China Curbs Moves Toward Free-Market Prices

In the first indication that recent political turmoil may slow down China’s economic reform program, the Chinese government announced Thursday that it will not increase the number of goods whose prices are determined by market forces this year.

An official circular issued by the State Council, the nation’s Cabinet, also pledged that no more new goods will have prices floated within a range set by the government. And it said that authorities in major cities such as Peking and Shanghai will be given new authority to set ceilings on the prices of retail food items such as meat and eggs.

In effect, the circular calls for a yearlong freeze in the process by which the Communist regime had been gradually letting prices of many consumer goods be determined by supply and demand instead of being fixed by the state.

“Commodity prices are a matter of principal concern to China’s overall economic and social stability, which is the immediate interest of the masses,” the circular said.

Two weeks ago, authorities here pledged to keep prices “basically stable” this year, but said nothing about stopping the process of market-oriented reforms.

Inflation Nearly 6%

One Western diplomat said Thursday night that he was surprised by the new circular, because Chinese economists have been saying privately only recently that the process of price reform would go forward in 1987. According to recent unofficial figures, China’s inflation rate was just below 6% last year.

Meanwhile, China’s official press hinted Thursday for the first time that a high-level leadership shake-up is under way and that Communist Party General Secretary Hu Yaobang is being ousted from his job.

Accounts of a meeting between Chinese leader Deng Xiaoping and a group of visitors referred to Deng by the new title “Chinese Communist Party leader.”

In the past, the Chinese press has referred to Deng as China’s “top leader” or “senior leader,” but not as “Communist Party leader.” Officially, Hu, as general secretary of the Communist Party, has outranked Deng within the Communist Party hierarchy.

Diplomats here say a high-level meeting of party officials is now under way, and both Chinese and diplomatic sources say they expect that Hu will be removed from his leadership position within the party.

The meeting follows the launching of a vehement political campaign in which Communist Party authorities are urging the nation to eradicate the influences of “bourgeois liberalization.”

In his session Thursday with Finnish Communist Party Chairman Arvo Aalto, Deng said there is now a trend in China of advocating bourgeois liberalization. “China’s Marxists will not agree to this,” he said.

Officially, Deng and other Chinese leaders have been saying repeatedly in recent days that the campaign against bourgeois liberalization will not affect China’s economic reform program or its policy of opening to the outside world.

Even some of China’s conservative leaders voice a continuing commitment to the process of economic reform.

“Some errors might occur in the ongoing reform, but that does not matter much,” President Li Xiannian said at a meeting Thursday in Shanghai. “We must not retreat just because of a minor setback or some criticism. We must advance, not retreat.”

Peking’s Role in Banking

Nevertheless, there have been several signs in recent days that the new political crackdown may have an effect on economic issues as well.

On Tuesday, State Councilor Chen Muhua, the governor of China’s central bank, the People’s Bank of China, gave strong emphasis to the role of the state and the socialist system in discussing financial and banking reforms.

“The establishment of new financial institutions should be under strict state planning,” she said. “Since banking is an important lifeline of the state economy, it must be kept firmly in the hands of the state.”

Last year, one new privately owned bank started operations in Shanghai, and there had been some talk of other private banking institutions opening up soon.

Party leaders and official newspapers have also begun to place strong new emphasis on the virtue of thrift and on the importance of China’s relying primarily on its own resources rather than becoming dependent on the outside world.

Vice Premier Li Peng, who has long been considered a conservative candidate for top leadership posts, told one conference Wednesday that China will depend mostly on its own resources in its modernization program.

He said that China’s policy of opening to the outside world “is an important supplement to this (self-reliance) and will not be changed.”

The Communist Party newspaper Economic Daily this week carried a commentary reminding the nation that China made great strides in the early years of the Communist regime by “struggling bitterly” and not relying too much on outside help.

“It was just by relying on this self-respect, self-confidence and spirit to improve ourselves, under the leadership of the Communist Party, that the entire country struggled in unity to solve the food problem,” the paper said.

“Cars and planes were manufactured, the atom bomb program was successful, guided missiles and satellites were launched and put into space. . . . Some people slander us, saying we can’t do anything, that we need to study everything from foreign countries. Such views can only sap people’s fighting will.”

The new government circular on prices was issued at the beginning of a year in which most Chinese expected a series of new price increases for consumer goods. For several weeks, residents of major cities have been stockpiling many goods whose prices they believed would be going up.

One foreign analyst said that China may have “objective economic reasons” for deciding to hold up on price reform. He said China’s money supply increased in the last half of 1986, so that there are dangers of an increase in the inflation rate this year.

But this analyst quickly added that there could be political factors behind the circular as well. “If indeed there is this meeting of Communist Party leaders going on, the circular may have come out of it,” he said.