TNAG-1458-FCO40-1982-Relations-between-Hong-Kong-and-China-1986 — Page 124

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prices. These can apply both to the inputs and to the

outputs of their factories. To the dismay of the authorities,

there are also black market prices, for example for many

imported goods and for foreign exchange certificates.

20. Even if the leadership would like prices to give clearer

and earlier signals about the allocation of resources

as

I believe it would - it faces all sorts of difficulties about

making this possible. Scrapping more administered prices

would logically entail a further reduction in scope of

mandatory planning, which could call in question the whole

nature of the economy as defined by Hu Yaobang at Chatham

House. It would also cause many prices to rise at a time

when the leadership particularly wants to keep them stable.

Raising administered prices which are now particularly low -

such as those for most forms of energy and rents would also

have inflationary consequences.

-

21. All in all, I would expect the leadership to move very

cautiously over price reform during the next few years. But

I would also expect it to maintain its objective of improving

allocative efficiency and its policy of acting on prices to

achieve this. In the longer term the outlook is unclear.

The fundamental questions are, it seems to me, whether the

matching of supply and demand through the decontrol of prices.

is compatible with a system of central planning; and, if

not, whether the leadership of the day would prefer to halt

the decontrol of prices or to abandon such planning.

choice would not be easy.

The

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