TNAG-1458-FCO40-1982-Relations-between-Hong-Kong-and-China-1986 — Page 134

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9. Since October 1984 some of the main areas of reform have

been:

(a) The planning system. A significant number of products, mainly light industrial, were removed from the central

mandatory plan. Economic regulation was to be achieved by guidance planning, the influence of market forces, and by

the use of economic levers.

(b) The financial system. Greater freedom was given to the

banks to issue and control credit. Fiscal tools such as

interest and taxation rates were to be used to control the

economy.

(c) Wages and prices.

Comprehensive reform of both these

system have been planned. Little has been done on wages. But the first steps on price reform, to make the prices of some goods and services more closely match supply and demand

were taken in 1985.

(d) Devolution. Administrative Ministries were made to give up their power over subordinate industrial enterprises.

Greater encouragement was given to the development of horizontal links between different enterprises which had hitherto operated completely separately. More emphasis was given to individual and collective enterprises, and a number of smaller State-owned enterprises reverted to collective ownership and management.

Unfortunately, the economy did not perform particularly well in 1985. Relaxation of control by the centre led to a surge in wages and prices, loss of control over the issue of credit, problems with the balance of payments and too rapid a growth rate in industry. Measures to reassert central control were

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