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levels than at present. However, the required adjustments on the part of consumers and enterprises
would almost certainly be painful (paragraph 16).
Further, unless greater control than at present was exerted on the money supply, inflation might peak only at a high level. For these reasons, relying on an
automatic adjustment to eliminate inflation would
probably be costly in socio-economic terms and
politically unacceptable.
6.
However, the Chinese authorities do not have
many macroeconomic means to contain the present
accelerating inflation and seem to be unable or
unwilling to use effectively those that they do have. China's fiscal policy stance is still expansionary, with increasing expenditure - not least on price subsidies and mounting fiscal deficits (paragraph 17). Its ability to increase tax revenue seems hamstrung by the complexity of its tax structure and the inefficiency
with which it is administered. Many of the normal tools
of monetary policy such as reserve ratios and open market operations do not exist and there is clearly an inability or a reluctance to use such measures as credit
controls and interest rates to control credit
availability (paragraph 18). In both cases, the evolution of the new macroeconomic tools and systems needed to control the more liberalised economy seems to be insufficiently advanced as yet to provide a means of meeting the present crisis.
7.
This probably means that the Chinese will have
to fall back on administrative devices to combat the
current inflation. There are already clear signs that this is what they are trying to do. Rationing and price controls have been introduced in a number of places in
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