G.F. 326
19.
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CS thanked EAD for another useful paper, and for including more analytical points. The paper would be forwarded to HE, and copied to London, Peking and the British Trade
Commission.
Action: Secretary
PRICE REFORMS IN CHINA AND THEIR IMPLICATIONS FOR THE CHINESE
ECONOMY (Paper 10/87)
Bigger
20. DS(ES)2 introduced the paper, noting that in the past the
Chinese price system was inefficient and unresponsive, creating bottlenecks in the economy. Changes began in the
mid-1970s with liberalisation of some less important
commodities, although control of strategic commodities, (e.g. iron, steel, raw materials) remained strict.
changes came in 1984 when wider margins for price
fluctuation were allowed. These were intended to improve
efficiency and ease bottlenecks, but had unwelcome
short-term effects on vested interests, (especially
inefficient state enterprises which had previously been
cushioned through low prices for raw materials and high product prices. These were now making losses and needed
to be bailed out by the state); and on households, (where
demand exceeded supply and so inflationary pressures
became more open).
21. DS(ES)2 pointed out that price subsidies in various forms
(e.g. housing, foodstuffs) were now more evident than
before in China's State Budget. There were increasing
signs of concern about social stability and there was
likely to be pressure for slower change. The "stop-go"
nature of price reforms looked set to continue. There would be short-term trade-offs (the need to appease vested
interests and pacify households) against the long-term
improvements to economic efficiency. The long-term
improvements depended on the pace with which resistence
could be overcome.
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