Question

10- Two managers of a state owned enterprise in 1980’s China talking: “We will easily meet the production target assigned by the state planners of producing 50.000 tractors this year, using 80% of our production capacity. With the new regulations, we can produce motorcycles on the side… With demand high, supply low, and prices so high, we will make great profit…” What is the new regulations is he talking about related to?

Answer 1

The Communist Party authorities carried out the market reforms in two stages. The first stage, in the late 1970s and early 1980s, involved the de-collectivization of agriculture, the opening up of the country to foreign investment, and permission for entrepreneurs to start businesses.

Thus here they are talking about the new economic policy that china has opted in early 1980 where the private enterpreneur can now manufacture goods and the de-collectivization and de-centralization has taken place

Thus now the enterpreneur can have big market thus the production supply is less in the market and demand is high which has lead to increase in the profit margin thus they can manufacture more goods and sell them off at a heavy margin.

The new economic policy was about  China's reform to shift the economy from one based on government spending, state-run companies, and low-cost exports.  to private investment, entrepreneurial innovation, and domestic consumption.