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system, price did not function as a signal in the allocation of resources. It merely served as a unit of account and a means to distribute income. The lack of market signals in the Chinese economy led to inefficiency in resource allocation as there were serious administrative lags in adjusting state plans in response to changes in supply and demand conditions.
45.
The price reforms started in the 1970s have provided some room for the operation of market forces in the economy. So far, the results of the reforms have been mixed. The general public, on the one hand, welcome the increased availability and wider choice of goods in the market; but on the other hand, they are worried that liberalization of prices may lead to runaway inflation. For state enterprises which remain heavily regulated and subject to mandatory plans, increases in input costs have seriously affected their profitability. The state has also borne part of the burden of the increases in prices, as concern with price stability has induced it to extend subsidies to enterprises and individuals affected by inflation.
46.
Price reform is undoubtedly one of the most difficult parts in the whole economic reform programme as it touches upon many of the vested interests entrenched in the economy. Looking ahead, further reforms on the price front are likely to involve greater difficulties and more painful adjustments on the part of the consumers and enterprises and hence the Chinese government is likely, even more often than in the past, to compromise its economic objectives with socio-political considerations.
G.F. 326
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