I. During the transitional period, our transformation of private capitalist industry and commerce must gradually transition to socialism through state capitalism.
The nature of our state capitalism is the same as that of Soviet state capitalism. The Soviet Union is a country under the dictatorship of the proletariat led by the Communist Party, and we are also a country led by the Communist Party, but the methods implemented are very different.
We have implemented the path pointed out by Lenin in 1918.
The bourgeoisie has no other choice but to accept state capitalism; it is the general trend and they must follow this path.
We also have no other path but to implement state capitalism for the bourgeoisie, because we cannot confiscate their property now, and we need them.
Transforming independent private capitalist enterprises into restricted state capitalist enterprises is a major offensive, and it can only be done with the five conditions of resisting U.S. aggression and aiding Korea, land reform, suppressing counter-revolutionaries, the "three-anti" and "five-anti" campaigns, and ideological reform, coupled with the development of socialist industry and economy.

II. State capitalism is offensive in nature, but there is a partial retreat within the overall offensive, such as regarding the capitalists' "three rights" [1] and profit distribution.
Now the capitalists' "three rights" are no longer complete; although ownership has not been abolished, public representatives have already intervened in management rights, so their "three rights" have been restricted.
Now we need to make some concessions, especially regarding dividends, to give capitalists a share of the profits so that they gain something; this is a partial retreat within the offensive.
If they gain too little, they will not be willing to participate.
This also involves the issue of capitalist economic laws.
I told them: "You should not be solely profit-driven, but profit-driven for both sides, for both labor and capital; one-sided profit is not acceptable." During the "five-anti" campaign, the offensive went too far, and capitalists lay down. We need to give them certain benefits to make them stand up, and this is the 25% dividend.
Workers should be persuaded to make this concession in exchange for state capitalism; if this step is not conceded, and capitalists have no profit to seek or gain, then state capitalism cannot be achieved.
After we adjusted commerce, the problems in commerce were resolved, and we also retreated to a three-to-seven ratio [2].
The industrial sector still needs to make a concession to resolve the issues.
Comrade Li Lisan [3] was correct in saying that flexible application of capitalist economic laws is right, but not entirely.
In our society, capitalist economic laws are restricted economic laws. The so-called capitalist economic laws mean exploiting surplus value, or to put it plainly, being solely profit-driven, and this has already been restricted.
However, some factories now allow capitalists to exploit too little, which cannot bring about state capitalism.

III. The transformation mentioned now is not the final step of transformation to abolish capitalist private ownership and turn it into socialist enterprises, but rather refers to gradually transforming capitalist enterprises into state capitalist enterprises under the condition of acknowledging capitalists' restricted and incomplete private ownership. That is, state capitalist enterprises managed by the People's Government, connected and cooperating with the state-owned socialist economy in various ways, and supervised by workers.
Such capitalist enterprises are no longer the capitalist enterprises of the pre-liberation era; they primarily produce for the needs of the state and the people, and capitalists can no longer be solely profit-driven.
Of course, workers still produce a portion of profit for capitalists, but this portion of profit accounts for at most 25% of the total profit; and more than 75% of the profit is produced for the state (income tax), for workers (welfare funds), and for expanding enterprise equipment (public accumulation funds—which include a small portion for producing profit for capitalists).
Therefore, this kind of capitalism is no longer capitalism in the ordinary sense, but a special, new type of capitalism, namely capitalism under the leadership of the working class, which has certain socialist characteristics and several different degrees of situations.
It must be pointed out that not all or most capitalist enterprises have reached this stage yet; it will take several years of effort to reach this stage, but it will definitely be achieved.
In state capitalism, joint state-private ownership has socialist components; it is semi-socialist in nature.
However, it is inappropriate to call all state capitalism, such as accepting processing orders, semi-socialist; it should be said that it has certain socialist characteristics.
What conditions are needed for state capitalism to transform into socialism? First, thousands of large socialist factories; second, agricultural collectivization, which must be carried out in a planned, steady, active, and voluntary manner through mutual aid and cooperation; third, internal conditions within state capitalist enterprises, including Party organizations and trade unions, coupled with our leadership, can ensure the transformation of enterprises to socialism, the abolition of capitalist ownership, and at the same time, proper arrangements for them.
Here, the first step is to transform capitalism into state capitalism, turning independent, unrestricted, free-market capitalism into non-independent, restricted, non-free-market capitalism, i.e., state capitalism.
The second step is to transform state capitalism into socialism, eliminating classes.

IV. Regarding the issue of "different treatment, but equal treatment" for private enterprises.
In terms of ownership, there is equal treatment; workers' income can be freely disposed of, and capitalists' dividends can also be freely disposed of.
In terms of raw material supply, loans, transportation, etc., "we look at the Buddha's face, not the monk's face"; the "Buddha's face" is the working class, and for the sake of the workers, capitalists also need to be given necessary consideration.
The general principle for wage treatment is also "equal treatment"; generally, high wages are not reduced, and low wages are not necessarily all raised; it depends on specific conditions and technical levels.
"Equal treatment" also includes capitalists having the right to vote and be elected.
In this regard, formally everyone has one vote, but because the number of workers is large, workers actually have the advantage.

V. The state focuses on heavy industry, but must also develop local state-owned industry (without blindness), state capitalism, and handicraft collectivization.
Handicrafts are like a river, not the ocean.
Handicrafts generally need to develop, and some will be eliminated.
Handicraft collectivization is even more difficult than agricultural collectivization, and both are more difficult than state capitalism. We cannot adopt expropriation methods for individual handicrafts and individual agriculture, because they are down-to-earth laborers, neither capitalists nor having workers below them.
For them, we can only achieve it step by step through persuasion, inspiring voluntariness, and preparing to persuade for many years.
Without developing local state-owned industry, state capitalism, and handicraft collectivization, key construction cannot be completed.

VI. Some people in our Party have reflected an opinion of capitalists, namely that the state should specialize in heavy industry, and private enterprises should handle light industry.
We cannot adopt this line; the state cannot handle raw materials while capitalists handle manufacturing.
A large number of private light industrial factories must take the path of state capitalism, and at the same time, local state-owned industries, such as textile mills and fountain pen factories, must also be developed.
The newly increased purchasing power of the people must be met by state-owned enterprises, mainly local state-owned enterprises; private enterprises can only account for a small portion.
State capitalism is also one of the sources of capital accumulation, such as taxes, and it can also train cadres, technical personnel, and management personnel. Nevertheless, we still need to develop local state-owned industry.
Currently, the 9 trillion yuan [4] profit submitted by local industries is too high and should be reduced to facilitate the development of local industries.
Too much profit submitted by local industries means too little investment for expanded reproduction, which is not conducive to mobilizing local initiative.

VII. Criticisms of the "three highs" policy, namely high prices, high interest rates, and high profits, should not be excessive; they need to be analyzed.
Lowering industrial product prices is the fundamental line for industry, but it must be lowered gradually.
Prices are still constrained by supply and demand.
The current problem is that what should be lowered has not been lowered, and what should be raised, such as grain prices, has not been raised.
After sugar prices were lowered, it went out of stock, so prices need to be raised.
When lowering prices, be cautious and solve problems analytically according to the situation.
Private merchants often exploit price loopholes, and it is more difficult to raise prices after they have been lowered, which will displease the masses.
Therefore, do not broadly criticize the "three highs" policy.
It should be seen that prices are sometimes high and sometimes low; some are high today and should be lowered tomorrow, while others should be raised tomorrow.
Wages should not be raised too high; it is easy to raise them but difficult to lower them.

VIII. State capitalism should be implemented with preparation; if there is no preparation, it should not be implemented.
Implementing state capitalism requires conditions, including political and economic conditions.
It should be like fighting wars in the past, not fighting unprepared battles.
Cadres should be recruited locally, and factory trade union chairmen and branch secretaries should be trained.
The transformation of private capitalism into state capitalism should be carried out in a planned, step-by-step, and prepared manner, generally taking three to five years to complete.

IX. The issue of utilizing capitalist economic laws.
Under the dominance of socialist economic laws, capitalist economic laws are appropriately utilized, but they are restricted.
Socialist economic laws are to develop production and ensure needs; these are the main, fundamental, and leading economic laws.
But capitalist economic laws objectively exist.
If things exist, laws naturally exist and cannot be eliminated; if things are restricted, laws are also restricted.
Not implementing mutual benefit for labor and capital, and turning it into one-sided benefit, means not understanding this law.

X. Private retailers who wholesale goods from state-owned trade enterprises and sell them at state-regulated prices can and should be counted as state capitalism.
They are the hands and feet of state-owned trade; although the property is still yours now, it can be changed to salaries paid by state-owned trade enterprises in the future.
Do private merchants who wholesale goods from state-owned trade enterprises and then re-wholesale them to others count as state capitalism? I will not make a definitive conclusion; you can discuss it.
Other private merchants who have no connection with state-owned enterprises, operate in the free market, and freely proliferate, cannot be counted as state capitalism.

XI. Let's discuss the law of value again.
It's hard to read from the text; it's better to discuss it by issue.
Organize the materials in September and distribute them to various places.

Printed based on the transcript of the speech preserved in the Central Archives.
Notes: [1] Refers to capitalists' ownership, right to employ, and right to manage their enterprises.
[2] Refers to the approximate proportion of the total commodity circulation in retail between national public commerce and private commerce at that time.
[3] Li Lisan, then Minister of Labor of the Central People's Government and Vice Chairman of the All-China Federation of Trade Unions.
[4] This is calculated based on the Renminbi in circulation at that time. The People's Bank of China issued new Renminbi starting from March 1, 1955, replacing the old Renminbi in circulation. According to regulations, one new Renminbi yuan was equal to ten thousand old Renminbi yuan.