CONFIDENTIAL # 2
CRC INF 10/87
(CEC 5/87)
Price reforms in China and their implications
for the Chinese economy
Introduction
There is little doubt that China's irrational
price structure, which leads to serious distortions and disruptions in resource allocation, is a major obstacle to
economic efficiency. This is especially serious when the
power to make economic decisions is decentralized and
delegated to the lower levels of the bureaucracy or to
individual enterprises and when China's economic reform programme is making inroads into the urban and industrial
sectors. To a considerable extent, successful price
reform is a prerequisite for the success of the entire
economic reform programme.
China's price system prior to the reforms and the causes
of price irrationality
2.
Prior to the economic reforms launched in late
1978, China was in practically all respects a centrally
planned economy. The three fundamental questions of 'what to produce', 'how to produce' and 'for whom to produce'
were resolved by the central authorities. Activities
related to the production and distribution of most goods
and services were under centralised control and regulated
by state plans. Under this system, prices were relegated
to being merely units of account and a means to distribute
income among the different economic units.
These, in
G.F. 326
CONFIDENTIAL #3