ENTERPRISE TAXATION AND TRANSITION TO A MARKET ECONOMY
Two features stand out in the pattern of Chinese tax revenues since 1978, which marks the watershed for Chinese economic reforms. First, as in many other transitional economies, budgetary revenue relative to GNP (gross national product) plummeted, from 31 percent in 1978 to 1l.5 percent in 1995-figures vary depending on what is included under government revenue, but the fact of a sharp drop in revenue holds regardless. Though a reduction in the share of GNP accruing to the government is a central component of a market-oriented reform, the fall far exceeds what was intended or foreseen, putting the public finances under a severe strain. Its principal cause was a sharp drop relative to GNP in enterprise tax revenue (including repatriated financial surplus), which in 1978 accounted for 75 percent of the total (SYC 1996,225).