Until the 1980s the economy was directed and coordinated by means of economic plans that were formulated at all levels of administration. The reform program significantly reduced the role of central planning by encouraging off-plan production by stateowned units and by promoting the growth of collective and individual enterprises that did not fall under the planning system. The government also endeavored to replace direct plan control with indirect guidance of the economy through economic levers, such as taxes and investment support. Despite these changes, overall direction of the economy was still carried out by the central plan, as was allocation of key goods, such as steel and energy.

When China's planning apparatus was first established in the early 1950s, it was patterned after the highly centralized Soviet system. That system basically depended on a central planning bureaucracy that calculated and balanced quantities of major goods demanded and supplied. This approach was substantially modified during the Great Leap Forward (1958-60 see Glossary), when economic management was extensively decentralized. During the 1960s and 1970s, the degree of centralization in the planning system fluctuated with the political currents, waxing in times of pragmatic growth and waning under the influence of the Cultural Revolution and the Gang of Four.

At the national level, planning began in the highest bodies of the central government. National economic goals and priorities were determined by the party's Central Committee, the State Council, and the National People's Congress. These decisions were then communicated to the ministries, commissions, and other agencies under the State Council to be put into effect through national economic plans.

The State Planning Commission worked with the State Economic Commission, State Statistical Bureau, the former State Capital Construction Commission, People's Bank of China, the economic ministries, and other organs subordinate to the State Council to formulate national plans of varying duration and import. Long-range plans as protracted as ten and twelve years also were announced at various times. These essentially were statements of future goals and the intended general direction of the economy, and they had little direct effect on economic activity. As of late 1987 the most recent such long-range plan was the draft plan for 1976-85, presented by Hua Guofeng in February 1978.

The primary form of medium-range plan was the five-year plan, another feature adopted from the Soviet system. The purpose of the five-year plan was to guide and integrate the annual plans to achieve balanced growth and progress toward national goals. In practice, this role was only fulfilled by the First Five-Year Plan (1953-57), which served effectively as a blueprint for industrialization. The second (1958-62), third (1966-70), fourth (1971-75), and fifth (1976-80) five-year plans were all interrupted by political upheavals and had little influence. The Sixth Five-Year Plan (1981-85) was drawn up during the planning 1645 g period and was more a reflection of the results of the reform program than a guide for reform. The Seventh Five-Year Plan (1986-90) was intended to direct the course of the reforms through the second half of the 1980s, but by mid-1987 its future was already clouded by political struggle.

A second form of medium-range planning appeared in the readjustment and recovery periods of 1949-52, 1963-65, and 1979-81, each of which followed a period of chaos--the civil war, the Great Leap Forward, and the Gang of Four, respectively. In these instances, normal long- and medium-range planning was suspended while basic imbalances in the economy were targeted and corrected. In each case, objectives were more limited and clearly defined than in the five-year plans and were fairly successfully achieved.

The activities of economic units were controlled by annual plans. Formulation of the plans began in the autumn preceding the year being planned, so that agricultural output for the current year could be taken into account. The foundation of an annual plan was a "material balance table." At the national level, the first step in the preparation of a material balance table was to estimate--for each province, autonomous region, special municipality, and enterprise under direct central control--the demand and supply for each centrally controlled good. Transfers of goods between provincial-level units were planned so as to bring quantities supplied and demanded into balance. As a last resort, a serious overall deficit in a good could be made up by imports.

The initial targets were sent to the provincial-level administrations and the centrally controlled enterprises. The provincial-level counterparts of the state economic commissions and ministries broke the targets down for allocation among their subordinate counties, districts, cities, and enterprises under direct provincial-level control. Counties further distributed their assigned quantities among their subordinate towns, townships, and county-owned enterprises, and cities divided their targets into objectives for the enterprises under their jurisdiction. Finally, towns assigned goals to the state-owned enterprises they controlled. Agricultural targets were distributed by townships among their villages and ultimately were reduced to the quantities that villages contracted for with individual farm households.

At each level, individual units received their target input allocations and output quantities. Managers, engineers, and accountants compared the targets with their own projections, and if they concluded that the planned output quotas exceeded their capabilities, they consulted with representatives of the administrative body superior to them. Each administrative level adjusted its targets on the basis of discussions with subordinate units and sent the revised figures back up the planning ladder. The commissions and ministries evaluated the revised sums, repeated the material balance table procedure, and used the results as the final plan, which the State Council then officially approved.

Annual plans formulated at the provincial level provided the quantities for centrally controlled goods and established targets for goods that were not included in the national plan but were important to the province, autonomous region, or special municipality. These figures went through the same process of disaggregation, review, discussion, and reaggregation as the centrally planned targets and eventually became part of the provincial-level unit's annual plan. Many goods that were not included at the provincial level were similarly added to county and city plans.

The final stage of the planning process occurred in the individual producing units. Having received their output quotas and the figures for their allocations of capital, labor, and other supplies, enterprises generally organized their production schedules into ten-day, one-month, three-month, and six-month plans.

The Chinese planning system has encountered the same problems of inflexibility and inadequate responsiveness that have emerged in other centrally planned economies. The basic difficulty has been that it is impossible for planners to foresee all the needs of the economy and to specify adequately the characteristics of planned inputs and products. Beginning in 1979 and 1980, the first reforms were introduced on an experimental basis. Nearly all of these policies increased the autonomy and decision-making power of the various economic units and reduced the direct role of central planning. By the mid-1980s planning still was the government's main mechanism for guiding the economy and correcting imbalances, but its ability to predict and control the behavior of the economy had been greatly reduced.

Data as of July 1987