G.F. 326
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years. This is in effect a manifestation of the compromise that the Chinese government is required to make from time to time to balance the economic objective of efficient resource allocation with various socio-political considerations, one of which is the excessive concern of both the Government and the people over price stability and the effect of inflation on people's livelihoods. Further reforms on the price front are likely to involve greater difficulties and more painful adjustments on the part of the consumers and enterprises as the easier bits have mostly been accomplished in the past years.
43.
Lastly, it should be noted that, in the minds of many Chinese officials, the final stage of price reform is not seen as the end of price control, with market determined prices everywhere. Rather, they would conceive the final stage as one with a mixture of state-fixed prices, floating prices and negotiated prices. By then, market forces would play a more important role than at present in indicating directions for change, so as to improve the overall efficiency of resource allocation, but constraints would remain on some prices. So, in view of the problems associated with more fundamental price reforms and the strong resistance that complete price de-regulation would likely to meet, a total conversion to a system of market-determined prices is unlikely in the foreseeable
future.
Summary and conclusion
44.
Prior to the price reforms, China basically adopted a system of administered prices. Under that
CONFIDENTIAL #3