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G.F. 326
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30.
Runaway capital construction was another reason
behind the intensification of inflationary pressures in
1984. Investment projects undertaken by industrial
enterprises, especially those by rural and township
industries, competed among themselves for the limited supplies of energy and building materials and have exerted upward pressures on the prices of these items.
31.
Rapid increases in incomes and investment would
not have been possible if there had been a tight control
over the money supply. But the money supply, as indicated by the amount of currency in circulation and the amount of
bank loans, registered a tremendous increase in the period
1984 to 1986 (Table 7). One important factor behind this upsurge was that the specialized banks boosted their
lending in 1984 so as to establish a higher base for
computing their lending quota in future.
32.
In view of all the factors discussed above,
price reforms cannot be identified as the sole cause of
inflation. Price reforms have only facilitated the
transformation of excess demands, with their associated
suppressed inflation, into open inflation.
33.
(iii) Income redistribution caused by inflation
In a large and relatively closed economy like
China, inflation should not be a major problem if
everyone's income was increased by the same amount as the
increase in prices. In practically all cases, however,
inflation involves a redistribution of income.
Hence it is necessary to examine how different sectors of
the economy are affected by inflation in order to
ascertain the likely opposition that the reforms will meet.
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