China Approves Tentative 5-Year Plan for Price, Wage Reforms

A five-year economic reform plan aimed at freeing most prices, tying wages to productivity and making enterprises responsible for profits and losses has been approved by China’s leaders, the official news agency reported Thursday.

The “tentative plan on price and wage reforms” was approved by the Communist Party’s policy-setting Politburo during a three-day meeting this week in the seaside resort of Beidaihe, the New China News Agency said.

Communist Party General Secretary Zhao Ziyang, in comments about the plan that were prominently displayed Thursday in leading Chinese newspapers, said that within five years, China must create an economy in which “the state regulates the market and lets the market guide the enterprises.”

‘Old Price Parity’

Zhao warned that without extensive reform of China’s economic structure, current attempts to rationalize prices might leave the economy “bogged down in waves of price rises” that end merely with “the old price parity at a new level.”

If this occurs, “the reform will have failed to achieve its goal,” he said.

“Zhao said this issue involves not only price reform but also reform of the entire economic setup, such as the labor system, wage system, financial system and especially reform of the enterprise system and development of the market,” the news agency reported.

In its summary of the plan--which outlines reforms to be carried out from 1989 through 1993--the agency said a key goal for 1989 is to “perfect the contract responsibility system.”

This system, which has been gradually introduced over the last few years, aims at making managers of state enterprises fully responsible for profits and losses. In China’s socialist economy, money-losing state enterprises traditionally have received automatic subsidies to enable them to continue operations.

Government policy now aims at ending such subsidies. A new bankruptcy law with rules for termination of unprofitable enterprises is scheduled to go into effect Nov. 1.

Full implementation of the new management system “is the key on which hinges the success or failure of the reforms,” the news agency said in Thursday’s report.

As prices rise in the course of price reform, wages will also be raised so that “the living standards of most wage earners do not drop . . . and even improve somewhat along with the development of production,” the agency reported.

“At the same time, further efforts will be made to implement the principle of ‘to each according to his work,’ ” it added.

The plan also calls for “comprehensive measures to bring inflation under control,” the agency reported. According to official statistics, inflation was 19% during the 12-month period that ended June 30.

Inflation will be attacked by restricting the number of big construction projects, thus reducing demand for “steel and other means of production,” the report said.

There also will be a crackdown on embezzlers, bribe takers, seekers of exorbitant profits, speculators, hoarders and those who impose local protectionism or economic blockades, it said.

Such corruption results partly from China’s current two-tier pricing structure, a transitional system in which some goods are sold at subsidized prices but some are sold at market prices. Officials or private middlemen can make huge profits by obtaining goods at subsidized prices and reselling them at market prices.

The Chinese media have stressed that opportunities for corruption must be reduced by further price reforms, which would largely end the sale of goods at subsidized prices.

A plenary session of the Communist Party Central Committee, a much larger body than the Politburo, will be held in September to further discuss the plan, the news agency reported.