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CIRCULAR OF THE STATE COUNCIL ON ITS APPROVAL AND TRANSMISSION OF THE REPORT SUBMITTED BY THE STATE ADMINISTRATION FOR COMMODITY PRICES, REQUESTING INSTRUCTIONS ON SEVERAL PROBLEMS CONCERNING THE FIXING OF PRICES OF INDUSTRIAL GOODS SUPPLIED FOR EXPORT

    The State Council has given its consent to the "Report Requesting
Instruction on Several Problems Concerning the Fixing of Prices of Industrial
Goods Supplied for Export" submitted by the State Administration for
Commodity Prices, and the Report is hereby transmitted to you for prompt
study and implementation.
REPORT REQUESTING INSTRUCTIONS ON SEVERAL PROBLEMS CONCERNING THE FIXING
OF PRICES OF INDUSTRIAL GOODS SUPPLIED FOR EXPORT (Excerpts)

    In November, 1965, the State Council promulgated Interim Provisions
Concerning the Unified Measures for Fixing Prices of Industrial Goods Supplied
for Exports. The implementation of these Provisions has played an active
role in promoting the development of the production of export commodities,
in strengthening the business accounting in the foreign trade department as
well as in the supplier departments, and mutual assistance and cooperation
between these departments, and in fulfilling the task of exportation set by
the State. At present, judged by what has been achieved in recent years, the
basic principles laid down in this document for fixing prices of export
commodities supplied are still practicable, and these principles shall
continue to be implemented.

    However, in recent years, some new problems have emerged with the
development of foreign trade and with the increase in the exportation of
industrial and mineral products. In order to develop foreign trade vigorously,
to expand export actively, to generate foreign exchange earnings by a big
margin for the State, and to promote socialist modernization, it is urgenly
necessary to find an appropriate solution to several problems concerning the
fixing of prices of export industrial goods. The following are our
recommendations on the solution to these problems:

    I  The Guiding Principle for Fixing the Prices at Home of Export
Industrial Goods

    The basic principle for fixing the home prices of export industrial goods
should remain that of same price for goods of same quality, and high price
for goods of high quality on the basis of prices of industrial goods for
domestic sales. However, certain special characteristics of export industrial
goods should also be taken into full consideration. The fixing of prices at
home for export industrial goods should be conducive to bringing into play the
initiative of the industrial departments and the foreign trade departments,
to improving the quality of export commodities, to increasing the variety of
designs and patterns, to upgrading the packaging and decoration, to speeding
up delivery, to meeting the demands of the international market, and to
enabling better and more flexible export business operations. The industrial
departments and the foreign trade departments should, in dealing with the
problem of fixing prices for export industrial goods, have a heightened sense
of the whole, starting from the interests of the country as a whole, promote
mutual assistance and coordination, work in harmony with one another, provide
each other with data concerning the production and marketing of export
commodities, the comparability in quality, production costs, exportation for
earning foreign exchange, etc., and work energetically towards the same goal
of developing production, expanding export, and generating more foreign
exchange earnings.

    II  Price-Fixing Problems Relating to Commodities That Cause Big Export
Losses Though High in Industrial Profits

    With respect to those industrial goods whose producer price is high,
industrial profits are good, production potential is great, and sale has yet
to be expanded, the producer price and market price may with the approval of
the competent authorities for commodity prices, be reduced by an appropriate
margin. If the producer price of goods for export and the producer price of
goods for domestic sales are to be reduced at the same time, the principle of
"same price for goods of same quality, and high price for goods of high
quality" should apply to products for export and to those for domestic sales.
For such products whose domestic sale price is not to be reduced for the time
being and whose prospect for export is bright though their exportation still
causes great losses in spite of the efforts made by the foreign trade
departments in rational export business, their producer price for export may,
with the consent of the department(s) concerned after consultation, be reduced
first without reducing their producer price for domestic sales, on the
condition that the fulfilment of the export plan is not affected. With respect
to some areas where it is not possible to reduce the producer price of goods
for export the enterprises concerned should strive to reduce their production
costs, and to catch up with the advanced level within a prescribed time limit;
and within a specific period of time, the relevant foreign trade departments
must continue to purchase the produce manufactured in these areas for export,
in accordance with the State plan or with the contracts signed by foreign
trade departments with industrial departments.

    For such products with no big industrial profits but high tax rates,
resulting thus in high producer price and large export losses, the relevant
foreign trade department or industrial department may file an application for
a reduction of, or exemption from, taxes; and the case(s) shall be submitted
to the Ministry of Finance or to the people's governments of the provinces,
autonomous regions, or municipalities directly under the Central Government
for approval before execution.

    III  Price-Fixing Problems Relating to Export Commodities That Yield
Meagre or No Industrial Profits, or Cause Losses

    There are some industrial goods, which sell well on the international
market, and earn high rates of foreign exchange, but whose producer price is
too low; under normal circumstances and with rational management the
enterprises concerned can only manage to have a break-even between costs and
profits, or have just meagre profits, or, worse still, suffer losses; however,
for the time being, it is inadvisable to raise the domestic selling price.
There is still another case: the domestic selling price is basically
reasonable; however, the special demands for the portion of goods for export
such as small quantities but rich varieties, result in an increase in
production costs. The two cases mentioned above may, with the consent reached
through consultation between the interested industrial departments and foreign
trade departments, be handled this way; with respect to the portion of goods
for export, on the principle of allowing the producer enterprises to have a
proper percentage of profits, the problem may be solved by the properly
purchasing price of goods for export, on condition that the aforesaid
readjustment does not hamper the fulfilment of the marketing plan on the
domestic market.

    IV  The Price-Fixing Problem Concerning the Commodities Produced
Exclusively for Export

    For those products manufactured exclusively for export, and those export
products manufactured by designated factories or by designated workshops, as
well as those export products manufactured from imported raw materials (the
raw materials are imported for this special purpose only), they may, with the
consent reached through consultation between the interested foreign trade
departments and industrial departments, be separated in price ratio from those
similar goods for domestic sales, and their producer price shall be fixed in
accordance with the production costs calculated under the conditions of normal
industrial production and rational operation, plus a certain percentage of
profits.

    V  The Price-Fixing Problems Concerning the Products Manufactured under
the System of "Promotion of Exports by Importation of New Technology and
Equipment"

    In accordance with Trial Measures Concerning the Promotion of Exports by
Importation of New Technology and Equipment, transmitted by the State Council
in March, 1979, cases concerning the price-fixing in Renminbi at home for
imported goods and materials needed for carrying out the system of "promotion
of exports by importation of new technology and equipment" shall be handled,
in principle, in accordance with the existing measures for fixing prices for
imported goods. With respect to a few varieties of finished products, exported
under the system of "promotion of exports by importation of new technology and
equipment", owing to the fact that the domestic appropriation price, the
profit rate and the tax rate for the imported raw and auxiliary materials are
too high, the foreign trade department that undertakes the exportation of the
aforesaid finished products suffers a big export loss; so long as the
aforesaid finished products sell well on the international market, and the
rate of foreign exchange earnings is acceptable, the imported raw and
auxiliary materials needed may, with approval, have their price fixed by
adding a commission of 3% to the import cost. As regards the limits of powers
for approval, cases concerning imports by using the foreign exchange of the
Central Government, shall be examined and approved by the Ministry of Foreign
Trade; cases concerning imports by using the foreign exchange of localities,
shall be examined and approved by the competent pricing authorities of the
provinces, autonomous regions, or municipalities directly under the Central
Government. The Customs duties and consolidated industrial and commercial
taxes on the aforesaid goods and materials may, with the exception of those
which have been given preferential treatment of exemption or reduction
according to the clear-cut decision made by the competent authorities under
the State Council, be computed and levied in accordance with the pertinent
provisions promulgated by the State. Any new applications filed by the
departments and localities concerned for the reduction of, or exemption from,
import duties, shall be examined and determined,in good time, by the Ministry
of Foreign Trade and the Ministry of Finance in accordance with the principle
of being conducive to the implementation of the system of "promotion of
exports by importation of new technology and equipment". With respect to those
raw and auxiliary materials which are imported regularly every year, relatively
steady domestic appropriation prices may be fixed through consultation in
accordance with the aforesaid principle. The industrial departments may, on
the basis of the aforesaid prices fixed for the raw and auxiliary materials,
calculate the production costs and the producer prices for export products.
The industrial profits for products of this category shall be determined
reasonably, in the light of the profit level of similar industrial products,
and by considering the actual profits and losses in the operation of
exportation. In the event that there is insufficient supply of imported raw and
auxiliary materials and that home-produced raw and auxiliary materials have to
be used, the Ministry of Foreign Trade shall make up the price differences
between home-produced raw and auxiliary materials and imported raw and
auxiliary materials for the industrial departments.

    The prices of imported raw materials specially required for the production
of packages for export products may also be fixed and approved in accordance
with the measures mentioned above.

    VI  Price-Fixing Problems Concerning Some Home-Produced Raw Materials

    There are some home-produced raw materials whose producer price is fixed
at a rather high rate because of the consideration for the price ratio
between the aforesaid products and other products of the same category or
other relevant products, and for the for the different conditions in different
localities, resulting in the high production costs and high producer prices of
the export products made from the aforesaid raw materials, and comparatively
large export losses; however the said export products are in demand on the
international market. In areas where the home-produced raw and processed
materials mentioned above are produced at very low production costs before the
unified re-adjustment of the producer prices and thus the industrial profits
are relatively high, the portion of the aforesaid home-produced raw and
processed materials to be used for the manufacture of export products may,
with the approval agreed upon through consultation between the interested
foreign trade departments and industrial departments, have their producer
prices fixed separately in accordance with the principle that the producer
enterprises shall have a proper percentage of profits.

    VII  The Limits of Powers for Approval of the Re-adjustment of Prices

    According to the original provisions, cases concerning the re-adjustment of prices of expert commodities to prices lower or higher than those of similar
commodities for domestic sales, shall all be approved by the State
Administration for Commodity Prices. Such provisions are necessary for carrying
out strictly the principle of "same price for goods same quality, and pricing
on the basis of quality" as far as both the commodities for export and the
commodities for domestic sales are concerned; they are also necessary for
avoiding aggravating conflicts caused by price-fixing between different areas.
However, with the daily increase in the varieties of commodities for export, it
would be difficult for the State Administration for Commodity Prices to handle
, in good time, all pricing cases if every product is to be reported to it for
examination and approval, and this situation may affect to a certain extent
the arrangements for production and exports. Therefore, from now on, cases
concerning the fixing of prices for export commodities in accordance with the
measures mentioned in recommendations II through VI of this Report shall, with
the consent reached through consultation between the interested foreign trade
departments and industrial departments, be submitted to, and handled by, the
competent authorities concerned in accordance with the limits of powers for
the administration of prices at different levels, namely, products whose prices
are to be fixed by the departments concerned under the State Council, shall be
reported to, examined and approved by the departments concerned under the State
Council which may, however, authorize the local competent authorities for the
administration or commodity prices, to examine and approve the prices of part
of varieties of export goods; products the prices of which are to be fixed by
the local authorities shall be reported to the competent authorities for the
administration of commodity prices of the provinces, municipalities directly
under the Central Government, and autonomous regions for examination and
approval. Commodity prices to be fixed by the local competent authorities
shall be reported to the departments concerned under the State Council for the
record. With respect to those products whose prices need to be adjusted,
the original prices shall be adhered to in business transactions; before the
new prices are notified to the departments concerned at the lower levels, or,
when necessary business transactions may, with the consent reached through
consultation between the interested supplying departments and foreign trade
departments, or with the confirmation by local the competent authorities for
the administration of commodity prices, be calculated on the basis of the
original prices and, after the new prices have been approved and notified to
the departments concerned at the lower levels, refund for any overpayment or
collect a supplementary payment for any deficiency.

    After prices have been adjusted, it is necessary to stabilize them for a
period of time; it is inadvisable to change the prices of commodities for
export frequently because of price fluctuations on the international market.

    With respect to the changes, in terms of increases or decreases, in the
production costs and profits of the departments, the localities and
enterprises concerned, as a result of the adjustment of prices of export
commodities and raw and processed materials, the Central and local planning
departments and financial departments shall, when transmitting plans to, or
examining the performance of the departments at the lower levels, take into
consideration the aforesaid actors, and find ways to solve the problems
properly.

    If nothing is deemed inappropriate in the Report, it is requested that the
Report be approved and transmitted to all the departments concerned and to the
provinces, municipalities directly under the Central Government, and
autonomous regimens for study and implementation.