section_path: Background/Challenges to Reforms and Opening-up
section_name: Challenges to Reforms and Opening-up
paragraph_text: Challenges to Reforms and Opening-up
  
  Deng's reforms aimed to decrease the state's role in the economy and gradually allow private production in agriculture and industry. By 1981, roughly 73% of rural farms had been de-collectivized, and 80% of state-owned enterprises were permitted to retain their profits.
  
  While the reforms were generally well received by the public, concerns grew over a series of social problems which the changes brought about, including corruption and nepotism on the part of elite party bureaucrats. The state-mandated pricing system, in place since the 1950s, had long kept prices fixed at low levels. The initial reforms created a two-tier system where some prices were fixed while others were allowed to fluctuate. In a market with chronic shortages, price fluctuation allowed people with powerful connections to buy goods at low prices and sell at market prices. Party bureaucrats in charge of economic management had enormous incentives to engage in such arbitrage. Discontent over corruption reached a fever pitch with the public; and many, particularly intellectuals, began to believe that only democratic reform and the rule of law could cure the country's ills.
  
  Following the 1988 meeting at their summer retreat of Beidaihe, the party leadership under Deng agreed to implement a transition to a market-based pricing system. News of the relaxation of price controls triggered waves of cash withdrawals, buying, and hoarding all over China. The government panicked and rescinded the price reforms in less than two weeks, but there was a pronounced impact for much longer. Inflation soared; official indices reported that the Consumer Price Index increased by 30% in Beijing between 1987 and 1988, leading to panic among salaried workers that they could no longer afford staple goods. Moreover, in the new market economy, unprofitable state-owned enterprises were pressured to cut costs. This threatened a vast proportion of the population that relied on the " iron rice bowl ", i.e., social benefits such as job security, medical care, and subsidised housing.
  
  Deng's reforms aimed to decrease the state's role in the economy and gradually allow private production in agriculture and industry. By 1981, roughly 73% of rural farms had been de-collectivized, and 80% of state-owned enterprises were permitted to retain their profits.
  
  While the reforms were generally well received by the public, concerns grew over a series of social problems which the changes brought about, including corruption and nepotism on the part of elite party bureaucrats. The state-mandated pricing system, in place since the 1950s, had long kept prices fixed at low levels. The initial reforms created a two-tier system where some prices were fixed while others were allowed to fluctuate. In a market with chronic shortages, price fluctuation allowed people with powerful connections to buy goods at low prices and sell at market prices. Party bureaucrats in charge of economic management had enormous incentives to engage in such arbitrage. Discontent over corruption reached a fever pitch with the public; and many, particularly intellectuals, began to believe that only democratic reform and the rule of law could cure the country's ills.
  
  Following the 1988 meeting at their summer retreat of Beidaihe, the party leadership under Deng agreed to implement a transition to a market-based pricing system. News of the relaxation of price controls triggered waves of cash withdrawals, buying, and hoarding all over China. The government panicked and rescinded the price reforms in less than two weeks, but there was a pronounced impact for much longer. Inflation soared; official indices reported that the Consumer Price Index increased by 30% in Beijing between 1987 and 1988, leading to panic among salaried workers that they could no longer afford staple goods. Moreover, in the new market economy, unprofitable state-owned enterprises were pressured to cut costs. This threatened a vast proportion of the population that relied on the " iron rice bowl ", i.e., social benefits such as job security, medical care, and subsidised housing.