China to Slow Pace of Market Reforms : New Regulations Needed to Deal With Changes, Premier Says

China will move forward with a modernization program based on market-oriented reforms and planned improvement of the nation’s economic infrastructure, Premier Li Peng said Monday in a speech to China’s legislature.

In a wide-ranging two-hour address at the opening session of the National People’s Congress, Li briefly reviewed the economic accomplishments of 1988, citing 11.2% growth in gross national product, a 9.3% increase in industrial labor productivity and a 24% jump in foreign trade.

Li’s focus, however, was on policies aimed at cutting inflation and laying the groundwork for more balanced economic expansion. Inflation ran at an official rate of 26% last year, and Li acknowledged that “the actual living standards of a considerable number of urban residents dropped.”

Overly rapid growth of light industrial production and excessive investment in construction projects contributed to inflationary pressures by putting too much strain on the supply of raw and semi-finished materials, energy and transportation, Li said.

While the country has moved away from the use of planning and administrative orders to control the economy, it has not yet fully developed the laws and regulations necessary to maintain order in a market economy, he added.

To deal with these problems, the government plans to focus its efforts over the next two or more years on slowing the pace of economic growth; directing investment toward agriculture, energy, transportation and raw material supply, and enacting laws capable of regulating a market economy, Li said.

More Austerity Ahead

While China’s leadership recognizes “the importance of price reform in the economic restructuring as a whole,” major price reforms are being postponed for at least two years while the government focuses on solving other problems, he said.

Li also sought to cool expectations of rapid rises in living standards. “Both government and people should be mentally prepared for a few years of austerity,” he said.

In a move intended to decrease opportunities for corruption and encourage enterprises to respond to market forces, the government is pressing forward with changes aimed at increasing the autonomy of state-owned enterprises, he said.

Over the past six months, out of about 24,000 companies that were being directly run by government or Communist Party agencies, about 20,000 have either become autonomous, merged with other companies or shut down, Li said.

Li stressed that state-owned companies must be autonomous “in matters of finance, materials supply and wages” and must not engage in the “illegal resale of goods at exorbitant profit.”

China has a two-tiered pricing system. Many commodities are available to approved purchasers at low controlled prices but are also sold at much higher prices on free markets. This dual system creates great opportunities for corruption.

In order to trim inflationary deficits, the State Council, China’s Cabinet, has decided to reduce central government expenditures this year in all areas except education, Li said.

People at all levels of government should “highly value” the “long-term strategic importance” of education, Li said. Central government funding of education will rise 15.4% this year, he said.

Wants More Exports

The government also will promote greater use of scientific and technological expertise for industrial production, Li said.

Li called for continued efforts to promote the development of an export-oriented economy in China’s coastal regions, especially the processing and re-export of imported raw and semi-finished materials. The import of high-grade consumer products should be restricted, he said.

Establishment of 5,896 foreign-funded enterprises was approved last year, setting a record, and China intends to further improve its investment environment, Li said. “We shall encourage foreign businessmen to establish more wholly owned enterprises in China and more joint ventures and cooperative enterprises,” he said.

Li also touched briefly on international relations. He called for continued expansion of Sino-U.S. economic and trade relations, scientific and technical cooperation and friendly contacts in various fields. He also said the improvement under way in Sino-Soviet relations will contribute to world peace and do no harm to the interests of any third country.

Most top state and party leaders appeared on stage at the Great Hall of the People for Li’s speech, but Deng Xiaoping, 84, China’s paramount leader, did not attend. There was no official explanation for his absence. It was not an event that required his attendance.

The annual session of the congress--a body with little real power whose main function is to discuss and approve decisions made by the State Council and the ruling Communist Party Politburo--is scheduled to last 16 days.