TNAG-2791-FCO40-4030-Relations-between-Hong-Kong-and-China.-With-maps-1993 — Page 58

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12.

and

In the previous episode of high inflation in 1988

1989, relaxation of price controls and market

liberalisation were often regarded as a significant

underlying cause.

However, by the end of 1991 only about 20% of all the commodity prices were still fixed by the state (9).

Because of this low proportion, further price reform, which had the effect of merely converting hidden

price pressures to overt inflation, should have been a relatively less important cause of the recent inflation.

13.

In summary, China's current inflation is mainly a

result of buoyant demand especially in fixed asset

investment, which is being accommodated by generally loose

monetary and credit conditions and exacerbated by the

constraints in the bottleneck sectors.

Policy options to combat inflation

14.

Since the start of economic reform and opening up

in 1978, China's economy had already undergone three

business cycles, with a similar pattern each time. Typically, rapid growth of the economy generated increasing inflationary pressures, which were aggravated to varying degrees by the price reform measures aimed at liberalising

and rationalising the overall price structure. government's policy response usually entailed tightening up the credit policy, imposing various administrative measures to scale down investment expenditure, and in some instances

backtracking on the price reforms.

In consequence, economic growth was significantly reduced, as in 1981,

The

1986

(9)

By the end of 1991, state-fixed prices represented 22.2%, 20.9% and 36.0% respectively of the prices of agricultural products, general commodities and basic materials for production. These were further down

from the respective proportions of 25.2%, 29.7% and 44.4% at the end of 1990.

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