Properly Readjust Industry and Commerce

In the early days of the founding of the People's Republic of China, the Central People's Government carried out its work in order to implement the new democratic economic policy, strive for a basic improvement in the financial and economic situation of the country, help private industry and commerce overcome difficulties and guide them along the path of state capitalism. Readjusting urban industry and commerce with a balance between public and private sectors was an important step in implementing the new democratic economic policy and striving for the basic improvement of the financial and economic situation of the country.

In Mao Zedong's written report to the Third Plenary Session of the Seventh Central Committee of the CPC, “Fight for the Better in the Nation’s Financial and Economic Situation”, Mao Zedong regarded "proper readjustment of existing industry and commerce" as one of the three important conditions for fundamental turn for the better in the financial and economic situation.

In the months following the founding of New China, the semi-colonial and semi-feudal economy in the past gradually transformed into a new democratic economy in which various economic components are divided and cooperated under the leadership of the state-run economy and each in its own way, through a series of measures such as cracking down on speculative capital, stabilizing prices, and unifying the national financial and economic work. The process of economic transition was inevitably painful to a certain degree.

In March 1950, after the central government took effective measures to overcome inflation, the production and operation of private industry and commerce experienced serious difficulties, and many urban factories were underemployed, and the market was depressed. According to the statistics, from January to April 1950, 2,945, private factories were closed in 14 large and medium-sized cities nationwide and 9,347 private stores went out of business in 16 cities. This situation affected the stability of the people in the society, and the national bourgeoisie was even more in a state of perpetual panic.

From May 8 to 26, 1950, the Finance and Economics Committee of the State Council of the Central People's Government convened a meeting of directors of industry and commerce of seven major cities to propose measures and methods for expanding processing and ordering, increasing industrial capital turnover, improving business management, and readjusting the relationship between production and marketing, in response to the stagnant sales of commodities, compressed production, closed stores and increased number of unemployed workers from April. After June, local people's governments began to apply readjustments to industry and commerce.

This readjustment of industry and commerce was based on the basic policy of "balance between public and private, balance between labor and capital”, and focused on three main aspects, namely, the readjustment of public-private relations, labor-management relations and production-marketing relations, with emphasis on the adjustment of public-private relations, i.e., the relationship between the people's government, the state-run economy and private capitalism. The main measures adopted in the readjustment were, first, to strengthen the processing and ordering of private industry and commerce; second, to put in money, to purchase agricultural and local products, and to expand urban-rural exchanges. Through processing, ordering and exclusive sells, the state brought private industry into the orbit of the state plan and made it gain legitimate profits; and it also took care of private businesses by means of distribution and exclusive sells, so as to make them profitable; and reduced tax rates appropriately to ease their burden.

The readjustment of labor-management relations was mainly based on the principle of mutual benefit earned by labor and management, with the management committing to safeguard the democratic rights of the workers; the workers should act in a way which will be conductive to promote production so that management can earn reasonable profits. The disputes between labor and management should be settled by negotiation, and if negotiation fails, the government would arbitrate to resolve the dispute. The readjustment of the production and marketing relations mainly aimed to help the private industry to produce according to the needs of the market and overcome the blind nature of production. By the autumn of 1950, the work of rational readjustment of industry and commerce was basically completed. By 1952, the readjustment of industry and commerce was wholly completed. With the rational readjustment of industry and commerce, the leading position of the state-run economy and the capacity of the state to regulate the national economy were further strengthened.

The People's Government helped the private industry and commerce overcome their difficulties, so that private industry and commerce which were conducive to the national economy and people’s livelihood developed more rapidly, while private industry and commerce that are not conducive to the national economy and the people's livelihood were restricted, and the forms of state capitalism such as processing, ordering, distribution and consignment were developed, so that the production and operation activities of some private industry and commerce directly incorporated into the orbit of state capitalism, which laid the foundation for the socialist transformation of capitalist industry and commerce.