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CIRCULAR OF THE GENERAL OFFICE OF THE STATE COUNCIL ON THE TRANSMISSION OF THE SUGGESTIONS OF THE STATE COCOON-SILK COORDINATION GROUP CONCERNING THE REFORM OF THE COCOON-SILK OPERATIONAL AND MANAGEMENT SYSTEM

    The Suggestions Concerning the Reform of the Cocoon-Silk Operational and
Management System of the State Cocoon-Silk Coordination Group have been
approved by the State Council and are hereby transmitted to you for
implementation in the light of the actual conditions of your respective
regions.
APPENDIX: THE SUGGESTIONS CONCERNING THE REFORM OF THE COCOON-SILK
OPERATIONAL AND MANAGEMENT SYSTEM (October 10, 1996)

    With a view to changing the present status of weakness in macro-control in
the cocoon-silk industry, separation of trade, industry and agriculture,
dislocation in production, supply and marketing and export competition at low
prices by multi-channels in the operational system, and establishing a
cocoon-silk operational and management system in conformity with the
requirements of the development of the socialist market economy, and in
compliance with the spirit of the instructions of the leadership of the State
Council, the following suggestions concerning the reform of the cocoon-silk
operational and management system are put forward:

    1. Principles and Objectives of the Reform

    The reform of the cocoon-silk operational and management system should, in
line with the basic requirements for the establishment of the socialist market
economy system and modern enterprise system, effect the separation of the
government from the enterprises, break regional blockade and departmental
compartmentalism, and strengthen and perfect macro-control to promote the
formation of a unified socialist market; embark on the road of forming
entities with the establishment of integrated trade, industry and agriculture
cocoon-silk group corporations in accordance with the principle of
voluntariness and with the market as the guidance; manage satisfactorily the
interests of agriculture, industry, commerce and trade and mobilize the
enthusiasm of all sides by adhering to the principle of reciprocity and
mutual benefit and with assets as the linkage; center on the improvement in
economic performance, increase the income of farmers, promote the benign
development of the industry, expand export and foreign exchange earnings,
increase handing-over of profit-tax, make the distribution channels smooth and
realize the transformation of the mode of economic growth from the extensive
type to the intensive type so as to promote sustained, steady and healthy
development of the cocoon-silk industry.

    2. Formation of Provincial (Municipal) Cocoon-Silk Group Corporations

    The major cocoon-silk producing provinces (municipality) (Zhejiang,
Jiangsu, Sichuan, Shandong, Anhui and Guangdong Provinces and the city of
Chongqing) shall be the focus in the formation of integral trade, industry and
agriculture cocoon-silk group corporations. All major cocoon-silk producing
provinces (municipality) shall, on the basis of in-depth investigation and
study and repeated authentication, put forth proposals for the formation
taking into consideration the actual conditions of the localities; study and
work out qualifications of the enterprises required to join the group
corporations including scales of the enterprises, quality of products,
management standards and economic performance; sort out and consolidate silk
reeling mills and silk spinning mills, close down and suspend the operations
of a number of small-scale enterprises turning out products of poor quality,
amalgamate them with others or switch to the manufacture of other products and
organize enterprises with strength into group corporations. The group
corporations may be classified in three tiers: the closely knit tier, the
semi-closely knit tier and the loose tier, the modes of association include
association in assets, contractual association and service association.

    "Trade" shall be the "dragon head" (driving force) in the formation of
provincial (municipal) group corporations, that is, the existing provincial
(municipal) silk corporations shall be the "dragon head". Prefectures, cities
and counties should determine the "dragon head" units on the basis of the
strength of the enterprises in promoting the development of the industry,
which may either be foreign trade enterprises or production enterprises or
supply and marketing cooperatives.

    The responsibilities of the newly-formed provincial (municipal)
cocoon-silk group corporations shall be: implementation of relevant industrial
policy of the state and the overall development plans of the cocoon-silk
industry of their respective regions, responsibility for the internal
management of the groups, organization of production and export of cocoon-silk
and coordination of the interests of agriculture, industry, commerce and
trade. Specifically they contain the following contents:

    (1) Establishment of stable mulberry tree-silkworm-cocoon bases,
implementation of plans of mulberry tree planting, silkworm raising and cocoon
procurement, providing support for mulberry tree planting and silkworm raising
and series of pre-production, mid-production and post-production services to
silkworm raising farmers; extension of excellent silkworm breeds and
scientific silkworm raising techniques, and prevention and treatment of
diseases and pests; fostering big households of mulberry tree planting and
silkworm raising; exercising unified control over the production and business
operation of silkworm eggs and procurement of cocoons, and strict
implementation of the state policy of cocoon price and standards for cocoon
quality.

    (2) Responsibility for the control of enterprises of the silk industry
within the groups, formulation and implementation of plans for technological
transformation, scientific research projects and annual development; control
over the blind development of processing capabilities; adjustment of product
structure, and development of famous, special, superior and new products.

    (3) Stepping up the construction of procurement and distribution networks,
opening up international and domestic markets, coordinating export prices and
increasing export and foreign exchange earnings.

    (4) Establishing and perfecting various control measures of the group
corporations with the purpose of enhancing their economic strength to ensure
the preservation and increment of value of state-owned assets.

    3. Smoothing out Property Rights Relations

    Existing interests of all sides should be taken into account and
satisfactory settlement and arrangement made in respect of personnel, property
and materials in the formation of cocoon-silk group corporations.

    (1) Assets of silkworm egg breeding stations of agricultural departments
and scientific research institutions shall be taken into silk corporations in
accordance with relevant provisions on the management of state-owned assets,
and there shall be no change in the nature of the institutions, treatment of
their personnel and original sources of financial resources.

    (2) Assets of cocoon stations belonging to the state shall be taken into
the group corporations in accordance with the provisions on the management of
state-owned assets; for assets belonging to the supply and marketing
cooperatives and farmers, the group corporations may follow the mode of
leasing, entrusted agency, pooling shareholder and purchasing. In cases the
property rights relations of which are not clear, a settlement shall be sought
with the coordination of the local government and the formation of group
corporation shall in no way be affected. Satisfactory settlement of existing
workers, staff members and honorary retirees and other retired personnel
engaging specially in cocoon procurement and drying for supply and marketing
departments shall be carried out in the light of the specific conditions of
the localities.

    (3) The silk reeling mills and silk spinning mills kept after sorting out
and consolidation, regardless of their relations of subordination and types of
ownership, may join cocoon-silk group corporations in accordance with the
principle of voluntariness and subject themselves to the control of
cocoon-silk group corporations.

    4. Strengthening Leadership and Conducting the Work in an Active, Steady
and Satisfactory Way

    Formation of cocoon-silk group corporations shall be undertaken in a
planned way, in steps, actively, steadily and satisfactorily. With existing
provincial (municipal) silk corporations as the basis, silkworm egg breeding
stations, research institutions and cocoon procurement units shall first be
taken into the group corporations, then the state-owned large- and medium-size
backbone enterprises shall be absorbed into the group corporations according
to classifications.

    Efforts should be made for the proposals for formation to be approved and
adopted by the provincial (municipal) governments by the end of the year and
the time seized in the organization for implementation.

    Reform of the cocoon-silk operational and management system involves many
areas and heavy tasks and the time is pressing. To ensure the smooth carrying
out of the reform, major cocoon-silk producing provinces (municipality) may
set up coordination groups to be put under the charge of the competent leaders
of provincial (municipal) governments, and concrete work shall be done by the
economic and trade commissions (economic commissions, planning and economic
commissions) in conjunction with departments of foreign economic relations and
trade, textile, silk, agriculture, supply and marketing, price administration,
industry and commerce and technical supervision, and macro-regulation and
control and unified management of the cocoon-silk industry strengthened in
accordance with the unified deployment of the State Cocoon-Silk Coordination
Group and provincial (municipal) governments.

    Reference may be made to the above-mentioned Suggestions in the
implementation of the reform of cocoon-silk trade, industry and agriculture
integration in non major cocoon-silk producing provinces (autonomous regions).