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27.
The Chinese economy, like many developing countries, is structurally prone to inflationary
pressures. On the supply side, bottlenecks which develop in critical sectors such as energy, industrial raw materials, transport and communication facilities effectively limit the expansion of the country's output. An insufficient supply of goods, particularly those of higher quality, has been the fundamental cause of
inflation in China.
28.
Somewhat surprisingly, despite the constraints imposed by these bottlenecks, the Chinese economy has registered rapid growth rates (in real terms) of
industrial output in the past few years (4). This should, to some extent, have alleviated the problem of excess demand. However, one qualification should be noted here. As an important part of the growth in industrial output comes from the small collective enterprises (mostly in rural sector) which are generally not well-equipped, the quality of the goods produced is often unsatisfactory. There were reports that many industrial products in China did not meet the minimum standards set by the state. As a consequence, it is likely that the demand for better quality goods in China remained in
(4) The rates of increase in industrial output value in real terms were 18%, 14% and 11% respectively in 1984, 1985 and 1986.
G.F. 326
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