II. The Major Tasks in the Reform and Economic Development in the 1990s

The key to advancing the building of socialism with Chinese characteristics is to adhere to the Party's basic line, accelerating the reform and the opening to the outside world and concentrating on economic development. At the same time, while making economic development our central task, we should also improve our socialist democracy, legal system, culture and ethics, so as to ensure all-round social progress.

Modern Chinese history and the realities of the present-day world show that so long as a country is economically backward, it will be in a passive position, subject to manipulation by others. Nowadays the competition among the various countries is, in essence, a competition of overall national strength based on economic, scientific and technological strength. A great number of countries and regions, especially our neighbours, are speeding up their development. If we fail to develop our economy rapidly, it will be very difficult for us to consolidate the socialist system and maintain long-term social stability. Whether we can accelerate economic growth is therefore an important question both economically and politically.

The economic target set for the 1990s was to increase the gross national product annually by 6 per cent. However, judging from the situation at home and abroad, it is possible for us to achieve a higher growth rate. According to an initial estimate, we can achieve a growth rate of 8 or 9 per cent, and we should strive to do so. If we work hard to improve the quality of products and to optimize the structure of production and increase economic returns, we should be able to attain that goal. Then, by the end of this century, overall economic performance will have improved, the overall national strength will have been raised to a new level, the output of the basic industrial and agricultural products will have greatly increased and we shall have exceeded the goal of quadrupling the GNP of 1980. The structure of production and the regional distribution of the economy will have become more rational, and scientific and technological levels and managerial skills will have been raised considerably. A large number of key enterprises will have reached or approached advanced world standards. The people will be beginning to lead a relatively comfortable life. We propose that the State Council readjust the Eighth Five-Year Plan in accordance with the estimated higher growth rate and begin drawing up the ninth.

We should seize the present opportunity to accelerate economic development. In areas where conditions permit, we should do our best to achieve a higher rate of growth. We should encourage expanded production by enterprises that can turn out high-quality products, operate efficiently and satisfy the changing needs of markets both at home and abroad. At the same time, we should proceed from actual conditions, keep development within the limits of our capabilities and maintain an overall balance. In our efforts to speed up economic growth, we should avoid the mistakes of the past. We should not rush headlong into action, neglecting economic results, vying with each other in pursuit of a higher growth rate and seeking only increased output value, new construction projects and expanded capital construction. We should do solid work, proceeding boldly but prudently and making concerted efforts to accomplish a few major tasks that will pave the way for faster growth and better economic results in future.

To accelerate economic growth we must further emancipate our minds, speed up the reform and the opening to the rest of the world and not get bogged down in an abstract debate over what is socialist and what is capitalist. To achieve superiority over capitalist countries, socialist countries should not hesitate to adopt from abroad, including from the developed capitalist countries, any advanced methods of operation or management techniques that reflect the general laws governing modern production and the commodity economy. Foreign funds, resources, technology and skilled personnel, along with privately owned enterprises that are a useful supplement to our economy, can and should be put to use for the benefit of socialism. That will not harm socialism but help it, since political power is in the hands of the people, and since we have a strong public sector.

Setting the right objective for the reform of China's economic structure is vital to the success of the drive for socialist modernization. Correct understanding and handling of the relations between planning and market regulation is crucial. According to conventional thinking, a market economy is peculiar to capitalism, and a planned economy is the basic feature of socialism. Since the Third Plenary Session of the 11th Central Committee and with the deepening of the reform, we have gradually freed ourselves from those conventional ideas and acquired a new understanding of this question. This has played an important role in advancing the reform and economic development. The 12th National Congress declared that in a socialist economy planning was primary and market regulation secondary. At the Third Plenary Session of the 12thCentral Committee, the Party stated that a commodity economy was a stage that could not be bypassed in socioeconomic development and that China's socialist economy was a planned commodity economy based on public ownership. The 13th National Congress held that the socialist planned commodity economy should be a system that integrated planning with market regulation. After the Fourth Plenary Session of the 13th Central Committee it said that to facilitate the development of a socialist planned commodity economy, we should establish an economic structure and an operating mechanism that combined planning with the use of market forces.

In the important talks he gave earlier this year, Comrade Deng Xiaoping particularly pointed out that a planned economy was not socialism - there was planning under capitalism too. A market economy was not capitalism - there was market regulation under socialism too. Planning and market regulation, he said, were both means of controlling economic activity. Whether the emphasis was on planning or on market regulation was not the essential distinction between socialism and capitalism. This brilliant thesis has helped free us from the restrictive notion that the planned economy and the market economy belong to basically different social systems, thus bringing about a great breakthrough in our understanding of the relations between planning and market regulation.

With the reform and the open policy introduced in the last dozen years, market forces have functioned more extensively. Control over the prices of most commodities has been relaxed and the extent of mandatory planning considerably reduced, which has given greater scope to market forces in regulating economic activities. Practice in China has proved that where market forces have been given full play, there the economy has been vigorous and has developed in a sound way. To optimize the economic structure, to improve economic performance, to accelerate economic development and to take part in international competition, we must continue to intensify the market forces. Now that we have gained a deeper understanding of them in practice, we should state explicitly that the objective of the reform of the economic structure will be to establish a socialist market economy that will further liberate and expand the productive forces.

By establishing such an economic structure we mean to let market forces, under the macroeconomic control of the state, serve as the basic means of regulating the allocation of resources, to subject economic activity to the law of value and to make it responsive to the changing relations between supply and demand. We should make use of pricing and competition to distribute resources to those enterprises that yield good economic returns. In this way, we shall provide an incentive for enterprises to improve their performance, so that the efficient ones will prosper and the inefficient ones will be eliminated.

Since the market is sensitive to changes in demand, we should use it to make timely readjustment in production, as necessary. Nevertheless, we must be aware that the market has its own weaknesses and negative aspects. Macro-control of the economy by the state is therefore very important, and the way in which it is exercised must be improved. We should work hard to establish an integrated national market, and we should give more rein to market forces. We should guide the growth of the market by economic policies, regulations, planning and necessary administrative means, in accordance with objective laws.

The socialist market economy is a component part of the basic system of socialism. So far as the ownership structure is concerned, for a long time to come we should allow diverse sectors of the economy to develop side by side. The public sector, which includes enterprises owned by the whole people and enterprises owned by collectives, is to remain predominant, with the private sector, which includes individually owned and foreign-owned enterprises, as a supplement. Different sectors of the economy can operate jointly in different ways on a voluntary basis. Enterprises owned by the whole people should play the leading role when they compete with others in the market on an equal footing.

So far as distribution is concerned, remuneration according to one's work will remain the predominant mode, with other modes as a supplement; these too, however, should be fair and based on performance. By using various means of regulation, including the market, we should encourage the advanced and help raise efficiency. We should widen differences in personal income to a reasonable degree, but at the same time we should prevent polarization and gradually bring about common prosperity.

Through macro-control a socialist country is able to integrate people's immediate interests with their long-term interests and the interests of some with the interests of all, exploiting the advantages of both planning and market forces. The state plan is an important means of macro-control. We should renew our concept of planning and improve our methods. When the state makes plans, its main tasks should be to set rational strategic targets for national economic and social development, to forecast economic development, to control total supply and total demand, to readjust the geographical distribution of industries and of the productive forces and to muster the financial and material resources necessary for the construction of important projects - all for the purpose of speeding up economic development by employing all economic levers.

Establishing and improving a socialist market economy will be a long process, because it is a difficult and complex feat of social systems engineering. We must be prepared to make sustained efforts, but at the same time we should work with a sense of urgency. We must keep to the correct orientation, but at the same time we should proceed in the light of actual conditions. During the process of establishing the socialist market economy, the extent to which planning is combined with market regulation and the form the combination takes may vary at different times, in different places and in different sectors of the economy. We should be bold in exploring new ways, dare to experiment and constantly review our experience so as to expedite the replacement of the old structure with the new. The establishment of a socialist market economy involves many spheres of the economic base and the superstructure, and it therefore requires corresponding structural reforms and the readjustment of a series of policies. We must draw up a general plan and carry it out step by step. We are convinced that a market economy established under the socialist system can and should operate better than one under the capitalist system.

To accelerate the reform and opening up and to promote economic development and all-round social progress, we must redouble our efforts to fulfil the following ten major tasks, all of which involve the overall interests.