Third, correctly implementing the principle of the leading role of the planned economy and the supplementary role of market regulation.

China has a planned economy based on public ownership. Planned production and circulation cover the main body of our national economy. At the same time, the production and circulation of some products are allowed to be regulated through the market without being planned, that is, by letting the law of value spontaneously play a regulatory role, within the limits circumscribed by the state's unified plan and in the light of the specific conditions at different periods. This serves as a supplement to planned production and circulation, subordinate and secondary to it but essential and useful nonetheless. The state ensures proportionate and co-ordinated growth of the national economy through overall balancing by economic planning and the supplementary role of market regulation. In the past few years, we have initiated a number of reforms in the economic system by extending the powers of enterprises in planning and by giving scope to the role of market regulation. This orientation is correct and its gains are apparent. However, as some reform measures have not been well coordinated with each other and the corresponding forms of administrative work have lagged behind, cases of weakening and hampering the state's unified planning have been on the increase. This is not good for the normal growth of the national economy. Hereafter, while continuing to give play to the role of market regulation, we must on no account neglect or relax unified leadership through state planning.

In order to make the development of the economy centralized and unified as well as flexible and diversified, planning should take different forms in different circumstances. Plans of a mandatory nature must be enforced in regard to the production and distribution of capital goods and consumer goods in the state sector which are vital to the national economy and the people's livelihood, and especially in key enterprises vital to the whole economy. This is a major manifestation of China's socialist ownership by the whole people in the organization and management of production. For the sector of the economy which is owned by collectives, mandatory targets should also be assigned where necessary, as in the purchase of grain and other important agricultural and sideline products by the state on fixed quota. In addition to plans of a mandatory nature, guidance plans, whose implementation is mainly ensured by means of economic levers, should be used in regard to many products and enterprises. This is because diverse economic forms still exist in China and it is difficult to make precise estimates of the multifold and complex demands of society and of the productive capacity of a vast number of enterprises. But whether in mandatory planning or in guidance planning, we must strive to make it conform to the objective reality, constantly study changes in market supply and demand, consciously make use of the law of value and such economic levers as pricing, taxation and credits to guide the enterprises in fulfilling state plans, and give them varying degrees of powers to make decisions as they see fit. Only in this way can state plans be supplemented and improved as required and in good time in the course of their implementation. As for a number of small commodities which are low in output value, great in variety and produced and supplied only seasonally and locally, it is neither necessary nor possible for the state to control them all by planning. Enterprises may be allowed to arrange their production flexibly in accordance with the changes in market supply and demand. The state, on its part, should exercise control through policies, decrees and administration by industrial and commercial offices and should help those enterprises with the supply of certain important raw and semi-finished materials.

Correct application of the principle of ensuring the leading role of planned economy supplemented by market regulation is of fundamental importance to the reform of China's economic systems. We must correctly define the respective scope and limits of mandatory plans, guidance plans and market regulation and, on the premise that basic stability of commodity prices is maintained, gradually reform the pricing system, price control measures and the labour and wage systems, and establish an economic administrative system suited to China's conditions so as to ensure the healthy growth of the national economy.