CONFIDENTIAL * E
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5.
The State Council has recently announced a
number of measures to dampen inflation. First, in
general, the retail prices of those consumer goods
regulated by the government, as well as the charges for
public utility services, will not be raised in the second
half of this year. Second, in order to stabilise the
prices of major non-staple foodstuffs such as pork, animal
feed will be supplied to farmers at a subsidised price.
Third, for foodstuffs sold in the cities, price controls
will be strengthened. For example, the margin between the
original purchase price and the selling price in respect of certain major non-staple foodstuffs that are sold in
shops will have to be maintained at a 'reasonable' level.
Fourth, surveillance of the prices of industrial products
sold on the market will be strengthened and price ceilings
will be imposed on some popular items. Lastly, price audits will be stepped up. Many of these measures are
reiterations of those announced last December. This
confirms the view that the pace of price reforms is going
to slow down this year, in view of the persistence of
inflation.
6.
Apart from the surge in consumer spending, the
high level of capital construction was another factor
accounting for the overheating in the Chinese economy.
Recent statistics show that state investment in capital
construction increased by 19% in real terms in the first
half of 1987, to Rmb 40 billion. Of this total,
investment in facilities directly related to physical
production rose by 30%, while investment in the services
sector and in residential developments rose by only 2%.
To restrain further the growth in capital construction,
the Chinese government has reiterated the need to halt
investment in projects that are likely to yield low
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CONFIDENTIAL # 3