Decision of the CPC Central Committee on 

Reform of the Economic Structure 

Adopted by the Third Plenary Session of the Twelfth Central Committee of the Communist Party of China on October 20, 1984

Translated by Vero Publishing from the Chinese original. Terminology follows the established English usage of the period; an official English version was published in Beijing Review (1984). See the translator's notes at the end.

The Third Plenary Session of the Twelfth Central Committee of the Communist Party of China has analyzed the current economic and political situation in China and reviewed the positive and negative experience of socialist construction, particularly the experience of reforming the economic structure in the cities and the countryside over the past few years. The Session unanimously holds that, in keeping with the general requirement of integrating the basic tenets of Marxism with China's actual conditions and building socialism with Chinese characteristics, we must further implement the principle of invigorating the domestic economy and opening to the outside world, and accelerate the reform of the economic structure as a whole, with the cities as the focus, so as to better create a new situation in socialist modernization.

I. Reform Is the Pressing Need of Our Present Situation

The reform of China's economic structure has already gone through several years of preparation and practice. When the Third Plenary Session of the Eleventh Central Committee decided to shift the focus of the whole Party's work to economic construction, it stressed at the same time that the economic structure must be reformed if socialist modernization was to be achieved. After that Session the whole Party did a great deal of work to set things right and to readjust the national economy, while reform was carried out mainly in the countryside. Having corrected the guiding ideology and accomplished a great historic turning point, the Party's Twelfth National Congress explicitly set the task of reforming the economic structure systematically, pointing out that this was an important guarantee for keeping to the socialist road and achieving socialist modernization. Over the past two years, and especially this year, the Central Committee and the State Council have made a series of important decisions and issued important directives that have pushed reform forward broadly and in depth.

The reform of China's economic structure first achieved tremendous success in the countryside. Agricultural production, which had long been a source of anxiety to us, has flourished within a short period, showing the great vitality of China's socialist agriculture. The fundamental reason is that we boldly broke through the fetters of "Left" thinking, changed a system that did not suit the development of agricultural productive forces, and introduced across the board the contract responsibility system with remuneration linked to output, thereby releasing the tremendous socialist enthusiasm of 800 million peasants. Rural reform is still developing, and the rural economy is beginning to shift toward specialization, commercialization and modernization. This situation urgently requires that channels of exchange between town and country be opened up and markets developed for the growing volume of farm products, while the peasants' rising demand for industrial goods, science and technology, culture and education is met. The successful experience of rural reform, and the demands that the developing rural economy places on the cities, have created highly favorable conditions for reforming the economic structure as a whole, with the cities as the focus.

Over the past few years many experiments and explorations have also been made in reforming the economic structure with the cities as the focus. Some major measures have been taken, with marked results and valuable experience, and economic life has become livelier than it had been for many years. But urban reform has only begun, and the many defects in the urban economic structure that seriously hamper the growth of the productive forces have not yet been fundamentally removed. Urban enterprises are still very inefficient, the huge potential of the urban economy remains largely untapped, and losses and waste in production, construction and circulation are still serious. Faster reform is an inherent requirement for the further development of the urban economy. The cities are China's centers of economic, political, scientific, technological, cultural and educational activity; they are where modern industry and the working class are concentrated, and they play the leading role in socialist modernization. Only through resolute and systematic reform can the urban economy prosper, meet the needs of invigorating the domestic economy and opening to the outside world, truly play its proper leading role, and drive the whole national economy to develop better and faster.

We should also recognize that the new technological revolution now rising around the world presents China's economic development with both a new opportunity and a new challenge. It requires our economic structure to have a much greater capacity to absorb the latest achievements of contemporary science and technology, to promote technological progress, and to create new productive forces. This makes reform all the more urgent.

At present, the political situation of stability and unity in China is growing steadily more consolidated. Economic readjustment has achieved major results, the national economy continues to grow, the main targets of the Sixth Five-Year Plan have been met ahead of schedule, and the state's finances are gradually improving. The confidence of the whole Party and the people of all our nationalities in socialist modernization has greatly increased, and their desire to speed up the reform of the economic structure has grown stronger. In particular, the sound progress of the overall Party consolidation at the central level and at the level of provinces, autonomous regions and municipalities directly under the Central Government has corrected, or is correcting, the guiding ideas for modernization on every front and has clarified the direction of reform. The conditions for an all-round reform of the economic structure are now in place. It is both necessary and possible for us to set out and explain, in a fairly systematic way, a series of major questions concerning reform, so as to unify and raise the understanding of all Party members, and of leading cadres in particular, make the reform more effective, and bring the superiority of socialism into fuller play. The Central Committee hopes and believes that, just as the Third Plenary Session of the Eleventh Central Committee played a great historic role in setting things right, putting forward the task of reform and promoting rural reform, the Third Plenary Session of the Twelfth Central Committee will also play a great historic role in drawing up a blueprint for all-round reform, quickening its pace, and advancing the reform of the economic structure as a whole with the cities as the focus.

II. Reform Is Aimed at Establishing a Vigorous Socialist Economic Structure

The founding of the People's Republic of China and the establishment of the socialist system ended more than a century of deep suffering for the people of old, semi-feudal and semi-colonial China. The system of exploitation was abolished, and the people of all our nationalities truly became masters of the country. Under the leadership of the Communist Party of China, the whole nation worked hard to build an independent and fairly comprehensive industrial system and national economy. It achieved great successes that would have been utterly impossible in old China, laying the indispensable material foundation for building a modern socialist country that is prosperous, strong, democratic and highly civilized. From long historical experience, the people of all our nationalities have come to understand deeply that only socialism can save China.

The founders of Marxism predicted that socialism, having abolished the system of exploitation, would certainly create higher labor productivity and develop the productive forces at a faster rate. The profound changes of the past thirty-five years since the founding of the People's Republic have already begun to show the superiority of the socialist system. It must be pointed out, however, that this superiority has not yet been brought into proper play. Apart from historical, political and ideological reasons, an important economic reason is that a rigid economic structure took shape that did not meet the needs of developing the productive forces. Its main defects were these: no distinction was drawn between the functions of government and those of enterprises; administration was divided along departmental and regional lines; the state controlled enterprises too much and too rigidly; the role of commodity production, the law of value and the market was ignored; and egalitarianism in distribution was serious. As a result, enterprises lacked the decision-making power they should have had, and a situation arose in which enterprises "ate from the big common pot" of the state and workers "ate from the big common pot" of their enterprises.[1] This seriously dampened the enthusiasm, initiative and creativity of enterprises and of the great mass of workers and staff, and drained much of the vitality from a socialist economy that should have been full of life.

In the early years of the People's Republic and during the First Five-Year Plan, China faced the arduous tasks of unifying the nation's finances and economy, carrying out the socialist transformation of capitalist industry and commerce, and launching planned, large-scale economic construction. A centralized and unified national economic structure was built up step by step. At that time controls in many areas were not yet rigid, and in the methods and steps of socialist transformation we proceeded from China's actual conditions and showed great creativity. But once socialist transformation had been basically completed and the scale of the economy kept growing, some of the measures originally adopted to restrict and transform capitalist industry and commerce no longer suited the new situation, and the defects of excessive and rigid control gradually came to light. In 1956, at and around the Party's Eighth National Congress, the Central Committee, and especially the comrades in charge of economic work, became aware of this problem and proposed certain improvements. But because our Party lacked experience in socialist construction, because over a long period certain fixed ideas about socialism had formed that did not fit reality, and especially because of the influence of the "Left" errors in the Party's guiding ideology after 1957, many correct measures for invigorating enterprises and developing the socialist commodity economy were branded as "capitalist." As a result, the problem of over-centralization in the economic structure was not only left unsolved for a long time but became ever more acute.

During this period power was decentralized several times, but each time only the division of authority between the central and local governments, and between departments and regions, was adjusted. The crucial issue of granting enterprises decision-making power was never touched, so the old framework could not be broken.

To fundamentally change an economic structure that fetters the growth of the productive forces, we must earnestly sum up our historical experience and carefully study the actual state of China's economy and the requirements of its development. At the same time, we must absorb and draw on all the advanced methods of operation and management, in every country of the world including the developed capitalist countries, that reflect the laws of modern socialized production. The Central Committee holds that the basic task of the present reform is this: in accordance with the principle, long upheld by the Party, of integrating the basic tenets of Marxism with China's actual conditions, and in accordance with the principle of treating foreign experience correctly, to further emancipate our minds, follow our own road, and establish a vigorous and dynamic socialist economic structure with Chinese characteristics, so as to promote the growth of the social productive forces.

The basic contradictions of socialist society are still those between the relations of production and the productive forces, and between the superstructure and the economic base. In reforming the economic structure, we are reforming, on the premise of upholding the socialist system, a series of interrelated links and aspects of the relations of production and the superstructure that do not suit the growth of the productive forces. This reform is carried out under the leadership of the Party and the government in a planned, step-by-step and orderly way; it is the self-improvement and development of the socialist system. Reform should only promote, and must never damage, social stability, the growth of production, the improvement of the people's living standards and the strengthening of the state's financial resources. The fundamental task of socialism is to develop the social productive forces, so that social wealth grows ever greater and the people's growing material and cultural needs are steadily met. Socialism means eliminating poverty; poverty is not socialism.[2] We must be determined to concentrate our efforts, with the greatest perseverance, on economic construction and the modernization of industry, agriculture, national defense, and science and technology. This is both a historical inevitability and the wish of the people. In carrying out reform, all Party members should firmly grasp this basic Marxist view and take whether a reform helps develop the social productive forces as the chief criterion for judging its gains and losses, its success or failure.

III. Invigorating Enterprises Is the Central Link in Reforming the Economic Structure

Urban enterprises are the main direct agents of industrial production, construction and commodity circulation, and the leading force in developing the social productive forces and advancing economic and technological progress. China now has more than one million urban enterprises in industry, construction, transport, commerce and services, employing over 80 million workers and staff. Taxes and profits from urban industrial enterprises alone account for more than 80 percent of state revenue. These facts show what is at stake. Whether urban enterprises can give full play to their enthusiasm, initiative and creativity in production and management, and whether their more than 80 million workers and staff can do the same, in other words, whether urban enterprises are truly vigorous, is a key question for the economy as a whole. It will decide whether the state's financial and economic situation fundamentally improves, and whether the goal set by the Twelfth National Congress of quadrupling the gross annual value of industrial and agricultural output by the end of the century is reached. Socialism with Chinese characteristics should, first of all, be a socialism in which enterprises are full of vitality. Yet the many defects of the present economic structure show up precisely in the lack of vitality of enterprises. Invigorating enterprises, especially large and medium-sized enterprises owned by the whole people, is therefore the central link in reforming the economic structure as a whole with the cities as the focus.

Around this central link, two sets of relationships must be properly handled: establishing the correct relationship between the state and enterprises owned by the whole people, by extending the decision-making power of enterprises; and establishing the correct relationship between workers and staff and their enterprises, by guaranteeing the workers' status as masters of their enterprises.

An important reason why the state controlled enterprises too much and too rigidly in the past was that ownership by the whole people was confused with direct operation of enterprises by state organs. According to Marxist theory and socialist practice, ownership can be properly separated from the power of operation. To make the economic activities of each enterprise accord with the overall requirements of national economic development, the socialist state must manage, inspect, guide and regulate enterprises as necessary through planning and through economic, administrative and legal means. It collects through taxation and other forms that part of enterprises' net income which must be used by the state as a whole. It appoints, removes or approves the selection of the principal leaders of enterprises, and it may decide on the founding of enterprises and on their closure, suspension, merger, conversion or relocation. But social demand is extremely complex and constantly changing, conditions vary enormously from enterprise to enterprise, and the economic ties among enterprises are intricate. No state organ can fully grasp these conditions and respond to them quickly. If every kind of enterprise owned by the whole people were run and managed directly by state organs, serious subjectivism and bureaucracy would inevitably result, stifling the vigor of enterprises.

Therefore, on condition that they obey state planning and management, enterprises shall have the right to choose flexible and diverse forms of operation; to plan their own production, supply and marketing; to keep and use the funds they retain; to appoint, remove, employ or elect their own personnel according to the relevant regulations; to decide how to recruit and use labor and how to pay wages and bonuses; and to set the prices of their products within the limits allowed by the state, among other rights. In short, enterprises must truly become relatively independent economic entities: socialist producers and operators of commodities that are responsible for their own operations, profits and losses, capable of transforming and developing themselves, and legal persons with definite rights and obligations. This will ensure the unity of the national economy as a whole while ensuring diversity, flexibility and initiative in the production and operation of each enterprise. Far from weakening socialist ownership by the whole people, it will help to consolidate and perfect it.

The vitality of enterprises springs from the enthusiasm, wisdom and creativity of their mental and manual workers. When the workers' status as masters is effectively guaranteed in all the enterprise's rules and systems, and when their labor is closely linked to their own material interests, their enthusiasm, wisdom and creativity can be brought into full play. The experience of rural reform has proved this vividly and convincingly. In reforming the urban economic structure, the relationship between workers and their enterprises must be handled correctly, so that workers truly become masters of their own affairs. Every worker should do his job as a master, everyone should care about how the enterprise is run and how efficient it is, and everyone's achievements at work should be closely tied to his social recognition and material benefit. A modern enterprise must have centralized, unified leadership and direction of production, and strict labor discipline. Because our modern enterprises are socialist, the right of the workers and their elected representatives to take part in democratic management must be firmly guaranteed even as this centralized leadership and strict discipline are applied. Under socialism, the authority of enterprise leaders is consistent with the workers' status as masters and with their initiative and creativity. This consistency is the necessary precondition for the workers' enthusiasm to be brought into play correctly and effectively.

Establishing correct relationships between the state and enterprises, and between enterprises and their workers, is the essential content and basic requirement of reforming the economic structure as a whole with the cities as the focus. Meeting this requirement will inevitably affect every aspect of the economic structure, and will call for complementary reforms of the planning system, the price system, the economic functions of state organs, and the labor and wage systems. The Central Committee holds that these reforms should proceed step by step, in order of priority and difficulty, according to the internal links among the various parts of the national economy and the maturity of subjective and objective conditions, with the aim of basically completing them in about five years. The steps toward this goal will be arranged separately.

IV. Establish a Planning System That Consciously Applies the Law of Value, and Develop the Socialist Commodity Economy

On the basis of public ownership of the means of production, socialist society practices a planned economy. This avoids the anarchy of production and the periodic crises of capitalist society, and directs production toward the steady satisfaction of the people's growing material and cultural needs. It is one of the fundamental marks of the superiority of the socialist economy over the capitalist economy. Since the founding of the People's Republic we have practiced a planned economy, concentrating vast financial, material and human resources on large-scale socialist economic construction, with great success. At the same time, historical experience also teaches us that the socialist planning system should combine unity with flexibility. The need for such a system is all the more pressing given China's vast territory and huge population; given that poor transport, poor flow of information and very uneven economic and cultural development cannot be fully overcome in a short time; and given that China's commodity economy is still underdeveloped and commodity production and exchange must be vigorously expanded. If we ignore the country's actual conditions, try to bring every kind of social and economic activity into the plan, and rely solely on administrative orders to carry it out, neglecting the important role of economic levers and market regulation, the guiding ideas of planning will inevitably become divorced from objective reality, and plans will be seriously out of touch with actual conditions. After the October Revolution, while drafting the plan for electrification, Lenin expressed the view that "an integrated, all-embracing, real plan for us at present = 'a bureaucratic Utopia,'" and "do not chase after this Utopia." China today is very different from the Russia of those days, which was in grave economic difficulty, but our practical experience has proved that Lenin's idea not only applied to Russia under the conditions of that time but has lasting significance. We must recognize realistically that for a very long historical period, our national economic plans as a whole can only be broad in outline and flexible. Through overall balancing in the plan and regulation by economic means, we can keep major matters well in hand while freeing and enlivening minor ones, ensure that the major proportions are roughly appropriate, and have the national economy develop in a coordinated way and roughly in proportion.

To reform the planning system, we must first break with the traditional idea that sets the planned economy against the commodity economy. We must clearly recognize that the socialist planned economy must consciously follow and apply the law of value, and that it is a planned commodity economy based on public ownership.[3] The full development of the commodity economy is a stage of social and economic development that cannot be bypassed, and a necessary condition for modernizing China's economy. Only by fully developing the commodity economy can we truly invigorate the economy and press enterprises to raise their efficiency, operate flexibly, and respond promptly to complex and changing social demand. This cannot be achieved by relying solely on administrative means and mandatory plans. At the same time, we should see that even a socialist commodity economy, as it develops widely, will give rise to a certain blindness, and must therefore be guided and regulated by planning and subject to administrative management. Under socialism this can be done. Thus practicing a planned economy and applying the law of value and developing the commodity economy are not mutually exclusive but unified; it is wrong to set them against each other. On the question of the commodity economy and the law of value, the difference between the socialist and the capitalist economy does not lie in whether a commodity economy exists or whether the law of value operates. It lies in the different systems of ownership; in whether exploiting classes exist; in whether the working people are masters of the country; in the purpose that production serves; in whether the law of value can be consciously applied on the scale of the whole society; and also in the different scope of commodity relations. Under China's socialist conditions, labor power is not a commodity, nor are land, mines, banks, railways or any other state-owned enterprises and resources.

On the basis of historical experience and practice since the Third Plenary Session of the Eleventh Central Committee, the basic points of China's planning system should be further summarized as follows:

A planning system reformed along these lines will reduce, step by step and as appropriate, the scope of mandatory planning and enlarge the scope of guidance planning. Mandatory planning will apply to the portions of major products vital to the national economy and the people's livelihood that must be allocated by the state, and to major economic activities that affect the overall situation. For the great majority of other products and economic activities, guidance planning or regulation entirely by the market will apply, according to circumstances. The emphasis of planning should shift to medium- and long-term plans, annual plans should be appropriately simplified, and planning methods should be reformed accordingly, giving full weight to economic information and forecasting so as to make planning more scientific.

V. Establish a Rational Price System and Give Full Play to Economic Levers

Because the role of the law of value was long ignored, and for other historical reasons, China's present price system is in considerable disorder. The prices of many commodities reflect neither their value nor the relation between supply and demand. Unless this irrational price system is reformed, it will be impossible to assess correctly how well enterprises are run, to ensure the smooth exchange of goods between town and country, or to promote technological progress and the rationalization of the structures of production and consumption. Huge waste of social labor will inevitably result, and the principle of distribution according to work will be seriously obstructed. As the decision-making power of enterprises is further extended, prices will play an increasingly important role in regulating their production and operation, making a rational price system all the more urgent. The success of every reform of the economic structure, including reform of the planning system and the wage system, depends to a great extent on the reform of the price system. Price is the most effective means of regulation, and rational prices are an important condition for keeping the national economy lively without falling into disorder. Reform of the price system is the key to the success or failure of the entire reform of the economic structure.

The main irrationalities of the present price system are these: price differentials by quality within the same kind of goods are too narrow; the price ratios between different goods are irrational, with the prices of certain mineral products and raw and semi-finished materials particularly low; and the purchase and selling prices of major farm and sideline products are inverted, with selling prices lower than the state's purchase prices. Measures must be taken from now on to change this situation step by step.

The irrationality of the price system is closely bound up with the irrationality of price administration. While adjusting prices, we must reform the over-centralized system of price control. We should gradually reduce the range of prices uniformly fixed by the state and appropriately enlarge the range of prices that float within set limits and of free prices, so that prices respond more sensitively to changes in social labor productivity and in market supply and demand, and better meet the needs of national economic development.

Reform of the price system affects the whole national economy and millions of households. It must be approached with the utmost caution. On the basis of growing production and what the state's finances can bear, and on condition that the real income of the people rises gradually, we must draw up careful and practicable plans and proceed in a planned and step-by-step way. The principles of the reform are:

It must be widely explained to the people that we are taking the initiative to reform the price system and correct irrational price ratios under conditions of growing production and an increasingly abundant supply of goods, and that this will never lead to a general spiral of price rises. This reform is urgently needed for the further growth of production and accords with the fundamental interests of consumers. All enterprises should raise their economic efficiency by greatly improving their operation and management; they must never pin their hopes of higher income on raising prices. No unit or individual shall be allowed to use the reform as an opportunity to raise prices at will, whip up a wave of price increases, disrupt the socialist market, or damage the interests of the state and consumers.

Along with reform of the price system, we must further improve the tax system and reform the financial and banking systems. The more we invigorate the economy, the more attention we must pay to macroeconomic regulation, and the more skillful we must become at using price, tax, credit and other economic levers in combination, on the basis of timely knowledge of economic trends. These levers serve to regulate major proportional relations such as those between total social supply and total demand and between accumulation and consumption; to regulate the flow of financial, material and human resources; to regulate the industrial structure and the distribution of productive forces; to regulate market supply and demand; and to regulate economic exchanges with other countries. In the past we were accustomed to running the economy by administrative means and long neglected regulation through economic levers. Learning to master economic levers, and making this the focus of economic leadership, should become an important task for economic departments at all levels, especially the comprehensive economic departments.

VI. Separate the Functions of Government from Those of Enterprises, So That Government Organs Can Properly Perform Their Economic Functions

Once the proletariat and the whole people have taken state power, leading and organizing economic construction becomes a basic function of state organs. On the whole, over the past thirty-odd years since the founding of the People's Republic, our state organs have performed this function and played a major role. But how state organs, and government departments in particular, can best lead and organize economic construction so as to meet the needs of national economic and social development is still a question that must be seriously addressed. Because the functions of government and enterprises were long confused, enterprises in effect became appendages of administrative bodies. The central and local governments took on many matters they should not have handled, while many matters they should have handled were not handled well. On top of this, the division between departments and regions led to endless wrangling that made the work of enterprises even harder. Unless this is changed, it will be impossible to bring the initiative of grassroots units and enterprises into play, to promote cooperation, association and competition among enterprises effectively, or to develop a unified socialist market, and the proper role of government organs in managing the economy will inevitably be seriously weakened. Reform based on separating the functions of government from those of enterprises, streamlining administration and delegating power to lower levels is therefore an urgent need for invigorating enterprises and the whole national economy.

On the basis of many years of practical experience, the main economic functions of government organs should be: to formulate strategies, plans, principles and policies for economic and social development; to draw up programs for developing resources, upgrading technology and developing human talent; to coordinate the development plans and economic relations of regions, departments and enterprises; to plan the construction of key projects, especially in energy, transport and raw materials; to collect and disseminate economic information and to master and use the means of economic regulation; to formulate economic laws and regulations and supervise their enforcement; to appoint and remove cadres within the prescribed scope; and to manage economic and technological exchanges and cooperation with other countries. Governments at all levels must make great efforts to perform these functions; in the past some were done poorly and some were not done at all. As regards the relationship between government and enterprises, government departments at all levels will in principle no longer directly run or manage enterprises. The few government economic departments that the state charges with directly running and managing enterprises must also, in the spirit of streamlining administration and delegating power, properly handle their relations with the enterprises under them, so as to strengthen the vitality of enterprises and grassroots units in managing their own affairs and avoid the defects that high centralization may bring. National and regional corporations are economic associations set up on the basis of the needs of national economic development and the mutual needs of enterprises. They must be enterprises, not administrative bodies; they must not carry on the old ways but must learn modern scientific methods of management.

Once the functions of government and enterprises have been separated, the role of cities as centers should be brought into full play, gradually forming open, networked economic zones of various sizes based on cities, especially large and medium-sized ones. In carrying out this reform, the leading comrades of every city should take note that city governments, too, must separate government functions from those of enterprises, streamline administration and delegate power. They must not repeat the old practice of managing enterprises mainly by administrative means, lest a new division between departments and regions arise. City governments should concentrate on urban planning, construction and management; build up public facilities; carry out comprehensive environmental improvement; guide and promote specialized cooperation among enterprises, their reorganization and association, technological upgrading and the modernization of management; guide and promote the rational circulation of goods and materials; run culture, education, public health, social welfare and other services well; promote the building of a socialist culture and ideology and a sound social ethos; and maintain public order. At the same time, city governments should draw up medium- and long-term plans for economic and social development in light of the overall requirements of national economic development and local conditions.

The relationship among socialist enterprises is first of all one of mutual cooperation and support, but this does not rule out competition. For a long time competition was often regarded as a phenomenon peculiar to capitalism. In fact, wherever there is commodity production there is bound to be competition; only its purpose, nature, scope and means differ under different social systems. Competition among socialist enterprises is fundamentally different from the law of the jungle under capitalism. On the basis of public ownership, under the administration of state plans and laws, and on the premise of serving socialist modernization, it lets enterprises be judged and tested directly by consumers in the market, so that the superior survive and the inferior are eliminated. This helps break down the blockades and monopolies that obstruct the growth of production, exposes the shortcomings of enterprises in good time, spurs them to improve their technology and management, and promotes the development of the whole national economy and the socialist cause. Certain negative phenomena and illegal acts may arise in competition. Leading bodies at all levels must keep a clear head about this, strengthen education and management, and take care to resolve such problems.

With the reform of the economic structure and the development of the national economy, more and more economic relations and rules of economic activity will need to be fixed in legal form. The state legislature should speed up economic legislation; the courts should strengthen the trial of economic cases; the procuratorates should strengthen the prosecution of economic crimes; and the judicial departments should actively provide legal services for economic construction.

Separating the functions of government from those of enterprises, streamlining administration and delegating power constitute a profound transformation of the socialist superstructure. When the structure changes, the organizations and the style of thinking and work must change too. We must unswervingly follow the principles of serving the people and of simplification, unity and efficiency to transform the work style of government organs and raise the quality of their personnel. We must change the long-standing situation in which leading organs, instead of serving grassroots units and enterprises, make grassroots units and enterprises revolve around them. We must sweep away the bureaucratic ills of overlapping organizations, overstaffing, unclear responsibilities and endless buck-passing, so that leading organs at all levels truly shift all their work onto the track of serving the growth of production, serving grassroots units and enterprises, and serving the prosperity and strength of the country and the well-being of the people.

VII. Establish Various Forms of the Economic Responsibility System, and Conscientiously Apply the Principle of Distribution According to Work

Experiments in urban reform over the past few years have fully shown that the basic experience of the contract responsibility system in the countryside applies equally to the cities. To invigorate urban enterprises, heighten the sense of responsibility of the workers and staff and bring their initiative, enthusiasm and creativity into full play, enterprises must specify the requirements for every post and every worker, and establish economic responsibility systems in various forms, chiefly contracting. The basic principles of these systems are: combining responsibility, power and benefit; unifying the interests of the state, the collective and the individual; and linking what workers earn to the results of their labor. In applying rural experience to the cities, the special features of urban enterprises must be considered; the specific practices of the countryside should not and cannot be copied mechanically. Since trades, enterprise sizes and production conditions vary, there can be no single model of the responsibility system for urban enterprises. Our comrades, especially enterprise leaders, must proceed in everything from actual conditions and gradually create, in practice, concrete forms suited to their own circumstances, so that the contract responsibility system takes root, blossoms and bears fruit in the cities.

A modern enterprise has a fine division of labor, a highly continuous production process, strict technical requirements and complex relations of cooperation. It must have a unified, strong and efficient system for directing production and managing operations. Only the system of the factory director (manager) assuming full responsibility can meet this requirement. The Party organization in an enterprise should actively support the director in exercising unified command over production and operations; guarantee and supervise the implementation of the principles and policies of the Party and the state; strengthen the Party's ideological and organizational work in the enterprise; strengthen its leadership over the enterprise's trade union and Communist Youth League organizations; and do good ideological and political work among the workers and staff. While the director responsibility system is being introduced, the system of workers' congresses and other systems of democratic management must be improved. Trade unions and workers' representatives must be given full power and scope to deliberate on the enterprise's major decisions, supervise its administrative leaders, and safeguard the lawful rights and interests of the workers, so that the working class's status as master is made manifest. This is determined by the nature of socialist enterprises and must never be ignored or weakened in any way.

With the general replacement of profit delivery by taxes[4] and the general establishment of economic responsibility systems in various forms in enterprises, the socialist principle of distribution according to work will be further implemented. One major step already taken is that enterprises now decide the bonuses of their workers and staff themselves according to their performance, with the state levying only a tax on bonuses above a set limit. Further measures will be taken to link the wages and bonuses of workers and staff more closely to improvements in the economic efficiency of their enterprises. Within enterprises, wage differentials should be widened and grades spread further apart, so as fully to reward the diligent and penalize the lazy, reward good work and penalize poor work, and give full expression to the principle of more pay for more work and less pay for less work. Differentials should fully reflect the differences between mental and manual labor, complex and simple labor, skilled and unskilled labor, and heavy and light labor. In particular, the low pay for mental labor must be changed. State organs and public institutions should also reform their wage systems, on the principle of linking each person's pay closely to his responsibilities and achievements. Along with the reform of wage systems in enterprises, state organs and public institutions, reform of the labor system must also be speeded up.

For a long time there was a misconception about the distribution of consumer goods: that socialism means equal shares, and that if some members of society earned considerably more from their labor and a wide gap appeared, this was polarization and a departure from socialism. Such egalitarian thinking is completely incompatible with the scientific Marxist view of socialism. The lessons of history tell us that egalitarianism is a serious obstacle to applying the principle of distribution according to work, and that its spread will inevitably undermine the social productive forces. Of course, socialist society must ensure a gradual rise in the material and cultural living standards of its members and achieve the goal of common prosperity. But common prosperity does not and cannot mean absolute equality; it does not and cannot mean that all members of society become prosperous at the same time and at the same pace. If common prosperity were understood as absolute equality and simultaneous prosperity, it would not only be unattainable but would inevitably lead to common poverty. Only by allowing and encouraging some regions, some enterprises and some people to become prosperous first through hard work can we strongly attract and inspire the majority, and bring more and more people, wave upon wave, onto the road to prosperity.

At the same time, we must provide social relief to the old, the weak, the sick and the disabled, and to widowers, widows, orphans and the childless; actively help those who have not yet become prosperous; and apply special preferential policies, together with necessary material and technical assistance, to the old revolutionary base areas, minority nationality areas, border areas and other poor areas whose economies are still very backward. The disparities that arise when some people prosper first are differences in the order and speed with which all members of society advance along the road to common prosperity. They are by no means a polarization in which a tiny minority become exploiters and the great majority sink into poverty. The policy of encouraging some people to become prosperous first accords with the laws of socialist development and is the only road by which the whole of society can become prosperous.

Hard work, plain living and building up the country through thrift are fine traditions formed during our long years of revolution and construction, and they must never be abandoned. Upholding this tradition in the new period means, above all, carrying forward the spirit of self-sacrifice that fears no hardship and struggles tenaciously for the motherland and the people; practicing strict economy in all production and construction; opposing the squandering of state funds and property; and striving to avoid wasteful policy mistakes. It should not be wrongly understood as license to neglect the proper growth of the people's consumption. According to the basic tenets of Marxism, production is the starting point and the dominant factor in the whole of economic activity; it determines consumption. Yet the growth of consumption creates new social demand, opens up wide markets and powerfully drives the further expansion of production; in this sense, consumption also determines production. On the premise of growing production, higher economic efficiency, a steady rise in state revenue and a correct balance between accumulation and consumption, we must see to it that the wages of our workers and staff rise considerably over time and that the people's consumption grows considerably. It is wrong to demand excessive consumption without regard to what production can sustain; it is equally wrong to keep restricting consumption instead of increasing it appropriately within the limits that production allows.

VIII. Develop Diverse Economic Forms, and Further Expand Economic and Technological Exchanges with Other Countries and Within China

To develop all branches of production and construction rapidly, and to make the country prosperous and strong and the people well-off and happy at a faster pace, we must mobilize all positive factors. Under the guidance of state policies and plans, we must follow the principle of having the state, the collective and the individual all play their part, and persist in developing diverse economic forms and methods of operation. On the basis of independence, self-reliance, equality, mutual benefit and keeping faith with each other, we must actively develop economic cooperation and technological exchanges with other countries.

The economy owned by the whole people is the leading force in China's socialist economy and plays a decisive role in ensuring the socialist orientation and the stable growth of the economy as a whole. But the consolidation and development of this sector must never be made conditional on restricting or excluding the development of other economic forms and methods of operation. The collective economy is an important component of the socialist economy, and many kinds of production and construction can be freely entrusted to collectives. China's individual economy today is linked to socialist public ownership and differs from an individual economy linked to capitalist private ownership. It plays an irreplaceable role in developing social production, making life more convenient for the people and expanding employment. It is a necessary and beneficial supplement to the socialist economy and is subordinate to it. At present, obstacles to the development of the collective and individual economies in cities and towns must be cleared away, conditions created for them, and legal protection given. The individual economy should be vigorously developed, especially in activities that consist mainly of labor services or are suited to dispersed operation. At the same time, flexible and diverse forms of joint operation and economic association among state, collective and individual enterprises should be widely developed on a voluntary and mutually beneficial basis, and some small enterprises owned by the whole people may be leased or contracted to collectives or individual workers. The joint development of diverse economic forms and methods of operation is our long-term policy and a requirement for the advance of socialism. It is by no means a return to the new-democratic economy of the early years of the People's Republic, when socialist public ownership had not yet become absolutely predominant in town and country. Far from shaking China's socialist economic system, it will only help consolidate and develop it.

As early as the Communist Manifesto, Marx and Engels pointed out that the development of capitalism had opened up a world market. The old local and national seclusion and self-sufficiency had been replaced by intercourse in every direction among nations, and production and consumption in every country had become cosmopolitan. In our time the productive forces and science and technology are developing even more rapidly. Although international relations are complex and full of contradictions, on the whole international economic and technological ties remain very close, and no country can modernize behind closed doors. Since the Third Plenary Session of the Eleventh Central Committee, we have made opening to the outside world a long-term basic state policy and a strategic measure for speeding up socialist modernization, and it has produced marked results in practice. From now on we must continue to relax our policies, reform the foreign trade system on the principle of mobilizing the initiative of all quarters while presenting a unified front in external dealings, actively expand the scale of economic and technological exchanges and cooperation with other countries, make a success of the special economic zones, and further open the coastal port cities. Using foreign capital and attracting foreign businesses to set up joint ventures, cooperative enterprises and wholly foreign-owned enterprises in China is likewise a necessary and beneficial supplement to China's socialist economy. We must make full use of both domestic and foreign resources, open up both domestic and foreign markets, and learn both how to organize domestic construction and how to develop economic relations with other countries.

While opening to the outside world, the various regions of China must open even more to one another. More developed and less developed regions, the coast, the interior and the frontier, town and country, and the various trades and enterprises must all break down blockades and open their doors. On the principles of building on strengths and avoiding weaknesses, diversity of forms, mutual benefit and common development, we must vigorously promote lateral economic ties; foster the rational exchange of funds, equipment, technology and skilled personnel; develop all kinds of economic and technological cooperation; jointly run economic undertakings of every kind; rationalize the economic structure and regional distribution; and speed up China's modernization.

IX. Promote a New Generation of Cadres, and Build a Vast Contingent of Managerial Personnel for the Socialist Economy

The reform of the economic structure and the development of the national economy urgently require large numbers of managerial personnel, especially enterprise managers, who have modern economic and technical knowledge, an innovative spirit and the courage to create, and who can open up new prospects. The problem is that our contingent of economic managers falls far short of this requirement. Many veteran comrades in this contingent have made major contributions to China's socialist economic construction through long years of hard struggle. Their fine style of work, organizational ability and firm adherence to the norms of Party life have educated and influenced large numbers of middle-aged and young cadres. But most of them are now advanced in years, and they cannot be asked to continue shouldering heavy leadership duties. The urgent task today is to boldly promote and actively train tens of thousands of middle-aged and young economic managers.

We should recognize that large numbers of outstanding people have emerged, and are emerging, in the practice of economic construction, and especially in Party consolidation and the reform of the economic structure. Party committees at all levels must take care to discover and assess them thoroughly. They must not be bound by outdated ideas and old conventions, must not indulge in hair-splitting or demand perfection, and must not be swayed by factionalism or gossip of any kind. If we do this, large numbers of outstanding cadres will come forward. Of course, middle-aged and young cadres lack leadership experience, but such experience can and certainly will be gained step by step through practical tempering. Lack of experience must never be used as an excuse to hold young cadres back. Experience itself should be viewed analytically. The rich positive and negative experience our comrades accumulated in past revolution and construction is extremely valuable. But faced with the entirely new tasks of the new period, cadres old, middle-aged and young alike generally lack the new knowledge and experience that modernization requires. All of them must reassess themselves and learn anew. It is wrong to cling to old ways and remain stuck in outdated experience.

The Central Committee requires that the readjustment of enterprise leadership, especially of key enterprises, be completed before the end of 1985. Plans must be drawn up and practical measures taken to train, within a reasonably short time, large numbers of capable people: factory directors (managers) who can effectively organize and direct production and operations; chief engineers who can strengthen technical management and promote technological progress; chief economists who can strengthen operations and raise economic efficiency; chief accountants who can strictly uphold financial discipline, budget carefully and open up new sources of revenue; and Party committee secretaries who can keep to the correct political orientation and unite the workers and staff. Together with these, a vast, complete and well-matched contingent of managerial and technical cadres for the socialist economy must be formed.

The Central Committee has repeatedly pointed out that socialist modernization requires respect for knowledge and for talented people. We must combat every idea and practice that belittles science and technology, the development of human talent and intellectuals; resolutely correct the discrimination against intellectuals that still exists in many places; and take effective measures to raise their social status and improve their working and living conditions. All our reforms must help advance science and technology, encourage regions, departments, units and individuals to develop human talent, and spur young people, workers, peasants and intellectuals to raise their educational and technical levels faster. Those who make major inventions or special contributions should be handsomely rewarded.

Science, technology and education play an extremely important role in developing the national economy. As the economic structure is reformed, reform of the science and technology system and of the education system is becoming an ever more urgent strategic task. The Central Committee will discuss these matters specially and make the corresponding decisions.

X. Strengthen the Party's Leadership, and Ensure the Smooth Progress of Reform

The reform of China's economic structure will unfold over a very wide area and to a very profound degree. It concerns the country's future and the vital interests of hundreds of millions of workers, peasants and intellectuals. All Party members must stand in the forefront of reform, the tide of our times. Reform is an extremely complex undertaking of exploration and innovation by the masses. Reform of the economic structure as a whole, with the cities as the focus, is on the whole still at the stage of accumulating experience, and many cadres are not yet familiar with it. Leading bodies of the Party and government at all levels must therefore keep a clear head and give careful guidance. We must emancipate our minds, seek truth from facts, proceed in everything from reality, closely combine the Party's principles and policies with the actual conditions of each region, department and unit, and implement them creatively. In the minority nationality areas, the particular features of each area must be given special consideration in reforming the economic structure. Every measure of reform must be tested in practice, and new experience must be summed up in practice. Mistakes can hardly be avoided entirely, but every effort must be made to avoid those that can be avoided. When mistakes occur, we must try to discover them promptly, correct them resolutely, learn from them and keep moving forward. Reform should proceed actively but prudently: what is clearly seen should be resolutely changed, one item at a time as each becomes clear; what is not yet clear should first be tried out at selected points. We should not try to accomplish everything at one stroke. Major nationwide reforms will be put into effect under the unified arrangements of the State Council. Regions, departments and units should be encouraged to explore and experiment with reform, but any reform that affects the overall situation or a wide area must be approved by the State Council before it is carried out.

Next year the Party organizations of many more localities and of large numbers of enterprises will enter Party consolidation. Reform must be closely combined with Party consolidation, so that consolidation promotes the economy and the economy tests consolidation. While reform proceeds, leadership over Party consolidation must be strengthened to make sure it is not a mere formality. The more we invigorate the economy and enterprises, the more we must guard against the corrosive influence of capitalist ideas, overcome the corrupt practice of using one's position for private gain, overcome all acts that seriously harm the interests of the state and consumers, strengthen Party style and discipline, and maintain and improve a healthy and correct political life within the Party. In the new period, the Party's ideological and organizational work must firmly follow the guiding principle of serving the Party's general task and general goal and of being closely combined with the realities of economic construction and the reform of the economic structure. Cadres and masses who are keen on reform should be actively supported. Deviations and mistakes that arise in reform, except for serious violations of law and discipline that must be dealt with according to law, should be handled by persuasion, criticism, education and help, and no political labels should be pinned on anyone. Differing views and theoretical positions on reform may be openly discussed. Cadres and masses must not be divided into "reformers" and "conservatives"; we should trust that comrades whose thinking temporarily lags behind events will raise their understanding in the practice of reform. After five years of rural reform, many comrades who were at first skeptical have been won over by the facts. In guiding rural reform the Central Committee persisted in patient education, which ensured that the reform went smoothly. This is extremely valuable experience in resolving ideological differences within the Party on major policy questions, and we must continue to act in this way. In light of the actual practice of reform, Party members and the masses should be given lively education in the theory and policies of reform, so that they fully understand that socialism with Chinese characteristics should be full of vitality, differing both from the rigid model of the past and fundamentally from capitalism. This will deepen their scientific understanding of socialism and lead them to throw themselves consciously into the great practice of reform.

The reform of the economic structure will bring major changes not only in people's economic life but also in their way of life and their state of mind. Building socialist material civilization and socialist spiritual civilization together is the Party's unswerving policy. While creating a vigorous and dynamic socialist economic structure, we must strive to foster throughout society a civilized, healthy and scientific way of life suited to the growth of modern productive forces and to social progress, and discard what is backward, ignorant and decadent. We must strive to raise throughout society a positive, forward-looking and enterprising spirit, and overcome the force of habit that is content with things as they are, mentally lazy, afraid of change and wedded to old rules. Such a way of life and state of mind are important elements in building socialist spiritual civilization and a tremendous force for advancing the reform of the economic structure and the building of material civilization. Comrade Mao Zedong said: "Mankind is always developing, and nature is always developing; they never stop at one level. Therefore man has constantly to sum up experience and go on discovering, inventing, creating and advancing. Ideas of stagnation, pessimism, inertia and complacency are all wrong. They are wrong because they agree neither with the historical facts of the development of human society nor with the historical facts of the development of nature."[5] These words of Comrade Mao Zedong vividly express a fundamental point of the Marxist world outlook and view of history. Chinese Communists take it as their historical mission to keep advancing social development and progress. Under reactionary rule, our Party led the masses in revolution to overthrow the old system. Under the socialist system, in which the people are masters of the country, our Party is leading the masses in conscious reform, striving to build a modern socialist country that is highly civilized and highly democratic.

The situation of reform is now very good. The broad masses have shown great creativity in the practice of reform. Relying on the wisdom and strength of the masses and upholding the Four Cardinal Principles, our reform will surely succeed, and the general task and general goal set by the Party's Twelfth National Congress will surely be achieved.

Translator's Notes