CHINA PUTS BRAKE ON KEY REFORM GOAL
Fear of social instability and inflation
has forced China to put the brakes on one of its most important
economic reforms -- overhauling a pricing system which often
bears no relation to production costs.
    The price clampdown has occurred during a conservative
backlash following the resignation in January of reformist
Communist Party leader Hu Yaobang, Western diplomats and
Chinese sources say.
    "In recent years, prices have not only been rising, but the
rate of increase is getting faster and faster," the People's
Daily said in a major article this week. "In future, price
changes should be only in small steps."
    Despite pledges last year that price changes were essential
to get the economy on the right track, the government has
repeatedly said no major change will happen this year.
    "Price changes in the last two years have aroused great
public discontent, especially in the cities," a Western diplomat
said.
    "Chinese were used to stable prices for 30 years from 1949
when the Communists took over. On a recent visit to two major
cities, the refrain from all the officials was the need to
preserve social stability," he said.
    A Chinese journalist said the reformers had underestimated
the extent to which the public would tolerate price changes.
    "A major review of all economic reforms is under way, the
biggest since the reforms began in 1979, because many things
are not going well -- a large budget deficit, too rapid price
increases and no major improvement in productivity of state
firms," he said.
    The reformers think it vital to change a system under which
prices often bear no relation to production costs.
    Sugar is an example. An official newspaper said earlier
this year that more than 40 pct of China's sugar mills were
losing money or had closed because producing sugar was so
unprofitable.
    This was because the selling price of sugar has not changed
for 20 years, while the mills' production costs have risen
sharply over the period.
    The economic masterplan for the 1986-90 period, published
in April last year, said China would "work steadily to establish
a pricing system which better reflects value and the relation
between supply and demand."
    The People's Daily said that in recent years wage increases
had been too high and too much currency printed, resulting in
too much money chasing too few goods and causing price hikes
and inflation.
    The review of the reforms coincides with a national
campaign against "bourgeois liberalism," meaning Western
political ideas blamed for causing student protests last
December.
    The journalist said the review was in part due to political
factors.
    "Economics and politics are inseparable in China. But the
Western media is wrong to classify the leadership into
reformers and conservatives. All the leaders agree on the main
direction -- economic reform and the open-door," he said.
    "But there are differences of opinion on the pace of reform
and on specific policies. No one is advocating a return to how
things were before 1979."
    The diplomat said what China feared as a backlash against
price rises was not so much rioting in the streets, which he
said it had the means to control. "The bottom line is how such
protests would be used by those in the power struggle."
    A foreign lawyer said he believed the cause of the crisis
earlier this year was that the Communist Party leadership had
feared, due to the student demonstrations, that it was losing
control.
    "The leadership here is a self-perpetuating oligarchy. There
is no way that it is going to give up power," he said.
 Reuter
