Under China's socialist political and economic system, the government was explicitly responsible for planning and managing the national economy. The State Constitution of 1982 specifies that the state is to guide the country's economic development and that the State Council is to direct its subordinate bodies in drawing up and carrying out the national economic plan and the state budget. A major portion of the governmental apparatus was devoted to managing the economy; all but a few of the more than 100 ministries, commissions, administrations, bureaus, academies, and corporations under the State Council were concerned with economic matters.

Each significant economic sector was supervised and controlled by one or more of these organizations, which included the People's Bank of China, State Planning Commission, State Economic Commission, State Machine-Building Industry Commission, and the ministries of agriculture, animal husbandry, and fishery; coal industry; commerce; communications; finance; light industry; metallurgical industry; petroleum industry; railways; textile industry; and water resources and electric power. Several aspects of the economy were administered by specialized departments under the State Council, including the State Statistical Bureau, General Administration of Civil Aviation of China, and China Travel and Tourism Bureau. Each of the economic organizations under the State Council directed the units under its jurisdiction through subordinate offices at the provincial and local levels.

Economic policies and decisions adopted by the National People's Congress and the State Council were passed on to the economic organizations under the State Council, which incorporated them into the plans for the various sectors of the economy. Economic plans and policies were implemented by a variety of direct and indirect control mechanisms. Direct control was exercised by designating specific physical output quotas and supply allocations for some goods and services. Indirect instruments--also called "economic levers"--operated by affecting market incentives. These included levying taxes, setting prices for products and supplies, allocating investment funds, monitoring and controlling financial transactions by the banking system, and controlling the allocation of scarce key resources, such as skilled labor, electric power, transportation, steel, and chemical fertilizer. A major objective of the reform program was to reduce the use of direct controls and to increase the role of indirect economic levers. Major state-owned enterprises still received detailed plans specifying physical quantities of key inputs and products from their ministries. Even these units, however, were increasingly affected by prices and allocations that were determined through market interaction and only indirectly influenced by the central plan.

By 1987 the majority of state-owned industrial enterprises, which were managed at the provincial level or below, were partially regulated by a combination of specific allocations and indirect controls, but they also produced goods outside the plan for sale in the market. Important, scarce resources--for example, engineers or finished steel--might be assigned to this kind of unit in exact numbers. Less critical assignments of personnel and materials would be authorized in a general way by the plan, but with procurement arrangements left up to the enterprise management. Enterprises had increasing discretion over the quantities of inputs purchased, the sources of inputs, the variety of products manufactured, and the production process.

Collectively owned units and the agricultural sector were regulated primarily by indirect instruments. Each collective unit was "responsible for its own profit and loss," and the prices of its inputs and products provided the major production incentives.

Consumer spending was subject to a limited degree of direct government influence but was primarily determined by the basic market forces of income levels and commodity prices. Before the reform period, key goods were rationed when they were in short supply, but by the mid-1980s availability had increased to the point that rationing was discontinued for everything except grain, which could also be purchased in the free markets.

Foreign trade was supervised by the Ministry of Foreign Economic Relations and Trade, General Administration of Customs, and Bank of China, the foreign exchange arm of the Chinese banking system, which controlled access to the scarce foreign currency required for imports. Because of the reduced restrictions on foreign trade, however, there were broad opportunities for individual work units to engage in exchanges with foreign firms without much interference from official agencies.

The role of the government in the economy was buttressed by the pervasive influence of the Chinese Communist Party. The structure of the party organization paralleled that of the government but also extended below the lowest level of government into individual work units. Important economic decision makers at all levels, from the members of the State Council down to the managers of factories, either were party members themselves or worked closely with colleagues who were party members. The party served as a powerful supplementary network for transmitting and implementing the economic goals and policies of the government.

Although the government dominated the economy, the extent of its control was limited by the sheer volume of economic activity. Furthermore, the concept of government supervision of the economy had changed--at least in the minds of the advocates of reform--from one of direct but stifling state control to one of indirect guidance of a more dynamic economy.

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Source: U.S. Library of Congress