ABSTRACT
The relationship between enterprises and the state in China has changed significantly since the start of economic reform. Enterprises used to be subject to the instructions of central planners in almost all aspects of their operations but now have a considerable degree of independence in their production and investment decisions. This relaxation of central control has produced a change in the financial flows between enterprises and the state budget. In the past, enterprises remitted almost all of their profits to the government and in turn had their investments financed by the government. Now, enterprises pay only a portion of their profits as tax and must fund their investment projects themselves.
