China Plans to Implement Market Reforms This Year : Economy: But Beijing will keep a dominant role for state ownership as it shrinks direct government control of business.

China plans to implement a broad range of market-oriented economic reforms this year while preserving a dominant role for state ownership, the official New China News Agency announced Friday.

Key to the reforms will be an effort to make state-owned enterprises “become real market competitors step by step,” the news agency reported.

“The deepening of reforms in 1992 is mainly focused on decreasing direct government administration over economic affairs and enlarging the scope of indirect government macro-control over economic fields,” the agency said.

It based its report on a soon-to-be-published issue of “Outlook,” an official weekly magazine often used as an outlet for policy announcements.

“The state will further loosen its control over price and market, and more securities-exchange markets will be opened in big cities,” the news agency added. The government will make greater use of such methods as regulation of currency supply and interest rates to guide the economy, the report indicated.

State-run enterprises under ultimate control of the central government accounted for slightly more than 50% of industrial production during 1991. These enterprises, which largely operate under central planning, have shown slow growth rates and low profitability. At least a third of them required government subsidies last year simply to continue operating.

Almost 40% of industrial output now comes from the predominantly rural “collective” sector of the economy, which is expanding rapidly. These enterprises, usually run by local governments, tend to operate in competitive markets, both to buy raw materials and to sell finished products. The rest of China’s industrial production comes from small private firms, individual households or foreign-investment operations.

China’s reforms in the 1980s were aimed largely at developing the market-oriented collective, private, individual or foreign-linked sectors of the economy.

Friday’s report on plans for 1992 stresses that the next step is to increase the degree to which market forces affect big state-owned firms.

State-run firms have traditionally provided not only secure employment, but also housing, health care, pensions and other services.

From the 1950s to the early ‘80s, raw material prices were kept artificially low and consumer goods prices were kept artificially high. While economically inefficient, this system produced steady profits that were turned over to the government for investment and services. Under the impact of reforms, this system is breaking down.

During the coming year, China will take steps to restructure the country’s tax and banking systems “to create an equal footing for all enterprises, whether state-owned or not, to compete on markets,” the New China News Agency said. It did not provide details.

But large state enterprises generally carry a heavier tax burden than do firms in the market-oriented sector. The government now seems intent on spreading the tax burden more evenly.

Steps are also to be taken to ease state-run firms out of their social welfare role.

“The state will speed up its restructuring of systems of marketing, housing, labor and social welfare,” the official news agency said.

The report noted that “2,227 counties and cities have been experimenting with a new pension-raising system to have local governments in charge of the fund-raising.”

One obstacle to throwing state enterprises into a full market environment has been that this would lead to bankruptcy for some firms, not only creating unemployment but also leaving retirees without pensions.

New ways to provide social security and pensions are thus seen by many Chinese economists as a prerequisite for submitting state enterprises to complete market discipline.

Housing, now provided by employers to urban residents for rents of only a few dollars a month, presents a similar issue. Authorities have previously announced an effort to commercialize housing over a period of about a decade.