China - Growth and development in Gansu province (Vol. 3 of 4) : Annex B : industrial development issues

Report No. 6064-CHA China Growth and Development in Gansu Province Annex B: Industrial Development Issues November 20,1986 East Asia and Pacific Regionat Office FOR OFFICIAL USE ONLY only In the perforance of their official duties. its contents may not otherwise bedisciosed without World Bank authorization.  CURRENCY EQUIVALENTS The-Chinese currency is called Renminbi (RMB).-. It is denominated in Yuan (Y). Each Yuan is 1 Yuan = 10 jiao 100 fen Calendar 1985 October 1986 US$1.00 = Y 2.94 US$1.00 = Y 3.69 Y 1.00 = US$0.34 Y 1.00 = US$0.27 WEIGHTS AND MEASURES Metric System FISCAL YEAR January 1 - December 31 TRANSLITERATION The Pinyin system is used in this report. PRINCIPAL ABBREVIATIONS CBE - Communue and Brigade Enterprise GDP - Gross Domestic Product GITC - Gansu Investment and Trust Corporation GVIAO - Gross Value of Industrial and Agricultural Output GVIO - Gross Value of Industrial Output ICBC - Industrial and Commercial Bank of China MPS - Material Product System NMP - Net Material Product t/y - ton per year TVE - Township and Village Enterprise  FOR OMCIAL USE ONLY Preface As preliminary background for World Bank assistance to the province of Gansu, it was agreed in February 1985 that the Bank would undertake a review of development issues and options in the key sectors of agriculture, industry and human development. To this end, three missions visited Gansu in April/May, May/June and October/November 1985. Each mission traveled extensively in Gansu and saw agricultural projects, industrial enterprises, schools and health facilities. The missions also had numerous discussions and received helpful suggestions and much valuable information from government officials at central, provincial, prefectural and county levels. The support and contribution of all these people made possible the preparation of this report. The first mission covered issues in education and health. It was led by C.B. Baldwin and included I. Porter (senior economist), R. Drysdale (senior education economist), B. Ssarle (general educator), N. Prescott (health economist), S. Scheyer (public health specialist), J.C. Wang (consul- tant on education management), and W. P. Chang (consultant on public health). The second mission studied agricultural development. It was led by D.C. Pickering and included T. J. Goering (senior agricultural economist), J.B. Doolette (agriculturalist), R. Ng (agricultural institutions specialist), A. Piazza (agricultural economics consultant), C. Pereira (consultant on land management) and P. Shallow (consultant on irrigation). The third mission conducted further work in agriculture and human development and covered issues in industry and public finance. It was led by I. Porter and included R. Drysdale, J.B. Doolette, A. Piazza, C. Pohl (senior economist), J. Brown (agroindustries adviser), J. Chanmugam (senior industrial engineer), W. Byrd (economist), A. Kumar (economist) and U. Sae-Hau (research assistant). The following also contributed to the study: K. Hill (consultant on demography), Cai Jinyong (researcher), T. Bassler (editor), M. Cassidy (secretary). The report includes three annexes (agriculture, industry and education) as well as a main report which summarizes the findings on specific sectors and highlights some of the development options facing Gansu. The report is selective in its coverage of sectors and topics and a number of issues of potentially major importance to Gansu (e.g., interprovincial trans- port) have not been addressed. The report should therefore be viewed prima- rily as input into the central and provincial government's thinking about, future policies and programs for Gansu. Drafts of t-he main report and the annexes were discussed with the central and provincial governments in April/May 1986 and have been revised to take account of their comments. This document has a restricted distributiot, and r ay be used by recipients only in the performance of their official duties. Its contents may not oihe' lise be disclosed without World Bank authorization.  CINA- GROWTH AND DEVELOPMENT IN GANSU PROVINCE Amnex BR Industrial Development Isues in ansu Table of Contents Page No. I. INDUSTRIAL DEVELOPOENT AND STRUCTURE......................., * I Building Basic Industries. 1949-1979... 3 Adjustment and Reform, 1979-1984 ........................ 5 Ownership Structure. ................... 8 Employment and Wages ................... * ,1 Industrial ............................. . . . 14 II. RURAL INDUSTRY............................................ 20 Rural Industry Development, Past and Present...*....*..*..*** 20 Rural Nonagricultural Development - the Asian Experience.... 24 Prospects for Rural Industry and Services in Gan9u,.......... 30 Development Issues....................... 36 III. URBAN INDUSTRY..,.................. 40 Ownership and Control ................. ........ - 40 Hesivy ........... 42 Light Industrys ........ 47 Development Issues... ......... ......... . . .--.-..-.--. 59 IV. PROSPECTS AND POLICY OPT T OS....................... 52 Creating Productive Employment.. **a#.* .. ...*.*.......... 6@4 4. 52 .Wage Flexibility. ........ . 54 Investment Decisions and Financing........................... 57 Technology Transfer and Development6 e 60 Institutional Spot63  Page No. TABLES IN TEXT 1.1 Cansu: Sectoral Composition of Output and Employment, 1982 ......... 2 1.2 Gross Industrial Output Value (GVIO), 1949-84 ....................... 0 4 1.3 Share of Light Industry in Capital Construction of State-Owned Enterprises, ................................................. 7 1.4 Total Investment by State Enterprises, 1983.........................4 8 1.5 Gross Industrial Output (GVIO) by Ownership, 1979-83................. 10 1.6 Sectoral Composition of Employment, 1982........,.................... 11 1.7 Value-Added per Employee Ratio by Sector ............................. 12 1.8 Urban Wages and Rural Incomes, 1978-84.............................. 13 1.9 Wages by Type of Enterprise, 1983.................................... 14 1.10 Gross Fixed Assets per Employee by Type of Enterprise, 1983.......... 15 1.11 Productivity Indices of State Enterprises in Gansu, 1975-82 .......... 16 1.12 Total Factor Productivity Growth..................................... 18 2.1 Employment and Output Growth of Commune and Brigade Enterprises (CBEs) ......................... ......... o...........**... 23 2.2 Percentage of Rural Labor Force with Primary Employment in Non-Farm Activities,.. ................. ......* 9 * .9* 26 2.3 Shares of Off-Farm Income and Nonfarm Income in Total Farm Household Income, Asia.. ..................... 27 2.4 Composition of Rural Off-farm Employment ................. ... 32 2.5 Composition of Industrial Township and Village Enterprise Output ..... 33 4.1 Employment Projections, 1982-2000................. .................... 53 APPENDICES 1. Conditions and Prospects for Selected Agroindustries 2. Institutional Support for Rural Industries 3. Costs of Electric Power Generation in Gansu 4. Profiles of Selected Enterprises in Gansu 5. Selected Industrial Statistics TABLES IN APPENDICES 3.1 Costs of Electric Power Generation for the Daxia Hydropower Station in Gansu 3.2 Costs of Electric Power Generation for a Thermal (Coal) Power Station at a Coastal Location (Beilungang Project) 3.3 Costs of Electric Power Generation from Gansu to Beijing/Tianjin 3.4 Gansu Electric Power Statistics, 1984 3.5 Gannu: Five Year Average Hydrological Data for t:e Liujiaxia Reservoir, 1980-84 5.1 Gross Value of Industrial Output 5.2 Gansu: Gross Industrial Output Value (GVIO) 5.3 Jiangsu: Gross Industrial Output Value (GVIO) 5-.4 China: Gross Industrial Output Value (GVIO) 5.5 Gross Value of Industrial Output by Industrial Subsector, 1V83 5.6 Growth of Gross Value of Industrial Output (GVIO), 1949-84  - iii - 5.7 Industrial Output by Ownership (including Village Enterprise Industrial Output), 1979-83 5.8 Industrial Structure 5.9 Investment in Capital Construction by Broad Industrial Subsector 5.10 Investment in Capital Construction and Technical Renovation-in-State Enterprises, 1983 5.11 Fixed Assets by Industrial Subsector at Original Cost, 1983 5.12 Ratio of Fixed Assets at Original Value and Employment by Industrial Subsectorp 1983 5.13 Cansu: Industrial Employment, 1980-84 5.14 Jiangsut Industrial Employment, 1980-83 5-15 China: Industrial Employment, 1980-84 5.16 Total Factor Productivity of State Enterprises 5.17 Township and Village Enterprise (TVEs) - All Sectors 5.18 Industrial Township and Village Enterprises (ITVEs) 5.19 Number of Township and Village Enterprises (TVEs) 5.20 Employment of Township and Village Enterprises (TVEs) 5.21 Gross Output of Township and Village Enterprises (TVEs)  I. INDUSTRIAL DEVELOPMENT AND STRUCTURE 1.01 By historical or international standards, Gansu province has experienced-rapid economic growth during the past five years. However, compared to the national average, economic growth in Gansu has fallen behind. Provincial net material product per capita in 1984 was only 79X of the national average, compared with 85Z in 1980. This decline occurred despite favorable weather and above-average growth of agricultural produc- tion. The reason for the below-average performance of the provincial economy was the laggirn growth of industrial production in the state sector and the slow emergence of smaller collective industrial enterprises under village, township, or county-level ownership and control. Efficient industrial development is the key to stopping or reversing further slippage in relative economic performAncet creating sufficient numbers of nonagricultural activities and narrowing the widening gap between incomes in Gansu and those in more advanced coastal provinces. The objective of this Annex is to analyze the conditions and prospects for efficient industrial development in Gansu and to discuss policy options at both the national and provincial levels. This chapter will review developments in the industrial sector in Cansu in the light of national and international experience on the basis of available quan- titative data. To illustrate how Cansu compares with China's more developed coastal provinces, Jiangsu province is frequently used as a comparator. 1.02 Unfortunately, published historical statistics for Gansu province and China are limited to only a few major indicators. National-income accounts are available for Material Product System (MPS) concepts only and are limited to net material product (NMP) at current prices for five broad sectors (agriculture, industry, construction, transport, commerce) and two experditure categories (consumption and accumulation). This considerably limits interna- tional comparison, as the large majority of developing and industrialized countries use the broader gross domestic product (GDP) concept of the United Nations System of National Accounts (U.N. SNA). Furthermore, China's sectoral classification is different from the U.N. Standard Industrial Classification which is commonly used in other countries. More detailed statistics of indus- trial production are available only in terms of gross output value -- entail- ing different (and changing) degrees of double counting between different sec- tors and regions, or over time. Comparison across sectors and regions or over time is therefore tenuous, even within China. For these reasons, tables in this chapter are presented according to U.N. SNA concepts wherever feasible (i.e., including aonmaterial services, and avoiding double-counting of production). 1.03 Table 1.1 presents four different ways to look at the role of industry in Cansu's economy. The first three are different ways to measure economic activity (output) and the fourth shows the share of industry in total employment. According to the first, and in China most frequently cited measure, the gross value of agricultural and industrial output (GVIAO), the industrial sector is indeed very important to Gansu's economy: 72X of GVIAO originates in the industrial sector. However, as the next columns show, this measure is highly misleading on two counts: it excludes a substantial part of  -2- the economy, and it involves a lot of double counting, especially in the industrial sector. Using the Chinese national income concept (net material product: NMP), the importance of industry in Cansu decreases sharply to about 452 as material service sector' (construction, transport, commerce) are included, and double counting of production is eliminated. The share of agriculture increases, despite the addition of other sectors, due to the smaller extent of double counting in agriculture. The NMP measure is already a very significant improvement over GVIAO. Unfortunately, virtually all detailed production statistics are only available in terms of GVIAO. If the gross domestic product (GDP) measure of national income is used (i.e., includ- ing the output of nonmaterial service sectors such as banks, research institu- tions, public adminis,ration, etc.), and some hidden service sector employment in industrial enterprises is reclassified as "services", the share of the services sector (excluding construction) increases from 16% to 23%. 1.04 By international standards, the share of industry in Gansu is still very large (52% of GDP, including construction). Among developing countries, only a few countries with very large mining or petroleum extraction sectors (Congo and Algeria) have a similarly large share of industry. Among indus- trialized economies only a few socialist countries have a similar (or slightly higher) share of industry in GDP. Looking at employment holiever, the situa- tion changes dramatically: only 11X of Gansu's labor force is employed in industry, while in most other countries the shares in output (GDP) and employ- ment are much closer, and in industrialized countries are almost identical. The reason for this unusual relation between output and employment in Gansu is the low productivity of agriculture (employing 76% of the labor force) and the high concentration of industry in the provincial capital. Table 1.1: GANSU: SECTORAL COMPOSITION OF OUTPUT AND EMiPLOYMENT, 1982 (Z) GVIAO NMP GDP /a Employrment lb Agriculture 28 32 26 76 Industry 72 - 45 44 11 Construction - 7 7 2 Transport - 5 4 2 Commerce - 11 9 3 Nonmaterial services - - 10 6 Total 100 100 100 100 /a Main Report, Appendix A, Table 9. 7- Adjusted for part-time agricultural workers. Source: Provincial statistics, 1982 Population Census.  3- Building Basic Industries-,11949-1979- 1.05 Industry in Gansu has progressed remarkably over the past three decades. The gross value of industrial output (CVIO) in 1979 was Y 8,279 mil-- lion, or about 80 times that of 1949 (both at 1980 prices), compared with a roughly 40-fold increase in industrial production nationwide. This rapid real growth at 1early 16Z p.a. was mostly due to the tremendous expansion of heavy industry,' increasing at about 21% p.a., compared with 16% p.a. nationwide. Light industry grew more slowly at 10% p.a., slightly below the national average of 11% p.a. As a result, per capita GVIO (in 1980 prices) increased from about Y 10 in 1949 to Y 437 in 1979, or 931 of the national average, from less than 50X in 1949. Per capita industrial output in one of the most developed coastal provinces, Jiangsu, was nearly three times that of Gansu in 1949, but only 40% higher in 1979. - 1.06 These dramatic changes in China's industrial landscape were the conscious result of central planning. The industrial development of the provinces in the remote and undeveloped Northwest was an important element of China's socialist development strategy, geared towards rapid development of heavy industry and equalization of regional and other income differentials. 1.07 The rich mineral resource endowment of Gansu with nonferrous metal ores, petroleum, coal and hydropower provided the logical starting point for the central planners. The First Five-Year Plan (1952-57) included a large refinery in Lanzhou, and a petroleum equipment and machinery plant to exploit the Yumen oilfield near Jiuquan, which was the largest oilfield in China at that time. Later, a large petrochemicals complex was built in Lanzhou to complement the refinery. Other major undertakings included a copper smelter in Lanzhou and a nickle mine and smelter in Jinchuan. The Liujiaxia hydro- power station with 1,160 MW was completed in 1969 and meets a large share of the power requirements tor these energy-intensive heavy industries. As a result of these and other major heavy industry projects, the share of heavy industry in Gansu increased from 22Z in 1949 to 82% of GVIO in 1979, far above the national average of 471 (Table 1.2). 11 Chinese statistics differentiate between heavy and light industry according to the use of products. Light industries produce primarily consumer goods, heavy industries producer goods. For multiproduct enterprises the entire production is assigned to either light or heavy industry according to the type of its principal products. Unfortunately, the breakdown of industrial statistics into heavy and light industry is not available in all cases. For this reason a broader sectoral classification of "heavy" (metallurgy, power, coal, petroleum, chemicals, machinery, and building materials) and "light" industry (wood, food, textiles- clothing, leather, and textiles) is sometimes used.  -4- Table 1.2: GROSS INDUSTRIAL OUTPUT VALUE (cVIO), 1949-84 Composition(Z) [a Growth (Z p.a.) lb 1949 1979 1984 1985 1949-79 1979-82 1983 1984 Cansu Light 78 18 23 25 10.0 8.5 7.3 12.7 Heavy 22 82 77 75 21.3 -3.1 9.7 10.8 Total 100 100 100 100 15.7 -0.8 9.1 11.2 Jiangsu Light 94 53 59 11.1 15.4 12.1 17.6 Heavy 6 47 41 80.8 6.5 14.8 22.1 Total 100 100 100 13.2 11.5 13.2 1 19.4 China Light 74 43 50 11.0 13.2 8.7 13.0 Heavy 26 57 50 16.5 2.0 12.4 14.2 Total 100 100 100 13.3 5.0 10.5 14.0 /a 1949 at 1952 prices; 1979 and 1984/85 at 1980 prices. T. At 1980 prices. Sources: Statistical Yearbooks of China; Almanac of China's Economy; Provincial data. 1.08 Although these achievements are impressive, the emphasis on heavy industry was not without problems. Many heavy industry projects were well conceived, exploiting Gansu's mineral resource endowment to provide a compar- ative advantage over other locations with better transport facilities, better trained labor and direct access to markets, but some of the projects were not so well conceived. For example, several iron and steel plants were built with little regard for technical and economic efficiency. One plant was built in Jiuquan in northwest Gansu near iron ore and coal deposits to produce only pig iron, while another plant was built 1,000 km away in Lanzhou to produce only steel but no pig iron. The first plant was under national government control- and the other was provincially owned and controlled. With separate planning and-materia1 allocation systems, lack of coordination in investment planning was carried over into lack of coordination in operating the plants. This lack of coordination along with the construction of several other uneconomical small plants, led to heavy financial losses in the iron and steel industry in Gansu Province, and economic losses were even larger. 1.09 Another problem of the heavy industry strategy is the excessive spatial concentration of industry and the lack of linkages with other indus-  trial subsectors and with agriculture. The provincial capital, Lanzhou, accounts for over SOX of provincial gross industrial output, compared with only 15X for Nanjing, the capital of Jiangsu. In other words, industrial output per capita in Lanzhou is very close to that-of Nanjing but industrial production per capita outside the provincial capital in Gansu is only about one-quarter of that in the rest of Jiangsu. While the heavy industry strategy of the past three decades has helped to move Lanzhou toward the level of coastal cities, it has failed to do so for the rest of the province, where over 9QZ of the population live. Lanzhou has remained an industrial enclave within a poor and predominantly agricultural province. 1.10 Another legacy of the heavy industry strategy is the unbalanced sectoral composition in Gansu. Heavy industry accounts for a very large share of total output (Table 1.2) and is dominated by metallurgy, power and petroleum, while chemicals, machinery and building materials have sectoral shares close to the national average (Appendix 5, Table 5). Among li&ht industries, textiles and clothing are particularly underrepresented, followed by food processing, while the share of leather goods is close to the national average due to the presence of a substantial livestock industry in Gansu and the Northwest. Adjustment and Reform, 1979-84 1.11 By 1979, the basic flaws of the past industrialization strategy had been recognized by China's leaders and a period of "readjustment, restructur- ing, consolidation and improvement" was inaugurated to redress the imbalances. Previous policies were now being criticized as having overemphasized heavy industry and "production for production's sake" at the expense of attention to the needs being served. Production had remained divorced from customers' needs. As a result, living standards were hurt, and the economy suffered from shortages of consumer goods, building materials, electricity, spare parts and other items. Deliveries of goods and materials under the state plan were not dependable. Construction capacity was overextended and too many projects were started, particularly in heavy industry, so that investments took much too long to complete. Meanwhile, a significant fraction of the goods produced could not be used and instead were stockpiled in state warehouses. 1.12 A related criticism was that not enough attention had been given, particularly in 1966-78, to the efficient use of resources. Thus, inefficient enterprises, once established, were allowed to make losses and use excessive quantities of energy and materials. Too much emphasis was placed on indus- trial self-sufficiency within each region and organizational uni;. Both small and large plants were built to be "complete," based on a high degree of vertical integration, while opportunities were neglected for creating an efficient division of labor through specialization. Industrialization programs put to' much emphasis on immediate gains in production; investments in support of industry were neglected, notably in mining, transport, communi- cations and power. Particular excesses occurred by "taking steel as the key link" and overinvesting in metallurgical industry. Meanwhile, light industry was badly neglected, along with agriculture and the so-called nonproductive investments such as housing, education and cultural facilities.  -6- 1.13 In Csnsu, these problems c ce particularly evident. While only 11% of industrial capital construction _ during the preceding 25 years were for light industry nationwide, in Gansi it was eyen less at 4%. Using a broader (sectoral) definition of 0light" industries - the figures are similar: lwlightv%tndustryq thus definedt accounts for only 5% of industrial fixed assets 4 in Gansu compared with 15% nationwide. 1.14 The new policy framework first announced in early 1979 was designed to counteract and gradually overcome these problems. The Government decided to reduce aggregate pressures on the national economy by slowing the rate of growth, particularly in heavy industry, by cutting back capital construc- tion. At the same time, efforts were made to correct the imbalances, relieving sh:>rtages and removing bottlenecks. Within industry, light industries and a few bottleneck sectors were given much higher priority in investment allocation. Other industries were given new goals, including adjusting output to customer needs, advancing technology, beginning restructuring and creating a wider division of labor, for example, through subcontracting. Throughout industry, steps were taken to economize on raw materials and energy, and on working capital. There were also experimental reforms designed to give enterprises greater autonomy, including gradual relaxation of the rigid state material allocation system, new types of contracts, some competition among enterprises, especially in consumer goods industries, and.the beginning of an officially condoned parallel market in producer goQVs that had previously been available only through plan allocation.- 1.15 In Gansu these reforms did not go as far as elsewhere, but at the same time the burden of the adjustments was felt more in Gansu than elsewhere, due to the predominance of heavy industry and a large number of inefficient state enterprises that had to be restructured or closed down. Gross indus- trial output declined by 10% between 1979 and 1981 in Gansu but increased by 13% nationwide, as heavy industry production was cut back by 16% in Gansu during 1979-81 and only 3% nationwide. Only in 1983 and 1984 did industrial growth resume in Gansu at a rate close to the national average (Table 1.2). Similarly, more advanced provinces, like Jiangsu, were quick to shift invest- ment towards more.profitable and empLoyment-generating light industries, while the traditional investment pattern, dominated by heavy industry, continued 2/ Investment in capacity expansion, excluding technical renovation of existing plants. 3/ Wood, food, textile, leather, paper and miscellaneous industries; see footnote 1. 4/ At original values (excluding depreciation). 5/ For example, until 1982, 100% of the output of major machine tool manufacturing plants was subj-ect to plan allocation. By 1985, the share of plan allocation had declined to about 50% for a sample of 45 major machine tool plants in Shanghai.  -7- unchanged in Gansu (Table 1.3). The investment shares given in Table 1.3 include only capital construction investment, that is, new plants and capacity expansion, and exclude technical renovation investments, due to data avail- ability for earlier years. Technical renovation investments have become much more significant in recent years and are more evenly divided between heavy and l.ight industry (see below). Table 1.3: SHARE OF LIGHT INDUSTRY IN CAPITAL CONSTRUCTION OF STATE-OWNED ENTERPRISES, 1979-84 (% of industry total) 1980 1981 1982 1983 1984 1985 Gansu ... 11 9 7 7 Jiangsu ... ... 22 37 37 21 China 12 18 20 18 14 12 Source: Provincial data; Statistical Yearbook of China, 1981-85. 1.16 The differences shown in Table 1.3 are even more dramatic if invest- ment of collectively owned units in urban and rural areas are added. In Jiangsu, investment of collective enterprises in ciies and towns in 1983 was of the same magnitude as that of state enterprises.s In Gansut capital construction investment of collective enterprises was only equivalent to about 10% of that of state enterprises. Even in Gansu, investment of collectivE enterprises is more balanced, with about one half in "light" industries.7' Adding collective enterprises thus increases the share of "light" indusyies in total industrial capital construction in 1983 to about 11% in Gansu_- and to 43% in Jiangsu. Adding technical renovation funds increases the share of "light" industries in total industriai investment in Gansu further to about 12Z in 1983 and 17% in 1984. The increase in 1984 is entirely due to an increased allocation of technical renovation funds to "light" industries (28% in 1984, up from 20% in 1983). "Heavy" industry stilL accounted for over 92% of capital construction of state enterprises, and basic metal industries alone for 34%. For the more narrowly defined manufacturing sector (i.e., excluding ,mining and power), the share of "light" industries in state enterprise capital construction was 9% in 1983 (compared with 23% nationwide). Table 1.4 gives the distribution of total investment (capital construction plus technical 6/ Excluding village and other (e.g., private) enterprises. 71 Defined again on a subsectoral basis (wood, food, textiles, etc.). 8/ Assuming (conservatively) that "light" collective industries in Jiangsu account for the same share of collective industry investment as in Gansu.  -8- renovation) of state enterprises in 1983 for the broadly defined industrial sector and for the manufacturing sector. "Heavy" and "light" industries are again defined on a sectoral basis, rather than by type of product, due to data availability. Table 1.4: TOTAL INVESTMENT BY STATE ENTERPRISES, 1983 Industrial Sector Man icturing Sector (Z of industry) (Z of manufacturing) Gansu China Gansu China 1983 1983 1983 1983 "Heavy" industries 89 68 85 59 (of which: metallurgy) (27) (11) (41) (13) "Light" ind: tries 11 32 15 41 Total 100 100 100 100 (Y million) (822) (64,011) (639) (50,662) Note: Includes capital construction plus technical renovation. Source: Provincial data; Statistical Yearbook of China, 1984. 1.17 The share of investment in light manufacturing industries in China in 1983 shown in Table 1.4 are quite "normal" by international standards. It is interesting to note that total manufacturing investment of state enter- prises in Gansu today is still more biased towards heavy industry (85%) than it was on average in China during the past three decades of heavy industry development (75%). Today it is widely accepted in China that past industrial investmn.ts were too heavily biased in favor of heavy industries. Ownership Structure 1.18 Continued predominance of heavy industry in investment allocation is one major reason for the slow growth of industrial production in Gansu over the past five years. Continued dominance of state enterprises and the slow  91 emergence of collective enterprises 21 is another and closely related factor. In the more advanced coastal provinces, counties and townships in urban and rural areas have been quick to take advantage of the relaxation of the material allocation system and the emergence of parallel markets for nearly every imaginabLe product. In Jiangsu for example, the output of rural township and village enterprises increased by over 30% p.a. during 1976-79 and over 20% p.a. during 1979-83 and now accounts for about one quarter of indus- trial production. Larger urban cotlectives also grew rapidly. By contrast, development of rural and urban collective enterprises in Gansu has been slow. During 1979-82, gross output of commune and brigade enterprises, now renamed township and village enterprises (TVEs) increased by only 1.5% p.a., and employment actually declined with the closing of some of the small and inefficient "five small industries" enterprises which had been promoted during the Cultural Revolution to advance industrial self-sufficiency in rural areas. Significant growth of rural enterprise output and employment did not return until 1983, with recent growth rates (1984 and 1985) close to the national average. In 1984, gross output growth of industrial township and village enterprises sharply accelerated to 27% in Gansu and 39% in China, while employment growth increased to 20 and 18% respectively (from 3-4% in the preceeding years). Provisional data for 1985 indicate similarly rapid growth (Chapter 2). 1.19 The share of urban and rural collective enterprises in total indus- trial output in Gansu is still very small (7-8%), especially if compared with an advanced coastal province such as Jiangsu, where collective enterprises account for 40-45% of industrial output. Table 1.5 gives the composition of 91 Most collective enterprises are owned and operated by local govern- ments. They fall into two categories: rural enterprises (township and village enterprises, formerly called commune and brigade enterprises) and urban collectives. Small urban collectives are run by the neighborhood (jiedao) which is of the same administrative level as the township. These small rural and urban collectives have full resronsibility for pr-o- fit and loss and are required to pay taxes. Large cuWlectives are admin- istered by provincial, prefectural (municipal) or county (district). industrial bureaus depending on size and sectoral characteristics. These industrial bureaus are also in charge of state enterprises and in prac- tice there is very little difference between these larger collectives and state enterprises. However, investment funds are not fungible between state and collective enterprises. Unfortunately, statistics on collec- tive enterprises are published in separate, and partly overlapping, sources. The State Statistical Bureau data on industrial output and collective enterprises exclude industrial village enterprises, while the Ministry of Agriculture, Animal Husbandry and Fisheries publishes data on township and village enterprises excluding urban and county level rural collectives. While a breakdown into industrial and other enterprises is available for township and villag-e enterprises together, it is not avail- able separately for village enterprises. These categories are presently being revised.  - 10 - gross value of industrial outputl