-- Transferring enterprise jurisdiction. The CPC Central Committee and the State Council jointly issued directives April 11 under a Regulation of the Transfer of Authority for Industrial Enterprises. The directives said that, aside from a small number of special and experimental enterprises that the State Council deemed important, management authority for all enterprises would be held by individual local governments. As a result, 88 percent of enterprises and state-owned institutions that were once subordinate to the central government were transferred to local governments. Some were transferred to neighborhoods and communes. To put the matter in perspective, industrial enterprises subordinate to the central government accounted for 39.7 percent of China's total industrial output in 1957. But in 1958 that number decreased dramatically to 13.8 percent.
-- Transferring resource allocation authority. This step included decreasing the assortment and quantity of goods and resources that were once uniformly dispersed by the state planning commission (called "goods under the unified ration plan" or "type one goods") and departments under the State Council (called "department-controlled goods" or "type two goods"); switching from the central government's "unified distribution" plan to a system of "regionally balanced allocation" based on the needs of individual provinces, cities and autonomous regions; and giving local government planning offices authority to allocate and transfer goods and resources.
-- Transferring government approval rights for capital construction projects, investment and credit. When projects went beyond prescribed quotas, local governments had to submit a brief petition to the state planning commission. All other projects could be approved locally, and decisions to invest in projects falling below the quotas could be made by local governments. This gave local governments the power to initiate all kinds of projects and raise funds, including raising funds for large-scale projects that exceeded the prescribed quota. Local banks could issue credit according to each area's "production requirements." They could also decide the amount and timing of credit issuance.
-- Transferring finance and tax authority. The decision to implement "tax fanning" was made to strengthen local financial resources and expand the economic power of local governments.
-- Transferring administrative authority for labor and recruitment. The authority to implement labor and recruitment planning policies had been the responsibility of the central government. Now, it would be delegated to provinces, autonomous regions and municipalities.
In addition to granting more autonomy and authority to local governments, the 1958 reforms included certain measures that granted more power to enterprises. Some measures reduced indicative planning targets by cutting the national planning commission's directive targets from 12 requirements to eight in terms of principal product output, staff sizes, wage levels, profits, etc. Other measures altered the original system for "enterprise rewards" (factory manager funds) based on certain proportions of profits, according to industry, by launching a system based on a "proportionally equal sharing of profits."
Other measures expanded the rights of enterprises to organize their workforces, excluding leaders and key technical personnel. Enterprises were given authority to manage their own employees and adjust structures and personnel as long as they did not increase total employment. Enterprises could allocate a portion of capital for company use. They also had the authority to increase, decrease and/or discard fixed assets.
Chaos vs. Rigidity
After these reforms, local governments gained enough power and resources to make their own decisions. And while many enterprises at many levels saw a corresponding rise in autonomy, it still seemed the overall reform plan had left local governments in charge of "workshop" production. Competition rose among local governments for control over enterprises and resources, but no pricing mechanism provided signals to guide decisions. Neither was there natural selection to drive out ill-performing enterprises. Thus, these reforms did not lead the economy in a positive direction; instead, they set the stage for the Great Leap Forward.
On the other hand, since planned economic policies were coming from an elite few, it was easy for ideology to restrain reforms. Knowledge levels, political positions, and even fluctuating moods played roles as well. Indeed, during this phase of reform, politics deeply influenced China's economic progress.
By refusing to alter the framework for maintaining a planned economy – while allocating resources through administrative decree and dividing power among local governments – the planned economy was decentralized. This, coupled with a mass movement of China's population to rural communes, paved the way for the Great Leap Forward.
Under this system, all levels of government responded to Mao Zedong's call to "surpass England in three years, and surpass the United States in 10 years." Local governments fully utilized their power to accumulate resources, launch industrial projects, conduct large-scale employee recruitment, and freely allocate agricultural resources. It was all in the name of achieving impossible feats ordered by the government, such as doubling annual steel production. The result was a war for resource control waged among regions, government departments and enterprises. The practice of "excessive egalitarianism" – in other words "egalitarianism combined with free resource allocation and the authority to collect" -- was in fashion. And the economy was is disarray.