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3. Serious problems arose in 1985 and to a lesser extent
in 1986 including substantial trade and current account
deficits; excessive growth rates; acute energy and
transport bottlenecks; and inflation (officially 6% in
1986, in fact much higher). In part they were caused by
central control being relaxed too far and too fast,
without corresponding reforms in economic structures and
management methods. This allowed some enterprises, with
more funds at their disposal, to go on a spree of
investment in capital construction projects and to issue
large bonuses to their workers. Mismanagement
(especially of credit and financial policies),
corruption, and an irrational price system contributed to
the difficulties. Deng's critics blame his reforms. The
reformers reply that these problems highlight the need
for more radical changes: administrative measures (eg
planned output controls) must be replaced by more
sophisticated use of macro-economic levers, including tax
and interest rates and the exchange rate. Emphasis must
shift from quantity, to quality and profitability of
production.
4. 1985's large trade deficit of US $15 billion was
reduced to US $12 billion in 1986 and the sharp fall in
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