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322 42 Adjust and Refine Processing Trade Policy1 June 5, 1996 The pilot program for the processing trade’s security deposit ledgers2 started last November and has already been in operation for half a year. According to your summary of the circumstances, the pilot has achieved the results we anticipated and has been successful. It shows that the security deposit ledger system has already been accepted by many foreign businessmen, apparently there is basically no resistance, and it can be rolled out. This proves that the State Council’s decision to enact a security deposit ledger system for the processing trade was correct and workable, and there will be no problem with rolling it out nationally beginning on July 1. The departments and regions concerned, particularly the General Administration of Customs and the Bank of China, attach great importance to this project, and their work has been very productive. I want to thank all of you for your diligent efforts. We are enacting a security deposit ledger system for the processing trade in order to achieve two goals: the first is to have effective oversight and truly be able to find loopholes; the other is to make things more convenient at the grassroots level. We must pay attention to both. If the system were ineffective and inconvenient , it would burden the people and waste our money, and we shouldn’t go ahead with it. The pilot program needs more publicity. I hope the three pilot program cities will write articles for publication in your local newspapers. Using your experience with the security deposit ledger system, you should describe 1. At the central economic work conference on December 7, 1995, the State Council proposed to enact a system for overseeing security deposit ledgers for imported materials in the processing trade. On June 5, 1996, the State Council convened a discussion meeting in Suzhou, Jiangsu Province , on processing trade security deposit ledger pilot programs. The meeting was attended by State Council departments concerned and by responsible representatives from the cities conducting pilot programs. This is the main part of Zhu Rongji’s speech at the meeting. 2. Security deposit ledgers for the processing trade are a form of management for contractually tax-bonded materials and for parts used by processing trade enterprises. When such enterprises import materials and parts, they must first deposit a sum equal to the customs duty on the imports and the VAT on their import links to an account at a designated bank. Then, depending on whether the processed goods produced by these enterprises are exported or sold domestically, customs will verify and determine refunds or deductions of the deposits. Adjust and Refine Processing Trade Policy 323 what benefits it brings, how easy it is to operate, the fact there are no complaints from foreign businessmen and all parties are quite satisfied, how beneficial this is to the country, and so on. The departments concerned at the central level should also write a piece for publication in the People’s Daily and inform both domestic and international readers about the results and details of the pilot program. Those of you from the news media should note that some people aren’t well versed in your profession. They listen to individual views that do not represent a trend and aren’t in the mainstream, but that become mainstream once you report them in the papers. Then everyone becomes dubious about the method, and there is great resistance to this reform. We need to strengthen positive publicity , while some individual problems can be solved through internal discussions and coordination. Shortcomings of the Processing Trade Now I’d like to focus on one issue: the time has come for us to properly summarize , study, and adjust processing trade. I feel that processing trade has played a major historical role. The economic development of our country’s coastal region and our special economic zones is inseparable from the processing trade of the “3 + 1 industries.”3 Without this system, our foreign trade, reform, and opening up could not have progressed so quickly. However, as our economic development has progressed—and reached a fairly high level—and as our reforms and opening up have deepened, this type of processing trade has become highly unfavorable for the further healthy development of our economy. We should objectively recognize that now, when compared with other forms of export-import trade, processing trade has many shortcomings. I can list at least five of these. First, We Collect...

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