A number of related measures were established to enhance the incentives for enterprise managers to increase the efficiency of their firms. Replacement of the profit-remission system with tax and contracting systems was designed to reward managers by permitting firms to retain a significant portion of increases in production. Managerial authority within firms was strengthened, and bonuses were restored and allowed to grow to substantial proportions. Managers also were given enhanced authority to hire, fire, and promote workers. Reductions in central government planning were accompanied by permission for enterprises to buy and sell surplus goods on essentially a free-market basis, and the prices thus obtained often were far higher than for goods produced to meet plan quotas. The state plan was also used to redirect some resources into the light industrial sector. The state, for example, has given priority in energy consumption to some light industrial enterprises that produce high-quality goods.
The reduction in the scope of mandatory planning is based on the assumption that market forces can more efficiently allocate many resources. This assumption in turn requires a rational pricing system that takes into account any and all extant technologies and scarcities. Because extensive subsidies were built into the economic system, however, price reform became an extremely sensitive issue. The fear of inflation also served as a constraint on price reform. Nevertheless, the fact that products produced in excess of amounts targeted in the plan can be sold, in most cases, at essentially free-market prices has created a two-tiered price system that is designed to wean the economy from the administratively fixed prices of an earlier era.
Efforts to create a freer labour market are also part of the overall stress on achieving greater efficiency. As with price reform, tampering with a system that keeps many citizens living more comfortably and securely than would an economically more rational system risks serious repercussions in relations with the public. Changes have proceeded slowly in this sensitive area.
A decision was made in 1978 to permit direct foreign investment in several small “special economic zones” along the coast. These zones were later increased to 14 coastal cities and three coastal regions. All of these places provided favoured tax treatment and other advantages for the foreign investor. Laws on contracts, patents, and other matters of concern to foreign businesses were also passed in an effort to attract international capital to aid China’s development. The largely bureaucratic nature of China’s economy, however, has posed inherent problems for foreign firms that want to operate in the Chinese environment, and China gradually has had to add more incentives to attract foreign capital.
The changes in China’s economic thinking and strategy since 1978 have been so great—with the potential repercussions for important vested interests so strong—that actual practice inevitably has lagged considerably behind declaratory policy. Notable during this period have been the swings in economic policy between an emphasis on market-oriented reforms and a return to at least partial reliance on centralized planning.
Agriculture, forestry, and fishing
Farming and livestock
Harvesting rice in a paddy field in the Sichuan Basin near Chengdu, Sichuan province, China.Peter Carmichael/Aspect Picture Library, London
As a result of topographic and climatic features, the area suitable for cultivation is smalclass="underline" only about 10 percent of China’s total land area. Of this, slightly more than half is unirrigated, and the remainder is divided roughly equally between paddy fields and irrigated areas; good progress has been made in improving water conservancy. In addition, the quality of the soil in cultivated regions varies around the country, and environmental problems such as floods, drought, and erosion pose serious threats in many areas. Nevertheless, about two-thirds of the population lives in the countryside, and until the 1980s a large proportion of them made their living directly from farming. Since then many have been encouraged to leave the fields and pursue other activities, such as handicrafts, commerce, factory work, and transport; and by the mid-1980s farming had dropped to less than half of the value of rural output. Although the use of farm machinery has been increasing, for the most part the Chinese peasant depends on simple, nonmechanized farming implements.
Western China, comprising Tibet, Xinjiang, and Qinghai, has little agricultural significance except for areas of oasis farming and cattle raising. Rice, China’s most important crop, is dominant in the southern provinces, many of which yield two harvests per year. In North China wheat is of the greatest importance, while in the central provinces wheat and rice vie with each other for the top place. Millet and kaoliang (a variety of grain sorghum) are grown mainly in the Northeast and some central provinces, which—together with some northern areas—also produce considerable quantities of barley. Most of the soybean crop is derived from the North and the Northeast, and corn (maize) is grown in the centre and the North. Tea comes mainly from the hilly areas of the southeast. Cotton is grown extensively in the central provinces, but it is also found to a lesser extent in the southeast and in the North. Tobacco comes from the centre and parts of the South. Other important crops are potatoes, sugar beets, and oilseeds.
Animal husbandry constitutes the second most important component of agricultural production. China is the world’s leading producer of pigs, chickens, and eggs, and it also has sizable herds of sheep and cattle. Since the mid-1970s, greater emphasis has been placed on increasing the livestock output.
Forestry and fishing
Wholesale destruction of China’s accessible forests over a long period of time gave way to an energetic reforestation program that has proved to be inadequate; forest resources are still fairly meagre. The principal forests are found in the Qin (Tsinling) Mountains and the central mountain ranges and in the uplands of Sichuan and Yunnan. Because they are inaccessible, the Qin forests are not worked extensively, and much of the country’s timber comes from Heilongjiang, Jilin, Sichuan, and Yunnan.
China has a long tradition of ocean and freshwater fishing and of aquaculture, and it is the world’s leading producer in both categories. The bulk of the catch comes from Pacific fisheries, with nearly all of the remainder from inland freshwater sources. Pond raising has always been important and has been increasingly emphasized to supplement coastal and inland fisheries threatened by overfishing and to provide valuable export commodities such as prawns. Aquaculture surpassed capture, in terms of overall tonnage, in the early 1990s.
Guangxi: fishing in the Li RiverFisherman and his trained cormorants on the Li River, northeastern Zhuang Autonomous Region of Guangxi, China.© cchfoto/Fotolia
Resources and power
China is well endowed with mineral resources, and more than three dozen minerals have proven economically important reserves. The country has rich overall energy potential, but most of it remains to be developed. In addition, the geographical distribution of energy places most of these resources far from their major industrial users. Basically, the Northeast is rich in coal and petroleum, the central part of North China has abundant coal, and the southwest has great hydroelectric potential. However, the industrialized regions around Guangzhou (Canton) and the lower Yangtze region around Shanghai have too little energy, while there is little industry located near major energy resource areas other than in the southern part of the Northeast. Thus, although energy production has expanded rapidly, it has continued to fall short of demand, and China has been purchasing increasing quantities of foreign petroleum and natural gas.