ELIMINATE SLUSH FUNDS1
JANUARY 21, 1989
It wasn’t until coming to work in Shanghai that I discovered how dangerous slush funds are. My knowledge about Shanghai’s township and village enterprises (TVEs) had been very superficial, but subsequent contacts with them revealed their countless ties with state-owned enterprises (SOEs). At first, I couldn’t figure out why local SOEs in Shanghai all had negative growth before May of last year and an average growth rate of 1.2% for the full year, while the rate for TVEs was over 30%. I simply couldn’t understand it—were TVEs really that superior?
I later discovered something: many of our local SOEs aren’t producing anything. They all send their raw materials to TVEs in outlying areas or even in other places to be used for production. Then the retained profits are returned to them but aren’t entered in their books. These become SOE slush funds from which they pay for wining and dining and bonuses. Nobody knows how much they spend, nor does anyone know how much they pay out in bonuses. This is much too dangerous, and it’s why SOEs never do better.
How much money is in these slush funds? It’s hard to say. Estimates based on facts already uncovered through investigations are that right now it can’t be less than RMB 300 million. This amount is all in cash and is spread out across many enterprises. One factory kept several hundred thousand renminbi in a safe. It was only after someone stole it that I learned this factory had a slush fund.
I’ve already discussed this with Bao Youde.2 Today, I want to announce a policy to resolve this problem. It will greatly help to improve our enterprise management, change our factories’ working methods, and rectify our social mores. What is this policy? It is to eliminate slush funds and to strictly implement the State Council’s decision on cash management. Enterprise funds must be kept in banks—failure to do so is henceforth illegal. However, to effectively carry out this decision, we’re afraid we’ll still have to be somewhat “lenient about the past and strict about the future,” for otherwise it will be difficult to solve this problem. Therefore whether you are industrial departments or other departments, your slush funds must be immediately kept in banks. Apart from the taxes that you ought to pay, the remaining money is yours. It is your retained profit—you can do what you please with it, and I won’t interfere. Nor will I inquire into how you made that money in the past, so hurry up and put it in the bank. That’s being “lenient about the past,” right?
As for being “strict about the future,” beginning right now, if you continue to have a slush fund or keep accounts off the books, the minute these are discovered, they will all be confiscated and the factory director will be removed. If factory directors really want to run their enterprises well, they should put some effort into internal mechanisms and into running their factories strictly. They should do good ideological work and motivate their workers, rather than engage in these underhanded activities.
1. This is part of a speech by Zhu Rongji at a meeting of Shanghai Party members in leadership positions.