In a dramatic imposition of new controls over free-market reforms, China on Tuesday unveiled an austerity budget that would reassert central planning over much of the chaotic economy and impose new taxes on thriving private businesses.
Western analysts said Beijing will effectively try through the new budget to regain control over dynamic rural areas that have become able to defy Beijing’s authority. The relative independence of some areas has resulted from the decade-old economic reforms undertaken by Beijing to change the centralized economy into one that responds to market forces as economies do in capitalist countries.
The analysts said Beijing is also attempting with its draft 1989 budget to help China’s city residents, more than a third of whom have suffered a drop in real income because of soaring inflation. Chinese officials said a key aim of the budget is to reduce the growing gap between the incomes of people working in the rapidly growing private and collective sector, and those working in state-owned urban industries.
Inflation in most large cities rose to more than 30% last year for the first time since the communists came to power in 1949. The inflation, caused in part by overheated economic growth, led to bank runs and panic buying. Beijing, fearing social unrest, decided to make reducing inflation its No. 1 goal even though the move would mean the slowing of the reform program.
Austerity measures were announced last September, the most severe slowdown since the reforms began, and Chinese Premier Li Peng said Monday that the austerity measures would continue for at least two years. While many free-market reforms are stalled, Li said China was not abandoning the program, and Tuesday’s announcements appeared to be an attempt to impose controls on some of the reforms, not roll back on them.
In a report to the National People’s Congress on Tuesday, Vice Premier Yao Yilin, head of the state Planning Commission, said China will cut back on construction of collectively owned and privately owned projects as part of an attempt to dampen inflation and slow down the economy.
Finance Minister Wang Bingqian told more than 2,700 delegates to the congress, China’s parliament, that the most outstanding problems in China’s economy last year were inflation and price rises because of overheated economic growth and excessive demands on the country’s limited range of products and raw materials.
If strictly implemented, the new budget will severely squeeze small rural industries, which employ more than 90 million people. These industries, owned by collectives and townships in China’s provinces, have been the most dynamic and productive enterprises in the country since the reforms began.
But Western analysts said that it will be difficult to implement and enforce many of the new directives from Beijing.
They said the economy has been decentralized to the point where many of China’s enterprising private businessmen and rural entrepreneurs will continue to thrive because they will be able to skirt new controls just as they have avoided regulations and taxes in the past.