China to Take More Control of Economy : Reform Program Has Run Into Problems; Zhao Urges Restraint

Times Staff Writer

Premier Zhao Ziyang said Wednesday that China's program to reform its socialist economy has run into difficulties because of an initial binge of consumption, wage increases, bank loans and expansion of the money supply.

In his annual report to the National People's Congress, Zhao bluntly confessed that he and other Chinese leaders lack experience with economic changes of the scope that China is now carrying out. He indicated that the government intends to keep the economy under tight control as it proceeds with the reform program.

He called on authorities throughout China to help "forestall panic buying." Since last October, when the government announced plans to lift some price controls, millions of Chinese fearing inflation have rushed to buy such consumer goods as television sets and washing machines.

"Our country has a population of 1 billion, organized in over 200 million households," Zhao said. "The domestic market, consequently, has an enormous capacity. If everyone rushed to buy the same commodities at the same time, no state reserve, however rich, could cope with the situation."

An Account of Mistakes

Zhao's speech, carried nationwide on television, amounted to the first detailed account by Chinese authorities of the mistakes that they have made in their efforts to transform China from a planned economy to a form of market socialism.

"Zhao and Deng (Chinese leader Deng Xiaoping) can't keep their finger on everything," a Western diplomat said after listening to Zhao's speech. "They've been trying to do too much at once, and they don't have too much experience in running a decentralized economy, so now they'll rein in for a year."

In his speech--the Chinese equivalent of a state of the union address--Zhao implicitly acknowledged that the tone of China's reform program will be changed.

Last fall, when the economic reforms were announced, people were encouraged to spend more money, to wear newer and more fashionable clothing and to consume more goods. On Wednesday, by contrast, a chastened Zhao, wearing a Mao jacket instead of the Western suit in which he usually appears, admonished the nation to be "modest and prudent."

He placed much of the blame for economic problems on what he called lax control of bank credit and increases in the money supply. He said that bank loans were up 29% last year and that nearly half of this increase came in the month of December.

This was the first official explanation of why the presidents of two of China's most important financial institutions, the People's Bank of China and the Bank of China, have been replaced in the past month.

China's economic reform program, approved last October, calls for a gradual lifting of price controls and a drastic reduction in centralized state planning to try to increase economic efficiency and spur growth and modernization.

Even before the reform package was approved, Chinese in some major cities began buying up food and durable goods as a hedge against price increases.

According to figures made public recently in Tokyo, Japan exported 2.3 million color television sets to China last year, seven times the number sent to China in 1983.

Zhao described in detail how Chinese enterprises, many of them state-owned, went on a splurge at the end of 1984.

He said that some banks, learning last fall that their credit this year would be based on their 1984 year-end figures, "vied in granting loans" to make as many as possible before Dec. 31.

Wage Base Raised

Similarly, he said, many Chinese enterprises heard that their payroll levels at the end of 1984 would be used as the base figure for payrolls this year, and they "indiscriminately raised wages and handed out bonuses and allowances."

Zhao said the authorities have already taken measures to cool down the economy and that they will take others later this year.

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