LL.2.10.1 Escucha y lee diversos géneros literarios (textos

In achieving market reform of state enterprises in a centrally planned economy, the core issues are decentralisation of price determination and breaking down the monopoly of the state. In the decades preceding economic reform, though Chinese economists debated the theory of price determination, there was little relationship between theory and practice. It should be noted that "price" referred exclusively to the price of goods, namely output of products, and raw materials and intermediate inputs. Interest payments on capital and wages, two important factors of production, received little attention.

China experienced nearly three decades of centralised price determination before the reform process began in 1978. Prior to 1984, centrahsed price determination was never seriously questioned by Chinese economists. Discussion focused rather on how to create a sector-specific formula which would best serve the growth of the economy, without regard to the interaction of demand and supply in the marketplace. Although various

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theoretical formulae were proposed by academics, the practice of price determination was free of any theoretical foundation (Guo 1992).

Major theoretical debates on the determination of the price of goods developed over four distinct periods (Xing Junfang 1985): 1956-1957, 1959-1964, 1977-1983 and post-

1984. During the first three periods, economists almost unanimously stuck by the Marxist labour theory of value, in which the value of a commodity is determined by the amount of 'socially necessary labour' used to create it, independently of the interaction of supply and demand. Discussion of price determination in the first period focused on the methodology of transforming the value of labour into price of goods. In the second period, the emphasis was on whether and how the charge for using capital should be incorporated into the price of goods.^ In the third period, discussion again focused on the technicality of the formulation of centrally planned prices based upon the labour theory of value. Hsu (1991) pointed out that "whatever the method of profit and price determination, the resultant prices are not market-clearing prices; they are a type of 'cost-plus' price in which demand does not affect the rate of profit and prices" (p. 148).3

Real change in economists' views of price determination took place in 1983-84, when the effects of demand on commodity prices were discussed for the first time. However, as most (mainly veteran) economists were not prepared to give up the labour theory of value as the theoretical foundation for price determination, the dominant view was still that market price was a goal of long-term reform rather than an immediate concern. It was not until 1986 that theoreticians began to focus increasingly upon the market demand-supply mechanism in price determination, and it was not until 1988 that Zili Liu (1988) openly proposed complete abandonment of planned prices in favour of market-determined prices.

In practice, price determination before 1983 had littie relevance to any of the models suggested by academics in the first three periods. Guo (1992) found that the Chinese government used four criteria in determining commodity prices in the pre-reform era: the model cost method; the deduction method; the individual factories' actual cost method; and historical price data. According to Guo (1992, pp. 50-1):

The first method, model cost, was based on model firms, believed to be representative of all firms producing the same products. Their average production costs were computed as the basis for pricing. Profits per unit of product were calculated in relation to cost or capital. The second method, deduction, was used to find producer and procurement prices by deducting distribution costs and trade profits from retail prices. The third method, actual costs of individual factories, was applied to new products and those manufactured by only a few factories. According to this method, prices were determined primarily at the experimental

^This debate was quite short-lived. Sun Yefang, the leading economist in this debate, was persecuted due to his view that a charge should apply to the use of capital.

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costs level, and also by the actual costs of a particular enterprise; this type of price could be cut when production costs fell. The fourth method, employed mainly for the purpose of adjusting prices, used historical prices as a basis. 'Historical prices' referred to the price prevailing between 1930 and 1936, a period of relative price stability ... This method was regarded as the simplest, and was used to determine the price level of many daily staples between 1950 and

1953.

The government used a different method or combination of methods for pricing different commodities. For example, the price of coal was determined largely according to the historical price method; the price of cotton according to a combination of deduction and historical price methods; the price of steel initially according to the historical price method and later according to the costs of large steel mills (model method); and the price of bicycles according to either the experimental or actual costs of individual factories.

In the pre-reform period, the planning system determined the pricing of all industrial goods; industry was virtually monopolised by governments at the central, provincial, prefectural or county levels."^ Industrial output was defined either as being "materials and equipment" (wuzi) or "commodities" (shangpin). The former were those goods distributed among state enterprises, while commodities (shangpin) were distributed to non-state sectors and consumers.^ The former were thus the equivalent of producer goods, while the latter included consumer and some producer goods.^ Prior to economic reform, both types of goods were included in the comprehensive planning system administered by the State Planning Commission but were distributed through different channels. Generally speaking, materials and equipment (wuzi) were distributed through wholesale stations operated by the State Bureau of Materials and Equipment and through the networks of the State Council's ministries of industry. Commodities were distributed to urban consumers through the wholesale stations of the Ministry of Commerce and to rural consumers through the National Supply and Marketing

^Some state enterprises are under the control of provincial, prefectural and county governments.

^During the course of economic reform, the definition of "commodity" changed significantly. According to Stalinist theory, producer goods exchanged among state enterprises were not to be viewed as "commodities" as they belonged to one owner both before and after the exchange. This is in contrast to market exchange, which took place between two owners (Zhou Shulian 1982). Producer goods were therefore classified as "materials and equipment". According Stalinist theory, the market-based mechanism of price determination was incompatible with the exchange of producer goods among state enterprises. However, since the economic reform, enterprises of various kinds — such as township and village enterprises, private enterprises and joint ventures — have emerged and trade between state and non-state enterprises has become increasingly important to the economy. The distinction between "materials and equipment" (wuzi) and "commodities" became blurred, then irrelevant. At the same time economists advocated abandoning the distinction between "materials and equipment" and "commodities" (Sun, Chen and Zhang 1979), although the term wuzi, equivalent to producer goods, is still in use.

^It should be noted that some goods were classified as both wuzi and shangpin. For example, coal used by enterprises and for production purposes was classified as wuzi whereas coal used by residents for such purposes as cooking and heating was classified as shangpin.

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Cooperative and its networks. Since economic reform, some producer goods have been supplied to wholesale stations of the Ministry of Commerce by the State Bureau of Materials and Equipment. This leakage was due to the emergence of non-state enterprises in rural and urban areas.'^

There were three categories of wuzi and shangpin according to their importance to the economy. Goods in category 1 for "materials and equipment" {tongyi fenpei wuzi) were produced and distributed under the unified central planning, supervised by the State Planning Commission. The State Bureau of Materials and Equipment prepared the balance charts and undertook distribution planning for goods in this category. These goods mainly comprised vital raw materials and machinery, such as energy, ferrous and nonferrous metal products, major industrial chemicals, some construction materials, power machinery and metalworking machinery. Goods in category 2 were known as "materials and equipment distributed by the ministries of industry of the central govemment" {zhongyang ge gongyebu fenpei wuzi). Included in this category were specialised production and capital goods, such as spinning equipment distributed by the Ministry of Textile Industry, coalmining machinery distributed by the Ministry of Coal Industry and ferrous alloys and coke distributed by the Ministry of Metallurgical Industry. Other goods feU into category 3, called "materials and equipment managed locally" (difang guanli wuzi). These goods were managed and distributed by corporations and departments of provincial, prefectural and county governments. Prior to economic reform, goods in categories 1 and 2 totalled 837, and there were over 1,000 items in category 3.^ The entire process of the production, purchasing and supply of major wuzi items was centrally planned, and prices were centrally fixed. Production and distribution of materials and equipment in category 1, which were considered to be fundamental to the entire economy, took place under the auspices of the State Bureau of Materials and Equipment. According to Ishihara (1987), central control of these goods was the backbone of the planning system.

Commodities {shangpin) also feU into three major categories. Commodities in category 1 were controlled by the ministries and commissions of the State Council and were distributed under the state monopoly on trade {tonggou tongxiao). They comprised goods vital to the national economy and the people's livelihood, such as edible oil, cotton, cotton yam, cotton fabric, gasoline, diesel and coal, etc. Commodities in category 2 were those necessary for agricultural production and the people's livelihood.

"^Refer to Ishihara (1987) for an explanation of the functions of distribution channels.

^In the early years of the People's Republic, the central govemment planning was limited in scope. For example, only eight items were centrally distributed in the early 1950s, namely steel, lumber, coal, cement, refmed soda, copper, machine tools and hemp bags. This number increased dramatically as centralisation took hold and as the economy became more complex. There is controversy with respect to the exact number of goods allocated under central planning. For example, Naughton (1990, pp. 745-6) argued that the central planner typically allocated about 200, and never as many as 600, goods before economic reform. The difference may stem from disagreement about the defmition of central planning; only goods in category 1 is included in Naughton's calculation.

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They included many crops and agricultural by-products, fertilisers, durables such as sewing machines and bicycles, and medicines. Commodities in category 2 were distributed under the monopoly purchase (tonggou) and exclusive sale {baoxiao) system. Other commodities fell into category 3. Included in this category were fish, fruit and household necessities. In the late 1970s, the state plan covered 256 commodities in all three categories. The distribution of commodities was managed either by the central govemment or by local governments. However, the prices of commodities in all categories were uniformly determined by the central govemment.