Zhao Ziyang was the third Premier of the People’s Republic of China during 1980-1987. He was then placed under house arrest for 15 years until his death. He argued widely for economic and government reform.
He says:
In order to revive the rural economy and enhance incentives for farmers, the prices of agricultural goods were raised. The aim was to reduce the urban-rural income gap. I was still in Sichuan when the policy was put forward, and I participated in the discussion. There were two key points. First, prices for agricultural and other rural products had to be raised, or else farmers would not have incentive to produce. Second, even though it was impossible at the time to remove the state monopoly on agricultural and other rural products, the quotas for mandatory procurement had to be reduced, especially in major grain-farming areas… After the Third Plenum of the 11th Central Committee, there were good harvests several years in a row: 1979, 1980, 1981, 1982, 1983, and 1984. The rural areas experienced a new prosperity, in large part because we resolved the issue of “those who farm will have land” bu implementing a “rural land contract” policy. The old situation, where farmers were employees of a production team, had changed; farmers began to plant for themselves.

The rural energy that was unleashed in those years was magical, beyond what anyone could have imagined. A problem thought to be unsolvable had worked itself out in just a few years’ time. The food situation that was once so grave had turned into a situation where, by 1984, farmers actually had more grain than they could sell. The state grain storehouses were stacked full from the annual procurement program.
(Taken from Chapter 2 of Part 3:The Roots of China’s Economic Boom, pages 97-98)

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I then reviewed the problems of our economic development since the establishment of the People’s Republic of China. In 1980, as compared with 1952[the year at which the economy was considered to have fully recovered from civil war], industrial output had grown 8.1 times, GDP had grown 4.2 times, and industrial fixed assets had grown 26 times. However, average consumption had only doubled. It appears that though industrial assets had grown a great deal, industrial output had not grown as much, not had GDP; average consumption even less. The GDP growth rate was much lower than the growth rate of agricultural and industrial output; the rise in living standards was also significantly lower than GDP growth, yet industrial fixed assets had grown much more.

This showed that our economic efficiency was very low. The improvement in living standards was not commensurate with what people had contributed with their labor. Therefore, I believed that the key problem with our economy was our efficiency and not the nominal speed of production growth.

Later, at the All China Industrial and Transportation Conference held in Tianjin in 1982, I gave a speech on issues of economic efficiency. I pointed out: “The prolonged neglect of efficiency in industrial production, and the blind pursuit of production output and the pace of growth have resulted in many absurd undertakings. Often we have fallen into the situation of ‘good news from industry, bad news from sales; warehouses are full and finances show a deficit.’ In the end, our banks have had to print money to patch up the holes, bringing harm to the state and the people.” I proposed a concept for approaching the economic efficiency issue: “Produce more products than society truly needs, using the least amount of labor and material resources.” That is, cut waste as much as possible while increasing social wealth, the key being that the products we make must actually be in demand. Otherwise, increased production just means more waste. There had been too much pursuing rapid production for its own sake. Factories produced large quantities of things that nobody wanted to buy. These were then stored in warehouses and finally ended up as trash.

How could economic efficiency be improved? How could products be made that were suitable to the needs of society? There were many aspects to this, but fundamentally it was related to the economic system. The solution was to adjust the economic structure and reform the system. There was no other way.

The reason i had such a deep interest in economic reform and devoted myself to finding ways to undertake this reform was that I was determined to eradicate the malady of China’s economic system at its roots. Without an understanding of the deficiencies of China’s economic system, I could not possibly have had such a strong urge for reform.

Of course, my earliest understanding of how to proceed with reform was shallow and vague. Many of the approaches that I proposed could only ease the symptoms; they could not tackle the fundamental problems.

The most profound realization I had about eradicating deficiencies in China’s economy was that the system had to be transformed into a market economy, and that the problem of property rights had to be resolved. That was arrived at through practical experience, only after a long series of back-and-forths.

But what was the fundamental problem? In the beginning, it wasn’t clear to me. My general sense was only that efficiency had to be improved. After I came to Beijing, my guiding principle on economic policy was not the single-minded pursuit of production figures, nor the pace of economic development, but rather finding a way for the Chinese people to receive concrete returns on their labor. That was my starting point. Growth rates of 2 to 3 percent would have been considered fantastic for advanced capitalist nations, but while our economy grew at a rate of 10 percent, our people’s living standards had not improved.
(Taken from Chapter 4 of Part 3:The Roots of China’s Economic Boom, pages 112-113)

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