On the reform of enterprises and of the banking system

December 19, 1986

How many steps should we take to complete the reform? How long will it take? I hope you will study these questions.

In the long run, grain production is very important to us. We should ensure the continued growth of agriculture through reform. As for the reform of enterprises, our chief goal is to invigorate the large and medium-sized state-owned ones.

To stimulate the initiative of the enterprises, we have to separate ownership from management in various ways; that is a very important part of the reform. But some of our comrades, who are still bound by conventional notions of how things should be done, don't like this idea. Actually, as means of developing the productive forces, different managerial forms can serve either capitalism or socialism. Whichever system uses them better will benefit most.

Delegating to lower levels the power to manage enterprises and separating the functions of the government from those of enterprises are components of the reform not only of the economic structure but also of the political structure. Delegation of power to lower levels will inevitably run into obstacles. Departments are overstaffed. I am told that some ministries and commissions have as many as ten thousand staff members. I think that number must be reduced. The more people you have in a unit, the more leaders you have competing for power. These people have worked for many years in departments at the central level, and most of them have acquired some knowledge. I suggest that they go to the grass-roots units and run for election as directors or managers of enterprises to demonstrate their abilities there.

Enterprise groups should be organized. It seems to me that there are too many separate enterprises in the electronics industry. Why don't they join into groups? If each enterprise goes it alone, it will never be able to improve the quality of its products. We should also study ways of organizing enterprise groups in the automobile industry. It is within our capacity to export automobiles. If enterprises want to increase their ability to compete in the market and to acquire up-to-the-minute information, they should join into groups.

Great advances should be made in the reform of the banking system. Banks should perform all the functions of banks. Yet ours have not been banks in the true sense of the word; they have only issued currency and held reserves. Since we don't know much about banking, we could invite foreign specialists in this field to advise us.

As for foreign loans, we should make a concrete analysis of the question. Some countries have borrowed large amounts of foreign funds. This cannot be regarded solely as a loss; they have gained from it too, rapidly growing from economically backward countries into moderately developed ones. There are two things we can learn from them. First, we should not be afraid of borrowing money abroad; and second, we should not borrow too much. It is not so terrible to borrow foreign funds. The most important thing is to use them to develop production; it would be wrong to use them to reduce the deficit.

To reduce the deficit, the scale of capital construction, especially of non-productive projects, has to be kept under control. Since the revenue of the central government has been reduced, it can't undertake too much. Part of the funds collected by the local authorities and idle capital collected from society at large should be put into infrastructure projects. That is the only solution for us. Also, we should not allow consumer demand to expand too rapidly.

In short, this year's economic situation is good, better than we anticipated. The prospects are bright for our reform.

(Excerpt from a talk to leading comrades of the CPC Central Committee who had briefed Deng on the current economic situation and put forward suggestions for the reform in the following year.)

(From Selected Works of Deng Xiaoping, Volume III <1982-1992>)