 8.64 6.84 5 Years 4.50 6.12 7.20 7.20 7.56 7.92 7.92 7.92 7.92 7.92 9.72 13.14 11.88 10.08 7.56 Fixed Principal 1 Year 3 3.60 4.32 4.32 4.32 5.40 6.12 6.12 6.12 6.12 6.12 7.20 3 Years 3.96 5.40 5.76 5.76 6.84 7.20 7.20 7.20 7.20 7.20 8.64 5 Years 4.50 6.12 6.84 6.84 7.56 7.92 7.92 7.92 7.92 7.92 9.72 ConvertibLe Deposit 1/2 Year or less 2.88 2.88 2.88 2.88 2.88 5.83 i12 - 1 Year 5.51 5.51 5.51 5.51 5.51 6.80 1 Year or more 6.48 6.48 6.48 6.48 6.48 8.02 DEPOSITS FROM OVERSEAS CHINESE 1 Year 3.96 4.68 5.76 6.48 6.48 7.20 8.28 8.28 8.28 8.28 8.28 9.72 13.14 11.88 10.08 8.28 3 Years 5.04 5.40 7.20 7.20 8.28 9.36 9.36 9.36 9.36 9.36 10.80 14.94 13.68 11.52 9.00 S Years 6.48 7.20 8.28 8.28 9.00 10.44 10.44 10.4 10.44 10.44 11.88 16.74 15.48 13.68 9.90 ENTERPRISE DEPOSITS SIght P.IW 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.60 2.88 2.88 2.Z8 2.16 1.80 Tim 1/2 Year 4.32 4.32. 6.48 9.00 7.74 6.48 5.40 1 Year 3.60 3.60 4.32 4.32 4.32 4.32 5.04 5.04 8.64 11.34 10.08 8.64 J.56 2 Years 4.32 4.32 5.04 5.04 5.04 5.04 5.76 5.76 9.18 12.24 10." 9.36 7.90 3 Years 5.04 5.04 5.76 5.76 5.76 5.76 6.48 6.48 9.72 13.14 11.88 10.08 8.28 5 Years 10.80 14.94 13.68 11.52 9.00 8 Years 12.42 17.64 16.20 13.68 10.06 INSURANCE CONPANY DEPOSITS SIght 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 1.80 2.88 2.88 2.16 2.16 1.80 Reserves of different kInd 1/ 2/ 4.20 4.20 4.20 5.04 5.04 5.76 5.76 9.18 3.64 7.92 6.84 6.12 INDIVIDUAL ENTERPRISE DEPOSITS 3/ 1.80 1.80 1.80 2.88 2.88 2.88 2.88 2.8 2.88 2.88 2.88 2.88 2.88 2.88 .o....... ....................................................................................................................................... REF: MOIEY3.WK1 06/23/92 Source: Peoples Bank of China 1/ Same rates paid by PBC to the SBs. 2/ Reserves Include Contingent reserves, Reserves against property claims, and Life insurance reserves. 3/ Same rates paid on enterprise deposits. Note 1: This Table does not include PBC'c interest rates on SIs' deposits. Note 2: Before Septernber 21, 1988, Interest rates on deposits In Trust & Investment Cowipanies could float within a 20X range from quoted rates. Note 3: Since Septeirer 10, 1988, Interest rates on tine deposits with maturities of 3 years or more were irdexed to the rate of inflation (CPI). Table 6.10 : CHINA: BANKING SYSTEM: Nominal Armual Interest Rates on Loans for Working Capital 1971 1979 1980 1980 1981 1982 1983 1984 1985 1985 1986 1987 1988 1989 1990 1990 1991 ..- - -- - - - -- - - - - - - ........... ... . 01/01 01/01 01/01 04/01 01/01 01/01 01/01 01/01 04/01 08/01 09/21 01/01 09/01 02/01 04/15 08/21 04/21 Industr-----y---5.0------5.04-----5.04-- 5.04- 5.0-4----- - 7.20-----7.20---- -7.20---- 7.92- 7.92--- 7.92-- - -- - 7.92- 9.00--------11.34- 11.34---- 11.34 11.34 --- - Industry 5.04 5.04 5.04 5.04 5.04 7.20 7.20 7.20 7.92 7.92 7.92 7.92 9.00 11.34 11.34 11.34 11.34 Coomerce 5.04 5.04 5.04 5.04 5.04 7.20 r.20 r.20 r.92 7.92 7.92 7.92 9.00 11.34 11.34 11.34 11.34 Agriculture 4.32 4.32 4.32 4.32 4.32 7.20 7.20 7.20 7.92 7.92 7.92 7.92 9.00 11.34 11.34 11.34 11.34 Construction 5.04 5.04 5.04 5.04 5.04 3.60 3.60 3.60 4.32 4.32 4.32 4.32 9.00 11.34 11.34 11.34 11.34 Foreign trode 5.04 5.04 5.04 5.04 5.04 7.20 7.20 7.20 7.20 7.20 7.20 7.20 9.00 11.34 11.34 11.34 11.34 Town & Village Enterprises (TVE) 4.32 4.32 4.32 4.32 5.04 7.20 7.20 7.20 8.64 8.64 8.64 8.64 9.00 11.34 11.34 11.34 11.34 Individual EnterprIses 5.04 5.04 7.20 7.20 8.64 11.52 11.52 11.52 11.52 9.00 11.34 11.34 11.34 11.34 Farmers 4.32 4.32 4.32 4.32 5.04 7.20 7.20 7.20 7.92 7.92 7.92 7.92 9.00 11.34 11.34 11.34 11.34 PreferentiaL Rates Lifted Price Food & Oil 2.52 2.52 2.52 2.52 3.60 3.60 3.60 3.60 3.60 3.96 3.96 9.00 9.00 9.00 9.00 9.00 Food Purchases 4.32 4.32 4.32 4.32 5.76 5.76 5.76 5.76 3.96 9.00 9.00 9.00 9.00 9.00 Rice Seed Companes 2.52 2.52 2.52 2.52 3.60 3.60 3.60 3.60 3.60 3.96 7.92 9.00 9.00 9.00 9.00 9.00 Youth Run T&VE's 4.32 4.32 4.32 4.32 4.32 4.32 4.32 4.32 4.32 4.32 7.92 7.92 7.92 7.92 7.92 7.92 Mfnorities: Production & Trae 3.96 3.96 3.96 3.96 3.96 3.96 3.96 5.04 6.12 8.46 8.4 8.46 8.4 W Ninorities: Handicrafts 3.96 3.96 3.96 3.96 3.96 3.96 3.96 5.04 6.12 8.46 8.46 S.46 8.46 Chinese Medcine: not In Beijing... 5.76 5.76 5.76 5.76 5.76 5.76 7.92 7.92 7.92 7.92 7.92 7 92 Chinose Medicine: in Befjing... 5.76 5.76 5.76 5.76 5.76 7.92 7.92 7.92 7.92 7.92 7.92 Household Itm 5.76 S.76 5.76 5.76 5.76 5.76 7.92 7.92 7.92 7.92 7.92 7.92 Non-Profit Governmnt Entities 5.76 5.76 6.34 6.34 6.34 6.34 7.50 7.50 7.50 7.50 .7.50 State-run Coercial Entfties (SCE) Workfng Capital 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 6.84 Short-tern Loans 7.20 7.20 7.20 7.20 7.20 7.20 9.00 9.00 9.00 9.00 9.00 Other Loas 7.56 7.56 7.56 7.56 7.56 7.56 9.00 9.00 9.00 9.00 9.00 Cotton 7.20 7.20 7.20 7.20 9.00 9.00 9.00 9.00 9.00 SCE: Com mrce & Medicine 3.93 3.96 3.96 3.96 3.96 3.96 3.96 5.04 6.12 6.12 6.12 6.12 6.12 Settlawent Loans 5.04 5.04 5.04 5.04 7.20 3.60 3.60 3.60 3.60 3.60 7.92 9.00 9.00 9.00 9.00 9.00 Discountftig of Bills ( +3% higher than working capital loans > ................................................................................................................................ REF: NONEY3.WK1 06/23/92 Source: Peoples lank of China Tabte 6.11: CHINA: BANKING SYSTEM: Nominal Annual Interest Rates on Loans for Fixed Capital lS71 1979 1980 1980 1981 1982 1983 1984 1985 1985 1986 1987 1988 1989 1990 1990 1991 01/01 01/01 01/01 04/01 01/01 01/01 01/01 01/01 04/01 08/01 09/21 01/01 09/01 02/01 04/15 08/21 04/21 .... ..... ... . . .. .... .... .. .. ..... ...... ^... .... * . .......... . ... .... .... 0.. .. ... . . ^ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Agricultural Development Loans 1 year or less 5.04 5.04 5.04 5.04 7.92 7.92 7.92 9.00 11.34 10.08 9.36 8.64 1 - 3 years 5.76 5.76 5.76 5.76 8.64 8.64 8.64 9.90 12.78 10.80 9.36 8.64 3 - 5 years 6.48 6.48 6.48 6.48 9.36 9.36 9.36 10.80 14.40 11.52 10.08 9.54 5 -10 years 6.48 6.48 6.48 6.48 10.08 10.08 10.08 13.32 19.26 11.8 10.08 9.54 More than 10 years 6.48 6.48 6.48 6.48 10.80 10.80 10.80 16.20 14 CoastaL Cities A SEZ's (Up to Y 2 billion) 5 years or less 5.88 5.8 More than 5 years 7.32 7.32 1963 SI-Term Equipment Loans 2.52 Ships: Sixth Five Year Plan Period (SFYP) 4.03 4.03 4.03 4.03 4.03 4.03 4.03 4.03 4.03 4.03 4.03 4.03 4.03t~ Motorcycies & Cars: SFYP 5,04 5.04 5.04 5.04 5.04 5.04 5.04 5.tl4 5.04 5.04 5.04 5.04 5.04 Gotd Produbction 1 year 2.16 2.16 2.16 2.16 4.32 4.32 4.32 5.04 5.04 5.04 5.04 6.12 8.46 7.92 7.20 7.20 3 years 2.16 2.16 2.16 2.16 4.32 4.32 4.32 5.76 5.76 5.76 5.76 6.84 9.16 7.92 5.76 .5.76 5 years 2.16 2.16 2.16 2.16 4.32 4.32 4.32 6.48 6.48 6.48 6.48 7.56 9.9 7.92 5.76 5.76 Rural Enterprises CTVE's) 4.32 4.32 4.32 4.32 5.04 7.20 7. 20 7.92 9.36 9.36 9.36 9.36 13.32 1134 10.08 9.36 8.64 REF: NONEY3.UK1 06/23/92 SoWrce: Peoples lank of China TabLe 6.12 CHINA: BANKING SYSTEM: NominaL AnnuaL Interest Rates on Loans for Other Purposes 1971 1979 1980 1980 1981 1982 1983 1984 1985 1985 1986 1987 1988 1989 1990 1990 1991 01/01 01/01 01/01 04/01 01/01 01/01 01/01 01/01 04/01 08/01 09/21 01/01 09/01 02/01 04/15 08/21 04/21 GRANTS INTO LOANS (Since 01/01/85) Electronics, textiles, light industries, 3.60 3.60 3.60 3.60 4.20 4.20 4.20 4.20 4.20 4.20 4.20 4.20 4.20 petrochemical, olL processing Steel, mechinary, chemical, automotive, 3.00 3.00 3.00 3.00 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 3.60 power, oil exploration Agriculture, forestry energy 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 2.40 conservation, farming, water conservation, animal husbandry, acgutic production, meterotogy detense, coal, building materfa telecomuncations, food grain Surplus products & energy Intensive projects 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.00 12.Q00 Other 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 00 SPECIAL LOANS 12X-14% 12X-14X 12X-14X 10.8K-14.4K 10.8X-14.4X 10.8X-14.4X INTERBANK LOANS (Negotiate) INTEREST PENALTIES overdue loans +20X +20K +20X +20% +20% +20K +20X +20K +20K +20K +20X +20% +20K +20K Loans above working capital limits +30K +30K .30K +30X +30X +30% .30% .30% +30% +30% +330X% +30. +30 30X Surplus & problem products +30K +30K +30% +30% +30% +30X +30% +30K +30% +30% +30X +30% +30% +30% Loan used for unauthorized purposes +50K +s50 +50K +50K +50K +50K +50% +50K +50% +50% 50% +50% +.50x .50% REF: NONEY3.KIK 06/23/92 Source: Peoples lank of China Table 7.1: CHINA: Structure of Consolidated Government Revenue, 1978-91 /a (Billion Yuan) 1978 1979 198) 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Ta Revenue lb /c 120.6 122.7 128.1 135.4 136.8 153.5 175.5 218.8 224.8 232.1 257.6 301.7 313.9 336.8 Taxes on income and profits /d 74.0 73.7 75.6 77.1 72.1 75.1 80.6 69.7 68.9 66.5 69.6 68.8 73. 68.6 Enterprises income tax 74.0 73.4 75.4 76.7 71.6 72.6 78.0 69.7 68.9 66.5 69.6 68.8 73.5 68.6 Collctives 1e 5.4 4.5 4.5 4.4 4.8 6.0 6.2 101 9.3 10.2 10.5 10.5 13.1 11.3 State enterprises /f 68.6 68.9 70.9 72.3 66.8 66.6 71.8 59.6 59.6 56.3 59.1 58.3 60.4 57.3 Other 0.0 0.3 0.2 0.4 0.5 2.5 2.6 .. .. . .. Texes on goods and services 43.7 46.4 49.1 52.8 58.6 60.2 71.4 100.5 111.2 117.1 136.0 155.3 160.5 176.3 General sales taxes /g 39.5 42.5 45.4 49.1 54.7 55.9 66.9 95.3 104.0 109.5 126.3 144.8 149.7 169.1. Product tax .. e . . .. . 59.4 54.7 53.9 48.1 53.0 58.1 61.7 VAT .. .. .. . .. e 14.8 23.2 25.4 38.4 43.1 40.0 43.7 Business tax .. .. .. .. .. .. .. 21.1 26.1 30.2 39.8 48.7 51.6 63.7 Special Tax on Oil .. .. .. 1. .. .. .. .. 1.6 1.5 1.4 1.2 1.1 0.0 Salt Tax 1.1 1.0 0.9 0.9 le 1.0 1.0 1.0 1.1 0.9 0.9 1.0 0.9 0.9 Agricultural tax 3.1 2.9 2.8 2.8 2.9 3.3 3.5 4.2 4.5 5.2 7.4 8.3 8.8 6.3 Taxes on international trade 2.9 2.6 3.4 5.4 4.7 5.4 10.3 20.5 15.2 14.2 15.5 17.9 15.9 18.0 Other taxes /h 0.0 0.0 0.0 0.1 1.4 12.8 13.2 28.1 29.5 34.3 36.5 59.7 64.0 73.9 of which: Tax on extrabudgetary receipts 0.0 0.0 0.0 0.0 0.0 9.3 12.2 14.7 15.7 18.0 18.6 20.2 18.5 20.5 Tax on extrabudgetary construction 0.0 0.0 0.0 0.0 0.0 0.2 1.0 2.3 2.4 3.0 2.6 2.8 3.8 3.9 Nontax revenue 2.7 3.6 3.5 3.2 4.4 5.9 8.0 9.5 19.8 25.5 22.8 24.7 37.9 28.0 Gross profit remittances from SOE /j 0.0 0.0 0.0 0.0 0.0 0.0 0.0 4.4 4.2 4.3 5.1 6.4 7.8 7.6 Depreciation funds 2.4 2.5 2.7 2.6 2.6 2.7 2.7 .. .. .. .. other 0.3 1.1 0.8 0.6 1.8 3.2 5.3 5.1 15.6 21.2 17.7 18.3 30.1 20.4 Total revenue /i 123.3 126.3 131.6 138.6 141.2 159.4 183.5 228.3 244.6 257.6 280.4 326.4 351.8 364.8 Nemorandun item: Gross profit remittances from SOE 68.6 68.9 70.9 72.3 66.8 66.6 68.7 4.4 4.2 4.3 5.1 6.4 7.8 .... ..... s. ------ ------ ------ ------ ----- ------ ------ ------ ----- ------ ------ ------ ----- ------ ------ ------ ----- ------ ------ ------ ----- REF: FISCAL.WK1 06/23/92 Source: Ministry of Finance and The World Bank/IMF. /a This includes all government revenue, with the exception of extrabudgetary receipts of the various levels of govermrent. /b Proceeds of the profit tax on state enterprises introduced in 1983 are classified under profit remittances, as the breakdown of enterprise payments in 1983-4 between profit tax and profit transfers is not available. Begiming with 1985, profit taxes on state enterprises are included under tax revenue. /c Chinese definition of tax revenues plus energy and comnunications tax. /d for 1987: Residual: 231.0 less all identifiable items below. /e Untit 1985, the industrial and comnnercial incom tax levfed on collective enterprises. Begimning in 1986, official data no tonger separately identify income tax on collectives. /f The profit tax and adjuistm2nt tax on state enterprises, gross profit remitt&nces from state enterprises until 1984. /g The consolidated irdustrial and conmnerciat tax. /h for 1982: Includes 2.9 billion yuan from the tax on cruude oil consiuption introduced in 1982. /I According to the definition contained in IMF, Manual on Government Finance Statistics (GFS), 1986. /J Until 1984, included in income tax on state enterprises, as of 1988, only banks and financial institutions are subject to remittance. Table 7.2: CHINA: Structure of Consolidated Goverrunent Revenue, 1978-91 (as a X of Total Revenue) . . . . . . . . . . .. . . . . . ........ ......... .... ,.... ... .... .. *. ..... ...... ..... ...... ...... ....... .......... .@. ..................... .... . . . . 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Tax Revenue 42.2 42.6 43.5 45.5 49.6 54.5 58.2 95.8 91.9 90.1 91.9 92.4 89.2 94.4 Taxes on income and profits 6.9 6.1 5.7 5.5 5.8 7.4 8.4 32.4 30.0 27e8 27.5 23.6 23.4 22.6 Profit tax 4.4 3.6 3.4 3.2 3.4 3.6 5.1 30.5 28.2 25.8 24.8 21.1 20.9 20.9 Agrfcultural tax 2.5 2.3 2.1 2.0 2.1 2.1 1.9 1.8 1.8 2.0 2.6 2.5 2.5 1.7 Other 0.0 0.2 0.2 0.3 0.4 1.6 1.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Taxes on goods and services 32.9 34.4 35.2 36.1 39.4 35.7 37.0 42.2 43.6 43.4 45.9 45.0 43.1 46.6 Prodict tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 26.0 22.4 20.9 17.2 16.2 16.5 16.9 VAT 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.5 9.5 9.9 13.7 13.2 11.4 12.0 Business tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 9.2 10.7 11.7 14.2 14.9 14.7 17.5 Taxes on international trade 2.4 2.1 2.6 3.9 3.3 3.4 5.6 9.0 6.2 5.5 5.5 5.5 4.5 4.9 Other taxes 0.0 0.0 0.0 0.1 1.0 8.0 7.2 12.3 12.1 13.3 13.0 18.3 16.2 20.3 Nontax revenue 57.8 57.4 56.5 54.5 50.4 45.5 41.8 4.2 8.1 9.9 8.1 7.6 10.8 5.6 of which: Profit remittances 55.6 54.6 53.9 52.2 47.3 41.8 37.4 1.9 1.7 1.7 1.8 2.0 2.2 0.0 Nemorandumn items: Revenue from enterprises 60.0 58.1 57.3 55.3 50.7 45.5 42.5 32.5 29.9 27.5 26.6 23.0 23.1 20.9 Profit tax 4.4 3.6 3.4 3.2 3.4 3.8 5.1 30.5 28.2 25.8 24.8 21.1 20.9 20.9 Profit remittances 55.6 54.6 53.9 52.2 47.3 41.8 37.4 1.9 1.7 1.7 1.8 2.0 2.2 0.0 0 Extrabudgetary receipts 0.0 0.0 0.0 0.0 0.0 1.0 1.0 0.9 0.8 0.7 0.5 0.4 0.4 0.3 1 Total Revenue 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 ..... ....... .. . . ........ ...... ........... . . ,.................... ... .... ... . .. ...... .......... .. . ...................... ............... ........................ ...... ........ ....... REF: FISCAL.UK1 06/23/92 Source: NMnistry of Finance and The World Bank/IMF. Table 7.3; CHINA: Developments in Goveriment Revenue 1978-91 (s a X of GNP) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Total Revenue 34.4 31.6 29.4 29.0 27.2 27.4 26.4 26.7 25.2 22.8 20.0 20.5 19.9 18.6 Taxes on income and profits 2.4 1.9 1.7 1.6 1.6 2.0 2.2 8.6 7.6 6.3 5.5 4.8 4.7 4.2 Profit tax 1.5 1.1 1.0 0.9 0.9 1.0 1.3 8.1 7.1 5.9 5.0 4.3 4.2 3.9 AgrIcultural tax 0.9 0.7 0.6 0.6 0.6 0.6 0.5 0.S 0.5 0.5 0.5 0.5 0.5 0.3 Other 0.0 0.1 0.0 0.1 0.1 0.4 0.4 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Taxes on goods and services 11.3 10.9 10.4 10.5 10.7 9.8 9.8 11.3 11.0 9.9 9.2 9.2 8.6 8.7 Product tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6.9 5.6 4.8 3.4 3.3 3.3 3.2 VAT 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1.7 2.4 2.2 2.7 2.7 2.3 2.2 Business tax 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2.5 2.7 2.7 2.8 3.1 2.9 3.3 Taxes on international trade 0.8 0.7 0.8 1.1 0.9 0.9 1.5 2.4 1.6 1.3 1.1 1.1 0.9 0.9 Other taxes 0.0 0.0 0.0 0.0 0.3 2.2 1.9 3.3 3.0 3.0 2.6 3.8 3.6 3.8 Montax revenue 19.9 18.1 16.6 15.8 13.7 12.5 11.0 1.1 2.0 2.3 1.6 1.6 2.1 1.0 of which: Profit remittances 19.1 17.2 15.9 15.1 12.9 11.5 9.9 0.5 0.4 0.4 0.4 0.4 0.4 0.0 Nemorandtn itims: Revenue from enterprises 20.6 18.4 16.9 16.1 13.8 12.5 11.2 8.7 7.5 6.3 5.3 4.7 4.6 3.9 Profit tax 1.5 1.1 1.0 0.9 0.9 1.0 1.3 8.1 7.1 5.9 5.0 4.3 4.2 3.9 Profit remittances 19.1 17.2 15.9 15.1 12.9 11.5 9.9 0.5 0.4 0.4 0.4 0.4 0.4 0.0 Extrabudgetary receipts 0.0 0.0 0.0 0.0 0.0 0.3 0.3 0.2 0.2 0.2 0.1 0.1 0.1 0.1 .... ......... ......... . .-- ---- ----.------ - ---- --- ----- ---- ---.---.----- - -- ----- ------- ---.--------...--------------- ------- ------ -.-.-- -,---.--- -- ----.-.....---- --- --- ---- -- -> ........... ... . . . REF: FISCALANK1 06/23/92 Source: Ministry of Finance and The Uorld Bank/INF. Table 7.4: CHINA: Structure of Goverrvnent Expenditure, 1978-91 (Billion Yuan) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Total Expenditure and net lending /a 122.5 146.9 146.4 144.4 148.3 169.0 193.9 232.4 263.2 282.4 313.7 364.3 388.5 413.3 Current expenditure 69.2 86.2 99.1 107.1 113.2 126.4 138.1 168.1 188.0 206.8 237.6 288.7 306.9 330.2 Acninistration 4.9 5.7 6.7 7.1 8.2 10.1 13.7 14.4 18.2 19.5 23.9 28.5 33.3 34.8 Defense 16.8 22.3 19.5 16.8 17.6 17.7 18.1 19.2 20.1 21.0 21.0 25.1 29.0 33.0 Culture, education , public health 11.3 13.2 15.7 17.0 19.7 22.3 26.3 31.7 38.0 40.3 48.6 55.3 61.7 69.9 science, and broadcasting of which: Education .. .. .. .. .. .. 14.8 18.4 21.4 22.7 27.9 31.6 35.3 40.6 Economic ervices 17.9 18.7 19.2 16.8 17.6 18.8 20.4 22.4 25.2 26.0 28.9 34.6 37.9 42.0 Geological survey 2.. . . 2.6 3.0 3.1 3.0 3.3 3.3 3.6 4.0 Agriculture .. .. .. .. .. .. 9.6 10.1 12.4 13.4 15.4 19.7 22.2 24.3 Operating expenditure for industry, .. .. .. .. .. .. 3.0 3.5 3.7 3.3 3.9 4.5 4.7 4.9 coanunication and comnerce Development of new products .. .. .. .. .. .. 4.2 4.4 5.0 5.1 5.3 5.9 6.3 7.9 Working capital for SOE .. .. .. .. .. .. 1.0 1.4 1.0 1.2 1.0 1.2 1.1 1.0 Social welfare relief .. .. .. .. .. .. .. .. 3.6 3.9 4.1 5.0 5.5 6.0 Subsidies 11.4 19.5 27.4 36.8 37.2 42.6 41.0 50.7 58.2 67.0 76.3 97.3 96.0 87.7 DOaiy living recessities /b 7.8 16.0 24.0 30.5 30.0 30.9 31.5 31.4 25.7 29.5 31.7 37.4 38.1 37.1 Agricultural lrputs 0.0 0.0 0.0 2.2 2.1 1.4 1.0 1.3 .. .. .. .. Operating losses of SOE 3.6 3.5 3.4 4.2 5.2 10.3 8.5 18.0 32.5 37.5 4.6 59.9 57.9 50.6 Interest payments .. .. .. .. .. .. .. .. 1.9 2.8 3.0 3.3 4.4 8.0 Xs Other 6.9 6.8 10.7 12.6 12.8 15.0 18.6 29.7 22.8 26.3 31.0 39.6 39.1 48.8 Capital expenditure 53.3 60.7 47.3 37.3 35.1 42.6 55.8 64.3 75.2 75.6 76.1 75.6 81.6 83.1 Capital construction .. .. .. .. .. .. 48.9 58.4 67.2 68.2 66.4 66.9 72.6 72.6 Develoopent of the productive .. .. .. .. .. .. 6.9 5.9 8.0 7.4 9.7 8.7 9.0 10.5 capacity of existing enterprises Kmorandun Item: (as percent of GNP) Current expenditure 19.3 21.6 22.2 22.4 21.8 21.8 19.8 19.6 19.4 18.3 16.9 18.1 17.4 16.9 Subsidies 3.2 4.9 6.1 7.7 7.2 7.3 5.9 5.9 6.0 5.9 5.4 6.1 5.4 4.5 Dafly living necessities 2.2 4.0 5.4 6.4 .5.8 5.3 4.5 3.7 2.7 2.6 2.3 2.3 2.2 1.9 Operating losses of SOE 1.0 0.9 0.8 0.9 1.0 1.8 1.2 2.1 3.4 3.3 3.2 3.8 3.3 2.6 Capital expendfture 14.9 15.2 10.6 7.8 6.8 7.3 8.0 7.5 7.8 6.7 5.4 4.7 4.6 4.2 (as percentage of total expenditure) Subsldies 9.3 13.3 18.7 25.5 25.1 25.2 21.1 21.8 22.1 23.7 24.3 26.7 24.7 21.2 Copital expenditure 43.5 41.3 32.3 25.8 23.7 25.2 28.8 27.7 28.6 26.8 24.3 20.8 21.0 20.1 REF: FISCAL.WK1 06/23/92 Source: Ministry of Finance and The World Bank/IHF. Table 7.5: CHINA: Structure of Goverment Expenditure, 1978-91 (as a X of Total Expenditure) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Total Expenditure and net lending 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 98.6 98.6 98.7 98.6 98.6 98.5 Current expenditure 56.5 58.7 67.7 74.2 76.3 74.8 71.2 72.3 70.1 71.8 74.4 77.9 77.6 78.4 Administrative 4.0 3.9 4.6 4.9 5.5 6.0 7.1 6.2 6.9 6.9 7.6 7.8 8.6 8.4 Defense 13.7 15.2 13.3 11.6 11.9 10.5 9.3 8.3 7.6 7.4 6.9 6.9 7.5 6.0 Culture, education , public health 9.2 9.0 10.7 11.8 13.3 13.2 13.6 13.6 14.4 14.3 15.5 15.2 15.9 16.9 Economic services 14.6 12.7 13.1 11.6 11.9 11.1 10.5 9.6 9.6 9.2 9.2 9.5 9.8 10.2 Subsidies 9.3 13.3 18.7 25.5 25.1 25.2 21.1 21.8 22.1 23.7 24.3 26.7 24.7 21.2 Daily necessities 6.4 10.9 16.4 21.1 20.2 18.3 16.2 13.5 9.8 10.4 10.1 10.3 9.8 9.0 Agricultural Inputs 0.0 0.0 0.0 1.5 1.4 0.8 0.5 0.6 0.0 0.0 0.0 0.0 0.0 0.0 Enterprise losses 2.9 2.4 2.3 2.9 3.5 6.1 4.4 7.7 12.3 - 13.3 14.2 16.4 14.9 12.2 Other 5.6 4.6 7.3 8.7 8.6 8.9 9.6 12.8 9.4 10.3 10.8 11.8 11.2 13.7 Developmental expenditure 43.5 41.3 32.3 25.8 23.7 25.2 28.8 27.7 28.6 26.8 24.3 20.8 21.0 20.1 REF: FISCAL.WK1 06/23/92 Source: Mfnistry of Finance and The World Iank/IMF. Table 76: CHINA: Developments in Goverrvnent Expenditure, 1978-91 (as a X of GNP) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Total Expenditure and net lending 34.1 36.7 32.8 30.2 28.6 29.1 27.9 27.2 27.1 25.0 22.4 22.9 22.0 21.1 Current expenditure 19.3 21.6 22.2 22.4 21.6 21.8 19.8 19.6 19.4 18.3 16.9 18.1 17.4 16.9 Administrative 1.4 1.4 1.5 1.5 1.6 1.7 2.0 1.7 1.9 1.7 1.7 1.8 1.9 1.8 Defense 4.7 5.6 4.4 3.5 3.4 3.1 2.6 2.2 2.1 1.9 1.6 1.6 1.6 1.7 Culture, edccation , public heatth 3.1 3.3 3.5 3.6 3.8 3.8 3.8 3.7 3.9 3.6 3.5 3.5 3.5 3.6 Economic servIces 5.0 4.7 !S.3 3.5 3.4 3.2 2.9 2.6 2.6 2.3 2.1 2.2 2,1 2.1 SubsidIes 3.2 4.9 t-A 7.7 7.2 7.3 5.9 5.9 6.0 5.9 5.4 6.1 5.4 4.5 Doaly necessities 2.2 4.0 :J4 6.4 5.8 5.3 4.5 3.7 2.7 2.6 2.3 2.3 2.2 1.9 Agricultural inputs 0.0 0.0 0.0 0.5 0.4 0.2 0.1 0.2 0.0 0.0 0.0 0.0 0.0 0.0 Enterprise losses 1.0 0.9 0.8 0.9 1.0 1.8 1.2 2.1 3.4 3.3 3.2 3.8 3.3 2.6 Other 1.9 1.7 2.4 2.6 2.5 2.6 2.7 3.5 2.5 2.6 2.4 2.7 2.5 2.9 Developmental expenditure 14.9 15.2 10.6 7.8 6.8 7.3 8.0 7.5 7.8 6.7 5.4 4.7 4.6 4.2 REF: FlISC A'W1 06/23/92 SouTce: Ninistry of FInance and The Moeld Bank/IMF. TabLe 7.7: CHINA: Budget and Its Financing 1978-91 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 (Billion Yuan) Revenue 123.3 126.3 131.6 138.6 141.2 159.4 183.5 228.3 244.6 257.6 280.4 326.4 351.8 364. Expenditure 122.4 146.9 146.4 144.3 148.3 169.2 193.9 232.4 263.2 282.4 313.7 364.3 388.5 413.3 Deffcit 0.9 -20.6 - 14. ra -5.7 -7.1 -9.8 -10.4 -4.1 -18.6 -24.8 -33.3 -37.9 -36.7 -48.5 Ffnancing -0.9 20.6 14.8 5.7 7.1 9.8 10.4 4.1 18.1 24.6 33.5 37.4 36.8 31.0 Domestic -1.2 17.0 12.6 2.5 7.3 8.7 8.6 4.0 12.8 17.8 22.0 26.1 23.7 20.3 PBC -1.2 17.0 12.6 -2.2 2.9 4.4 4.5 -2.1 12.7 8.4 11.5 -7.5 17.4 12.3 Nonbank 0.0 0.0 0.0 4.8 4.4 4.3 4.2 6.1 0.1 9.4 10.5 33.6 6.3 8.0 Foreign 0.2 3.6 2.2 3.1 -0.2 1.1 1.8 0.1 5.3 6.8 11.5 11.3 13.1 10.7 Gross foreign borrowing .. .. . . - .. . . .. 7.6 10.6 13.9 14.4 17.8 16.2 Amortization .. .. .. .. .. .. .. . -2.3 -3.8 -2.4 -3.1 -4.7 -5.5 (as a X of GNP) Revenue 34.4 31.6 29.4 29.0 27.2 27.4 26.4 26.7 25.2 22.8 20.0 20.5 19.9 18.6 Expenditure 34.1 36.7 32.8 30.2 28.6 29.1 27.9 27.2 27.1 25.0 22.4 22.9 22.0 21.1 Deficit 0.3 -5.2 -3.3 -1.2 -1.4 -1.7 -1.5 -0.5 -1.9 -2.2 -2.4 -2.4 -2.1 -2.5 Financing -0.3 5.2 3.3 1.2 1.4 1.7 1.5 0.5 1.9 2.2 2.4 2.3 2.1 1.6 Domestic -0.3 4.3 2.8 0.5 1.4 1.5 1.2 0.5 1.3 1.6 1.6 1.6 1.3 1.0 PBC -0.3 4.3 2.8 -0.5 0.6 0.8 0.6 -0.2 1.3 0.7 0.8 -0.5 1.0 0.6 onrbank 0.0 0.0 0.0 1.0 0.8 0.7 0.6 0.7 0.0 0.8 o.7 2.1 0.4 0.4 Foreign 0.1. 0.9 0.5 0.7 -0.0 0.2 0.3 0.0 0.5 0.6 0.8 0.7 0.7 O.S Gross foreign borrowing .. .. .. .. .. .. .. .. 0.8 0.9 1.0 0.9 1.0 0.8 Amortization .. .. .. .. .. .. .. . -0.2 -0.3 -0.2 -0.2 -0.3 -0.3 (as a X of Total Deficit) Firancing 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 97.3 99.2 100.6 98.7 100.3 63.9 Domestic 125.0 82.5 84.9 44.8 102.8 8.6 82.9 97.6 68.8 71.8 66.1 68.9 64.6 41.9 PBC 125.0 82.5 84.9 -39.7 40.8 ".8 42.9 -51.2 68.3 33.9 34.5 -19.8 47.4 25.4 Nonbank 0.0 0.0 0.0 84.5 62.0 43.8 40.0 148.8 0.5 37.9 31.5 88.7 17.2 16.5 Foreign -25.0 17.5 15.1 55.2 -2.8 11.4 17.1 2.4 28.5 27.4 34.5 29.8 35.7 22.1 Gross foreign borrowing .. .. .. .. .. .. .. .. 40.9 42.7 41.7 38.0 48.5 33.4 Amortization .. .. .. .. .. .. .. .. -12.4 -15.3 -7.2 -8.2 -12.8 -11.3 REF: FISCAL.WK1 06/23/92 Source: Ministry of Finance and The Uortd Bank/INF. Table 8.1: CHINA Production of Major Crops (Million Tons) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 98 1989 1990 1 ----------------------------------------------------------------------------------------------------------------- Total Food Grains 304.8 332.1 320.6 325.0, 354,5 387.3 407.3 379.1 391.5 403.0 394.1 407.5 446.2 435.3 nice 136.9 143.8 139.9 144.0 161.6 168.9 178.3 168.6 172.2 174.3 169.1 180.1 189.3 183.8 Uheat 53.8 62.7 55.2 69.6 68.5 81.4 87.8 85.8 90.0 85.9 85.4 90.8 98.2 96.0 Corn 56.0 60.0 62.6 59.2 60.6 68.2 73.4 63.9 70.9 79.2 77.4 78.9 96.8 98.8 Soybeans 7.6 7.5 7.9 9.3 9.0 9.8 9.7 10.5 11.6 12.5 11.7 10.2 11.0 9.7 Tuber 31.7 28.5 28.7 26.0 27.1 29.3 28.5 26.0 25.3 28.2 27.0 27.3 27.4 27.2 Total Oit Seeds 5.2 6.4 7.7 10.2 11.8 10.6 11.9 15.8 14.7 15.3 13.2 12.9 16.1 16.4 Peanits 2.4 2.8 3.6 3.8 3.9 4.0 4.8 6.7 5.9 6.2 5.7 5.4 6.4 6.3 Rapeseed 1.9 2.4 2.4 4.1 5.7 4.3 4.2 5.6 5.9 6.6 5.0 5.4 7.0 7.4 Cotton 2.2 2.2 2.7 3.0 3.6 4.6 6.3 4.1 3.5 4.2 4.1 3.8 4.5 5.7 Sugarcane 21.f 21.5 22.8 29.7 36.9 31.1 39.5 51.5 50.2 47.4 49.1 48.6 57.6 67.9 Deetroots 2.7 3.1 6.3 6.4 6.7 9.2 8.3 8.9 8.3 8.1 12.8 9.4 14.5 16.3 Cured Tobacco 1.1 0.8 0.7 1.3 1.8 1.2 1.5 2.1 1.4 1.6 2.3 2.4 2.3 2.7 Fruits 6.6 7.0 6.8 7.8 7.7 9.5 9.8 11.6 13.5 16.7 16.7 18.4 18.7 21.8 Apples 2.3 2.9 2.4 3.0 2.4 3.5 2.9 3.6 3.3 4.3 4.3 4.5 4.3 4.5 Citrus 0.4 0.6 0.7 0.8 0.9 1.3 1.5 1.8 2.5 3.2 2.6 4.6 4.9 6.3 Pears 1.5 1.4 1.5 1.6 1.8 1.8 2.1 2.1 2.3 2.5 2.7 2.6 2.4 2.5 Ouas 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.6 1.3 2.0 1.8 1.4 1.5 2.0 ...........-................................................................................................................................................... REF: AGRAVIsa 06/23/92 Source: Statistical Abstract 1992 (in Chine-se) pp.58-60 for 1991; Yearbook 1991 pp.315-7. Table 8.2 CHINA : Production of Major Crops (Percentage GROWTH RATES) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Total Food Grains 9.0 -3.5 1.4 9.1 9.2 5.2 -6.9 3.3 2.9 -2.2 3.4 9.5 -2.5 Rice . 5.0 -2.7 2.9 12.3 4.5 5.6 -5.4 2.2 1.2 -3.0 6.5 5.1 -2.9 Wheat . 16.5 -12.0 26.1 -1.7 18.9 7.9 -2.3 4.9 -4.6 -0.5 6.3 6.2 2.3 Corn .. 7.3 4.3 -5.4 2.3 12.6 7.6 -13.0 10.9 11.8 -2.4 2.0 22.7 2.0 Soybeans -1.5 6.4 17.5 -3.2 8.1 -0.6 8.2 10.6 7.4 -6.6 -12.2 7.5 -11.T Tuber .. -10.3 0.9 -9.6 4.2 8.1 -2.6 -8.6 -2.7 11.3 -4.4 1.2 0.5 -1.0 Total Oil Seeds. .. 23.3 19.5 32.7 15.8 -10.7 12.9 32.5 -6.6 3.7 -13.6 -2.2 25.0 1.6 Peanuts .. 18.7 27.6 6.3 2.4 0.9 21.9 38.4 -11.7 4.9 -7.7 -5.8 18.7 -1.0 Rapeseed .. 28.6 -0.7 70.5 39.1 -24.2 -1.9 33.3 4.9 12.3 -23.6 7.9 27.9 6.9 Cotton .. 1.6 22.7 9.6 21.2 28.9 35.0 -33.7 -14.6 19.9 -2.3 -8.7 18.9 25.9 Sugarcone .. 1.9 6.0 30.1 24.3 -15.6 26.9 30.4 -2.6 -5.7 3.6 -1.0 1a.6 17.6 Beetroots r 15.0 103.0 0.9 5.5 36.8 -9.8 7.7 -6.9 -2.0 57.4 -26.9 55.2 12.1 Cured Tobacco .. -23.4 -11.0 78.4 44.j -37.7 34.1 34.5 -33.6 19.1 42.6 3.1 -6.3 18.2 Frufts .. 6.8 -3.2 14.8 -1.1 23.0 3.8 18.2 15.8 23.8 -0.1 10.3 2.0 16.1 Apples .. 26.1 -17.6 27.2 -19.2 45.7 -16.9 22.9 -7.7 27.8 1.9 3.6 -4.0 5.1 Citrus .. 44.9 28.5 11.9 17.7 38.0 15.7 20.6 40.9 26.5 -20.6 78.2 0.4 30.4 Pears .. -5.2 1.9 8.7 10.2 2.3 17.0 1.8 9.9 6.0 9.3 -5.7 -8.3 6.2 Bananas . -12.9 -17.6 106.6 59.5 3.0 44.9 110.3 98.3 62.2 -9.8 -23.3 3.7 36.1 REF: ACR.WK1 06/23/92 Source: Table 8.1. Table 8.3: CHINA : Total Sown Area (Million Hectares) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 ....--------------..-...----.-....-.......--------------------------------------------------------------------------------------------------------------------- Total Food Grains 121 119 117 115 114 114 113 109 111 111 110 112 114 112 Rice 34 34 34 33 33 33 33 32 32 32 32 33 33 33 Wheat 29 29 29 28 28 29 30 29 30 29 29 30 31 31 Corn 20 20 20 19 19 19 19 18 19 20 20 20 21 22 Soybeans 7 7 7 8 8 8 7 8 8 8 8 8 a 7 Tuber 12 11 10 10 9 9 9 9 9 9 9 9 9 9 Peanuts 2 2 2 2 2 2 2 3 3 3 3 3 3 3 Rapeseed 3 3 3 4 4 4 3 4 5 5 5 5 6 6 Cotton 5 5 5 5 6 6 7 5 4 5 6 5 6 7 Sugarcane 1 1. 0 1 1 1 1 1 1 1 1 1 1 1 Eeetroots 0 0 0 0 0 1 1 1 1 0 1 1 1 1 Cured Tobacco 1 1 0 1 1 1 1 1 1 1 I 2 1 2 G Fruits . .. .. .. .. .. .. 3 4 5 5 5 Apples I. . .. .. .. .. .. 1 1 1 2 2 Citrus .. .. .I... . 1 1 1... Pears .. .. .. .. .. .. .. 0 0 0 0 0 Bananas .. .. .. .. .. .. .. 0 0 0 0 0 Totat Sown Area 150 149 146 145 145 144 144 144 144 145 145 147 148 150 Total Irrigated Area .. 45 45 45 44 45 44 44 44 44 44 45 47 48 Percentage to Total Sown Area Grain Crops 80.3 80.3 80.1 79.2 78.4 79.2 79.3 75.8 76.9 76.8 76.0 76.6 76.5 75.1 Total Industrial Crops 9.6 10.0 10.9 12.1 13.0 12.3 13.4 15.6 14.1 14.3 14.8 14.3 14.4 15.7 .... .... --- - .. - - -- --- ----- -- --- -- - -- --- - --- --- - ------ -- ---- ---- -- -- ---- ---- -- ------- ------ - ----- ---- -- -- --- -- - - ---- --- --- ------ - - ---- REF: AGR.WK1 06/23/92 Source: Statistical Abstract 1992 (in Chinese) pp.57-9, 65 for 1991; Yearbook 1990 pp.342-3, 348, 333; 1988 pp.197, 206, 211. (converted into hectares with 1 mu=0.0667 ha). Table 8.4 CHINA : Total Sown Area (Percentage GROUTH RATES) 1978 1979 190 1981 192 1963 1964 1985 1966 1967 1966 1"9 1990 1991 ------------------------------------------- .................................................................................................................. Totat Food Grains . -1.1 -1.7 -1.9 -1.3 0.5 -1.0 -3.6 1.9 0.3 -1.0 1.9 1.1 -1.0 Rice -1.6 0.0 -1.7 -0.7 0.2 0.1 -3.3 0.6 -0.2 -0.6 2.2 1.1 -1A het 0.6 -0.4 -3.2 -1.2 3.9 1.8 -1.2 1.4 -2.8 -0.0 3.7 3.1 0.6 Corn .. 0.9 1.1 -4.6 -4.5 1.5 -1.5 -4.5 8.1 5.7 -2.6 3.4 5.1 0.6 Soybens . 1.4 -0.3 11.0 4.9 -10.1 -3.7 5.9 7.5 1.8 -3.8 -0.8 -6.2 -6.9 Tuber -7.2 -7.3 -5.2 -2.6 0.3 -4.4 -4.6 1.3 2.1 2.1 0.5 0.3 -0.5 Peanuts 17.3 12.6 5.7 -2.3 -4.9 10.0 37.1 -2.0 -7.1 -1.5 -1.0 -1.3 -0.9 REapeseed 7.0 3.0 33.6 8.5 -11.0 -7.0 31.7 9.4 7.1 -6.3 1.1 10.2 11.4 Cotton -7.3 9.0 5.4 12.4 4.3 13.9 -25.7 -16.2 12.5 14.3 -6.0 7.4 17.0 Sgarcane -6.7 -6.4 15.0 16.5 0.1 11.3 32.5 -1.5 -9.6 7.6 3.8 5.1 15.4 leetroots .. -1.6 36.1 -1.5 6.0 17.7 -7.7 11.7 -7.1 -4.4 49.5 -23.5 17.7 16.9 Cured Tobacco .. -17.0 -22.0 47.9 51.5 -35.6 25.1 50.6 -17.0 2.1 42.8 15.3 -10.7 16.4 Fruits .. .. .. .. .. .. .. .. 34.2 22.8 12.4 6.0 Apples .. .. .. .. .. .. .. .. 35.6 22.8 15.2 1.8 Citrus .. .. e . . . . .. 32.6 28.5 10.6 7.4 .e Pears .. .. .. .. .. .. .. .. 16.7 11.9 10.4 -1.1 Bananas .. .. .. .. .. .. .. .. 51.3 113.2 -7.1 -21.9 Total Sown Area .. -1.1 -1.4 -0.8 -0.3 -0.5 0.2 -0.4 0.4 0.5 -0.1 1.2 1.2 0.6 Total Irrigated Area .. .. -0.3 -0.7 -0.9 1.1 -0.4 -0.9 0.4 0.4 -0.1 1.2 5.5 0.9 GROWTH RATE OF Percentage to Total Sown Area Grain Crops .. 0.0 -0.2 -1.1 -1.0 1.0 0.1 -4.4 1.5 -0.1 -1.0 0.8 -0.1 -1.8 Totet Industrial Crops .. 4.2 9.0 11.0 7.4 -5.4 8.9 16.4 -9.6 1.4 3.5 -3.4 0.7 9.0 ---------------------------------------------------------------------------------------------------------------- REF: AGR.WK1 06/23/92 Source: Table 6.3. Table 8.5: CHINA: Average Unit Area Yield of Major Crops (At soin area kg/hectare) ----------------------------------------------------------- ------------------------------------------------------ 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 ----------------------------------------------------------------------------------------------------------------------------------------- Total Food Grains 2535 2835 2745 2835 3135 3405 3615 3480 3525 3615 3585 3630 3930 Rice 3975 4245 4140 4320 4890 5100 5370 5250 5340 5415 5280 5505 5730 wheat 1845 2145 1890 2115 2445 2805 2970 2940 3045 2985 2970 3045 3195 Corn 2805 2985 3075 3045 3270 3630 3960 3600 3705 3915 3930 3885 4530 Soybeans 1065 1035 1095 1170 1080 1290 1335 1365 1395 1470 1440 1275 1455 Tuber 2700 2595 2835 2700 2895 3120 3165 3030 2910 3180 2985 3000 3015 Peanuts 1350 1365 1545 1545 1620 1800 1800 2010 1815 2040 1905 1815 2190 Rapeseed 720 870 840 1080 1380 1170 1230 1245 1200 1260 1020 1095 1260 Cotton 450 495 555 570 615 765 915 810 825 870 750 735 810 Sugarcane 38505 42030 47565 53820 56460 47610 54285 53430 52860 55140 53115 50850 57120 .˘ 0 luatroote 8175 i555 14250 14595 14520 16890 16500 15915 15960 16350 17190 16245 21660 Curd Tobacco 1725 1590 1815 2190 2085 2010 2160 1920 1530 1785 1800 1605 1680 ...........................................................................................................................................-.....................- REF: AGR.UK1 06/23/92 tource: CHINA Statistical Yearbook 1991 pp.321. Table 8.6 CHINA Average Unit Area Yield of Major Crops (Percentage GROUTH RATES) 1978 1979 1980 1981 192 1983 1984 1985 1986 1987 1988 1989 1990 1991 Total Food Grains .. 11.8 -3.2 3.3 10.6 8.6 6.2 -3.7 1.3 2.6 -0.8 1.3 8.3 Rice .. 6.8 -2.5 4.3 13.2 4.3 5.3 -2.2 1.7 1.4 -2.5 4.3 4.1 Wheat .. 16.3 -11.9 11.9 15.6 14.7 5.9 -1.0 3.6 -2.0 -0.5 2.5 4.9 Corn .. 6.4 3.0 -1.0 7.4 11.0 9.1 -9.1 2.9 5.7 0.4 -1.1 16.6 Soybeans .. -2.8 5.8 6.8 -7.7 19.4 3.5 2.2 2.2 5.4 -2.0 11.5 14.1 Ttber .. -3.9 9.2 -4.8 7.2 7.8 1.4 -4.3 -4.0 9.3 -6.1 0.5 0.5 Peanuts .. 1.1 13.2 0.0 4.9 11.1 0.0 11.7 -9.7 12.4 -6.6 -4.7 20.7 Repeseed .. 20.8 -3.4 28.6 27.8 -15.2 5.1 1.2 -3.6 5.0 -19.0 7.4 15.1 Cotton .. 10.0 12.1 2.7 7.9 24.4 19.6 -11.5 1.9 5.5 -13.8 -2.0 10.2 Sugarcane .. 9.2 13.2 13.2 4.9 -15.7 14.0 -1.6 -1.1 4.3 -3.7 -4.3 12.3 . Seetroots .. 16.9 49.1 2.4 -0.5 16.3 -2.3 -3.5 0.3 2.4 5.1 -5.5 33.3 .. Cured Tobecco .. -7.8 14.2 20.7 -4.8 -3.6 7.5 -11.1 -20.3 16.7 0.8 -10.8 4.7 -- - - - - - - - -- - - - - - - - - - - - - - -- -- ... .. . . O. . .. ... ... . . . ., ....... ............. .... . . . . . . . .. . . . . . . . . .. . . . . . . . . REF: AGR.UK1 06123/92 Source: Table 5.5. Table 9.1: CHINA: Gross Ouitput Value of Industry (Billion yuan) 1985 1986 1987 1988 1989 1990 1991 Total 971.6 1119.4 1381.3 1822.5 2201.7 2392.4 2822.5 BY TYPE OF OWNERSHIP State-owned 630.2 697.1 825.0 1035.1 1234.3 1306.4 1491.5 Collective-owned 311.7 375.2 478.2 656.7 785.8 852.3 1008.8 Townshfp 76.1 98.1 128.4 184.7 219.4 244.1 291.3 Vitlage 66.3 83.8 116.5 170.4 211.8 239.4 291.9 Joint Urban-Rural 15.7 24.8 31.6 43.9 49.6 53.9 Joint City-Town 0.0 2.1 3.0 3.9 5.0 5.5 Joint Rural 15.2 22.7 28.6 40.0 44.6 48.4 individualt-owned 18.0 30.9 50.2 79.0 105.8 129.0 161.0 Urban 3.3 2.9 5.0 6.8 9.0 10.7 Rural 14.6 27.9 45.2 72.2 96.8 118.3 Other 11.7 16.3 27.9 49.5 75.8 104.8 161.2 BY TYPE OF INDUSTRY Light 457.5 533.0 665.6 897.9 1076.1 1181.3 1379.6 Heavy 514.1 586.4 715.7 924.5 1125.6 1211.3 1442.9 Source: CHINA Statistical Abstract 1992 pp.70-1; CHINA Statiticat Yearbook 1991 pp.353 for 1985-90. TabLe 9.2: CHINA: Gross Output Value of Industry (Percentage Shares) 1985 1986 1987 1988 1989 1990 1991 Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 BY TYPE OF OIMERSHIP State-owned 64.9 62.3 59.7 56.8 56.1 54.6 52.8 Collective-owned 32.1 33.5 34.6 36.1 35.7 35.6 35.7 Towwship 7.8 8.8 9.3 10.1 10.0 10.2 10.3 vilLage 6.8 7.5 8.4 9.3 9.6 10.0 10.3 Joint Urban-Rural 1.6 2.2 2.3 2.4 2.3 2.3 0.0 Joint City-Town 0.0 0.2 0.2 0.2 0.2 0.2 Joint Rural 1.6 2.0 2.1 2.2 2.0 2.0 individual-Owned 1.8 2.8 3.6 4.3 4.8 5.4 5.7 Urban 0.3 0.3 0.4 0.4 0.4 0.4 Rural 1.5 2.5 3.3 4.0 4.4 4.9 Other 1.2 1.5 2.0 2.7 3.4 4.4. 5.7 BY TYPE OF INDUSTRY Light 47.1 47.6 48.2 49.3 48.9 49.4 48.9 Heavy 52.9 52.4 51.8 50.7 51.1 50.6 51.1 REF: INOUSTRY.WK1 06/23/92 Source: Table 9.1 Table 9.3: CHINA: output of Major Industrial Products Product Unit 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Coal million tons 635.0 620.0 622.0 666.0 715.0 789.0 872.0 894.0 928.0 980.0 1054.0 1080.0 1062.0 Crude Oil million tons 106.2 106.0 101.2 102.1 106.1 114.6 124.9 130.7 134.1 136.9 137.0 138.3 139.6 latural Gas billion cu m 14.5 14.3 12.7 11.9 12.2 12.4 12.9 13.4 13.9 14.3 15.1 15.3 15.3 Electricity bltlion kWh 282.0 300.6 309.3 327.7 351.4 377.0 410.7 449.5 497.3 545.2 584.8 621.2 671.2 Hydro power billion kIWh 50.1 58.2 65.5 74.4 86.4 86.8 92.4 94.7 100.0 109.2 118.2 126.7 123.1 Steel miltion tons 34.5 37.1 35.6 37.2 40.0 43.5 46.8 52.2 56.3 59.2 61.2 66.4 70.6 Rolled Steet million tons 25.0 27.2 36.7 29.0 30.7 33.7 36.9 40.6 43.9 47.0 48.7 51.5 55.5 Cement million tons 73.9 79.9 82.9 95.2 108.3 123.0 146.0 166.1 186.3 210.1 210.3 209.7 243.6 Tifdber million cu ii 54.4 53.6 49.4 50.4 52.3 63.9 63.2 65.0 64.1 62.1 58.0 55.7 58.0 Railway Freight Cars 1000 UlitS 16.0 10.6 8.8 10.6 15.8 18.1 19.3 .20.6 21.6 23.3 24.7 18.6 22.3 REF: INDUSTRY.WK1 06/23/92 Source: CHINA Statitical Abstract 1992 (in Chinese) pp.75-7 for 1991;CHINA Statistical Yearbook 1991 pp.383-9. Table 9.4: CHINA: Percentage Growth Rates of Output of Hajor Industrial Products ----*--------------------------^----- --^------------------ ------------ z - --*-- ------------------------------------*****-----------obwewe - -- I- Product 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1980-5 1986-90 1980-90 N Coal -2.4 0.3 7.1 7.4 10.3 10.5 2.5 3.8 5.6 7.6 2.5 5.5 4.4 5.0 Crude Oil -0.2 -4.5 0.9 3.9 8.1 9.0 4.6 2.6 2.0 0.1 1.0 2.9 2.1 2.5 Natural Gas -1.7 -10.7 -6.4 2.3 1.8 4.0 3.5 3.8 2.9 . 1.8 2.0 -0.0 Electricity 6.6 2.9 5.9 7.2 7.3 8.9 9.4 10.6 9.6 7.3 6.2 6.5 8.6 7.5 Hydro power 16.2 12.5 13.6 16.1 0.5 6.5 2.5 5.6 9.2 8.2 7.2 10.9 6.5 8.9 Steel 7.7 -4.1 4.4 7.7 8.6 7.6 11.6 7.8 5.2 3.5 8.3 5.3 7.3 6.2 Rolled Steel 6.8 35.1 -20.9 5.9 9.8 9.5 9.9 8.1 7.1 3.6 5.9 8.0 6e9 7.5 Cment 8.1 3.8 14.8 13.7 13.6 18.6 13.8 12.2 12.8 0.1 -0.3 12.1 7.7 10.1 Timber -1.5 -7.8 2.0 3.8 22.0 -1.0 2.8 -1.4 -3.0 -6.6 -4.0 2.9 -2.5 0.5 Railtway Freight Cars -33.8 -17.0 20.5 49.1 14.6 6.6 6.7 4.9 7.9 6.0 -24.7 6.7 0.2 3.7 REF: INDUSTRY.WK1 06/23/92 Source: Table 9.3. Table 9.5: CHINA: Profits of State Owned Enterprises 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 (Billion Yuan) TOTAL 59.9 65.4 69.2 63.9 62.8 75.3 83.8 94.4 87.8 100.5 119.0 100.0 Refine Industry 4.8 5.9 7.1 6.3 6.4 8.6 9.8 11.0 11.4 12.3 15.1 15.7 Electricity 5.1 5.6 5.8 5.5 5.0 6.3 5.8 5.2 5.4 6.4 5.7 6.7 Coal and Coke 0.4 0.9 0.7 0.0 -0.0 0.2 0.3 0.1 -0.8 -1.2 -1.2 -2.7 Petrotetsn 9.6 9.6 9.6 9.1 8.5 8.6 9.6 8.1 7.7 8.4 6.1 6.1 Chemical 7.4 7.9 8.4 7.7 8.6 10.6 11.1 9.7 9.0 12.2 16.3 14.9 Machinery 16.1 16.7 14.8 11.4 13.0 18.7 23.2 30.8 25.4 27.2 33.6 29.2 Building materials 1.9 2.3 2.6 2.3 3.0 3.6 3.8 5.1 5.5 5.1 6.3 5.2 Forestry 0.8 0.9 1.1 1.2 1.3 1.4 1.4 1.6 1.4 2.3 2.6 1.8 Food 2.2 2.6 3.2 3.5 3.6 3.7 4.6 5.5 5.4 6.3 8.5 6.3 Textile yarn 6.8 7.8 10.1 11.4 8.2 7.5 7.3 9.0 9.1 12.2 14.7 12.6 Clothing 0.5 0.6 1.0 1.1 0.9 1.0 1.1 1.3 l.0. 1.2 1.5 1.5 Leather 0.3 0.4 0.5 0.5 0.3 0.3 0.4 0.6 0.7 0.7 0.7 0.4 Paper 0.7 1.0 0.9 0.7 0.6 0.8 0.9 1.3 1.3 1.6 2.2 1.8 Art & Education 1.2 1.3 1.5 1.6 1.9 1.6 1.8 2.4 2.3 2.7 3.0 2.9 other 2.1 1.9 1.7 1.7 1.9 2.2 2.3 2.8 2.9 3.1 3.9 3.1 (Percentage growth rates) TOTAL .. 9.2 5.8 -7.7 -1.7 19.9 11.2 12.7 -7.0 14.5 18.4 -15.9 Refine Industry .. 23.7 19.2 .-10.2 0.3 35.5 14.0 11.9 3.6 8.5 22.7 3.4 Electricity .. 10.6 3.5 -4.7 -9.8 25.1 -6.6 -11.2 4.7 17.9 -11.7 18.6 Coat and Coke .. 159.1 -21.5 -98.6 -340.0 -1054.2 40.2 -80.4 -1444.4 41.8 -1.0 122.9 Petroleu .. -0.4 0.4 -5.6 -6.2 0.9 14.1 -17.6 -4.8 9.7 -27.3 -1.3 Chemical .. 6.8 6.5 -8.4 12.1 23.2 4.7 -12.5 -6.9 35.3 33.3 -8.6 Machinery .. 3.5 -11.4 -23.2 14.3 44.0 24.2 32.5 -17.7 7.2 23.5 -12.9 Suitding materials .. 22.9 15.0 -14.5 31.9 20.9 5.4 33.3 9.8 -8.5 25.0 -17.6 Forestry .. 13.4 25.1 6.5 4.8 12.6 0.7 9.3 -10.2 64.5 10.1 -31.1 Food .. 17.8 23.3 10.1 1.6 3.0 24.2 19.8 -2.2 16.7 34.2 -25.7 Textile yarn .. 14.0 29.8 12.5 -28.2 -8.2 -2.8 23.0 1.4 373.6 20.9 -14.5 Clothing .. 17.0 57.3 5.9 -18.4 13.6 12.9 20.5 -22.9 16.8 29.0 0.1 Leather .. 18.5 55.5 -6.9 -38.4 10.5 8.3 68.2 6.0 3.6 0.1 -42.8 Paper .. 39.1 -7.2 -26.6 -7.7 27.8 15.1 40.8 0.2 20.2 42.4 -20.9 Art & Education .. 9.0 18.4 3.8 17.2 -4.0 -0.2 30.6 -1.9 15.6 11.6 -3.8 Other .. -9.1 -10.9 -2.3 12.9 13.9 7.6 23.0 3.0 5.9 25.2 -19.2 REF: INDUSTRY.VK1 06/23/92 Source: CHINA Industrial Statistical Yearbook (in Chinese) "Zhonggw Gongye JifngJ TongJi NIanJian"' 1990 pp.74. Tabte 9.6: CHINA: Losses of State Owned Enterprises ----------------------------------------------------------------------------------------------------------- 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 ...... ----------------------------------------------------------------------------------------------------------------------------- (Billtion Yuan) TOAL 4.5 4.0 3.9 5.4 5.6 3.8 3.4 4.1 7.2 8.5 10.7 23.4 Refine Industry 1.2 1.0 0.5 0.5 0.4 0.2 0.1 0.1 0.2 0.3 0.3 0.6 ElectrIcity 0.1 0.1 0.1 0.0 0.1 0.1 0.1 0.1 0.2 0.3 0.7 1.4 Coal and Coke 0.8 0.8 1.0 1.3 1.4 1.4 1.4 1.6 2.3 2.7 3.3 5.5 Petroleun 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.2 1.1 4.4 Chemical 1.1 0.9 0.6 0.6 0.5 0.2 0.2 0.6 1.0 0.5 0.5 1.3 Machinery 0.7 0.6 1.0 1.7 1.7 0.7 0.4 0.5 1.4 1.7 1.6 2.9 Building mterials 0.2 0.2 0.1 0.2 0.2 0.2 0.2 0.2 0.4 0.6 0.6 1.2 Forestry 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.3 Food 0.2 0.2 0.2 0.3 0.5 0.5 0.5 0.4 0.6 0.9 1.0 2.7 Textile yarn 0.1 0.1 0.0 0.1 0.2 0.2 0.3 0.2 0.4 0.5 0.5 1.3 Clothing 0.0 0.0 0.0 0.0 0.1 0.0 0.0 0.0 0.1 0.1 0.1 0.2 Leather 0.0 0.0 0.0 0.0 0.1 0.1 0.0 0.0 0.0 0.1 0.1 0.3 1 Paper 0.0 0.0 0.1 0.1 0.1 0.1 0.0 0.0 0.0 0.1 0.1 0.3 Art & Education 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.2 9 Other 0.1 0.1 0.1 0.2 0.2 0.1 0.1 0.1 0.3 0.4 0.4 0.9 Ln (Percentage growth rates) TOTAL .. -11.0 -3.4 38.0 4.3 . -32.6 -8.9 18.3 78.7 16.9 25.9 119.6 Refine Industry .. -16.4 -47.4 -4.2 -13.8 -55.6 -42.4 -11.8 133.0 35.4 8.2 74.0 Electricity .. -21.5 -14.5 -9.4 193.7 -51.1 -15.9 112.1 73.2 26.8 162.6 96.6 Coal and Coke . -2.3 32.4 34.3 6.3 -5.1 1.0 19.0 41.1 19.4 19.1 68.3 Petroleu . 66.7 40.0 342.9 -45.2 -23.5 -92.3 100.0 1250.0 640.7 472.0 260.2 Chemfca l. -13.5 -35.8 4.5 -20.0 -56.3 -20.0 246.0 60.8 -49.8 9.6 147.2 Machinery .. -11.4 60.4 69.7 -2.4 -57.8 -37.2 5.2 209.4 17.1 -5.? 63.3 Buliding materials .. -24.2 -14.0 60.1 -22.4 -14.7 13.4 11.8 79.9 57.5 -1.8 115.2 Forestry . -4.0 25.0 140.0 26.4 -14.3 -29.5 5.5 101.7 -2.6 22.8 157.1 Food .. -8.1 20.6 38.2 33.5 0.9 5.9 -15.5 54.4 38.2 16.8 161.1 Textite yarn .. 14.8 -25.8 84.8 147.1 -11.4 34.4 -23.6 118.8 19.1 2.4 163.3 Ciothing .. -64.7 16.7 171.4 205.3 -43.1 6.1 17.1 217.1 5.4 2.9 68.1 Leather .. -40.0 50.0 100.0 255.6 -15.6 -24.1 -48.8 109.5 61.4 54.9 131.8 Paper -. -25.0 116.7 111.5 20.9 -45.9 -41.7 -35.7 81.5 63.3 10.0 209.1 Art & Education .. 137.5 -31.6 138.5 16.1 -27.8 50.0 -5S1 40.5 48.1 40.3 81.5 Other .. 38.4 16.0 29.7 -7.8 -12.1 0.7 1.4 77.7 35.7 15.1 112.4 ----------------------------------------------------------------------------------------------------------- REF: INDUSTRY.WK1 06/23/92 Source: Table 9.5 Table 9.7: CHINA: Net Profits/Losses of State Owned Enterprises - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -;- - - - - - - - - - . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .D . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1978 1979 1980 1981 1982 1983 1984 1985 1986 187. 1988 1989 1990 1991 (Billion Yuan) TOTAL 55.4 61.4 65.4 58.6 57.2 71.6 80.4 90.4 80.5 92.0 108.3 76.6 Refine Industry 3.6 4.9 6.5 5.8 5.9 8.4 9.7 10.9 11.1 12.0 14.8 15.1 ElectrIcity 5.0 5.6 5.8 5.5 4.9 6.2 5.8 5.1 5.2 6.1 4.9 5.3 Coat and Coke -0.4 0.2 -0.3 -1.3 -1.4 -1.1 -1.0 -1.6 -3.1 -3.9 -4.4 -8.1 Petroleum 9.6 9.6 9.6 9.0 8.5 8.6 9.8 8.1 7.7 8.2 5.0 1.7 ChemicaL 6.3 6.9 7.8 7.0 8.1 10.4 10.9 9.1 8.0 11.7 15.7 13.5 Machinery 15.4 16.1 13.8 9.6 11.3 18.0 22.8 30.3 23.9 25.5 32.0 26.3 Building materiaLs 1.6 2.1 2.5 2.0 2.8 3.4 3.6 4.9 5.2 4.5 5.8 4.0 Forestry 0.8 0.9 1.1 1.1 1.2 1.4 1.4 1.5 1.3 2.2 2.4 1e4 Food 2.0 2.4 3.0 3.2 3.2 3.3 4.1 5.1 4.8 5.4 7.4 3.6 Textile yarn 6.8 7.7 10.1 11.3 8.0 7.3 7.1 8.8 8.7 11.7 14.2 11.2 Clothing 0.5 0.6 1.0 1.0 0.8 0.9 1.1 1.3 0.9 1.1 1.4 1.3 Leather 0.3 0.3 0.5 0.5 0.3 0.3 0.3 0.6 0.6 0.6 0.6 . 0.1 Paper 0.7 1.0 0.9 0.6 0.5 0.7 0.9 1.3 1.3 1.5 2.1 1.5 Art & Education 1.2 1.3 1.5 1.6 1.8 1.8 1.8 2.3 2.3 2.6 2.9 2.7 un Other 2.0 1.8 1.6 1.5 1.7 2.0 2.2 2.7 .2.7 2.7 3.5 2.3 (Percentage growth rates) TOTAL .. 10.8 6.4 -10.4 -2.3 25.0 12.3 12.4 -10.9 14.3 17.7 -29.3 Refine Industry .. 36.9 32.5 -10.7 1.5 42.1 15.2 12.2 2.4 7.9 23.1 1.8 Electricity .. 11.1 3.7 -4.6 -11.5 27.4 -6.4 -12.4 3.0 17.5 -19.4 7.4 Coal and Coke .. -141.5 -257.6 390.4 8.9 -22.5 -7.0 49.6 101.1 25.5 13.0 82.9 Petroleumn . -0.4 0.4 -5.8 -6.0 1.0 14.3 -17.6 -5.1 7.5 -39.5 -65.8 Chemical .. 10.3 12.2 -9.4 14.9 28.1 5.3 -16.7 -11.4 45.6 34.3 -13.9 Machfnery .. 4.2 -14.3 -30.0 17.3 59.1 26.6 33.0 -21.2 6.6 25.4 -17.7 Building materials .. 29.5 17.3 -18.9 38.2 23.3 5.0 34.3 6.9 -13.1 28.3 -30.5 Forestry .. 14.0 25.1 2.9 3.4 14.6 2.4 9.5 -14.5 70.5 9.4 -40.8 Food .. 20.7 23.5 7.7 -1.8 3.3 26.8 23.9 -6.7 13.9 37.0 -51.4 Textile yarn .. 14.0 30.3 12.2 -29.5 -8.1 -3.7 24.6 -1.1 34.3 21.7 -20.9 Clothing .. 19.7 57.7 4.8 -22.5 17.7 13.1 20.6 -30.5 18.5 32.4 -6.7 Leather .. 20.5 55.6 -8.7 -49.1 17.1 14.3 82.4 2.4 -0.5 -6.1 -75.5 Paper .. 42.1 -10.3 -34.9 -13.2 47.7 20.7 44.5 -1.6 18.6 44.1 -30.3 Art & Education .. 8.2 19.1 2.7 17.2 -3.6 -0.9 31.4 -2.5 14.9 10.7 -7.0 Other .. -11.1 -12.7 -5.1 15.4 16.4 8.1 24.5 -1.1 3.0 26.5 -34.8 b. ........ O............... . . eo. .... ...... . . ... .... ........... .. .... .... . . .- ...... -.. .. *.. . ............................ ......... REF: INDUSTRY.KI1 06/23/92 Source: Table 9.5 minus 9.6. Table 9.8: CHINA: Taxes Paid by the State Owned Enterprises 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 (BiLLion Yuan) TOTAL 31.7 34.0 36.8 44.2 48.6 45.6 52.5 72.0 78.8 A8.8 109.9 127.5 Refine Industry 2.2 2.3 2.5 3.0 4.0 3.3 4.1 6.5 7.7 8.9 10.9 13.4 Electricity 2.0 2.1 2.3 2.9 3.8 2.9 3.5 5.6 6.3 7.2 7.4 8.9 Coal and Coke 0.9 1.0 1.0 1.4 1.3 1.2 1.1 0.8 0.9 1.0 1.2 1.7 Petroleum 2.5 2.7 2.7 2.8 3.2 3.5 4.3 7.1 7.4 7.7 8.9 4.3 Chemical 3.8 4.1 4.3 5.0 5.6 5.5 6.3 7.9 9.2 10.8 13.9 15.5 Nachinery 4.8 5.2 5.3 6.1 7.0 6.7 8.3 12.3 11.9 14.0 18.0 19.4 Building materials 1.2 1.2 1.4 1.5 1.6 1.6 1.9 2.6 3.0 3.6 4.7 5.3 Forestry 0.5 .0.5 0.6 0.7 0.8 0.8 0.9 1.0 1.1 1.5 1.7 1.7 Food 6.8 7.3 7.7 9.6 10.5 10.6 11.9 14.7 17.7 21.5 27.5 33.4 Textile yarn 5.0 5.3 6.4 8.0 7.6 6.3 6.7 8.7 8.3 6.8 8.5 10.7 Clothing 0.3 0.3 0.4 0.5 0.5 0.5 0.6 0.8 0.8 0.8 1.0 1.2 Leather 0.1 0.2 0.2 0.3 0.3 0.3 0.3 0.4 0.5 0.5 0.5 0.5 Paper 0.5 0.6 0.6 0.7 0.7 0.7 0.8 1.1 1.2 1.5 1.9 2.0 Art & Education 0.4 0.5 0.5 0.6 0.4 0.6 0.7 1.0 1.2 1.4 1.6 1.7 Other 0.9 0.9 0.9 1.0 1.1 1.1 1.2 1.4 1.6 1.8 2.2 2.4 (Percentage growth rates) TOTAL .. 7.3 8.4 19.9 9.9 -6.1 15.2 37.0 9.4 12.8 23.7 16.0 Refine Industry .. 5.6 6.8 23.8 30.9 -16.9 23.3 58.9 18.4 16.6 22.0 22.7 Electricity .. 5.0 8.0 29.8 29.4 -25.1 22.8 59.7 12.9 14.1 3.2 19.8 Coal and Coke .. 13.7 7.5 34.7 -10.4 -8.5 -4.8 -25.2 7.2 12.2 26.4 35.5 Petroleun .. 7.9 1.9 4.4 12.0 8.5 25.4 6.0 4.4 3.8 15.5 -51.3 Chemical .. 6.0 5.8 16.9 10.8 -0.6 14.6 25.1 16.3 16.6 29.2 11.4 Nachinery .. 8.2 2.0 15.7 15.7 -4.2 23.1 48.5 -3.4 17.7 28.6 7.4 Building materials .. 4.5 10.2 13.3 2.S 2.7 17.1 37.4 16.9 17.2 30.5 13.8 Forestry .. 10.8 16.1 14.8 16.1 -2.7 8.6 12.6 9.1 38.4 16.8 0.6 Food .. 8.3 5.8 23.7 9.6 0.7 12.1 24.4 20.1 21.4 26.0 21.3 Textile yarn .. 5.8 21.4 24.0 -5.0 -16.4 5.3 30.4 -4.9 -18.2 25.2 26.2 Clothing .. 5.4 49.5 18.9 -4.3 2.8 14.3 33.0 3.6 3.6 22.5 18.4 Leather .. 27.5 23.7 14.9 -2.2 1.5 12.3 39.9 8.3 9.4 5.4 -0.0 Paper . .. 21.0 4.6 11.9 11.9 -3.0 14.5 31.5 14.5 20.6 25.8 8.8 Art & Education .. 15.0 8.5 16.7 -25.3 38.9 13.3 49.8 13.4 17.2 14.1 9.4 Other .. -0.2 7.0 13.0 11.0 -1.0 . 8.1 15.9 12.2 10.1 22.5 11.8 ., ..-. ˘-... ..-.-.. - ...--.-..--......--------...-......-.......-----.-.-.-.-...........----------------------...-----.-...------......-----------.-..---..---... REF: INDUSTRY.W1t 06/23/92 Source: CHINA Industrial Statistical Yearbook (in Chinese) "Zhongguo Gongye Jingjl Tongji Nlanjianrl, 1990 pp.74. Table 10.1: CHINA: Total Wage Bill of Staff and Workers 1?78 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1999 1990 1991 (Billion Yuan) Total Wage Bill 56.9 64.7 77.2 82.0 88.2 93.5 113.3 138.3 166.0 188.1 231.6 261.9 295.1 332.4 State-owed 46.9 52.9 62.8 66.0 70.9 74.8 87.6 106.5 128.9 145.9 160.7 205.0 232.4 259.5 Collectives 10.0 11.7 14.5 16.0 17.3 18.7 25.4 31.2 36.3 40.9 48.8 53.4 58.!. 65.9 (Percentage share) Total Wage Bill 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 State-otned 82.4 M1.9 81.3 80.5 dO.4 80.0 77.3 77.0 77.6 77.6 78.0 78.3 78.8 78.1 Collectives 17.6 1C.7 18.7 19.5 19.6 20.0 22.4 22.6 21.9 21.7 21.1 20.4 19.7 19.8 (Growth rate) Lfl co Total LUge Bitl .. 13.7 19.5 6.2 7.6 6.0 21.3 22.0 20.0 13.3 23.1 13.1 12.7 12.6 1 State-owd . 13.0 18.6 5.2 7.3 5.5 17.1 21.6 21.0 13.3 23.8 13.5 13.4 11.7 Collttives D - 17.0 23.3 10.4 8.5 7.7 36.2 23.0 16.2 1a.8 19.2 9.6 8.7 13.4 OP (Current prices, Bitlion Yuan) 358.8 398.9 446.7 477.0 518.9 579.5 693.8 855.0 970.0 1133.0 1404.4 1598.6 1774.0 1976.0 X Share of Wage bill Into GOP 15.9 16.2 17.3 17.2 17.0 16.1 16.3 16.2 17.1 16.6 16.5 16.4 16.6 16.8 REF: WAGES.UK1 06/23/92 Source: CHINA Statintical Abstract 1992 (in Chinese) pp.44 for 1991; Statistical Year Book 1991 pp.101. Note: To%al Wage bill includrs various joint units for 1984-88. i. Table 10.2: CHINA: Average Annual Wage by Sector and Ownership (Yuan in Current Prices) Sector 1978 1979 1980 1981 1982 1983 19WI 1985 1986 1987 1988 1989 1990 1991 -------------------------------------------------------- Staff and Workers Total 615 668 762 772 798 826 974 1148 1329 1459 1747 1935 2140 2340 Farming & forestry, etc. 486 540 626 645 668 701 786 901 1075 1162 1311 1417 1577 1703 Industry 631 691 784 789 802 819 989 1158 1336 1479 1782 2001 2203 2424 Geological Survey 809 885 1029 - 1058 1088 1116 1337 1590 1800 1980 2298 2558- 2902 3129 Construction 713 771 857 873 914 96Y 1160 1370 1543 1692 1967 2171 2391 2653 Transport & Coumunications 689 758 842 84Y 884 908 1095 1292 1504 1663 2008 2288 2520 27% Comwerce & Services etc. 569 616 694 704 71'. 728 868 1008 1166 1287 1564 1674 1833 1986 Real Estate & Services etc. 576 633 712 714 743 792 918 1128 1320 1458 1726 11933 2173 2418 Health care, Sports & Welfare 573 598 718 750 833 867 948 1124 1343 1446 1752 1959 2209 2370 Education, Culture & Arts etc. 545 584 700 716 811 836 920 1166 1330 1409 1747 1883 2117 2243 Scientific research 669 717 851 850 857 9Q0 1072 1272 1492 1620 1931 2118 2403 2573 Banking & Insurance 610 652 720 750 768 M 973 1154 1353 1458 1739 1867 2097 2255 Govermnent agencies 655 684 800 815 821 923 989 1127 1356 1468 1707 1874 2113 2275 Staff and Workers in State-Owned Enterprises Total 644 705 803 812 836 865 1034 1213 1414 1546 1853 2055 2284 Farming & forestry, etc. 492 548 635 653 676 712 796 913 1085 1171 1318 1428 1591 Industry 681 755 852 851 863 877 1070 1239 1448 1601 1931 2177 2409 .. Geological Survey 811 887 1031 1061 1091 1119 1340 1600 1804 1982 2300 2563 2904 . Construction . 756 819 920 940 978 1023 1276 1532 1730 1882 2193 2413 2659 Transport & Conmunications 734 808 907 910 935 959 1178 1390 1627 1800 2182 2490 2763 D Conunerce & Services etc. 588 640 721 735 746 761 957 1095 1280 1407 1733 1858 2039 Real Estate & Services etc. 626 688 777 782 806 856 1005 1187 1400 1539 1820 2021 2271 Heatth care, Sports & Welfare 605 625 751 781 861 895 981 1164 1376 1481 1793 1949 2263 .. Education, Culture & Arts etc. 566 606 722 738 827 851 934 1184 1344 1422 1764 1899 2134 Scientific research 670 719 853 852 860 992 1074 1268 1494 1624 1935 2123 2411 Banking & Insurance 650 689 754 78 806 813 1038 1234 1427 1540 1842 1960 2200 Government agencies 661 691 807 820 826 928 993 1133 1361 1472 1708 1875 2115 Staff and Workers in Urban Collective-Owned Enterprises Total 506 542 623 642 671 698 811 967 1092 1207 1426 1557 1681 Farming & forestry, etc. 378 407 478 520 547 559 642 745 903 1008 1170 1199 1282 Industry 499 531 622 644 659 684 804 969 1079 1195 1419 1556 1670 Geological Survey 600 640 709 720 776 837 936 1018 1189 1241 1457 1187 1928 Construction 594 652 716 737 794 847 959 1101 1232 1380 1597 1763 1935 Transport & comunications 597 561 697 702 763 783 881 1030 1165 1272 1480 1656 1723 Camnerce & services etc. 467 497 570 580 592 606 763 907 1033 1141 1354 1439 1566 Real Estate & Services etc. 467 528 593 596 635 685 768 952 1085 1198 1378 1563 1715 Health care, Sports 9 Welfare 484 522 618 647 735 768 831 975 1212 1296 1570 1774 1956 Education, Culture & Arts etc. 317 339 433 433 523 535 634 779 945 1033 1202 .1352 1533 Scientific research 500 500 571 667 600 750 900 1052 1286 1319 1636 1710 1995 Banking & insurance 526 571 640 654 667 690 800 945 1150 1235 1450 1597 1806 Goverrment agencies 455 467 538 615 615 714 885 1046 1227 1368 1648 1860 2042 REF: WAGES.WK1 06/23/92 Source: CHINA Statistical Abstract 1992 (in Chinese) pp.45 for1991; Statistical Yearbook 1991 pp.113-7. Table 10.3: CHINA: Average Annual Wage GROWTH RATES by Sector and Ownership (Percentage Growth Rates) ................................................................................................................. Sector 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Staff and Workers Total . 8. .6 14.1 1.3 3.4 3.5 17.9 17.9 15.8 9.8 19.7 10.8 10.6 9.3 Forming I forestry, etc. .. 11.1 15.9 3.0 3..6 4.9 12.1 14.6 19.3 8.1 12.8 8.1 11.3 8.0 Industry .. 9.5 13.5 0.6 1.6 2.1 20.8 17.1 15.4 10.7 20.5 12.3 10.1 10.0 Geological Survey .. 9.4 16.3 2.8 2.8 2.6 19.8 18.9 13.2 10.0 16.1 11.3 13.4 7.6 Con-truction .. 8.1 11.2 1.9 4.7 5.1 20.7 18.1 12.6 9.7 16.3 10.4 10.1 11.0 Transport t Communications .. 10.0 11.1 0.6 4.4 2.7 20.6 18.0 16.4 10.6 20.7 13.9 10.1 11.0 Commerce & Services etc. .. 8.3 12.? 1.4 1.4 2.0 19.2 16.1 15.7 10.4 21.5 7.0 9.5 8.3 Real Estate & Services etc. .. 9.9 12.5 0.3 4.1 6.6 15.9 22.9 17.0 10.5 18.4 12.0 12.4 11.3 Heelth care,-Sports & Welfare .. 4.4 20.1 4.5 11.1 4.1 9.3 18.6 19.5 7.7 21.2 11.8 12.8 7.3 Education, Culture & Arts etc. .. 7.2 19.9 2.3 13.3 3.1 'J.0 26.7 14.1 5.9 24.0 7.8 12.4 6.0 Scientific research 7.2 18.7 .01 0.8 15.5 8.3 18.7 17.3 8.6 19.2 9.7 13.5 7.1 Banking & Insurance 6.9 10.4 4.2 2.4 1.4 24.9 18.6 17.2 7.8 19.3 7.4 12.3 7.5 Government agencies 4.4 17.0 1.9 0.7 12.4 7.2 14.0 20.3 8.3 16.3 9.8 12.8 7.7 Staff and Workers in State-Owned Enterprises Total 9.5 13.9 1.1 3.0 3.5 19.5 17.3 16.6 9.3 19.9 10.9 11.1 Farming & forestry, etc. 11.4 15.9 2.8 3.5 5.3 11.8 14.7 18.8 7.9 12.6 8.3 11.4 Industry 10.9 12.8 -0 1 1.4 1.6 22.0 15.8 16.9 10.6 20.6 12.7 10.7 Geological Survey 9.4 16.2 2.9 2. 8 2.6 19.7 19.4 12.8 9.9 16.0 11.4 13.3 Construction 8.3 12.3 2.2 4.0 4.6 24.7 20.1 12.9 8.8 16.5 10.0 10.2 Transport & Communications 10.1 12.3 0.3 2.7 2.6 22.8 18.0 17.1 10.6 21.2 14.1 11.0 Commerce I Services etc. 8.8 12.7 1.9 1.5 2.0 25.8 14.4 16.9 9.9 23.2 7.2 9.7 Real Estate & Services etc. 9.9 12.9 0.6 3.1 6.2 17.4 18.1 17.9 9.9 18.3 11.0 12.4 Health care, Sports & Welfore 3.3 20.2 4.0 10.2 3.9 9.6 18.7 18.2 7.6 21.1 11.5 13.2 Education, Culture & Arts etc. - 71 19.1 2.2 12.1 2.9 9.8 26.8 13.5 5.8 24.1 7.7 12.4 Scientific research 7.3 18.6 -0.1 0.9 15.3 8.3 18.1 17.8 8.7 19.2 9.7 13.6 lanking & Insurr-ace 6.0 9.4 4.5 2.3 0.9 27.7 18.9 15.6 7.9 19.6 6.4 12.2 Goverrment agencies 4.5 16.8 1.6 0.7 12.3 7.0 14.1 20.1 8.2 16.0 9.8 12.8 Staff and Workers in Urban Cotlective-Owned Enterprises Total 7.1 14.9 3.0 4.5 4.0 16.2 19.2 12.9 10.5 18.1 9.2 8.0 Forming & forestry, etc.' 7.7 17.4 8.8 5.2 2.2 14.8 16.0 21.2 11.6 16.1 2.5 6.9 Industry 6.4 17.1 3.5 2.3 3.8 17.5 20.5 11.4 10.8 18.7 9.7 7.3 Geological Survey 6.7 10.8 1.6 7.8 7.9 11.8 8. 16.8 4.4 17.4 -18.5 62.4 Construction 9.8 9.8 2.9 7.7 6.7 13.2 14.8 11.9 12.0 15.7 10.4 9.8 Transport A Coimsnications -6.0 24.2 0.7 8.7 2.6 12.5 16.9 13.1 9.2 16.4 11.9 4.0 Cormerce & Services etc. 6.4 14.7 1. 2.1 2.4 25.9 18.9 13.9 10.5 18.7 6.3 8.8 Real Estate & Services etc. . 13.1 12.3 0.5 6.5 7.9 12.1 24.0 14.0 10.4 15.0 13.4 9.7 Heat,th care, Sports & Weltfare 7.9 18.4 4.7 13.6 4.5 8.2 17.3 24.3 6.9 21.1 13.0 10.3 Edjcation, Culture & Arts etc. 6.9 27.7 0.0 20.8 2.3 18.5 22.9 21.3 9.3 16.4 12.5 13.4 Scientific research . 0.0 14.2 16.8 -10.0 25.0 20.0 16.9 22.2 2.6 24.0 4.5 16.7 Banking & insurance 8.6 12.1 2.2 2.0 3.4 15.9 18.1 21.7 7.4 17.4 10.1 13.1 Govererent agencies .. 2.6 15.2 14.3 0.0 16.1 23.9 18.2 17.3 11.5 20.5 12.9 9.8 REF: MAGES.UKI 06/23/92 Source: Table 10.2. Table 11.1: CHINA: Social Labor force by Sector (Million) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Farming forestry, animal husbandry, 283.73. 286.92 291.81 298.36 309.17 312.09 309.27 311.87 313.11 317.20 323.08 332.84 341.77 350.17 fishery & water conservency Industry 60.91 62.98 67.14 69.75 72.04 73.97 79.30 83.49 89.80 93.43 96.61 95.68 96.97 99.49 Geological survey & exploration 0.97 0.99 1.00 0.99 1.02 1.03 1.06 1.06 1.05 1.07 1.07 1.04 1.00 0.99 Construction 8.79 9.43 10.22 10.58 11.73 13.14 16.92 20.69 22.71 24.19 25.27 24.48 24.61 25.22 Transportation, posts & telecamuications 1.35 7.65 7.87 8.24 8.50 9.07 1O.d1 12.22 13.05 13.73 14.34 14.32 14.69 15.15 Coinwerce, catering trade supply & 11.55 12.48 13.81 15.11 16.04 17.62 20.36 23.63 24.85 26.55 28.29 28.60 29.37 31.00 marketing of materials and warehouses Real estate administration, public utilities, 2.10 2.44 3.13 3.43 3.60 4.03 4.74 4.37 5.04 5.40 5.77 5.92 6.37 6.52 residential & consultancy services Public health, sports and social welfare 3.63 3.86 3.89 3.75 3.99 4.15 4.35 4.67 4.82 4.96 5.08 5.18 5.36 5.53 Education culture, art, radio and 10.93 11.31 11.47 10.95 11.28 11.51 12.04 12.73 13.24 13.75 14.03 14.26 14.58 14.97 television broadcasting Scientific research, technical service 0.92 1.00 1.13 1.27 1.32 1.33 1.37 1 .44 1.52 1.58 1.61 1.65 1.73 1.79 c fanking and insurance 0.76 0.86 O.99 1.07 1.13 1.17 1.27 1.38 1.52 1.70 1.93 2.05 2.18 2.34 Goverrwsnts, parties and organizations 4.67 5.05 5.27 5.56 6.11 6.46 7.43- 7.99 8.73 9.25 9.71 10.22 10.79 11.37 Others 5.21 5.27 5.88 8.19 7.02 8.79 13.05 13.19 13.38 15.02 16.55 17.09 17.98 19.10 TOTAL 401.52 410.24 423.61 437.25 452.95 464.36 481.97 498.73 512.82 527.83 543.34 553.29 567.40 583.64 ...-..-.-.--......------.-....-............................-...........--...................................... REF: LABOR.UK1 06/23/92 Source: CHINA Abstract (in Chinese) 1991 pp.16; StatIstical Year book 1990 pp.77. Table 11.2: CHINA: Social Labor force by sector 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 198B 1989 1990 1991 (Percentage Shares) Forming forestry, animlt husbandry, 70.7 69.9 68.9 68.2 68.3 67.2 64.2 62.5 61.1 60.1 59.5 60.2 60.2 60.0 fishery & water conservency Industry 15.2 15.4 15.8 16.0 15.9 15.9 16.5 16.7 17.5 17.7 17.8 17.3 17.1 17.0 Geological survey & exploration 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2 Construction 2.2 2.3 2.4 2.4 2.6 2.8 3.5 4.1 4.4 4.6 4.7 4.4 4.3 4.3 Transportation, posts & telecounmications 1.8 1.9 1.9 1.9 1.9 2.0 2.2 2.5 2.5 2.6 2.6 2.6 2.6 2.6 Comerce, catering trade, supply A 2.9 3.0 3.3 3.5 3.5 3.8 4.2 4.7 4.8 5.0 5.2 5.2 5.2 5.3 marketing of mterials and warehouses Real estate administration, public utilities, 0.5 0.6 0.7 0.8 0.8 0.9 1.0 0.9 1.0 1.0 1.1 1.1 1.1 1.1 residential & consultancy iervices Public health, sports nd social welfare 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 0.9 Education, culture, art, radio and 2.7 2.8 2.7 2.5 2.5 2.5 2.5 2.6 2.6 2.6 2.6 2.6 2.6 2.6 television broadcasting Scientific research, technical service 0.2 0.2 0.3 0.. 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 0.3 Banking and insurance 0.2 0.2 0.2 0.2 0.2 0.3 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4 Covernments, parties and organizations 1.2 1.2 1.2 1.3 1.3 1.4 1.5 1.6 1.7 1.8 1.8 1.8 1.9 1.9 Others 1.3 1.3 1.4 1.9 1.5 1.9 2.7 2.6 2.6 2.8 3.0 3.1 3.2 3.3 TOTAL 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 (Growth Rates) Farming forestry, animal husbandry, 1.1 1.7 2.2 3.6 0.9 -0.9 0.8 0.4 1.3 1.9 3.0 2.7 2.5 fishery & water conservency Industry 3.4 6.6 3.9 3.3 2.7 7.2 5.3 7.6 4.0 3.4 - 1.0 1.3 2.6 Geological survey & exploration 2.1 1.0 -1.0 3.0 1.0 2.9 0.0 -0.9 1.9 0.0 -2.8 -3.8 -1.0 Construction 7.3 8.4 3.5 10.9 12.0 28.8 22.3 9.8 6.5 4.5 -3.1 0.5 2.5 Transportation, posts & telecommunications 4.1 2.9 4.7 3.2 6.7 19.2 13.0 6.8 5.2 4.4 -0.1 2.6 3.1 Commerce, catering trade supply & 8.1 10.7 9.4 6.2 9.9 15.6 16.1 5.2 6.8 6k6 1.1 2.7 5.5 mrketing of mteriais and warehouses Real estate adninistration, public utilities, 16.2 28.3 9.6 5.0 11.9 17.6 -7.8 15.3 7.1 6.9 2.6 7.6 2.4 residentIal & consultancy services Public health, sports and social welfare 6.3 0.8 -3.6 6.4 4.0 4.8 7.4 3.2 2.9 2.4 2.0 3.5 3.2 Education, culture, art, radio and 3.5 1.4 -4.5 3.0 2.0 4.6 5.7 4.0 3.9 2.0 1.6 2.2 2.7 television broadcasting Scientific research, technical servicee 8.7 13.0 12.4 3.9 0.8 3.0 5.1 5.6 3.9 1.9 2.5 4.8 3.5 Banking and insurance 13.2 15.1 8.1 5.6 3.5 8.5 8.7 10.1 11.8 13.5 6.2 6.3 7.3 Goverrents, parties and organizations 8.1 4.4 5.5 9.9 5.7 15.0 7.5 9.3 6.0 5.0 5.3 5.6 5.4 Others 1.2 11.6 39.3 -14.3 25.2 48.5 1.1 1.4 12.3 10.2 3.3 5.2 6.2 TOTAL ... 2.2 3.3 3.2 3.6 2.5 3.8 3.5 2.8 2.9 2.9 1.8 2.6 2.9 REF: LABOR .UK1 06/23/92 Source: Table 11.1. Table 11.3: CHINA: Social Labor force by Ownership 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 (Millton) Total 401.52 410.24 423.61 437.25 452.95 464.36 481.97 498.73 512.82 527.83 543.34 553.29 567.40 583.6 Staff and Workers 94.99 99.67 104.44 109.40 112.81 115.15 118.90 123.58 128.09 132.14 136.08 137.42 140.59 145.08 State-owned 74.51 76.93 80.19 83.72 86.30 87.71 86.37 89.90 93.33 96.54 99.84 101.08 103.46 106.64 Urban Collective-owned 20.48 22.74 24.25 25.68 26.51 27.44 32.16 33.24 34.21 34.88 35.27 35.02 35.49 36.28 Other Ownership 0.00 0.00 0.00 0.00 0.00 0.00 0.37 0.44 0.55 0.72 0.97 1.32 1.6 2.16 lUrban Individual Laorers 0.15 0.32 0.81 1.13 1.47 2.31 3.39 4.50 4.83 5.69 6.59 6.48 6.71 7.63 Rural Laborers 306.38 310.25 318.36 326.72 338.67 346.90 359.68 370.65 379.90 390.00 400.67 409.39 420.10 430.93 (Percentage Shares) Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Staff and Workers 23.7 24.3 24.7 25.0 24.9 24.8 24.7 24.8 25.0 25.0 25.0 24.8 24.8 24.9 State-owned 18.6 18.8 18.9 19.1 19.1 18.9 17.9 18.0 18.2 18.3 18.4 18.3 18.2 18.3 Urban Collective-owned 5.1 5.5 5.7 5.9 5.9 5.9 6.7 6.7 6.7 6.6 6.5 6.3 6.3 6.2 Other Ownership 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.3 0.4 U(Jban Individual Laborers 0.0 0.1 0.2 0.3 0.3 0.5 0.7 0.9 0.9 1.1 1.2 1.2 1.2 1.3 Rural Laborers 76.3 75.6 75.2 .74.7 74.8 74.7 74.6 74.3 74.1 73.9 73.7 74.0 74.0 373.8 S (Growth Rates) Total .. 2.2 3.3 3.2 3.6 2.5 3.8 3.5 2.8 2.9 2.9 1.8 2.6 2.9 Staff and Workers .. 4.9 4.8 4.7 3.1 2.1 3.3 3.9 3.6 3.2 3.0 1.0 2.3 3.2 State-owd .. 3.2 4.2 4.4 3.1 1.6 -1.5 4.1 3.8 3.4 3.4 1.2 2.4 3.1 Urban Collective-owned .. 11.0 6.6 5.9 3.2 3.5 17.2 3.4 2.9 2.0 1.1 -0.7 1.3 2.2 Other Ownrship .. . . .. .. .. .. .. 18.9 25.0 30.9 34.7 36.1 24.2 31.7 Urban Individual Laborers .. 113.3 153.1 39.5 30.1 57.1 46.8 32.7 7.3 17.8 15.8 -1.7 3.5 13.? Rural Laborers .. 1.3 2.6 2.6 3.7 2.4 3.7 3.0 2.5 2.7 2.7 2.2 2.6 2.6 REF: LABOR.WK1 06/23/92 Source: CHINA Statistical Abstract 1992 (in Chinese) pp.16-5 for 1991; Statistical Yearbook 1991 pp.76. ,. Table 12.1 CHINA General Price Indices /1 (1980=100) 1978 1979 1980 1981 1982 1983 1984 1985 1986 198' 1988 1989 199 1991 Retafl Prices 92.5 94.3 100.0 102.4 104.4 105.9 108.9 118.5 125.6 134.8 159.7 188.2 192.1 W197. Cost of Living of Staff & Wnrkers 91.3 93.0 100.0 102.5 104.6 106.7 109.6 122.6 131.2 142.8 172.3 200.4 203.0 213.3 Purchasing Price of Form 76.4 93.4 100.0 105.9 108.2 113.0 117.5 127.6 135.8 152.0 187.0 215.1 209.5 205.3 Sideline Products Retail Prices of Industrial Products 99.1 99.2 100.0 101.0 102.6 103.6 106.9 110.3 113.8 119.3 137.5 163.2 170.7 175.6 in Rural Areas Price Parity between Industrial t 129.5 106.2 100.0 95.4 94.6 91.5 90.8 86.4 83.8 78.5 73.3 75.9 81.3 Agricultural Products Market Price of Consumer goods 102.7 98.0 100.0 105.8 109.3 113.9 113.4 132.9 143.7 167.1 217.7 241.2 Percentage GROWTH RATES over last year 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1990 Retail Prices 2.0 6.0 2.4 1.9 1.5 2.8 8.8 6.0 7.3 18.5 - 17.8 2.1 2,9 Cost of Living of Staff & Workers 1.9 7.5 2.5 2.0 2.0 2.7 11.9 7.0 8.8 20.7 16.3 1.3 5.1 Purcnasing Price of Farm & 22.1 7.1 5.9 2.2 4.4 4.0 8.6 6.4 12.0 23.0 95.0 -2.6 -2.0 Sideline Products Retail Prices of Industrial Products . 0.1 0.8 1.0 1.6 1.0 3.1 3.2 3.2 4.8 15.2 18.7 4.6 2.9 in Rural Areas Price Parity between Industrial & -18.0 -5.8 -4.6 -0.8 -3.3 -0.8 -4.8 3.o0 -6.4 -6.5 3.5 7.1 Agriculturat Products Market Price of Consumer goods -4.5 2.0 5.8 3.3 4.2 -0.4 17.2 8.1 16.3 30.3 10.8 REF: PRICE.UKI 06/23/92 Source: CHINA Statistical Abstract 1992 (in Chinese) pp.39; Statistical Yearbook 1991 pp.199. Note: 1/ Average for the year. Table 12.2: CHINA: Growth Rate of Overall Retail Sales Price Index for the whote MNtion (Growth rate over same month Last year) ---------------------- -------------------------------------------------------------------------------------- Food Grain Non Fresh Dried Meat Aquatic Fresh Dried Garments Daily Overall Staple Vegeta- Vegeta- Poultry Products Fruit Fruit Use Food -bles -bles & Eggs Articles ----------------------------------------------------------------------------------------------------------------------------------- 1988 January . . Fbruary 15.3 6.2 23.9 48.3 13.6 27.6 25.5 7.7 17'6 5.6 3.3 11.2 Narch 15.8 5.7 24.3 30.2 12.7 30.3 26.3 13.7 16.6 6.8 4.8 11.6 April 16.1 7.4 24.7 16.0 14.7 35.4 27.1 7.5 16.2 8.6 6.5 12.6 May 17.7 8.9 26.9 17.8 15.6 37.7 26.5 6.0 17.4 10.1 8.4 14.7 Jure 20.2 13.5 29.5 13.2 15.0 40.3 33.0 8.7 17.6 11.0 10.7 16.5 July 23.6 12.3 32.3 30.3 16.6 41.0 31.6 29.0 16.5 12.5 12.8 19.3 August 28.9 18.6 37.4 47.8 19.1 42.6 37.1 18.2 17.6 15.2 15.6 23.2 September .. . .. .. .. .. .. .. .. October 30.4 12.3 39.0 42.0 23.9 43.8 38.7 32.2 28.8 18.7 19.3 26.1 Movesber 31.9 26.0 35.6 30.5 23.5 38.8 36.5 45.0 30.8 19.8 21.4 26.0 D*ce ber 30.5 29.2 31.2 16.8 25.6 33.8 32.9 44.0 32.1 21.2 21.8 26.7 1989 Jamuary 29.2 29.8 29.5 16.5 27.4 30.4 34.3 45.0 36.1 20.8 22.2 27.0 February 29.3 29.8 30.1 14.7 29.5 31.7 33.7 37.8 35.8 22.8 23.0 27.9 March 27.2 33.3 26.2 -3.7 27.5 30.7 28.9 24.9 37.9 23.4 22.6 26.2 April 26.6 33.6 25.0 6.2 26.5 26.5 27.4 22.4 38.3 22.7 21.4 25.8 May 24.4 32.8 21.1 15.4 25.3 19.7 25.2 28.8 36.8 22.4 20.4 24.4 July 17.8 26.8 13.8 8.1 21.7 12.3 18.7 21.1 35.8 20.0 16.8 19.0 August 12.3 19.6 9.6 0.3 19.8 9.1 18.9 11.7 35.5 17.9 14.0 15.2 September 8.0 15.8 5.1 -6.3 15.0 4.3 7.2 2.9 29.5 15.1 13.4 11.4 October 4.6 9.9 2.2 -4.6 11.2 0.2 4.7 -2.1 17.7 13.5 0.3 8.7 November . 3.1 5.9 1.9 -10.1 9.2 2.3 -0.4 -10.1 11.2 12.4 6.8 7.1 Decweber January 1.0 -1.4 2.5 -8.3 4.0 1.6 -2.2 -16.4 -0.4 9.8 4.2 4.1 February 1.8 1.7 3.1 -2.5 4.4 1.0 -1.0 -16.6 -0.9 9.6 3.4 4.1 March 1.3 -1.5 3.0 6.5 2.6 0.0 -6.0 -10.7 -3.2 8.5 2.3 3.3 April Nay 1.5 -6.3 1.6 -7.0 1.0 -0.4 3.1 30.6 -2.9 7.0 0.7 2.6 Jwie Juty Augut -1.7 -8.1 -1.0 -8.5 -1.6 -3.8 -1.3 -0.6 -5.4 5.8 1.2 0.4 Septeber -0.7 -7.7 0.7 5.5 -0.9 -4.1 -1.3 -0.2 -6.5 5.8 1.8 0.8 October -0.2 -6.3 0.8 3.3 0.2 -4.1 -0.2 4.1 -5.6 5.7 2.0 1.1 Novteber 0.2 -6.9 1.5 5.1 -0.2 -4.5 -1.6 7.8 -5.7 6.1 2.0 1.6 December 1.3 -5.7 2.4 13.9 1.3 -3.7 3.8 13.4 -4.1 6.2 2.2 2.2 1991 ' January February March Average 1988 Average 1989 Average 1990 REF: PRICE.U1W 06/23/92 Source: China Statistics Monthly, University of ltlinois, Chicago. - 1' . . . Table 12.3: CHINA: Growth Rate of Overall Retail Price Index (Same month Last year = 100) Beijing Tianjin Shenyang Shanghai Nanjing Wuhan Guangzhou Chengdu Xian Urban 1988 January 10.2 6.5 7.9 15.4 16.0 13.7 15.5 14.4 13.0 11.7 February 10.0 9.9 15.5 15.6 16.9 16.1 20.9 14.5 14.2 13.4 March 10.1 10.7 12.4 15.9 18.2 15.2 20.7 22.0 16.7 14.2 April 12.2 10.2 8.8 13.4 20.8 17.7 20.0 17.7 14.8 14.2 Nay 12.5 11.5 10.9 19.4 22.7 17.8 23.8 17.6 13.9 16.0 June 22.2 14.8 17.2 23.7 21.9 16.4 20.8 18.4 15.6 18.1 July 25.9 22.6 20.4 24.2 25.3 21.6 27.5 21.6 18.5 22.0 August 30.7 25.1 26.7 24.3 32.2 28.2 35.9 31.7 26.7 27.4 September 29.9 24.0 32.2 25.4 32.0 32.9 44.3 37.8 28.3 29.8 October 33.3 24.9 31.0 28.8 29.4 31.9 41.7 41.1 31.0 30.2 November 29.1 25.1 29.9 27.4 27.5 29.4 43.4 38.4 34.0 30.4 December 30.5 24.9 32.1 25.4 29.2 28.1 38.6 35.0 32.8 28.9 1989 January 28.9 24.4 34.1 26.4 27.5 24.5 44.0 32.9 37.9 27.8 February 28.5 22.0 31.3 29.7 30.5 25.3 45.0 32.7 34.9 27.8 March 28.4 20.2 28.9 26.9 25.8 23.9 41.5 23.7 31.0 26.0 AprIl 25.6 19.9 27.4 26.5 21.1 20.0 39.5 26.2 32.8 25.6 May June 14.8 14.6 19.6 21.3 18.4 19.2 40.1 19.8 25.? 21.0 July 16.4 10.3 15.4 16.9 15.9 16.3 21.4 16.7 21.9 17.2 August 12.1 8.4 12.5 14.4 12.7 9.8 12.6 10.5 19.2 12.6 September 10.6 7.6 9.7 12.4 11.8 6.4 10.9 5.7 14.0 8.6 October 10.1 7.5 9.0 9.2 8.6 6.4 9.0 3.8 7.8 6.0 November December 7.6 6.4 2.0 5.7 4.9 6.0 2.1 2.7 0.3 3.2 1990 Jamoary 1.2 1.7 0.8 7.8 6.3 5.0 -2.0 3.3 0.2 3.4 February 3.2 8.6 4.7 8.5 8.7 6.3 -2.6 0.9 3.6 4.6 March April 6.0 4.5 7.0 7.4 7.1 5.5 -2.3 4.7 3.8 4.6 May Jie July August 4.5 1.0 4.8 6.8 4.8 4.3 -4.0 2.1 0.0 2.7 Septeeer 5.1 2.3 0.2 5.2 3.9 1.3 -4.8 2.2 -1.4 2.2 October 4.8 1.7 0.8 6.0 3.4 1.2 -3.6 1.7 1.6 2.6 Noveeber 5.2 2.9 1.2 8.0 4.6 2.6 -0.8 3.3 3.7 4.1 December 8.8 4.9 5.2 7.3 6.0 3.3 0.6 2.6 7.1 5.4 1991 January Februiry March Average 1988 21.4 17.5 20.4 21.6 24.3 22.4 29.4 25.8 21.6 21.4 Average 1989 Average 1990 REF: PRICE.U1c 06/23/92 Source: China Statistics MonthLy, University of Illinois, Chicago. Table 12.4: CHINA: Growth Rate of Cost of Living Index of Staff & Workers (Goods & Services) (Growth rate over same month last year) Beijing Tianjin Shenyang Shanghai NanJing Wuhan Guangzhou Chengdu Xian Urban 1988 Jarury 9.6 6.1 7.4 13.9 14.7 12.6 13.8 13.4 12.8 11.2 February 9.6 9.3 10.7 14.6 15.6 14.8 19.1 13.5 14.1 12.8 farch 9.6 10.2 11.6 15.0 16.7 14.1 19.2 20.2 16.6 13.6 April 11.5 9.7 8.2 13.4 19.2 16.4 18.2 16.5 14.9 13.7 Nay 12.0 11.0 10.3 18.8 21.0 16.5 17.9 16.5 14.1 15.4 June 20.7 14.0 16.1 22.7 20.4 15.3 19.3 17.? 15.6 1T.5 July 24.1 21.4 19.0 23.2 23.6 20.1 25.5 20.5 18.4 21.2 Augut 28.6 23.8 24.8 23.2 30.1 26.6 33.3 30.1 25.8 26.6 September 27.9 22.9 29.? 24.4 30.1 31.1 42.1 36.6 27.8 29.2 October 31.0 23.8 29.4 26.8 27.3 30.3 39.9 39.9 30.2 29.7 Nowover 27.1 24.0 28.4 25.4 25.8 28.1 41.6 37.5 33.0 29.8 Deceier 28.3 23.6 30.5 23.6 27.3 26.9 37.4 34.4 31.9 28.6 1989 Jauary 26.6 23.2 32.6 25.4 26.3 23.5 42.5 32.6 36.1 27.3 February 26.2 21.0 29.1 28.2 29.9 24.3 43.4 32.3 33.3 27.4 Harch 26.2 19.4 26.9 25.7 25.5 23.0 40.2 24.4 30.3 25.7 April 23.6 19.0 25.5 24.5 21.1 19.3 38.7 26.7 31.7 25.3 JAM. 13.i 14.0 18.3 19.i 18.6 18.4 39.i 20.3 ZS 9 21.0 July 15.3 9.9 14.4 15.7 16.3 15.7 22.1 17.6 22.z 17.5 August 11.4 8.2 11.9 13.5 13.2 9.3 14.2 11.3 20.0 13.0 Setmber 10.2 7.6 9.6 12.4 13.1 6.4 10.5 5.8 15.2 9.2 Octoer 9.8 7.5 9.4 10.0 6.5 3.9 9.' 3.9 9.4 6.8 Noveemer Deceeber 7.5 6.7 3.2 6.4 6.9 6.1 3.3 3.2 2.6 4.3 1990 Janury 1.6 2.0 2.8 10.0 8.8 5.2 3.6 -0.3 2.0 4.6 February. 3.6 8.7 2.5 6.0 7.6 6.3 -3.8 0.2 2.0 3.5 Narch April 6.0 4.6 6.0 4.9 5.8 5.4 -3.2 4.2 2.3 3.6 Nay Juww Jult 3.4 0.5 1.5 3.8 3.1 3.0 -5.1 1.3 -2.1 1.1 sptgeber 8.0 2.5 1.1 5.7 4.5 2.3 -3.7 2.8 0.9 3.3 October 7.7 2.1 1.6 6.4 4.1 2.2 -2.5 2.6 3.7 3.6 November 8.1 3.5 3.8 8.9 4.8 3.5 0.2 4.1 5.? 5.3 DecdeWr 11.3 5.4 9.7 8.3 6.4 4.1 1.3 3.7 9.3 6.6 1991 Jamrry February Harch Aversge 1988 20.0 16.7 18.8 20.4 22.7 21.1 27.3 24.7 21.3 20.8 Average 1989 Average 1990 .. .. -. .. . . . ..... ...... *.. .. .......................................... REF: PRICE.WK1 06/23/92 Source: China Statistics Nonthly, University of llitfnois, Chicago. Tab'e 12.5: CHINA: Monthly and Annual Rates of Inflation Overall Retail Price index Consumer Price Index (Whole Natlon) Free market Price Index of Consuer Goods -- - - -- - - - -- - - - -- - - - -- - - - - . ... .... b. . . .. ..... . . . . . . . . - - - - - - - - - - - - - - - - - - - - - - - - - - 1987 1968 1989 1990 1991 1987 1988 1989 1990 1991 1987 19U 1989 1990 1991 J%Arry 5.0 9.5 27.0 4.1 1.4 5.0 9.7 27.4 3.5 1.5 22.0 20.0 27.5 -5.1 -2.3 February 5.1 11.2 27.9 4.1 1.0 5.3 10.7 28.4 3.5 1.0 7.9 27.9 26.9 -6.6 -0.8 Hurch 5.5 11.6 26.3 3.3 0.9 5.6 11.6 27.0 2.7 0.8 7.4 26.8 19.2 -5.1 -5.2 April 6.5 12.6 25.8 3.1 0.6 6.6 12.6 26.5 2.5 0.4 14.2 23.1 21.0 -2.0 -6.9 May 7.6 14.7 24.3 2.6 3.1 7.7 14.5 24.7 2.0 3.0 15.6 21.5 20.1 -5.7 -5.5 June 7.8 16.5 21.5 3.0 3.8 7.9 16.7 22.5 2.4 3.8 20.1 22.4 15.0 -5.3 0.3 -July 8.0 19.3 19.0 0.7 4.2 8.0 19.8 18.9 0.2 4.3 16.9 27.7 14.9- -7.3 1.8 August 8.4 23.2 15.2 0.4 4.0 8.4 24.1 14.8 -0.1 4.1 20.0 33.2 9.1 -7.5 0.6 Septe,i,er 7.9 25.4 11.4 0.8 4.3 7.8 26.4 10.8 0.5 4.4 16.5 37.3 3.3 -4.4 -0.2 October - 7.6 26.1 8.7 1.1 4.0 7.6 27.0 7.7 0.9 4.0 19.9 36.5 0.9 -4.3 1.7 Noveober 8.5 26.0 7.1 1.6 4.4 8.5 26.8 6.4 1.4 4.6 22.6 34.8 -6.4 -3.8 1.0 December 9.1 26.7 6.4 2.2 4.0 9.2 27.7 5.5 2.1 4.0 20.8 30.6 -6.6 -0.5 0.8 AVERAGE 7.3 18.6 18.4 2.3 3.0 7.3 19.0 18.4 1.8 3.0 17.0 28.7 12.1 -4.8 -1.2 REF: PRICE.WK1 06/23/92 Source: State Statistical Bureau. onthly Statistics pp.28 for 1991; CHINA Statistics Monthly of University of Illinois, Chicago, lan-Feb-March 1992 for 1991; 3/1991 pp.26 for 1990; March 19,90 pp.23 for 1989; March 1989 Table 12.6: CHINA : Price Adjustments during 1990 aS Commodity Notes Unit Increased OLD Price NEW Price Percent Absolute in Month Increase Increase ... .. -.. .. . . .......... ................. .. .. .... .... .. .. . . . .-... . .... .;.... ... . . . . . . . . . . . . . . . . . . . . . .. . . .. . . . . . . .. . . . . . . . . . AGRICULTURAL CONMODITIES Procurement Price Cooking oil 50 kg April 47 Saybeen ol 50 kg pril 125 Z14 3OX Sugar cane Ton prilt5 20 140 12X Sugar beet Ton April 140 1S2 110 Tobacco 50 kg pril 109 121 10 Cotton 50 kg AprIl 236 300 272 "tlber Meter ovember 145 215 482 INDUSTRIAL COWMDITIES Producer Price Crude oil Ton March 137 167 22X Residual oil Ton March 60 Railway freight Ton-km March 0.020 0.025 25X Water freight Ton-km March 0.01051 0.0133 292 Mineral ore (422) Ton July 188 242 292 1 Iron ore (68X) Ton July 94 115 232 Postal rates 1 Letter July 0.08 0.20 1502 a Oxidating aluminium Ton August 600 1000 67X 2 Coal Ton August .. I Copper ore (25X) Ton September 5700 760 330 Electric copper (99.95X) Ton September 7500 9700 292 Tfn ore (602) Ton September 2700 3550 31X COW0DITIES FOR DAILY USE Retail Price -- - - -- - - - -- - - - Detergent 5OOg July .. .. .. 0.4 White cloth Meter October .. 2.8 .. Sugar 50og November .. 1.9 .. ~~~~,,,,0., ,, ....... ... .... -.---.-. ................. . -. .. . -*... . . . . . . .. . . . . . . . .. . . . . . . . .. . . . . . . . .. . . . . . . . .. . . . . . . . REF: PRICE.MKI 06/23192 Source: Price Bureau, June 1990. Note: a/ Price Adjustment during the first three months of 1991: Agricultural products in the state-rationed shops for urban residents: Grain; including wheat flour, rice and maize, Increased by an average of 0.2 yuan/kg; cooking oil Including peanut oil, sesam oil, rape oilt cotton-seed ol , tea-seed oil end soybean oil increased an at average of 2.7 yuan/kg. Industrial products: Coal, Plastic film, fertilizer, ferrous metat (ore), nonferrous metal (ore), petroleum products, and electricity have also Increased. (percentage increase not known). Daily use commodities: Bus ticket (percentage Increase not known). Table 13.1: CHINA: Totat Investment In Fixed Assets 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 (Billion Yuan) Total Investment 96.1 123.0 143.0 183.3 254.3 302.0 364.1 449.7 413.8 444.9 527.9 State-Ow0ed 66.9 69.9 74.6 66.8 84.5 95.2 118.5 168.1 197.9 229.8 276.3 253.5 291.9 355.8 Co1 lective-owned 11.5 17.4 15.6 23.9 32.7 39.2 54.7 71.2 57.0 52.9 62.9 Individual -Owned 17.8 21.1 32.2 40.9 53.5 64.9 79.6 102.2 103.2 100.2 109.2 (Percentage Shares) Total Investment 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 State-Owned 69.5 68.7 66.6 64.7 66.1 65.5 63.1 61.4 61.3 65.6 67.4 Cotlective-Owned 12.0 14.2 10.9 13.0 12.9 13.0 15.0 15.8 13.8 11.9 11.9 Individual-Owned 18.5 17.1 22.5 22.3 21.0 21.5 21.9 22.7 24.9 22.5 20.7 GNP (Billion Yuan,Current Prices) 477.3 519.3 580.9 696.2 855.7 969.6 1130.1 1401.8 1591.6 1768.6 1975.9 Total Investment into GNP (M) 20.1 23.7 24.6 26.3 29.7 31.1 32.2 32.1 26.0 25.2 24.7 STATE-OWNED ENTERPRISES (-illion Yuan) C Total 66.9 69.9 74.6 66.8 84.5 95.2 118.5 168.1 197.9 229.8 276.3 253.5 291.9 355.8 Capital Construction 50.1 52.3 55.9 44.3 55.6 59.4 74.3 107.4 117.6 134.3 157.4 155.2 170.4 207.5 Technical Upgdating 16.8 17.6 18.7 19.5 25.0 29.1 30.9 44.9 61.9 75.9 98.0 78.0 83.0 99.7 Other 0.0 0.0 0.0 2.9 3.9 6.7 13.3 15.7 18.3 19.6 20.8 19.2 38.5 48.7 (Percentage Shares) Total 100.0 100.0 100.0 100.0 100.0 100.0 100.0 99.9 99.5 100.0 100.0 Capital Construction 66.4 65.7 62.4 62.7 63.9 59.4 58.4 57.0 61.2 58.4 58.3 Technical Upgdating 29.3 29.6 30.6 26.1 26.7 31.3 33.0 35.5 30.8 28.4 28.0 Other 4.4 4.7 7.0 11.2 9.3 9.3 8.5 7.5 7.6 13.2 13.7 REF: INVEST.UK1 06/23/92 Source: CHINA Statistical Abstract 1992 (in Chinese) pp.20-1;Yearbook 1992 pp.119-121; Statistical Year Book of China 1990 pp.146; 1988 pp.493 for 1981-87 and Statistical Year Book of China (in Chinese) 1989 pp.477 for 1988. Table 13.2: CHINA: Investment in Capital Constuction of State-7owned Enterprises by Sector of National Economy 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 . 1990 1991 (Biltion Yuan) All Sectors 50.1 52.3 55.9 44.3 55.6 59.4 74.3 107.4 117.6 134.3 157.4 155.2 170.4 207.5 Agriculture 5.1 2.9 3.4 3.5 3.7 3.6 3.5 4.2 4.7 5.1 6.7 8.5 Industry 27.6 21.6 26.1 28.2 34.2 44.6 53.2 68.3 81.3 82.2 95.3 112.7 Geotogy 0.3 0.3 0.3 0.4 0.7 0.7 0.7 0.5 0.5 0.5 0.5 Construction 0.9 1.1 1.0 1.1 2.2 1.9 1.5 1.5 1.4 1.0 1.8 Transport 6.2 4.0 5.7 7.8 10.8 17.1 18.1 19.0 21.2 16.7 20.7 31.1 Com. rce 2.9 2.8 3.6 2.9 3.5 4.7 4.2 4.7 5.4 4.5 4.3 7.8 Real Estate & Public Utilities 3.4 1.3 2.0 1.9 2.4 11.8 11.0 9.3 13.4 11.2 8.2 11.0 Educaiton, Health, & Culture etc. 3.5 3.4 4.1 4.9 6.6 10.1 11.6 12.6 13.2 12.9 13.8 13.9 Research 0.9 1.0 1.1 1.1 1.4 2.1 2.5 2.6 2.3 2.2 2.1 2.4 Banking & Insurance 0.3 0.3 0.6 0.3 0.3 0.7 0.8 1.3 1.9 1.6 1.5 2.0 Government Agencies & Other 4.5 5.8 7.8 7.3 10.0 9.8 10.1 10.0 12.0 17.0 16.3 15.7 (Percentage Shares) All Sectors 97.5 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Agriculture 9.2 6.5 6.1 5.9 4.9 3.3 3.0 3.1 3.0 3.3 3.9 4.1 Industry 49.3 48.8 46.9 47.5 46.0 41.6 45.2 50.8 51.6 53.0 55.9 54.3 Geology 0.0 0.6 0.5 0.6 0.5 0.7 0.6 0.5 0.3 0.3 0.3 0.2 Construction 0.0 2.1 1.9 1.7 1.5 2.0 1.6 1.1 1.0 0.9 0.6 0.9 Transport 11.2 9.1 10.3 13.1 14.6 15.9 15.4 14.1 13.5 10.7 12.2 15.0 Cownerce 5.1 6.3 6.5 4.9 4.7 4.4 3.6 3.5 3.4 2.9 2.5 3.8 Reat Estate & Public Utilities 6.0 3.0 3.6 3.3 3.2 11.0 9.4 6.9 8.5 7.2 4.8 5.3 Educaiton, Health, & Culture etc. 6.3 7.7 7.4 8.2 8.8 9.4 9.9 9.3 8.4 8.3 8.1 6.7 Research 1.7 2.2 1.9 1.9 1.9 1.9 2.2 2.0 1.5 1.4 1.2 1.2 Banking & Insurance 0.5 0.7 1.1 0.6 0.4 0.7 0.7 1.0 1.2 1.0 0.9 1.0 Government Agencies & Other 8.1 13.0 14.0 12.4 13.4 9.1 0.6 7.5 7.6 10.9 9.6 r.5 REF: INVEST.WKI1 06/23/92 Source: CHINA Statistical Abstract 1992 (in Chinese) pp.24. Table 13.3: CHINA: I.-vestment in CapitaL Constuction of State-Owned Enterprises by Branch of Industry 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 (Billion Yuan) Total Industry 21.6 26.1 28.2 34.2 44.6 53.2 68.3 81.3 82.2 95.3 MetallurgicaL 2.7 4.3 4.2 4.7 5.2 5.4 7.9 9.5 9.0 Power 4.0 4.6 5.7 7.7 10.8 16.0 20.9 24.4 26.5 Coal 2.3 3.0 4.0 5.5 5.5 5.8 6.0 6.4 7.1 Petroleut 2.8 2.5 2.9 3.1 3.3 3.9 5.9 8.6 9.4 Chemical 1.9 2.6 3.0 3.6 5.4 5.9 8.4 10.1 8.7 Machine Building 2.4 2.7 2.7 3.0 4.7 4.2 5.0 5.7 6.3 Forest 0.7 0.8 0.6 0.7 0.6 0.7 1.0 0.9 0.9 Building materials 0.9 1.2 1.4 1.7 2.7 3.2 3.4 3.2 2.8 TextiLes 2.0 2.1 1.7 1.8 2.1 2.7 3.1 3.6 4.3 Food 0.9 1.4 1.1 1.2 1.7 2.2 3.1 2.9 2.8 Paper making 0.2 0.2 0.2 0.2 0.3 0.4 0.5 0.7 0.6 (Percentage Shares) Total Industry 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 Metallurgical 12.7 16.5 15.0 13.7 11.7 10.2 11.6 11.7 10.9 Power 18.6 17.7 20.4 22.5 24.2 30.0 30.6 30.1 32.2 Coal 10.7 11.5 14.2 16.1 12.3 10.9 8.7 7.8 8.6 Petroleum 12.9 9.7 10.3 9.0 7.4 7.3 8.6 10.6 11.4 ChemicaL 8.8 9.9 10.7 10.5 12.0 11.1 12.3 12.5 10.6 Machine Building 11.3 10.4 9.5 8.9 10.6 7.9 7.3 7.0 7.7 Forest 3.1 3.0 2.3 2.1 1.5 1.4 1.4 1.1 1.1 Building materials 4.1 4.5 5.0 4.9 6.1 6.0 5.0 4.0 3.4 Textiles 9.2 8.1 6.1 5.3 4.6 5.1 4.5 4.4 5.2 Food 4.3 5.4 4.0 3.5 3.9 4.2 4.5 3.6 3.5 Paper making 0.9 0.6 0.6 0.6 o.8 0.8 0.8 0.8 0.7 SUBTOTAL 96.5 97.4 97.9 97.0 95.2 94.7 95.3 . 93.7 95.2 .. ... .... "....... ............. .. .. . . . . ..... ...... X.... .. .. ..... ........ . ... ... . . . . . . . . . . . .. . . . . . . . . . . . . . .. . . . . . . . . . . . . REF: INVEST.UK1 06/23/92 Source: CHINA: Statistical Yearbook 1990 pp.157. Table 13.4: CHINA : Sectoral Breakdown of Investment (Percentage Shares) 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Capital Construction 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 of which Agriculture 6.6 6.1 6.0 5.0 3.3 3.0 3.1 3.0 3.3 3.9 4.1 industry 48.8 46.9 47.5 46.0 41.6 45.2 50.9 51.6 53.0 55.9 54.3 Energy 21.4 18.4 21.5 22.3 19.0 22.7 25.3 26.1 28.8 32.8 30.4 Comjnications 9.1 10.3 13.1 14.6 15.9 15.4 14.1 13.5 10.7 12.2 15.2 Technicat Updating 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.D 100.0 100.0 of which Agriculture 2.6 2.2 2.1 1.7 1.4 1.2 1.3 Industry 73.2 70.0 71.3 72.9 78.2 77.4 77.1 Energy 13.0 12.6 13.0 13.1 10.4 10.3 9.8 Comimnications 11.2 10.9 11.2 11.3 9.0 8.9 8.5 .. Collectives 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 of which 1i AgricuLture 22.5 20.2 18.5 13.3 9.3 8.4 8.1 .. industry 72.0 70.2 69.0 67.5 62.1 63.2 63.4 Energy 1.0 1.0 1.0 1.0 1.0 1.0 0.9 towmmnications 2.4 2.5 2.3 2.0 1.3 5.2 5.4 REF: INVEST.UK1 06/23/92 Source: CNINA Statistical Abstract 1992 (in Chinese) pp.26 for 1991; Year book (in Chinese) 1991 pp.156 ;198A pp. 258,277,493,503f,543,545f,571,573,579; State Statistical aureu Statistics for 1988 Socioecdhomie Development; leijing leview, Morch 6-12, 1989, and Uorld Bank estimtes. Note: Technical updating investmnt in nergy has been calculated by iasuiing the .. of energy to trasport Investment in 1987 throughout. Sectoral investment ratios for coilectives assum that the ratio of sectoral inwestment to sectoral OVIO Is the s-m as in 1987 for all years. Table 13.5: CHINA : Capitat Construction Investment of state Owned Enterprises (Percentage Shares by Sector) 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 Agriculture 9.3 6.6 6.1 6.0 5.0 3.3 3.0 3.1 3.0 3.3 4.1 Light industry 9.1 9.8 8.4 6.5 5.7 5.9 7.0 7.4 7.4 7.9 7.2 Heavy Industry 40.2 39.0 38.5 41.0 40.3 35.7 38.2 43.5 4.8 45.1 47.2 1953-87 1958-62 1963-65 1966-70 1971-75. 1976-80 1981-85 1966-90 Agriculture 7.1 11.3 17.7 10.7 9.8 10.5 5.1 3.3 Light Industry 6.4 6.4 3.9 4.4 5.8 6.7 6.9 7.5 H*avy Industry 36.2 54.0 45.9 51.1 49.6 45.9 38.5 43.9 IEF: INVEST.UK1 06/23/92 Source: CHINA Statistical Abstract 1991 pp.25 for 1990- Yearbook 1990 pp.155 for 1953-89. Note: Data are based on new classification since 19S5; agrfculture excludes mterwoloty which is included in poly-technical services. Table 13.6 CHINA: Inventories of Commodities held by the Agencies Under the Ministry of Connerce Inventories that have Increased in April 1991 (Stocks at the end of the period) GROWTH RATES Between Between Between Serial COMMODITY UNIT 1989 1990 1989 1990 1991 December April April Dec. Dec. April April April 1989 & 90 1989 & 90 1990 & 91 1 Oranges 10,000 tons O 12.1 .. 2.1 6.3 .. .. 200.0 2 Pencils 100 mil 6.3 11.3 7.0 7.2 11.2 79.4 2.9 55.6 3 YelLow & red Yarn 10,000 tons 39.1 43.7 29.1 21.4 33.0 11.8 -26.5 54.2 4 Eggs 10,000 tons 5.7 7.2 9.8 4.8 7r3 26.3 -51.0 52.1 5 Apples 10,000 tons .. 30.3 .. 5.2 7.8 .. . 50.0 6 Poultry 10,000 .. 3241.4 .. 1563.1 2279.5 .. .. 45.8 7 Video recorders 10,000 .. 15.6 .. 12.2 17.6 4 4. 44.3 8 Soaps 10,000 boxes 943.6 948.1 843.1 964.3 1337.7 0.5 14.4 38.7 9 Honey tons .. 42119.0 .. 37894.0 48373.0 .. .. 27.7 10 Bulbs 10,000 41198.0 51437.1 37977.0 39550.1 48596.6 24.9 4.1 22.9 11 Rubber shoes 10,000 32399.7 39233.7 33033.0 32602.1 39158.0 21.1 -1.3 20.1 12 TVs 10,000 423.1 524.1 248.5 374.3 438.5 23.9 50.6 17.2 13 Cotton underwesr 10,000 25555.9 26360.2 23015.9 22228.3 25233.0 3.1 -3.4 13.5 1 14 Tea 10,000 tons 22.3 18.3 10.9 14.9 16.8 -17.9 36.7 12.8 F 15 Wool yarn 10,000 tons 9.0 11.7 5.0 8.8 9.8 30.0 76.0 11.4 . 16 Radios 10,000 420.0 480.0 416.2 418.5 459.6 14.3 0.6 9.8 1 17 Fans 10,000 629.1 957.8 895.9 1331.1 1461.8 52.2 48.6 9.8 18 Enamel basins 10,000 .. 4282.4 .. 3745.4 4102.0 .. .. 9.5 19 Tape recorders 10,000 318.7 356.2 334.2 322.6 352.8 11.8 -3.5 9.4 20 Watches 10,000 1718.8 1936.3 1708.3 1762.3 1926.8 12.7 3.2 9.3 21 Old iron stuff 10,000 tons .. 181.6 .. 176.0 192.2 .. .. 9.2 22 Soda 10,000 tons 9.4 12.0 8.0 11.1 12.0 27.7 38.7 8.1 23 Match boxes 10,000 boxes 440.4 515.5 371.1 452.1 488.3 17.1 21.8 8.0 24 Liquor 10,000 tons 80.0 89.8 86.8 78.5 84.7 12.2 -9.6 7.9 25 Washing machines 10,000 154.5 167.0 127.9 147.2 155.6 8.1 15.1 5.7 26 Big clocks 10,000 .. 1288.4 .. 1144.5 1209.2 .. .. 5.7 27 Washing powder 10,000 tons 18.8 21.7 12.7 20.0 21.1 15.4 57.5 5.5 28 Iron bowls 10,000 3086.0 3614.0 2937.0 3099.0 3243.0 17.1 5.5 4.6 29 Cotton thread 10,000 tons .. 24.7 .. 22.7 23.7 .. .. 4.4 30 Garments 10,000 17833.3 18539.6 18709.9 18291.5 18771.9 4.0 -2.2 2.6 31 Thermos flasks 10,000 5484.1 5578.8 5851.6 5000.4 5112.7 1.7 -14.5 2.2 32 Sleeveless dress 10,000 42794.2 47069.1 47042.0 48538.6 49502.1 10.0 3.2 2.0 33 Wool yarn 10,000 kgs 4483.6 3714.9 3049.1 3134.2 3192.0 -17.1 2.8 1.8 34 Bedsheets 10,000 .. 4874.8 .. 4054.7 4114.8 .. .. 1.5 35 Plastic shoes 10,000 .. 15183.2 .. 18006.8 18224.3 .. .. 1.2 36 Nails 10,000 tons 10.9 12.4 9.9 11.4 11.5 13.8 15.2 0.9 37 Iron wire 10,000 tons 13.0 16.9 11.7 15.0 15.1 30.0 28.2 0.7 REF: INVENTOR.WK1 06/23/92 Source: CHINA: Ministry of Conmnerce Table 13.7 CHINA: Inventories of Commiodities held by the Agencies Under the Ministry of Connerce Inventories that have Decreased in April 1991 (Stocks at the end of the period) ---6----------sn--------------@--------------------------------------------------------------------------------------------------------------w----------------------- GROWTH RATES Between Between Between Serial COMMDITY UNIT 1989 1990 1989 1990 1991 Deceffer April April Dec. Dec. April April April 1989 & 90 1989 &90 1990 91 1 Bamboo 10,000 686.7 488.8 969.5 636.7 416.1 -28.8 -34.3 -34.6 2 Sheep & goat 10,000 579.0 .. 465.9 311.9 .. .. -33.1 3 Pigs 10,C00 1903.9 1563.9 1891.5 1919.4 1337.3 -17.9 1.5 -30.3 4 Sewing machines 10,000 240.6 208.2 190.3 236.2 187.8 -13.5 24.1 -20.5 5 Enamil bouls 10,000 84243.0 76983.0 67275.0 77005.0 61407.0 -8.6 14.5 -20.3 6 BicycLes 10,000 748.8 689.1 779.5 757.8 606.6 -8.0 -2.8 -20.0 7 Timber 10,000 .. 51.3 .. 54.0 43.8 .. .. -18.9 8 Beef 10,000 .. 133.9 .. 90.1 75.3 .. .. -16.4 9 Kerosene 10,000 tons .. 6.2 .. 5.9 5.3 .. .. -10.2 10 Cardboard paper 10,000 tons .. 4.9 .. 4.1 3.7 .. .. -9.8 11 Thin paper 10,000 tons 17.8 17.0 19.0 16.6 15.1 -4.5 -12.6 -9.0 12 Aluminiun pots 10,000 .. 3395.6 .. 2737.6 2522.5 .. .. -7.9 13 Underwear 10,000 4430.6 3917.7 5010.0 3907.2 3692.6 -11.6 -22.0 -5.5 14 Diesel 10,000 tons .. 23.7 .. 23.8 22.5 .. .. -5.5 15 Motorcycles 10,000 .. 11.3 .. 10.3 9.8 .. .. -4.9 16 Refrigirators 10,000 83.0 89.6 85.9 94.1 89.9 8.0 9.5 -4.5 17 Towels 10,000 . 41527.1 .. 41635.3 40026.8 .. . -3.9 18 Cigsrettes 10,000 boxes 94.7 98.1 89.1 86.2 83.9 3.6 -3.3 -2.7 19 Fresh Vegetables 10,000 tons .. 21.5 .. 4.0 3.9 .. .. -2.5 20 Cmeras 10,000 .. 49.7 .. 54.8 54.7 .. .. -0;2 -------- ---------- --, ----------,- ----- -------.-------- ----------.---- ------- -------- ------- --'----- -----'--'------ --------''-'--- -------- ------- REF: INVENTOR.WK1 06/23/92 Source: CKINA: Hinistry of Conmerce Table 13.8 CHINA: Inventories of Commodities held by the Agencies Under the Ministry of Commerce (Stocks at the end of the period) (Billion Yuan) GROWTH RATES Between Between Between 1989 1990 1989 1990 1991 December ApriL Aprli Dec. Dec. April April April 1989 & 90 1989 & 90 1990 & 91 National Total 36.7 39.3 29.0 33.2 35.4 6.9 14.3 6.8 for Domestic Trade 23.1 25.8 19.1 21.3 22.0 11.6 11.4 3.5 for External Trade (residual) 13.6 13.5 9.9 11.9 13.4 -1.2 20.1 12.8 (Percentaae Shares) Nationat Totat 100.0X 100.0X 100.OX 100.0X 100.0X for Domestic Trade 62.9Q 65.7X 65.9X 64.1X 62.2X for External Trade (residual) 37.1X 34.3X 34.1X 35.9X 37.8% REF: INVENTOR.W1K 06/23/92 Source: CHINA: Ninistry of Commerce Table 13.9: CHINA: Inventories of Industrial Products by Branch of Industry (Stocks at the end of the period) (Billion Yuan) . GROWTH RATES August 90 February 91 19- 19 8 9 1990 1991 Over Over August Dec. August Feb. August 89 January 91 Total Industry 130.5 152.3 184.1 199.0 41.1 6.2 Light 68.7 82.4 95.2 105.4 38.5 4.9 Heavy 61.8 69.9 88.9 93.6 44.0 7.8 (Percentage Shares) Total Industry 100.0X 100.0X 100.0 100.0K Light 52.7X 54.1K 51.7X 53.0X Heavy 47.3X 45.9X 48.3X 47.0X (Billion Yuan) Total Industry 130.5 152.3 184.1 199.0 Extraction 7.6 7.9 9.6 9.8 25.9 7.1 Coal mining and dressing 2.0 1.6 2.8 3.1 42.2 3.6 Mining & dressing of butldfngg materials 0.5 0.7 0.8 0.9 55.0 2.9 Manufacturing 122.9 144.4 174.5 189.3 42.0 6.2 Food, Beverages and Tobacco 15.5 17.4 17.6 22.1 13.6 6.3 Textiles 17.0 22.1 26.0 31.7 53.4 8.2 Machine building, electrical, * electronics 42.2 46.8 57.2 57.2 35.3 2.9 (Percentage Shares) Total Industry 100.0X 100.0O 100.0K 100.0O Extraction 5.8X 5.2X 5.2X 4.9X Coat mining and dressing 1.5K 1.2X 1.5X 1.6X Mining & dressing of buildingg materials 0.4X 0.5X 0.5X 0.5% ManufacturIng 94.2X 94.8X 94.8K 95.1X Food, Beverages and Tobacco 11.9K 11.4K 9.6K 11.1K Textiles 13.0X 14.5X 14.1X 15.9X Machine building, electrical, & electronics 32.4K 30.7K 31.1X 28.7X REF: INVENTOR.V11 06/23/92 Source: CHINA: State Statistical Bureau. Table 14.1: CHINA: Total Production and Consumption of Energy and Its Composition 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 PRODUCTION 628 646 637 632 668 713 779 855 881 913 958 1016 1039 1047 (millions of-tons of coaL equivalent) Proportfon (X) Coal 70.3 70.2 69.4 70.2 71.3 71.6 72.4 72.8 72.4 72.6 73.1 74.1 74.2 74.4 Crude Oil 23.7 23.5 23.8 22.9 21.8 21.3 21.0 20.9 21.2 21.0 20.4 19.3 19.0 19.0 Natural Gas 2.9 3.0 3.0 2.7 2.4 2.3 2.1 2.0 2.1 2.0 2.0 2.0 2.0 2.0 Hydro Power 3.1 3.3 3.8 4.2 4.5 4.8 4.5 4.3 4.3 4.4 4.5 4.6 4.8 4.6 CONSILNPTION 571 586 603 594 621 660 709 767 809 866 930 969 987 1023 (mitllons of tons of coal equivalent) Proportion tX) Coal 70.7 71.3 72.2 72.7 73.7 74.2 75.3 75.8 75.8 76.2 76.2 76.0 76.2 76.0 Crude Oil 22.7 21.8 20.7 20.0 18.9 18.1 17.4 17.1 17.2 17.0 17.0 17.2 16.6 17.0 Natural Gas 3.2 3.3 3.1 2.8 2.5 2.4 2.4 2.2 2.3 2.1 2.1 2.0 2.1 2.0 Hydro Power 3.4 3.6 4.0 4.5 4.9 53 4.9 4.9 4.7 4.7 4.7 4.9 5.1 5.0 GDP (Billion Yuan) 385.4 414.7 U6.7 466.9 507.4 558.7 639.7 722.7 783.6 871.8 969.6 1013.7 1070.2 1144.9 (Constant 1980 Prices) Energy Consumption 1.5 1.4 1.3 1.3 1.2 1.2 1.1 1.1 1.0 1.0 1.0 1.0 0.9 0.9 (million ton per biltion yuan) REF: ENERGY.U1C1 06/23/92 Source: CHINA Statistical Abstract 1992 (in Chinese) pp.83 for 1991; Yearbook 190M pp.459-60 for 1978-89. NOTES: Excluding bio-energy, solar, geothermal and nuclear energy. All fuels are converted into standard fuel with therma equivalent of 7000 kilocalorie per kilogram. The conversion is 1 kg of coal (5000 kcal) = 0.714 kg of standard fuet. 1 kg of crude oil (10000 kcaL) = 1.43 kg of stanmdard fuel. 1 cubiscmetre of natural gas (9310 kcal) - 1.33 kg of standard fuel. The conversion of hydropower into standard fuel is calculated on the basis of the.consumition quota of standard coal for thermal pwer generation of the year. Table 15.1: CHINA: Freight Traffic: International Comaerisons CHINA USSR USA INDIA BRAZIL JAPAN FREIGHT TRAFFIC INTENSITIES Country Area (Million Square km) 9.6 22.4 9.4 3.3 8.5 0.4 Freight Traffic (filtion Ton-km) 1817 8773 5818 335 453 508 Average Distance (Ton-km) 199.7 624.0 704.0 608.0 419.0 82.6 Estimated GNP (Billion USS) 359.2 1,065.0 4,886.6 277.3 311.9 2,577.1 Ton-kmJ GNP (S) 5.1 8.2 1.2 1.2 1.5 0.2 Ton-km I Area 189.2 391.7 620.7 101.9 53.2 1344.0 RAILWAY AND ROAD NETWORK DENSITIES Population (llttion) 1088 307 246 816 144 123 Rail Length (1000 km) 53.4 146.7 205.0 62.2 31.2 43.0 Rail Density kuxlPopulat ion 0.05 0.48 0.83 0.08 0.22 0.35 kiwArea 5.56 6.55 21.87 18.93 3.66 113.71 Road Length (1000 km) 1028.3 1174.8 6230.0 1800.0 1675.0 1110.0 00 Road Density km1Population 0.94 3.83 25.29 2.21 11.60 9.05 km/Area 107.11 52.45 664.68 547.61 196.78 2936.46 REF: TRANSPORT.WKI 06/23/92 SOURCE: CHINA: A Statistical Survey of China (Zhongguo Tongji Zhaiyao) 1991, pp. 84-85. Figures: 1990. USSR: A Study of the Soviet Economy, Volume 3, (International Monetary Fund, The World Bank, Organization for Economic Co-operation and Development, and European Bank for Reconstruction-and Development), February 1991, p.106-8. Data for 1988. USA: National Transportation Statistics Annual Report, U.S. Department of Transportation, Reserarch and Special Programs Administration, Juty 1990,pp.103. Transportation in America, 1989, p. 8. World Transport Data, International Road Transport Union, p.180.Data for 1988. INDIA: World Bank estimates based on Goverrment of India, Economic Survey, 1988/89 and PerspectIve Ptarning for Transport Development, 1988. Data for 1987-88. Rail: Transport Sector Strategy Note -- Statistical Appendix, The World Bank, 1991. Rail Data for 1989. Roads: Estimate based on Wortd Transport Data, Op. cit. and World Bank information. Road date for 1987-88. BRAZIL: World Road Statistics 1985-1989, International Road Federation, 1990, Section 5. World Transport Data, International Road Transport Union, p. 130. World Bank Appraisal Report, Highways Management and Rehabilitation Report, 1989. Rail Figures: 1988; Road Figures: 1987. JAPAN: World Road Statistics 1985-1989, International Road Federation, 1990, Section 5. World Transport Data, International Road Transport Union, p. 214-216. Road, rail and water figures: 1988. Air figures: 1986-87. Population Area & GNP: The World Bank Development Report, pp. 178-179. Table 15.2: CHINA: Freight Traffic Coposition of China 1952 ........ 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Avg.80-90 FREIGMT TRAFFIC (Billion Ton-kn) Rail 60.2 456.8 534.5 559:8 571.7 571.2 612.0 664.6 724.7 812.6 876.5 947.1 987.8 1039.4 1056.3 805.8 Road 1.4 25.1 27.4 74.5 76.4 78.0 94.9 108.4 153.6 169.3 211.3 266.0 322.0 337.5 344.1 196.5 Domestic Waterways 11.8 102.1 129.2 139.0 152.3 150.7 170.8 181.1 196.1 237.1 270.0 288.9 310.4 349.8 361.2 242.6 Pfpelines 0.0 38.7 43.0 47.6 49.1 49.9 50.1 52.4 57.2 60.3 61.2 62.5 65.0 62.9 63.0 57.6 Civtl Aviation 0.0 0.1 0.1 0.1 0.1 0.2 0.2 0.2 0.3 0.4 0.5 0.7 0.7 0.7 0.8 0.4 OVERALL 73.4 622.8 734.2 821.0 849.6 850.0 928.0 1006.7 1131.9 1279.7 1419.5 1565.2 1685.9 1790.3 1825.4 1302.9 Ocean Shipping 2.8 174.1 248.7 317.4 353.2 364.3 376.9 397.7 437.4 532.9 594.8 657.6 696.6 768.9 632.1 528.4 FREIGHT TRAFFIC Ccnposition (Percentage Share) (NODAL SPLIT) Rail 82.0X 67.3X 57.91 Road 1.9X 9.0X 18.91 Domestic Waterways 16.1X 1.9X 19.81 oc Pipelines O.OX 5.81 3.5X Civil Aviation 0.0 0.0X 0.0O OVERALL 100.0 100.01 100.0X FREIGHT TRAFFIC Growth Rates (Percentage) /a Rail .. 8.41 2.11 -0.1X 7.11 8.61 9.01 12.11 7.9% 8.11 4.31 5.21 1.61 6.01 Road .. 12.21 2.61 2.11 21.71 14.21 41.71 10.21 24.81 25.91 21.1X 4.81 2.01 15.51 Domstic Waterways .. 9.01 9.61 -1.11 13.31 6.01 8.3X 20.9% 13.91 7.01 7.41 12.71 3.21 9.21 Pipelines . .. 3.21 1.61 0.41 4.6% 9.21 5.4X 1.5% 2.11 4.01 -3.21 0.21 2.62 Civil Aviation .. 15.71 14.61 20.61 16.51 15.71 35.8X 33.41 15.91 35.11 12.31 -5.51 15.91 19.11 OVERALL .. 8.91 3.51 0.01 9.21 8.51 12.41 13.11 1I0.91 10.31 7.71 6.21 2.01 7.61 Ocean Shipping .. 18.01 11.31 3.11 3.51 5.51 10.01 21.81 11.61 10.61 5.91 10.41 -17.81 6.91 REF: TRANSPORT.WK1 06/23/92 Source: Statistical Yearbook of China, 1991, p. 85. NOTE: - Data for Rait in 1990 is an estimate. - There was a drop in the freight traffic of Domestic Waterways from 1988 to 1989 and 1990 can be tartially explained by a tariff increase of 241 for all modes except highways and 1nland waterways. /a Average annual growth rate between 1952 and 1977. Table 15.3; CHINA: Passenger Traffic Conosition of China 1952 ... 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Avq.80-90 PASSENGER TRAFFIC (Biltion Passenger-km) Rail 20.1 102.3 109.3 121.6 138.3 147.3 157.5 177.7 204.6 241.6 258.7 284.3 326.0 303.7 261.6 227.4 ROad 2.3 44.8 52.1 60.3 73.0 83.9 96.4 110.6 133.7 172.5 198.2 219.0 252.8 266.2 260.0 169.7 Domestic Waterways 2.5 9.7 10.1 11.4 12.9 13.8 14.5 15.4 15.4 17.9 18.2 19.6 20.4 18.8 17.8 16.8 Civil Aviation 0.0 1.8 2.8 3.4 3.9 5.0 5.9 5.8 8.3 11.6 14.6 18.7 21.4 18.6 21.8 12.3 OVERALL 24.9 158.6 174.3 196.7 228.1 250.0 274.3 309.5 362.0 443.6 489.7 541.6 620.6 607.3 561.2 426.2 PASSENGER TRAFFIC Conposition (Percentage Share) (MODAL SPLIT) Rail 80.7X 60.6X 46.6% Road 9.2% 32.0X 46.3X Dowestic Waterways 10.0X 5.7X 3.2X Civil Aviation 0.0 1.7K 3.9% OVERALL 100.0X 100.0X 100.0% PASSENGER TRAFFIC Growth Rates (Percentage) /b Rail .. 6.7% 13.7X 6.5% 6.9% 12.8% 15.1% 18.1X 7.1% 9.9% 14.7X -6.8% -13.9% 7.71 Road .. 12.6K 21.1% 14.9% 14.9X 14.7X 20.9K 29.0X 14.9K 10.5K 15.4X 5.3K -2.3K 14.5K Domestic Waterways .. 5.6% 13.2% 7.0% 5.1% 6.2% 0.0% 16.2% 1.7% 7.7K 4.1% -7.8% -5.3X 4.4% Civil Aviation .. .. 14.7K 28.2% 18.0% -1.7% 43.1% 39.8K 25.9% 28.1% 14.4% -13.1% 17.2K 19.5% OVERALL .. 7.7X 16.0% 9.6K 9.7K 12.8% 17.0% 22.5% 10.4% 10.6% 14.6% -2.1% -7.6X 10.3K REF: TRANSPORT.WKI 06/23/92 Source: Statistical Yearbook of China, 1991, p. 85. NOTE: The drop in passenger traffic of raiL from 1988 to 1990 can be partially explained by a tariff increase of 112% in 1989. /a: Average annual growth rate between 1952 and 1977. Table 15.4: CHINA: Transport Investment vs. Economic Output By Five Year Plan Periods Billion Yuan in Current Prices ------------------------ Current 1987 Current 1987 3rd FYP 4th FYP 5th FYP 6th FYP Prices Prices 7th FYP Prices Prices 1966-70 1971-75 1976-80 1981 1982 1983 1984 1985 Total Total 1986 1987 1988 1989 1990 Total Total Transport Investment Current Prices 16.0 31.8 30.2 3.6 5.2 7.2 10.0 15.9 41.9 16.7 17.4 19.0 18.0 24.1 95.2 Constant 1987 prices 4.6 6.6 9.0 12.0 17.4 49.6 17.5 17.4 17.0 14.8 18.9 85.7 GNP Current Prices 935 1323 1758 477 519 581 696 856 3130 970 1130 1402 1592 1740 6833 Constant 1987 prices 607 660 728 834 939 3768 1018 1130 1256 1419 1363 6187 Transport Investment oo as X of GNP Lo Current Prices 1.7X 2.4X 1.7A 0.8% 1.QX 1.2X 1.4X 1.9X 1.3% 1.7X 1.5X 1.4X 1.1X 1.4X 1.4X I REF: TRANSPORT.WK1 08/15/91 Source: CHINA Statistical Yearbook 1991 pp.5, 23; 1990 pp.33, 171. *: Estimate Note: Investment of the 3rd, 4th, and 5th FYPS includes Post and TeLecommunfcations (approximately 4 percent). Table 15.5: CHINA: Investment in the Transport Sector (including Posts and Telecommunications) By Five Year Plan Periods Billion Yuan in Current Prices ------------------------ Current 1987 Current 1987 3rd FYP 4th FYP 5th FYP 6th FYP Prices Prices 7th FYP Prices Prices 1966-70 1971-75 1976-80 1981 1982 1983 1984 1985 Total Total 1986 1987 1988 1989 1990 Total Total Transport: Railway 11.3 17.3 4.0 1.4 2.6 4.2 5.9 7.7 21.9 25.9 8.5 8.7 10.2 9.0 12.1 48.5 43.6 Highway - - - 0.8 0.9 0.7 1.2 2.3 5.9 7.0 2.7 3.3 4.2 4.3 5.5 20.0 17.8 Waterway - - - 1.3 1.5 1.9 2.6 3.7 11.1 13.2 3.7 3.9 3.2 3.6 4.8 19.2 17.4 Avivation - - - 0.1 0.1 0.3 0.3 2.1 2.9 3.3 1.3 1.4 1.3 1.0 1.5 6.5 6.0 Pipeline - - - 0.0 0.0 0.0 0.0 0.1 0.2 0.2 0.5 0.1 0.1 0.1 0.1 0.9 0.9 Subtotal - - - 3.6 5.2 7.2 10.0 15.9 41.9 49.6 16.7 17.4 19.0 18.0 24.1 95.2 85.7 Post & Telecom. - - - 0.4 0.5 0.6 0.9 1.2 3.6 4.3 1.3 1.6 1.8 2.3 3.0 10.0 8.8 Total 16.0 31.8 30.2 4.0 5.7 7.8 10.8 17.1 45.5 54.0 18.0 19.0 20.8 20.3 27.1 105.2 94.5 X Investment 97.6 176.4 234.2 44,3 55.6 59.4 74.3 107.4 341.0 408.3 117.6 134.3 152.6 155.2 170.3 730.0 655.6 Transport as X of 16.4% 18.0% 12.9% 8.2% 9.4% 12.1% 13.4% 14.8% 12.3% 12.2% 14.2% 13.0% 12.5% 11.6% 14.2% 13.0% 13.1% Total Investment REF: TRANSPORT.WK1 08/15/91 Source: CHINA StatisticaL Yearbook 1991, pp.23, 1990 pp.157, 167, 171. I 1: Investment of FYPs, before 1980, includes Post and Telecommunications (about 4% of total). *-Estimates Table 15.6: CHINA: Railway Asset Utilization: International Comparison Unit CHINA USSR USA /a INDIA /c BRAZIL Freight Ton-km/Route-km Million 18.7 26.2 6.5 3.6 8.0 Passenger-km/Route-km Miltion 6.2 2.8 0.1 4.4 0.05 Freight Ton-km/freight car owned Million 2.9 2.2 0.8 (b) 0.6 1.7 Freight tonnage/car loaded Ton/Car 54.1 53.6 66.6 20.1 55.0 Freight cars per train 1 Car 40-50 /e 50-75 /e 71 n.a. 35 Freight car turnaround time Days 3.9 6.6 18.8 11.6 12.0 Freight car turnaround distance km 952 1,610 2,125 1,274 750 Freight hauling distance km 702 945 1,106 776 460 Freight tons-km/locomotive owned Million 74.9 68.5 70,6 24.3 25.0 Freight train-km/route-km/day km/day 36.1 /e 42.9 6.1 10.6 6.4 Freight train speed (inc. stops) km/hour 28.3 31.8 n.a. 22.7 30.0 Freight train gross trailing weight Tons 2,365 3,085 4,300 2,050 2,200 02 Freight tonnage per train Train 1300-150/e 1,800 /e 2,390 1,053 1,200 Cn REF: TRANSPORT.WK1 06/23/92 SOURCE: CHINA: Ministry of Railways and mission estimates. USSR: Narodnoe khozyafstvo SSR v 1987g. (The USSR National Economy In 1987), PP.21, 307-308, 312, 15. Various estimates from Hunter and Kaple, 1983; Hunter and Kontorovich, 1983; Kontorovich, 1985; Kaple, 1984, and Szyrmyr and Dunn, 1985. INDIA: Economic Survey, 1988-89, pp. 27, 35-36, s-30; India Railways Yearbook 1987-8, pp.viii, 40, 70, 78-9 and 80-1. USA: Railroad Facts, 1988, pp. 9, 31,32,35,36,43,46. The World Bank, Railroad Database, June 1989. BRAZIL: Official Govermnent Sources. NOTE: /a Class I Railroads only. Jb Includes cars owned by car companies and shippers. /c 90.58X of all freight ton-kilometers are carried on broad-gauge rails, so Je Estimate:most above estimates are for braod gauge only. See Indian Railways Yearbook, 1987-8, pp.23. Table 15.7: CHINA: Cargo Throughput in Coastal Ports (Million) PORT 1952 1957 1965 1978 1980 1985 1988 1989 Daclan 1.5 5.9 10.6 28.6 32.6 43.8 48.5 50.9 Qinhuangdao 1.8 2.8 4.8 22.2 26.4 44.2 58.1 65.7 Tianjin 0.7 2.8 5.5 11.3 11.9 18.6 21.1 24.4 Qingdao 1.8 2.2 4.5 20.0 17.1 26.1 31.1 31.1 Shanghai 6.6 16.5 31.9 79.6 84.8 112.9 133.2 146.0 Ninqbo ... ... ... ... 3.3 10.4 20.0 22.1 Guangzhou 0.5 1.9 4.7 10.5 12.1 17.7 47.4 47.0 Other main ports 1.6 5.2 9.8 26.1 29.1 37.8 96.5 103.0 Other medium size ports ... ... ... ... ... ... 43.2 48.1 TOTAL 14.4 37.3 71.8 198.3 217.3 311.5 455.9 490.3 Source: China Statistical Yearbook, 1990, p. 555. Table 15.8: CHINA: Freight Traffic Volumes: International Comparison (countries with over 15,000 km of track) USSR Canada USA Poland France Germany Italy Argentin Brazit Japan U.K. Mexico China India . ..... ..... ........ . ...... ...... ..... ... ...... .......... ...... .......... . .... ...... ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FREIGHT VOLUME RAIL Billion Ton-km 3835 212 1454 111 52 57 18 8 110 23 16 41 947 231 ROAD Billion Ton-km 489 52 1028 38 144 151 157 103 260 246 101 93 241 211 TOTAL Billion Ton-km 4323 265 2482 150 195 208 176 111 370 270 117 139 1188 442 Population Million 291 26 246 38 56 61 57 32 144 123 57 84 1088 816 FREIGHT VOLUME PER PERSON RAIL Ton-km/Person 13182 8164 5903 2932 923 931 318 262 758 192 275 485 870 283 ROAD Ton-km/Person 1679 2012 4173 1014 2572 2470 2741 3271 1803 2008 1771 1174 221 259 TOTAL Ton-km/Person 14861 10176 10076 3947 3496 3401 3060 3533 2562 2199 2046 1659 1091 542 REF: TRANSPORT.WKI 06/23/92 Sources: ARGENTINA: World Transport Data, 1988. Roads: PCR Fourth Highway Project, World Bank, 1988. Freight traffic voltume figures are estimates. BRAZIL: World Road Statistics 1985-1989, International Road Federation (I.R.F.), 1990. 00 CANADA: Rail: World Dank Railway Data, 1990. Roads: Transport Review: Trends and Selected Issues, 1985, pp. 39-42. - CHINA: World Transport Data, 1988. 1 FRANCE: World Road Statistics 1985-1989, International Road Federation (I.R.F.), 1990. GERMANY: World Transport Data, 1988. INDIA: Roads: Policy Issues in Road Transport, World Bank, (Green cover), 1989, Annex 3.1 ITALY: World Road Statistics 1985-1989, International Road Federation (I.R.F.), 1990. JAPAN: World Road Statistics 1985-1989, International Road Federation (I.R.F.). 1990. MEXICO: Manual Estadistico del Sector Transporte, Institute Mexicano del Transporte, aro. 1989, p. 63 (1986 figures) POLAND: World Road Statistics 1985-1989, International Road Federation (I.R.F.), 1990. USA: World Transport Data, 1988. USSR: World Transport Data, 1988. USK: World Transport Data, 1988. Table 15.9: CHINA: Passenger Traffic Voltumes: International Comparison (countries with over 15,000 km of track) USA France Germany Italy U.K. Canada Japan Brazil USSR Mexico Poland Argentin India China PASSENGER VOLUME RAIL Billion Passenger-km 20 74 39 44 34 2 362 15 402 6 48 13 269 284 ROAD Billtton Passenger-km 4472 614 617 506 512 221 608 519 515 220 38 56 893 220 TOTAL Billion Passenger-km 4492 688 656 550 546 223 970 534 917 226 87 69 1162 504 Population Mitlion 246 56 61 57 57 26 123 144 291 84 38 32 816 1088 PASSENGER VOLUME PER PERSON RAIL Passenger-km/Person 80 1324 639 76.4 602 81 2951 102 1383 70 1274 421 330 261 ROAD Passenger-km/Person 18157 10984 10067 8823 8967 8500 4961 3595 1770 2631 1014 1762 1095 202 TOTAL Passenger-km/Person 18236 12308 10706 9587 9569 8581 7912 3698 3152 2702 2288 2183 1425 463 REF: TRANSPORT.WKI 06/23/92 Sources: ARGENTINA: World Transport Data, 1988. Staff Appraisal Report: Highway Sector Project, Argentina, May 4, 1983. Roads: PCR Fourth Highway Project, World Bank, 1988. Freight Traffic votumne figures are estimates. BRAZIL: World Road Statistics 1985-1989, International Road Federation (I.R.F.), 1990. U 'CANADA: Rail: World Bank Railway Data, 1990. Roads: Transport Review: Trends and Setected Issues, 1985, pp. 10. 00 CHINA: World Transport Data, 1988. FRANCE: World Road Statistics 1985-1989, international Road Federation (I.R.F.), 1990. GERMANY: World Transport Data, 1988. INDIA: Roads: PoLicy Issues in Road Transport, World Bank, (Green cover), 1989, Annex 3.1 ITALY: World Road Statistics 1985-1989, international Road Federation (I.R.F.), 1990. JAPAN: World Road Statistics 1985-1989, International Road Federation (I.R.F.), 1990. MEXICO: Manual estadistico del Sector Transporte, Institute Mexicano del Transporte, Qro. 1989, p. 127 (1986 figures) POLAND: World Road Statistics 1985-1989, International Road Federation (I.R.F.), 1990. USA: World Transport Data, 1988. USSR: World Transport Data, 1988. U.K.: World Transport Data, 1988. Table 15.10: CHINA: Railway Traffic Volume: International Comparison (countries with over 15,000 km of track) Country USSR China Japan India Poland USA Brazil Italy France Germany U.K. Mexico Canada Argentina RAIL TRAFFIC VOLUME Frefght Billion Ton-km 3,835 947 23 231 111 1,454 110 18 52 57 16 41 212 8 Passenger Billion Passenger-km 402 284 362 269 48 20 15 44 74 39 34 6 2 13 Total Billion (Ton-km + 4,237 1,231 385 501 159 1,474 124 62 126 96 50 46 2i4 22 Passenger-km) Track Length Thousand Km 146 53 21 62 27 252 27 16 35 27 17 16 103 34 Rail Traffic Units Million (Ton-km + 29.0 23.4 18.2 8.1 6.0 5.8 4.6 3.9 3.6 3.5 3.0 2.9 2.1 0.6 Per Unit of Passenger-km)/Km Track Length .0 Sources: See Tables 15.8, 15.9, and 15.11. Table 15.11: CHINA: Railway Network: International Comparison Canada Germany Poland France U.K. Japan Italy USA Argentin USSR India Mexico Brazil China Track Length 1000 kmn 103 27 27 35 17 21 16 252 34 146 62 16 22 53 Population MiLlions 26 61 38 56 57 123 57 246 32 291 816 84 144 1088 Track Length per person km/Person 3949 447 703 620 291 173 278 1023 1084 502 76 189 153 48 Population Density Scaled Canada=1.0 1.00 0.11 0.18 0.16 0.07 0.04 0.07 0.26 0.27 0.13 0.02 0.05 0.04 0.01 Total Area 1000 Sq km 9976 249 313 552 245 378 301 9373 2767 22402 3288 1958 8512 9561 Arabte Land 1000 Sq km 5160 198 284 462 213 306 245 7172 2406 15622 2796 1477 2532 5563 Track Length per Sq. km of km/Sq.km 20 139 94 75 78 69 65 35 14 9 22 11 9 9 Arabie land Arabie Area Density Scaled Germany=1.0 0.14 1.00 0.68 0.54 0.56 0.50 0.47 0.25 0.10 0.07 0.16 0.08 0.06 0.07 ~ Total Area Density Scaled 1.14 1.11 0.86 0.70 0.64 0.54 0.54 0.51 0.38 0.19 0.18 0.12 0.10 0.08 (Population Density + +Arabte area Density) REF: TRANSPORT.WK1 06/23/92 Sources: The World Bank Development Report, 1990, pp. 178-179. FAO Yearbook: Production, Vol. 43, FAO Statistics Series No. 94, 1989, Table 1, pp. 47-58. The World Bank Railway Database. Table 15.12: CHINA: Road Network: International Conporison Japan Canada USA Germany France U.K. Poland Brazil Italy Argentin India USSR Nexico China Road Length 1000 km 1110 844 6229 497 805 354 361 1664 302 211 1621 1610 226 963 Poputation Millions 123 26 246 61 56 57 38 144 57 32 816 291 84 1088 Road Length per person km/Person 9054 32476 25289 8102 14409 6205 9521 11523 5259 6710 1987 5534 2696 8S Population Density Scaled CanadK 1.0 0.28 1.00 0.78 0.25 0.44 0.19 0.29 0.35 0.16 0.21 0.06 0.17 0.08 0.03 Total Ares 1000 Sq km 378 9976 9373 249 552 245 313 8512 301 2767 3288 22402 1958 9561 Arable Land 1000 Sq km 306 5160 7172 198 462 213 284 2532 245 2406 2796 15622 1477 5563 Road Length per Sq. km of km/Sq.km 3627 164 868 2508 1743 1663 1271 657 1232 88 580 103 153 173 Arabte land N') Arabte Area Density Scaled Japan1.0 1.00 0.05 0.24 0.69 0.48 0.46 0.35 0.18 0.34 0.02 0.16 0.03 Q.34 0.05 o Total Area Denity Scaled 1.28 1.05 1.02 0.94 0.92 0.65 0.64 0.54 0.50 0.23 0.22 0.20 0.13 0.07 (Population Denity + +Arable area Denity) REF: TRAMSPORT.WKI 06/23/92 Sources: The World Bank Development Report, 1990, pp. 178-179. 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