CONFIDENTIAL #3
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11.
Towards the end of 1985, the Chinese authorities
announced that no major price reforms would take place in 1986. However, during the course of 1986, the prices of over 470 consumer items were adjusted upwards, although
not de-controlled. It seems likely that there will be fewer adjustments of this sort and fewer relaxations of
price controls in 1987. In a national meeting on pricing policy held in December 1986, it was made explicit that
one important consideration of 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 will not be increased in the near future. For those commodities allowed to have floating prices, the
actual price levels must not move beyond the set limits.
The circular stressed that the price of grain should be
carefully controlled and maximum prices may be set for important items of foodstuff in the large cities. At the
same time, controls over the prices of raw materials will be strengthened and, for some raw materials used in the
textiles and other light industries, higher prices for over-quota production will no longer be allowed.
12.
The slow-down in the price reform is interpreted
by many China analysts as an act of submission to the
pressure exerted by the party conservatives. Although it will have adverse implications in terms of the economic
reforms, this move makes sense politically in view of mounting discontent in China over the rapid price
increases. Official figures put the rate of inflation at
6% in 1986. It is, however, apparent that actual price
increases, especially for those commodities outside
statutory plans, were much higher. More important, there
CONFIDENTIAL & 3
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