CHINA'S INDUSTRIAL SECTOR has shown great progress since 1949, but in the late 1980s it remained undeveloped in many respects. Although the country manufactured nuclear weapons and delivery systems and could launch domestically-produced satellites, many of its industries used technologies of the 1950s. Although China was one of the world's largest producers of fuel in the mid-1980s and had the world's largest hydropower potential, frequent energy shortages caused lengthy factory shutdowns. Despite massive coal reserves in north China, transportation deficiencies necessitated coal imports to south China. Research institutes developed sophisticated industrial technologies, but bureaucratic and political obstacles impeded implementation.

To solve these and other problems, the Chinese leadership initiated sweeping economic reforms in the late 1970s. Although specific industrial reforms were not clearly defined, broad goals included loosening bureaucratic controls on enterprises and managers to promote a decentralization of authority. Other broad goals were to increase worker productivity by offering incentives to give market forces greater influence on output mix, purchases, sales, and hiring to make enterprises operate more efficiently and be responsible for profits and losses and to restructure the price system to reflect supply and demand more accurately.

Another major goal of the reform program was development of light industry. Beginning with the First Five-Year Plan (1953-57), China adopted the Soviet model of economic development, stressing a heavy industrial base. However, this emphasis seriously strained China's resources and capital and led the leadership in the late 1970s to shift to development of light industry. Because light industry is labor intensive, this shift helped to alleviate unemployment. It also satisfied growing consumer demand, which had not been met because of overemphasis on heavy industry. Another reason for diversification into light industry was the desire to increase exports to obtain much-needed foreign currency.

By the mid-1980s, industrial reforms had achieved substantial success in some areas. Industrial output was about twenty-five times that of 1952. A wide range of modern industries had been established, and the country was one of the world's leading producers of coal, textiles, and bicycles. There were major plants in almost every key industry, and a strong effort had been made to introduce manufacturing into undeveloped and rural areas (see fig. ___, Major Industrial Areas and Facilities, 1983). Light-industry output of consumer goods had increased dramatically. In some cases, enterprises reduced operating costs, managers were able to exercise greater autonomy, and technical innovations were implemented to increase efficiency.

Despite these bright spots in the 1980s, overall results were disappointing to Chinese economic planners. Major problems included failure to reform the price system, interference of local cadres in the managers' operation of enterprises, and perpetuation of the life tenure, "iron rice bowl" system (see Glossary) for workers. Rapid industrial growth made energy shortages one of the most critical problems facing the economy, limiting industrial enterprises and mines to 70 or 80 percent of capacity. According to China's energy planners, the country would have to quadruple electricity production to meet the gross value of industrial and agricultural output (GVIAO) target for the year 2000. For a quick increase in output, the industry emphasized short-term development of thermal power plants. In the long term China planned to rely on its vast hydropower potential and nuclear power to meet electricity demand.

In the 1980s large-scale, centrally controlled plants dominated manufacturing. These large plants were supplemented with many small-scale town and township enterprises, which accounted for significant percentages of national output of coal, construction materials, and leather products.

Data as of July 1987