297. Memorandum From the Director of Intelligence and Research (Cumming) to the Secretary of State1
SUBJECT
- Intelligence Note: Peiping’s Economic Decentralization
Communist China’s State Council issued a regulation November 17 providing for a sweeping decentralization of economic authority. In the industrial field, the central government retains control of the major industrial enterprises and continues to establish the more important performance targets. But in other respects, much of the authority previously exercised by the central government is now delegated to a lower governmental level or to the enterprises themselves. Similarly, there is to be a decentralization of control over commerce and finance. The new fiscal regulations provide for local governments to share on a fixed percentage basis in tax revenues and enterprise profits and for a sharper distinction between central and local expenditure responsibilities.
There is a similarity between these measures and the Soviet trend of the past several years toward economic decentralization, and it is probable that the Soviet trend had some influence on Peiping’s thinking. However, Peiping’s action appears to meet specific domestic problems rather than a deliberate act of conformity to the new Soviet pattern. It does not bear much resemblance to this year’s Soviet reorganization of industrial management along regional lines. The Chinese Communist action was forecast in Premier Chou En-lai’s report to the National People’s Congress on June 26, 1957 when he said, “in the past two years … the central authorities were found to have taken too much into their own hands; there were shortcomings resulting from rigidity in administration … [in consequence] we began an examination of the government structure … [and have] now decided to make suitable readjustments expanding the powers of local authorities, so that their creative initiative may be fully developed under the coordinating leadership of the central authorities …”2 Peiping editorial comment on the new measures stressed that the previous high degree of centralization was necessary, but that changed circumstances now require a revision of the control mechanism; there was no reference to Soviet economic decentralization.
Although a major shift in economic organization, the step does not appear to reflect any change of basic economic objectives. It may [Page 641] reduce the bureaucratic problems arising from past over-centralization, but is unlikely to have a decisive effect on Chinese Communist economic prospects.
A similar memorandum has been addressed to the Under Secretary.