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the overall efficiency of resource allocation and second, introducing some sort of market discipline which was badly needed when China made attempts to partly de-centralise its production and distribution system of goods and
services.
25.
(ii) China's inflation problem
It is not fair to attribute China's inflation problem entirely to its price reforms as there is no neat and tidy relationship between the two. In the years before the reforms, inflationary pressures were held back by controlling prices and the money supply, and excess demand at the retail level was contained by adopting a rationing system. By its very nature the extent of suppressed inflation is difficult to gauge, and can only be inferred when it manifests itself in the form of long queues before retail outlets and rampant black market
activities.
26.
As Table 2 reveals, the average annual rate of increase in retail prices and in the cost of living rose to 3.6% and 4.3% respectively during the period 1978-85, from 0.7% and 0.9% during the period 1951-78. According to one estimate (shown in Table 3), if that part of inflation suppressed by price controls is included, the average annual rate of price increase was almost 13% between 1978 and 1984. Notwithstanding the difficulties involved in estimating suppressed inflation, it is clear that inflation in China has become more serious since 1978, especially after 1984. In order to understand the reasons behind the acceleration in inflation rates, the underlying demand and supply situation has to be examined.
G.F. 326
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