CHINA CURTAILS KEY REFORM GOAL OF REALISTIC PRICES
Fear of social instability and inflation
has forced China to curtail a major economic reform --
overhauling a pricing system in which prices bear no relation
to production costs.
    Despite pledges last year that price changes were needed to
get the economy on the right track, Peking has repeatedly said
no major change will happen this year. The backtracking has
occurred during a conservative backlash following the
resignation in January of reformist Communist Party leader Hu
Yaobang, western diplomats and Chinese sources say.
    "Price changes in the last two years have aroused great
public discontent, especially in the cities," one 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."
    A Chinese journalist said the reformers under-estimated the
potential public resistance to price increases.
    "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," the Chinese journalist said.
    This view was reflected by the official People's Daily in a
major article this week. The daily said price increases had
been taking place too quickly in recent years.
    "In future, price changes should be only in small steps," it
said, adding that wage increases and lax monetary policies had
resulted in too much money chasing too few goods.
    The Chinese journalist said the review was in part due to
political factors.
    "Economics and politics are inseparable in China. But the
western media are 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."
    Those who say prices should reflect production costs
believe the issue is vital to China's economy.
    Sugar is an example. An official newspaper said earlier
this year that over 40 pct of the country's sugar mills were
losing money, or had closed because the price of sugar had not
changed for 20 years, while the production costs have risen
sharply over the same period.
    The western diplomat said Chinese leaders did not fear a
backlash against rising prices would result in rioting in the
streets, which they had the means to control.
    "The bottom line is how such protests would be used by those
in the power struggle (inside the Communist Party)," he said.
    Said a foreign lawyer, referring to the crisis sparked by
student demonstrations which led to Hu's replacement, "The
leadership here is a self-perpetuating oligarchy. There is no
way that it is going to give up power."
    The Chinese journalist added that China appears to have
reached a crossroads.
    "There is no clear proposal as to what to do next," he said.
"Premier Zhao (Ziyang) has instructed his think-tanks to come up
with how to continue the reforms in 1988."
    But for the time being at least, the path leading to price
reforms is out of favour.
 REUTER
