Chinese Economists on Economic Reform - Collected Works of Xue Muqiao

Xue Muqiao, The China Development Research Foundation

• Publisher: Taylor & Francis
• Year: 2010
• eBook ISBN: 9781136869198
• Edition: 1
• Topic: Economía
• Subtopic: Historia económica

The China Development Research Foundation is one of the leading economic and social think tanks in China, where many of the theoretical underpinnings and policy details of economic reform were formulated. This book is the first of a series which makes available to an English-speaking audience the work of the individual Chinese economists who were the architects of reform. The series provides an inside view of China's economic reform, revealing the thinking of the reformers themselves, unlike many other books on China's economic reform which are written by outside observers.

Xue Muqiao held many key posts including Secretary General of the Finance and Economy Commission of the Government Administrative Council, Director-General of the National Bureau of Statistics and consultant of State Council Office for Restructuring the Economic Systems. His work included eliminating the serious inflation of the early years of the People's Republic, participating in drafting and implementing the First and Second Five-year Plans, and establishing the initial statistics system and price management system. His great contribution was to the development of economic theories and practice following China's economic reform.

1
Introduction

Xue Muqiao was a major architect of China’s market-economy reforms and was a key proponent of those reforms. He is regarded as one of China’s most eminent and respected economists. Intimately familiar with issues of economic development, he started field surveys in the early 1930s as a member of a famous “rural economy investigation team.” Between 1943 and 1949, he chaired policy formulation in China’s revolutionary “base” area in the monetary, fiscal, and industrial and commercial fields. Exposed to the actual practice of economic policy making at this early stage, he dealt with such issues as price regulation, tax policies, and currency issuance, all of which played a crucial role in his design and advocacy of market-oriented reforms. The experience helped lay the foundation for his thinking on specific policies to do with price reform, currency reform, and reforms of the banking and ownership systems. His unique position as a financial leader and one of the most respected economists in China enabled him to have a strong influence on senior decision-making levels in the country. He directly participated in the Central government’s decision-making process, and played a key role in China’s “marketizing” reforms after 1978.

The articles selected for this book were written between the late 1970s and the early 1990s. Their mode of expression often uses a “socialist” inflection, but the ideas behind them are those of a modern market economy. The reader should take note of this in understanding Xue Muqiao’s work.

A letter to comrades Deng Xiaoping and Li Xiannian (April 1977)

Xue Muqiao wrote this letter in 1977 to two leaders of the Communist Party of China, Li Xiannian and Deng Xiaoping. At that point, Deng Xiaoping had not been allowed to return to work and “reform” had not yet been initiated in China. In this letter, Xue Muqiao summarizes his thinking and recommendations on economic policy since the time he himself was allowed to work again after 1975. In 1977, China’s economic policies were still fundamentally following practices adopted in the Great Leap Forward and the Cultural Revolution. The government had not yet reached any clear consensus on the direction in which economic policy should go.

In this letter, Xue Muqiao points out that the underlying reason for China’s long-standing economic imbalance was its emphasis on heavy industry and over-investment in capital construction, at the expense of light industry and agriculture. This curbed any enthusiasm on the part of farmers to increase production, since their lives were not improved if they worked harder. Second, over-centralization of economic power and tight control over local governments also cut the enthusiasm of local enterprises and staff. Xue Muqiao recommends adjusting the relative weighting given to heavy and light industries and agriculture, in order to motivate farmers, and at the same time he recommends decentralizing decision making, so that local governments and enterprises can act on a more autonomous basis. All of this is still under the framework of a unified national plan. These recommendations, put forth to Deng Xiaoping in April of 1977, became the primary point of departure for China’s economic reforms in urban and rural areas after 1978.

In this letter, Xue Muqiao also says that he feels a reevaluation of China’s economic policies since the time the country was founded should be undertaken. Particular attention should be given to policies made during the Great Leap Forward, from 1958 to 1960, as well as subsequent adjustments, and lessons should be drawn from the experience.

A practice-based review of more than two decades of economic work (March 1979)

In March of 1979, Xue Muqiao made a speech at a “forum on theoretical work,” and this is the written text of that speech. The “11th Third” had recently concluded [December, 1978], and although people were starting to “emancipate their minds” or engage in new ways of thinking, there still had not been any systematic reappraisal of 30 years of economic policies and many officials were hesitant to move in new directions.

Given his status as both a key designer and a practitioner of the planned-economy system, Xue Muqiao reviews the process of policy formulation and actual practice since the time of China’s very first Five-Year Plan [1953–1957]. That first plan was successful, and in the wake of that success, China’s economic policies began a mad pursuit of high growth rates in both agriculture and industry. The country set unrealistically high targets for steel and grain output, leading to severe imbalances and damage to the national economy. Under pressure to achieve high targets, many local governments and Central departments faked the figures, leading to even greater economic damage. In addition, for ideological reasons, the country now began to impose complete control over the private sector, to the point of eliminating it altogether, which had a highly negative effect on both agriculture and industry. Although certain adjustments were made in the two decades of the 1960s and 1970s, which in fact met with good results, the policies were sporadic, only in certain years, and were not implemented on an ongoing basis.

In this speech, therefore, Xue Muqiao tells his audience that “we should recognize and respect the objective laws of economic development. We should make plans that are within reason, so that all economic sectors can develop in a balanced way. We should pay close attention to improving people’s standard of living in the course of pursuing high-speed economic growth, and we should relax our control over economic sectors and enterprises.”

Xue Muqiao was one of the first senior officials in the Communist Party of China to reflect in a systematic way on economic policies of the country between the 1950s and the time of the start of reforms. The recommendations in this speech, based on lessons derived from summing up experience, were very helpful to other government officials in their own understanding of previous economic policies and their ability to see clearly through to the direction ahead.

Prefaces and postscripts to China’s socialist economy (1979, 1981, 1986, 1987)

China’s Socialist Economy is regarded as Xue Muqiao’s magnum opus. It provided a systematic review of and reconsideration of China’s economic development since the founding of the country. Based on that review, it firmly and definitively advocated market-oriented reforms for China’s economic structure. The book was published in 1979 and within a brief three years, some ten million copies had been sold and the book had been translated into numerous languages and published abroad. It was obligatory reading for Chinese officials at the start of the reform and opening up period and it contributed greatly to enlightening people about the whole subject of market-oriented reforms. For purposes of this compendium, the prefaces and postscripts to the 1979, 1981, 1986, and 1987 editions have been included as a way to demonstrate the changes in Xue Muqiao’s thinking over the course of reforms.

In China’s Socialist Economy, Xue Muqiao feels that China should allow a certain degree of “individual economy” in the country; it should permit foreign investment; and the operating modes of enterprises under the public-ownership system should be diversified. He recommends that the nation’s economic plan be supplemented with market-based measures, that the State’s “unified purchase and marketing” system be reformed, that more distribution channels be opened up for commodity circulation, that “links” in circulation be reduced, and that price controls be gradually and steadily relaxed while keeping the basic price level stable. In his epilogue to the 1986 Japanese edition of the book, Xue Muqiao explicitly proposes the idea of having different forms of ownership develop in tandem, State-owned, collectively owned, and privately owned, while a commodity economy is at the same time vigorously encouraged. He also notes that these various economic sectors or types of ownership can adopt various forms.

Problems discovered while investigating Shanghai’s economic restructuring (February 1980)

“Investigation” or conducting research plays an important role in the decision-making process of the Communist Party of China, as well as at the various levels of government, and Xue Muqiao was an advocate of research throughout his life. In January 1980, he was head of an investigation team that systematically examined Shanghai’s economic restructuring program. This essay is based on the results. Before the founding of the PRC, Shanghai was the most developed capitalist region in China. After the introduction of reform and opening-up policies in 1978, Shanghai was among the first to transform its economic structure. Its methods were very useful as a guide to other parts of the country in formulating their economic policies.

In this Report, Xue Muqiao discusses three reform measures that were being implemented in Shanghai in 1980. The first was granting businesses more decision-making power, raising the percentage of profits that they were allowed to retain, and allowing grass-roots enterprises to practice independent accounting, in order to motivate them. The second was promoting mergers of small factories or their joint operation, and encouraging them to invest in other provinces. The third was an attempt to diversify channels for goods circulation by setting up “commodity fairs” and “sales markets” of various kinds. Looking at these, Xue Muqiao felt that Shanghai’s encouragement of cross-regional cooperation and its efforts to increase the flow of goods were things that could be expanded to other regions and other lines of business as well. Problems were also coming to the fore however, since a key part of “expanding the decision-making power” of an enterprise involved allowing that enterprise to retain a certain amount of profit. Since prices and tax rates among enterprises were not standardized, this was leading to a great disparity in profitability of different companies. Another problem was the inappropriate use to which some companies were putting their new profits. In this report, Xue Muqiao also explores the issues of how to improve the multi-tiered financial management system and the tax system, and how to prevent compartmentalization or the “blockading” of local markets. He calls for a separation between government and enterprises, for reducing the excessive degree of control over foreign trade, for making better use of the function of banks, and for controlling “blind” or often-redundant investment in capital construction.

“Explaining the Preliminary Opinions on Economic Restructuring ” (September 1980)

The State Council established the Office for Restructuring the Economic System in 1980, and Xue Muqiao was appointed Advisor. In this position, he chaired the drafting of a document called Preliminary Opinions on Economic Restructuring. This was the first economic reform program ever formulated by a State Council agency. In September of 1980, the Central Committee of the Communist Party of China convened a meeting of the First Party Secretaries of all provinces, municipalities under direct Central government supervision, and autonomous regions. Xue Muqiao addressed them with a speech entitled “Explaining the Preliminary Opinions on Economic Restructuring.”

In this speech, Xue Muqiao expressed his belief that at its current economic stage, China was a commodity economy under the guidance of a State plan with public ownership as primary but incorporating various other forms of economic ownership. He went on to elaborate that the State plan and market mechanisms must act in concert and, to a large degree, State regulation must be expressed through the functioning of the market and use market forces to ensure a balance of supply and demand.

In this speech, Xue Muqiao also advocated a separation of government and enterprises, an expansion of the decision-making authority of enterprises, and allowing enterprises to adopt varies forms of operating methods. With respect to public finance, he advocated setting up a multi-tiered fiscal management system and a new tax system. He encouraged the dismantling of trade barriers between local markets, encouraged people to adopt a cooperative approach to division of labor, and encouraged developed areas to invest in less developed areas. He advocated restoring the position of what formerly had been the economic centers of regions, as well as the former economic network among large, medium, and small economic centers.

The General Secretary of the Chinese Communist Party’s Central Committee at that time, Hu Yaobang, confirmed the importance of the “Preliminary Opinions” as well as the speech “explaining” the opinions. Certain key aspects of reform were not touched upon in this document, such as a property rights system, a pricing system, and so on, but the “Opinions” record the understanding at that time of measures that should be adopted in the course of reform.

Opinions on resuming and expanding Shanghai’s role as the national economic center (August 1981)

In the 1930s, Xue Muqiao had conducted research in and around Shanghai on rural economic issues at a time when Shanghai was China’s largest economic center. He was deeply impressed by the city’s developed capitalist economy and the way that economy radiated a strong influence into surrounding provinces and cities. After the founding of New China, Shanghai became the largest industrial city in China. Its industrial production had multiplied many times over the past 30 years, but it was also now essentially “full,” making further development very difficult.

Xue Muqiao addressed this letter to Zhao Ziyang, who was at the time Premier of the State Council. In it, he recommended restoring Shanghai to its central position in China’s economy and strengthening ties between Shanghai and its suburbs as well as other provinces and cities. He believed that this would contribute not only to economic growth around Shanghai but also the inland provinces.

Xue Muqiao was deeply struck by the contrast between Hong Kong’s fast urban development and Shanghai’s retarded urban development in more recent years. Real estate had become a pillar of economic prosperity in Hong Kong, while Shanghai had hardly changed at all in the course of 40 or 50 years. Xue Muqiao suggested adopting the model used in Hong Kong in terms of developing real estate, reforming the systems of housing rentals, real estate taxes, and compensation. He urged a “commoditization” of housing, such that housing could be bought and sold, and urged an improvement in the housing conditions of urban residents.

In the 1980s, proposing to restore Shanghai’s status as an economic center was a precocious and visionary idea. One full decade later, in February of 1990, Deng Xiaoping noted to Shanghai’s municipal leaders that Shanghai seemed to be getting a late start on development. In March of 1990, Deng Xiaoping again noted that Shanghai should “seize opportunity, make policy decisions in a timely manner.” He added, “For example, Shanghai is a ...

Table of contents

• Routledge Studies on the Chinese Economy
• Contents
• Series preface
• About the author
• Note by Xue Xiaohe, daughter of Xue Muqiao
• 1 Introduction
• 2 A letter to comrades Deng Xiaoping and Li Xiannian1
• 3 A practice-based review of more than two decades of economic work 5
• 4 Prefaces and postscripts to China’s socialist economy
• 5 Problems discovered while investigating Shanghai’s economic restructuring23
• 6 Explanatory notes to the preliminary opinions on economic restructuring 24
• 7 Opinions on resuming and expanding Shanghai’s role as a national economic center 25
• 8 Comments on price control regulations26
• 9 Comments on banking system reform 27
• 10 Advice on seizing opportunities to adjust the price system 28
• 11 A modern economy needs a modernized financial system29
• 12 The key to “price adjustment” with regard to the means of production is to control capital construction30
• 13 Strengthen macro-control via economic measures (extract)31
• 14 Excessive distribution of National income and inflation (extract)32 – looking back at our economic work over the past eight years
• 15 Conscientiously summing up the experience of ten years of reform 33 – An important lesson
• 16 A suggestion on reforming the fiscal contract system34
• 17 Overcome difficulties through deepened reform36
• 18 Combine Marxism with the Chinese revolution37
• 19 Reform is to set free productive forces 40
• Major works by Xue Muqiao
• Notes
• Index