G.F. 326
CONFIDENTIAL #
10
Difficulties encountered in the process of price reforms
and their recent slowdown
20.
While the price system in China has undergone significant changes in the past few years, price reform has never been straightforward, because the reforms affect various vested interests in the Chinese economy. Besides, for a population long accustomed to stable prices, both upward adjustments in state-fixed prices and fluctuations in market prices are difficult to accept and can cause alarm. Unfortunately, these can hardly be avoided in the early stage of price reforms.
21.
Time and again in the past few years when inflationary pressures have become too serious, the Chinese authorities have made attempts to slow down the momentum of price reforms. For instance, in response to the high inflation rate in 1985, towards the end of that year the Chinese government announced that no major price reforms would take place in 1986. (Nevertheless, as it turned out, the prices of over 470 consumer items were adjusted upwards during the course of that year). In late 1986, probably as a reaction to mounting discontent over rising prices, the Chinese government again appeared to have tightened its grip on autonomous price movements.
22.
In a national meeting on pricing policy held in December 1986, it was made explicit that one important consideration behind China's policy on prices was political and social stability, particularly with respect to people's livelihood. In a circular authorised by the State Council in January 1987, the need to maintain price stability was again emphasized. It was stated that the number of commodities permitted to have a free or floating price would not be increased in the near future.
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CONFIDENTIAL # 3
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