1 Harding, Harry, China's Second Revolution (Washington, DC: Brookings Institution, 1987), pp. 77–95.Google Scholar And for a similar approach, see Riskin, Carl, China's Political Economy (New York: Oxford University Press, 1987), pp. 275–284.Google Scholar

2 Wong, Christine P.W., “Between plan and market: the role of the local sector in post-Mao China,” Journal of Comparative Economics, No. 11 (1987), pp. 385–398.CrossRefGoogle Scholar

3 See Solinger, Dorothy J., “The 1980 inflation and the politics of price control in the PRC,” in Lampton, David M. (ed.), Policy Implementation in Post-Mao China (Berkeley: University of California Press, 1987), pp. 106–110Google Scholar and Shirk, Susan L., “The politics of industrial reform,” in Perry, Elizabeth J. and Christine, Wong (eds.), The Political Economy of Reform in Post-Mao China (Cambridge, MA: Harvard Council on East Asian Studies, 1985), pp. 195–221.CrossRefGoogle Scholar

4 For a good description of the partial nature of the economic reforms, see Lin, Cyril Zhiren, “Open-Ended Economic Reform in China,” Victor, Nee and David, Stark (eds.), Remaking the Economic Institutions of Socialism: China and Eastern Europe (Stanford: Stanford University Press, 1989), pp. 95–136.Google Scholar

5 The Chinese system categorizes state-owned industrial enterprises according to the administrative level of their immediate supervisory agencies. The central government, the State Council and its ministries, controlled, as of 1983, about 2,500 large enterprises with 30% to 50% share of gross value of industrial output. Below this level, provincial and city governments controlled about 30,000 to 40,000 small and medium enterprises with 25% to 30% share of gross value of industrial output. The third level is county and prefectural governments, which controlled some 40,000 to 50,000 enterprises with 13% to 15% share of gross value of industrial output. See Christine Wong, “Between Plan and Market,” p. 388.

6 See Kornai, Janos, “Bureaucratic and market coordination,” Osteuropa Wirtschaft (East European Economy), Vol. 29, No. 4 (1984), pp. 307–308Google Scholar and Kornai, Janos, “The Hungarian reform process: visions, hopes, and reality,” Journal of Economic Literature, Vol. 24 (December 1986), p. 1690.Google Scholar

7 Shangquan, Gao, Jiunianlai de Zhongguo jingji tizhi gaige (Nine Years of Reforms of the Chinese Economic System) (Beijing: People's Press, 1987), p. 33.Google Scholar

8 See Berliner, Joseph S., Factory and Manager in the USSR (Cambridge, MA: Harvard University Press, 1957), p. 28.CrossRefGoogle Scholar

9 See The World Bank, China Socialist Economic Development (Washington, DC: The International Bank for Reconstruction and Development, 1983), Vol. 1, p. 60.

10 Tidrick, Gene, “Planning and Supply,” in Gene, Tidrick and Chen, Jiyuan (eds.), China's Industrial Reform (New York: Oxford University Press, 1987), p. 178.Google Scholar

11 Gao Shangquan, Nine Years of Reforms, p. 34. However this reduction per se does not suggest weakening of bureaucratic co-ordination as some of the targets were simply transferred to the local governments.

12 Although “guidance planning” is a far cry from the usual macroeconomic instrument in a market economy, it is a step towards market operations for two reasons. First, under guidance planning, the state provides only a portion of inputs and enterprises are forced to cater to market needs. Secondly, although there is evidence that some local officials can make guidance planning compulsory, such a practice is by no means uniform and local officials are obliged to strike “equitable” arrangements with enterprises. See Naughton's discussion on the contrast between Dalian and Chongqing in Naughton, Barry, “Summary of Findings,” in Cady, Janet A. (ed.), Economic Reform in China: Report of the American Economists Study Team to the People's Republic of China (New York: National Committee on U.S.-China Relations, 1984), pp. 11–13.Google Scholar

13 Tidrick, “Planning and Supply,” pp. 182–83.

14 Ibid.

15 Walder, Andrew, “The informal dimension of enterprise financial reforms,” Joint Economic Committee, the United States Congress, China's Economy Looks Toward the Year 2000: Volume I The Four Modernizations (Washington, DC: Government Printing Office, 1986), pp. 632–33.Google Scholar

16 For example, the ex-factory price of number 6.5 steel wire was 610 yuan in 1985 but its market price was between 1,500 and 1,600 yuan in the same year. Also the market price of coal was several multiples of state allocation price. See Jinglian, Wu and Renwe, Zhao, “The dual pricing system in China's industry,” Journal of Comparative Economics, No. 11 (1987), p. 313.Google Scholar

17 See the State Council, “Guowuyuan guanyu jiaqiang wujia guanli he jiandou jiancha de tongzhi” (“Circular of the State Council concerning the strengthening of administration and monitoring of prices”) and “Guowuyuan guanyu jianjue zhizhi jiudi zhuanshou daomai huodong de tongzhi” (“Circular of the State Council concerning prohibition against spot arbitrage”), in Legal Bureau, State Council, Zhonghua Renmin Gongheguo xianxing fagui huibian, 1949–1985 (Collection of People's Republic of China Current Laws and Regulations, 1949–1985), volume on trade and finance (Beijing: People's Press, 1987), pp. 749–751 and pp. 834–35. The documents list various illicit transaction practices including market sales of goods obtained “within the plan” directly and through transfer sales to the subordinate branches, buying and selling of rationing coupons, plan quotas, contracts, etc.

18 “Guojia jingji weiyuanhui, guojia tizhi gaige weiyuanhui guanyu zengqiang dazhongxing guoying gongye qiye huoli ruogan zhanxing guiding” (“Some provisional regulations by the State Economic Commission and State Economic Reform Commission concerning the furthering of the autonomy of big and medium size enterprises”), in ibid. p. 37.

19 Of course, this is a strategy pursued by those enterprises that produce for a seller's market. Presumably those in a buyer's market would prefer an opposite strategy.

20 Indeed American economists found, through interviews with factory directors, a desire to return to mandatory planning because of the supply problems. See Barry Naughton, “Summary of Findings,” p. 12. For a description of the effort of factory directors to cultivate bureaucratic ties, see Walder, Andrew G., “Factory and Manager in an Era of Reform,” China Quarterly, No. 118 (1989), pp. 253–54.Google Scholar

21 The failure to punish enterprises’ non-performance of mandatory targets can be beneficial to those producing producer as well as consumer goods. Although in the above plan consumer goods directly marketed by enterprises can be sold only at statelisted prices, these prices embody profits to the marketing agencies, therefore, increased direct marketing at state-listed prices in effect amounts to a transfer of revenue from commercial departments to production enterprises.

22 See the State Council, “Wujia guanli zhanxing tiaoli,” Articles No. 9, 10, 11 and 12, in Legal Bureau, Current Laws and Regulation, 1949–1985, volume on trade and finance, pp. 716–19.

23 See “Regulations on autonomy of big and medium size enterprises,” p. 38.

24 According to Andrew Walder, 90% of after-tax profit was remitted to the state and 10% was retained by the enterprise. See Walder, “The informal dimension.”

25 The World Bank found, in its sample enterprises, a very low correlation index (0–15) between retained profits and total profits when the total profits were falling, but a rather high correlation (0.66) when the profits were rising. See Tidrick, p. 206.

26 Kornai, “The Hungarian Reform Process,” p. 1696.

27 See the State Council, “Gongzi jijin zhanxing guanli banfa” (“Provisional regulations on the management of the wage fund”) 24 September 1985, Articles Nos. 3, 5, 6, and 18 in Legal Bureau, Current Laws and Regulations, 1949–1985, volume on labour and personnel, pp. 214–17.

28 State Council, “Guoying qiye jiangjin zhanxing guiding” (“Provisional regulations on the bonus tax of state-owned enterprises”), in Legal Bureau, (Current Laws and Regulations), p. 233.

29 See the Ministry of Finance, “Caizhengbu guanyu guoying qiye tuixing ligaishui dierbu gaige de baogao” (“Report by the Ministry of Finance on the Second Step of Reform of Tax for Profit”), ibid. p. 152.

30 Gao Shangquan, Nine Years of Reforms, p. 32.

31 See “Guowuyuan zhuanpi guojia jingwei guanyu gaijin jihua tizhi de ruogan zhanxing guiding de tongzhi” (“Circular by the State Economic Commission concerning certain regulations on the improvement of the planning system approved and transmitted by the State Council”), in Legal Bureau, Current Laws and Regulations, volume on industry, transport and urban construction, pp. 25–26.

32 Weber, Max, “Politics as a vocation,” in H.H., Gerth and C., Wright Mills (eds. and trans.) From Max Weber: Essays in Sociology (New York: Oxford University Press, 1958), pp. 77–128.Google Scholar

33 Simon, Herbert, Administrative Behavior (New York: Free Press, 1976), p. 11.Google Scholar

34 Coase, Ronald H., “The Nature of the Firm,” Economica, Vol. 4, No. 16 (1937), pp. 386–405.CrossRefGoogle Scholar

35 As of October 1988, 93% of large and medium size enterprises and 83% of enterprises under government budget have adopted contract responsibility system. See Renmin ribao (People's Daily), 2 November 1988, p. 1.

36 “Regulations on autonomy of big and medium size enterprises”, p. 35.

37 Lindblom, Charles E., Politics and Markets (New York: Basic Books, 1977), p. 19.Google Scholar

38 See Niskanen, William A., Bureaucracy and Representative Government (Chicago: Aldine, 1971).Google Scholar

39 During the Maoist era, political integrity meant adherence to a set of orthodox communist virtues and in recent years, the reformist leadership has redefined the concept to embrace its emphasis on economic development. (See Burns, John P., “Civil service reform in contemporary China,” The Australian Journal of Chinese Affairs, No. 18 (1987), pp. 62–63.)Google Scholar However, in the wake of Tiananmen, the Chinese leadership attempted to revert to the traditional definition of political integrity. In his report on “Party building” to the heads of Organization Departments, Song Ping, the Politburo member in charge of Party discipline and personnel, renewed emphasis on the ideological purity of cadres. See Renmin ribao, 23 August 1989.

40 Barnett, A. Doak, Cadres, Bureaucracy, and Political Power (New York: Columbia University Press, 1967), pp. 54–55.Google Scholar

41 Burns, “Civil Service Reform,” pp. 60–62.

42 Manion, Melanie, “The cadres management system, post-Mao: The appointment, promotion, transfer and removal of Party and state leaders,” China Quarterly (June 1985), p. 216.Google Scholar

43 In a document by the Central Committee, it was decreed that the minimum requirement for promotion to the central departments of the government must be “educational and professional competence of high school or middle-level technical school.” See “Zhonggong zhongyang he guowuyuan guanyu zhongyang dangzheng jiguan ganbu jiaoyu de jueding” (“Decision by the Central Committee and the State Council concerning the education of the cadres in the central departments of the Party and the government”), in Shierda yilai zhongyao wenxian xuanbian (Selections of Important Documents Since the 12th Party Congress), Vol. 1, (Beijing: People's Press, 1986), p. 104.

44 Manion, p. 217.

45 According to one study, between 1949 and 1985, 24% of appointments at the provincial level were of individuals native to their own provinces; 19%, though not natives of provinces of appointment, spent the majority of their working lives there and a further 23% were appointed from positions within the same province. Goodman, David S.G., “Political Perspective,” China's Regional Development (London: Routledge for the Royal Institute for International Affairs, 1989), p. 31.Google Scholar

46 See Barnett, pp. 344–45.

47 Hirschman, Albert O., Shifting Involvements: Private Interest and Public Action (Princeton: Princeton University Press, 1982), pp. 123–25.Google Scholar

48 Aberback, Joel D., Putnam, Robert and Rockman, Bert A., Bureaucrats and Politicians in Western Democracies (Cambridge, MA: Harvard University Press, 1981), p. 7.Google Scholar

49 See Central Committee, “Education of cadres,” p. 105.

50 Lindblom, Politics and Markets, p. 24.

51 For an example of this kind of problems encountered by the Party's control organization, the Party Discipline Inspection Commission, see Sullivan, Lawrence R., “The role of the control organs in the Chinese Communist Party, 1977–1983,” Asian Survey, Vol. 24, No. 6 (1984).CrossRefGoogle Scholar

52 Walder, “Factory and Manager in an Era of Reform,” p. 258.

53 Chinese Institute for Reform of Economic System, Gaige: Women mianling de tiaozhan yi xuanze (Reforms: Our Challenges and Options) (Beijing: Chinese Economic Press, 1986), p. 16.

54 This is one of several objectives a World Bank team found in its field research. See William Byrd and Gene Tidrick, “Factor Allocation and Enterprise Incentives,” in Tidrick and Chen (eds.), pp. 61–65.

55 “Zhonghua Renmin Gongheguo quanmin suoyouzhi gongye qiye fa” (Law of the People's Republic of China on industrial state-owned enterprises), Article 44, Chapter 4, Renmin ribao, 18 April 1988, p. 3.

56 Chinese Institute for Reform of Economic System, Reforms: Our Challenges and Options, pp. 276–77.

57 For an excellent description of the web of interests formed between managers and employees and their tacit agreement to provide generous compensations, see Walder, Andrew, “Wage reform and the web of factory interests,” in China Quarterly, No. 109 (1987), especially pp. 30–33.Google Scholar

58 Janos Kornai, “Bureaucratic and Market Coordination,” p. 309.

59 See, for example, Christine P.W. Wong, “Material allocations and decentralization: Impact of the local sector on industrial reform,” in Perry and Wong (eds.), pp. 274–75.

60 This view is prevalent in the Chinese economic press and central government's policy directives prohibiting the predatory practices engaged in by the local governments.

61 See the Chinese Institute for Economic System Reform, Reforms: Our Challenges and Options, p. 231.

62 See, for example, Barry Naughton, “False Starts and Second Wind: Financial Reform in China's Industrial System,“ in Perry and Wong (eds.), pp. 235–38.

63 For example, a World Bank study concluded that bargaining and negotiations characterize interactions between supervisory agencies and enterprises and that concessions are made to enterprises with regard to profit retention rates. But the study did not show the motive of these agencies in granting these concessions. See Tidrick, “Planning and Supply,” pp. 198–99.

64 For example, a document jointly issued by the General Offices of the Central Committee and of the State Council in 1983 declared that the fees could only be imposed in cases where projects undertaken were “beneficial to the people and urgent” and should go through consultations with the masses. See the General Offices of the Central Committee and the State Council, “Guanyu jianjue zhizhi yi ‘jizi’ weimin xiang qiye shiye danwei he geren luan tanpai de tongzhi” (“Circular on firmly prohibiting fee impositions on enterprises, non-profit institutions and individual households in the name of raising funds”), the Policy Research Office of Industry and Commerce Administration Bureau (ed.), Gongshang xingzheng guanli zhengce fagui xuanbian (Selections of Policies and Regulations on the Administration of Industry and Commerce) (Beijing: China's Financial Economic Press, 1986), pp. 207–208.

65 An example of how this money is used for private benefits is the industrial bureau of Hejin County in Shanxi province. Between 1984 and 1986, the bureau levied fees on its 16 subordinate enterprises, amounting to 1.7 million yuan. It used the money to finance the renovation of staff housing, building a staff hospital, purchase of consumer durables and payment of bonuses in kind to its employees. See Jingji Ribao (Economic Daily), 5 September 1987, p. 2.

66 This practice of direct linkage is not confined to production inputs nor to payment of fees. Public security offices in some regions have threatened to withhold protection if fees were not paid. Elsewhere the provision of jobs is linked with supplies of inputs by those bureaucracies in charge. Chinese managers refer to their supervisory bureaucracies as “grandmothers” and those bureaucracies seeking benefits this way as “uncles.” See Jingji ribao, 17 December 1986, p. 1.

67 There is a fourth way bureaucracies can use their allocative authority to benefit themselves. They could charge enterprises higher prices than the state-stipulated prices but lower than market prices, appropriating the difference. Another method would be to sell supplies and materials under their control at market prices, appropriating the full amount. The direct appropriation by the bureaucrats becomes a more serious problem when the product market is liberalized. In the earlier period, this kind of problem seems to be confined to transactions among enterprises, as indicated by a circular issued by the State Council in 1981, which listed various fees enterprises paid to obtain scarcity goods in addition to prices. The 1985 decision to allow market prices to flow freely amounts to rendering this kind of activity legitimate but may have shifted the same practice to interactions between material supply bureaus and enterprises. There are two indications for this shift. First, in 1985, it was the Central Committee of the Communist Party that issued a document (No. 57), addressing irregularities in the cadres' work style. Second, the problem was revealed by a deputy Party secretary of the State Material Bureau, indicating that the criticism was aimed at cadres working in his bureau. According to his speech, in the first six months of 1986, 657 cases of illegal material supplies were exposed. See Wuzi guanli (Material administration), August 1986, p. 3.

68 Xiaochun, Zhou and Li, Zhu, “China's Banking System: Current Status, Perspective on Reform,” Bruce, Reynolds (ed.) Chinese Economic Reform (Boston: Academic Press, 1988), pp. 116–17.Google Scholar

69 See the Chinese Institute for Economic System Reform, Reforms: Our Challenges and Options, p. 231.

70 Price violations take numerous forms from arbitrage to collusive pricing. According to an investigation by the State Council, between May 1986 and May 1987, 33, 797 cases of price violations were found in 14 provinces (Jingji ribao, 31 August 1987, p. 1). Jingji ribao throughout 1987 reported non-performance of mandatory targets in that year and the large increases in direct-marketing of the same products. For example, only 87.2% of mandatory targets for steel were fulfilled for the first quarter of 1987 but its direct marketing doubled in the same period. See Jingji ribao. 19 May 1987, p. 1, 5 November 1987, p. 1, and 10 August 1987, p. 1.

71 The World Bank, China: Country Economic Memorandum (Washington, DC: The World Bank, forthcoming), Vol. 1, p. 76.

72 Although there is no direct proof of this scheme, a division chief in the Ministry of Finance confirmed to me in April 1989 that this was an important reason why central government had difficulties collecting taxes and why fee impositions -tanpai-persisted despite strenuous efforts to control them.

73 For a description of the government's decision on price reforms and the subsequent decision to abort the attempt, see Chong, W.L., “Price reform in China: The heated summer 1988 debates,” China Information, Vol. 3, No. 2 (1988), pp. 1–11.CrossRefGoogle Scholar

74 “Zhongguo renmin jianshe yinhang guanyu yange kongzhi daikuan de jingji tongzhi” (“Urgent circular by China's People's Construction Bank to control strictly the issuance of loans”), Zhongguo jingji guanli zhengce fating xuanbian (Selections of Policies, Laws and Orders in the Chinese Economic Administration) (Beijing: Economic Science Press, 1985), p. 339.

75 China Daily, 29 October 1988, p. 4.

76 See Renmin ribao, 13 October 1988, p. 1, 14 October 1988, p. 1 and 13 November 1988, p. 1, and Jingji cankao (Economic References), 25 October 1988, p. 2.

77 The number of ad hoc agencies under the State Council before the Seventh National People's Congress stood at 82 and was then reduced to 43. Renmin ribao (overseas edition), 4 May 1988, p. 1.

78 Jingji ribao, 7 March 1987, p. 1.

79 Jingji ribao, 30 May 1987, p. 1.

80 Lindblom, Charles E., “Market as prison,” Thomas, Ferguson and Joel, Rogers (eds.), The Political Economy (Armonk: M.E. Sharpe, Inc., 1984), p. 4.Google Scholar

81 On the notion of exit, see Hirschman, Albert O., Exit, Voice and Loyalty (Cambridge, MA: Harvard University Press, 1970), pp. 22–29.Google Scholar

82 The attempt to seek re-centralization by enterprises is observed in Hungarian economy. See Galasi, Peter and Sziraczki, Gyorgy, “State regulations, enterprise behaviour and the labour market in Hungary, 1968–83,” Cambridge Journal of Economics, No. 9 (1985), pp. 203–219.CrossRefGoogle Scholar

83 Zhao Ziyang, in his report to the Third Plenum of the 13th Congress, candidly admitted the demise of the central authority and the need to bring provinces in line with the central government. See Ziyang, Zhao, “Zai Zhonggong shisanjie sanzhong quanhui shangde baogao” (“Report to the Third Plenum of the 13th Congress of the Chinese Communist Party”), Renmin ribao, 28 October 1989, p. 1.Google Scholar

84 See “Zhonggong shisanjie zhongyang weiyhuanhui zhaokai di wuei quanhui” (“The 13th Central Committee of the Chinese Communist Party convened the Fifth Plenum”) Renmin ribao, 10 November 1989.

85 See Shijie ribao (The World Journal), 9 December 1989, p. 33.

86 There is evidence that Chinese enterprises are capable of sophisticated publicity efforts to influence policy makers. Soon after Zhao Ziyang announced, at the Third Plenum of the 13th Party Congress in September 1988, the policy shift from price reforms to deepening of enterprise reforms, specifically the introduction of joint stock company system, the Beijing Capital Steel Works, one of the earliest enterprises to adopt contract responsibility system, launched a fierce campaign against the joint stock company system, and organized a large-scale conference in mid October to assess performance of the contract responsibility system. Conference participants argued that the talk about “joint stock company system” had created disorder. Then in early December 1988, the Capital Steel Works organized another conference, this time to coincide with the national planning and economic system reform conferences. Both conferences got prominent coverage in the Chinese press. See Renmin ribao, 11 November 1988, p. 1 and 10 December 1988, p. 1.

87 Kornai, “Bureaucratic and Market Coordination,” p. 314.