Reform of the urban industrial and commercial economy was formally initiated with the landmark "Decision of the Central Committee of the Chinese Communist Party on Reform of the Economic Structure" issued in October 1984. The radical changes contained in the urban program were revealed as it unfolded, and they heralded additional tensions. The urban program was accompanied by a less publicized but apparently spectacularly successful program for developing rural industry. These programs presented considerable challenges for the political system. The strain was intensified by the fact that the urban reform system was being implemented at a time when the party rectification program was extending below the central level, into all areas of society.

The Repercussions of Urban Reform

The party leadership benefited from the success of the rural reform program and the generally enthusiastic public response it generated. The leadership sought to use this success as a basis for tackling reform of the much more complicated and diverse urban sector. The overall goal of the highly experimental urban reform program has been to create a mixed economy in which the market plays a significant role and in which state planning is concerned more with regulating than with directing the economy. This approach, however, has led to tensions both in conceptualization and in the reform's effects of implementation on people.

At the conceptual level, the reform's emphasis on leasing industrial and commercial enterprises to individuals and collectives raised the issue of diversification of ownership and challenged the orthodox concept of state ownership. The introduction of securities markets and stock exchanges raised the question of how many Western-style reforms China could absorb and still call itself a socialist country. The same question applied to the adoption of a controversial bankruptcy law. These emerging problems were bound to be troublesome to party leaders like Chen Yun, who adhered to more orthodox socialist concepts.

At the level of implementation, questions emerged concerning the speculation and exploitation that was believed to accompany the operation of stock exchanges. The introduction of bankruptcy provisions was viewed as contributing to unemployment and hardships for the workers. Also, the introduction of a labor contract system, while providing opportunities to motivated and competent workers, might well threaten the livelihood of the less skilled. Even the new value being placed on entrepreneurship challenged the previous way of life, in which the state made all decisions and provided the means of sustaining life.

Although these challenges were serious, the most important dimension of the reform program was its distribution of power and authority. This function can be viewed as the dominant political role of the urban reform program, affecting the structure and organization of the party itself.

The Decentralization of Power

To produce the desired "socialist planned commodity economy," China's reform leadership began to recognize the necessity of transferring more authority over economic decision making to urban factory managers. A "factory director responsibility system" was developed to encourage more local initiative, more efficient use of resources, and more skillful and judicious leadership by the frontline producers. The reform immediately met serious resistance from party secretaries attached to the factories, who until then had been responsible for factory management and especially for personnel decisions. In their view, the reform threatened party perquisites and usurped local party decision-making authority.

This major issue in industrial reform was introduced in the context of the party's ongoing efforts to redefine the proper party role, especially vis-à-vis the government. In the mid-1980s it appeared that party leaders would have to share power even further, this time with enterprise managers or economic reform managers. Mid-level party cadres, many of whom had become party members during the Cultural Revolution decade, were particularly prone to negative feelings, especially concerning the urban reform program. Their resistance and resentment found sympathy among national-level party and government conservatives like Peng Zhen, Deng Liqun, and others and provided a substantial base of support for these leaders when they presented their own, similar views in policy-making circles. At least the leaders at the top who advocated more gradual reform could point to this disgruntled mid-level party group as a reason for revising the pace and content of the reform agenda.

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Source: U.S. Library of Congress