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China - 7th Five-Year Plan 1986-1990

The Seventh Five-Year Plan was unveiled at the Fourth Session of the Sixth National People's Congress in March 1986. The document, which covers the 1986-90 period, includes more than the production targets of previous plans, and contains sections on politics, science, and education, as well as on ideology and foreign affairs. According to the Chinese press, the primary task during the next five years is to create a sound overall setting in which economic reform can progress smoothly.

A decreasing share of state investment was scheduled to go to military expenditures over the period, and the giant Three Gorges Dam hydro-electric project was not included in the plan. Initial work for a mammoth south-to-north water diversion project is included, however.

In general, the Plan's economic production targets appeared well thought out and attainable - higher than the targets for the past five years, but below growth rates achieved during that time. The gross value of industrial and agricultural output was planned to increase at 6.7 percent annually. Although this rate would probably be met as an annual average, the implementation of reform during the period was likely to cause overall economic growth, as well as the production of individual sectors, to be uneven. The increased attention and funding allocated to energy and transportation highlighted Beijing's concern that these sectors were severe constraints to economic growth.

Leadership changes in Beijing would lead to a slowdown in the economic reform program and a postponement of some of the more controversial and innovative proposals.

Statements by Chinese leaders suggested that the basic economic goals in the Seventh Five-Year Plan (1986-90) remain unchanged and that the Chinese would pursue the Plan's three major goals:

1. Invigorating state-owned enterprises by making them independent economic entities responsible for their own production, profits, and losses.
2. Expanding the role of markets.
3. Reducing the use of direct administrative regulation to control the economy and increasing the role of indirect macroeconomic levers (such as taxes and interest rates).

Progress in reaching these goals were hampered by the need to back off temporarily on some supporting reforms, including labor and price reform, which were planned for 1987. These supporting reforms would increase consumer prices and cut housing and food subsidies — moves currently viewed by the Chinese leadership as potentially destabilizing.

The plan's targets for regional development illustrate Beijing's growingacceptance of the ideological propriety- or at least the economic inevitability - of income disparities. Economic growth between and within the various regions was expected to proceed at different rates, causing unavoidable differences in income.

The evolution of the plan document suggested an unusual openness in China's political process, blending the opinions of a wide circle of government, party, and technical experts during the three-year drafting period. Both proponents and opponents of reform, within limits, criticized current policies and broached still very controversial topics.

The dismissal in January 1986 of Hu Yaobang as General Secretary of the Chinese Communist Party chilled the intellectual atmosphere that allowed China's economists to explore Western economic concepts and propose unorthodox approaches to China's development problems. A slow down in some areas of reform was looming even before Hu's dismissal, as Beijing coped with the social side effects of reform. For a time at least, planned initiatives that would have the greatest impact on workers - price reform, reductions in food and hous-ing subsidies, and full-scale bankruptcy laws - were put on hold.

The appointment of Zhao Ziyang, a highly respected advocate of economicreform, as acting Party General Secretary was intended to send a reassuring signal. Press reports and diplomatic reporting suggest that even those officials who were critical of market-oriented reforms believed that some market mechanisms were necessary to prod the planned economy, and favored continued exchanges with the West, albeit on a smaller scalethan reform leaders had advocated.

Because of the unsettled political situation, it was difficult to forecast how seriously and for how long economic reform will be affected; hnonetheless, official media have highlighted conservative themes not seen in many years. An economic newspaper praised Chinese self-reliance, a term associated with Maoist economic policies, and other press reports criticized Western-style consumerism.