China Economy in 1991

Feudal China's Evil Revived: Wives for Sale

By SHERYL WuDUNN,
Published: August 4, 1991

BEIJING, Aug. 3 The television scene shows two young women being
led to a suburban home where they are told they will be given lucrative new
jobs. They wait in a small, locked room and soon discover to their horror
the real nature of the deal: they are being sold, for about $950 each.

The television dramatization is one of a few tools the Government is using

to warn women about a feudalistic practice that is doggedly making its way
back into rural China: the buying and selling of women to serve as wives.
The partial emergence of a market economy has reinvigorated this
variation of slavery, as travel becomes easier and peasants accumulate
enough cash to purchase a bride.

No one knows quite how common the sale of wives is, but it almost
certainly is increasing rapidly. Confidential documents presented recently
to China's legislature say that the authorities investigated 18,692 cases of
women being sold against their will last year, and presumably many more
cases never came to the attention of the authorities.

The documents say that 65,236 people have been arrested in the last two
years for involvement in the sale of women and children.

"There are some comrade leaders who do not recognize the threat and the
seriousness of this repulsive social phenomenon," says one of the internal
documents. "Some cadres and party members at the grass roots even
connive at, participate in and support the criminal activity of the
kidnapping and sale of women."

The documents were circulated to the standing committee of the National

People's Congress, China's legislature. In June, the standing committee
discussed stricter punishments for traffickers of women and children, a
spokesman said.

The sale of women disappeared during the first 20 years of Communist

rule, and slowly reappeared during the 1970's and 1980's. The number of
cases has risen sharply since 1985, the documents say.

In rural areas, a bride's family traditionally will insist on a wedding

ceremony, and these days the cost of weddings has soared, as neighbors try
to outdo each other. That has created a strong incentive to buy a wife and
save the cost of the festivities.

A wife typically costs less than $1,000, compared to $700 to $3,000 for a
wedding, and the family of the purchased bride is obviously not around to
insist on a lavish wedding.

Some of the women are foreigners, mostly Vietnamese. Last year, at least
2,716 Vietnamese women were repatriated after being kidnapped and sold,
although the documents did not make clear how they came to China in the
first place.

The typical Chinese victim is a woman from a poor region who is lured by
the prospect of a new job, a better life, or free travel, to follow a trafficker to
another province. Once she is in his hands, the trafficker essentially
kidnaps her, often beating or raping her. Sometimes the process of
abduction can involve a network of more than 100 traffickers.

The women are often young and unsophisticated and have no idea how
they could escape, even if they had money for bus fares. In addition, they
are sometimes locked up until they have borne children, and frequently
local villagers side with the man who has parted with his life savings to buy
a wife.

"After some of the women are abducted and sold, they are stripped of their
freedom for a long time and endure the inhuman life of imprisonment and
devastation," says one of the documents. "The criminal activity of the
kidnap and sale of women more and more has come to resemble the slave
trade."

One document also criticized the current legal regulations for trafficking,
which essentially stipulate that a common trafficker, who is not a gang
leader or a rapist, is sentenced to less than five years.

That same sentence is given to a thief who has stolen a head of cattle worth
less than $200.

But in some cases, those who organize trafficking are executed. In June,
the authorities executed 10 men in Shanxi Province for selling 91 women.

China Issues '61 Deng Speech Stressing

Shift From Ideology
By NICHOLAS D. KRISTOF, Special to The New York Times
Published: March 11, 1991

BEIJING, March 10 China today published a 30-year-old speech by

the nation's patriarch, Deng Xiaoping, in what appeared to be a call for
greater attention to the economy and less concern for ideological
campaigns.

The People's Daily, the official newspaper of the Communist Party

Central Committee, said it had Mr. Deng's permission in publishing the
speech at the top of the front page in today's issue. Its publication
appeared to be an effort by the 88-year-old Mr. Deng to refocus the
nation on economic development and restructuring after nearly two
years of hard-line political and economic policies.

"If campaigns continue year-round, they will turn into superficial and
exaggerated fanfare, and we will exhaust ourselves," Mr. Deng said. "In
fact, they will breach the will of the masses, and alienate us from them."

The People's Daily gave no clear reason for publishing the speech, which
was originally given to the All-China Women's Federation in December
1961. But China has a tradition of dredging up long-forgotten speeches to
signal shifts in the political winds. Full of Mixed Signals

China has been full of mixed signals since the army crackdown on dissent
nearly two years ago, and it is not clear whether the reprise of the speech
today indicates any major change of direction. Even if Mr. Deng intends
to push for a more rapid move toward the market, he has given no
indication he favors toleration of dissent. And in any case he is ailing, and
must negotiate with other retired octogenarians with whom he shares
power.

The focus of the speech is the need for improvement in the daily work of
the party and Government, and less emphasis on grand projects and
slogans. As in all such speeches, it is ambiguous and in places scarcely
relevant to national policy -- it calls on the Women's Federation, for
example,

to

improve

relations

between

mothers-in-law

and

daughters-in-law -- but the theme is to shift the balance toward

pragmatism and away from ideology.

"As for proposing this or that slogan, or this or that guideline, only when
we have done enough daily, grass-roots work can we hope that they will
materialize," Mr. Deng said. "Otherwise, our words will sink like stones
into the sea, leaving not even a trace."
Correction: March 19, 1991, Tuesday Because of an editing error, an article on March 11 about the publication of a 30-year-old speech by
Deng Xiaoping, China's senior leader, misstated his age. He is 86, not 88.

As China's Economy Thrives, The Public

Sector Flounders
By SHERYL WuDUNN,
Published: December 18, 1991

BEIJING, Dec. 17 The Avenue of Eternal Peace, the main road

through the capital, ends at the gate to one of the country's gargantuan

state enterprises, a steel factory that employs 186,000 workers and

sprawls from the edge of the city into the mountains and plains beyond.

It takes half an hour by train to go from one end to the other of the
central factory of the Capital Iron and Steel Mill, where giant blast
furnaces run 24 hours a day. Along the way, the main path splinters into
the different parts of this mini-society: a park, a flower garden with a
small zoo, a hospital, two colleges, a nursery, a kindergarten, and a farm
that grows fish, poultry and vegetables for the factory workers.

In its conception, Capital Steel was the Communist antidote to a class

society; it was an integrated community where people work for the state
and the state supplies them with their every need, where men and
women would be entitled to a job, a house, free health care and a few
bowls of subsidized rice each day.

After 40 years of Communist Party rule, however, that dream has

collapsed and the system has decayed into a giant labyrinth of
mismanagement, an underclass in an emerging dual economy that pits
the market mechanism against central planning. A Two-Tier Economy

The import of capitalistic attitudes by private businesses and collectives

has brought economic expansion and prosperity to southeast China's
provinces, such as Guangdong, Fujian and Zhejiang. But China seems
compelled to cling to the lagging state sector, and the growing economic
inequalities between the two tiers of the economy are leading to political
headaches for China's Communist leaders.

With orthodox ideology discredited throughout the country, China's state

sector, still the largest part of the country's economy, is one of the most
important Communist symbols left and it is slowly withering: some 40
percent of the state enterprises are losing money, stockpiles of unsold
goods are mounting, and losses are growing daily.

Government-owned businesses continue to benefit from all sorts of

preferential policies and the Government has agreed to lighten their tax
burden, but even so, these enterprises are being pummeled by
competition from private and collective enterprises, and these days many
no longer pay their bills or their debts.

"They are the state's main source of income and the backbone of the
socialist economy," Jiang Zemin, the Communist Party leader, said

recently. "So whether we can revive them affects not only the stability of
the national economy, but also the status of the public ownership
economy and the solidity of the entire socialist system." The System's
Pride Becomes Albatross

Because these enterprises are seen as the bulwark of Chinese

Communism, the Chinese leadership is devoting enormous efforts to
reviving them. Perhaps no issue is now attracting so much attention of
top Government leaders, and they likely face no greater frustration than
the chronic losses and inefficiencies of the state sector.

With a growing number of factories refusing to pay their debts, doing

business in China requires a measure of imagination. One factory
recently resorted to sending a team of elderly, sick and disabled workers
to plead, snivel and cry for repayment of loans from another enterprise.

That did not work, so the factory then dispatched a group of women
employees with their babies crying piteously for food, according to an
account in an official Shanghai newspaper. The hope was that the
enterprise that owed the money would fear that the wails of babies would

bring bad luck and would promptly repay. But that did not work either.
These days, nothing seems to work.

"There is no hope for the state enterprises, no way out," said a Chinese
economist who has worked for the Government on these problems. The
best hope, she said, is that the state sector will expire quietly.

But many Chinese believe that is unlikely, and the leaders themselves
apparently are afraid to allow the enterprises to collapse. A few years ago,
when economic reformers were in control, there was an effort to
introduce Western-style bankruptcy and force out of business those
enterprises that were inefficient.

But the architect of the bankruptcy program was imprisoned after the
1989 crackdown, and the Chinese leadership now seems caught in a
painful dilemma: it cannot afford the mounting losses of the state sector,
but it dares not close the factories for fear of unrest from laid-off
workers.

State-owned

companies

have

dominated

Chinese

industry

and

manufacturing for four decades, but their share of the economy dropped

sharply after Deng Xiaoping began the economic restructuring of the

1980's. The state sector accounts for only about 53 percent of industrial
production, and the figure is dropping steadily. Private Sector To
Outstrip Public

This year or next will be a milestone: for the first time in more than four
decades of Communist Party rule, less than half of industrial output will
come from state enterprises. The leaders are aghast, but they seem to
have no alternative but to accept economic growth, whatever its source. If
the private sector will provide revenue and jobs, they will apparently
accept it.

When Prime Minister Li Peng was examining the problems at a state-run

enterprise in Guangdong recently, he reportedly said, in a fit of
exasperation, "Share-ownership is the only way out."

Hard Line in Beijing Fails to Kill Boom

By NICHOLAS D. KRISTOF,
Published: December 17, 1991

GUIYANG, China Jiang Lianxiang has a modest living room, with a

sofa, a television, a refrigerator that doesn't fit in her dollhouse-sized
kitchen, and an abiding faith that her son will be richer than his parents.
Here, it almost seems as if the 1989 Tiananmen crackdown on dissent had
never happened.

"Our incomes are still going up," said Ms. Jiang, a relaxed and smiling
woman of 41, as she sipped tea in her living room and watched her son
practice his calligraphy in a corner. "We have most things we could want.
Of course, the boy wanted an electric fan for the summer, but if you open
the window it's really not so hot. And we talked about getting a video player,
but then we were afraid that might disturb the boy from doing his
homework each evening. So we pretty much have what we need."

This economic complacency is not what was expected after the army
throttled the democracy movement 1,080 miles away in Beijing. Many
Chinese and foreigners alike believed that with tanks crushing student

tents at Tiananmen Square, the economy risked collapse as well, through a

decline in foreign investment, a rollback of economic reforms and an
increasingly disgruntled and uncooperative work force.

But none of that has happened, at least not so far. It is one of the paradoxes
of the 1990's: China, with a hard-line Communist leadership, is booming
along at a 6 percent growth rate, with low inflation, foreign investment up,
and exports and foreign exchange reserves at record highs.

In contrast, democratic India, Asia's other third-world giant, is struggling

along with a 4 percent growth rate, a trade deficit, and double-digit
inflation. As for the Soviet Union, the other country with which China is
most often compared, its economy has sunk further into chaos as the
country fragments in the aftermath of the hard-liners' failed coup in
August.

Of course, there are clear differences among the three countries, and no
one seems to think that repression makes good economic sense. But so far,
against most expectations, China has not paid any overwhelming economic
price for pursuing a hard-line ideology.

"The doomsaying that went on a couple of years ago, on so many fronts,

has not come about," said Nicholas Lardy, a specialist on the Chinese
economy at the University of Washington. "In fact, I can't think of any
negative forecasts that have come to pass."

To be sure, there is still deep bitterness toward the Government in many

circles, and there is a common belief that the hard-liners are doomed. And
for the economy the last few years have not been clear sailing by any
means.

Beginning in late 1989, China endured its worst slump in more than a
decade. The recovery is now well under way, but many Chinese economists
worry that inflation will soon come roaring back. And the state-owned
sector of the economy is still a disaster area: unreformed, inefficient and
perhaps hopeless.

Yet over all, despite immense troubles in the state sector, the Chinese
economy is enjoying far more vigorous growth than the economies of the
United States, Japan, India or most other countries, rich or poor. This kind
of steady economic growth is the crucial feature of Deng Xiaoping's
strategy to preserve Communist Party rule in China. Mr. Deng, the ailing
87-year-old architect of present-day China, argues that if the party can

raise living standards substantially, ordinary people will support

Communist rule and overlook such matters as the army assault on
pro-democracy demonstrators in 1989.

"In the end, convincing those who do not believe in socialism will depend
on our nation's development," the official Economic Daily recently quoted
Mr. Deng as saying. "If we can reach a comfortable standard of living by
the end of this century, then that will wake them up a bit. And in the next
century, when we as a socialist country join the middle ranks of the
developed nations, that will help to convince them. Most of these people
will genuinely see that they were mistaken." Expectations Rise Faster Than
Income

Mr. Deng seems to be right that many ordinary Chinese are far more
concerned with whether they can "fa cai" -- get rich -- than with repression
of dissidents. But it is not at all clear that growing prosperity will make
them more supportive of the Communist Party, for two reasons.

The first reason is that while incomes are rising, expectations are rising
even more quickly. Consequently, many people seem dissatisfied with their
stunning economic progress and some even insist -- absurdly -- that they
are worse off financially than they were a few years ago.

The second reason is that many Chinese believe that they owe their fatter
wallets not to Communism but to capitalism. And many economists here
say they are right.

After a dozen years of economic restructuring, China sometimes seems

more capitalist than Communist, and that is one reason why the country is
doing so well. Most of the growth now is coming from private and collective
enterprises, not from the state-owned behemoths. China's politics and
oratory may be hard-line Communist, but brush aside the slogans and
what emerges is that the economy's saving grace is that it is deeply
pluralistic.
The state sector accounts for only about one-third of China's gross national
product and 18 percent of the labor force. The goods and services
purchased by the Government total only 6 percent of G.N.P., just one-half
the level in India. China's 800 million peasants live in their own homes,
work for themselves on individual plots of land that are more or less their
own, and increasingly engage in small-scale capitalist ventures that make
everything from tofu to ball bearings.
"Our policy is to talk all the time about socialism, while moving more and
more toward the private sector," quipped a Chinese official who returned
recently from a visit to the Soviet Union. "The Soviets are just the opposite.

They're talking all the time about reform, but they still haven't changed
anything. There, the state still owns everything."
Thus China sometimes seems to be repeating the slogan "Socialism
Forever!" as it heads directly toward a market economy.
Important reforms are again on the Chinese agenda these days, although
the leadership still balks at any rapid restructuring of the state sector.
Despite protests from some of the nation's octogenarian leaders, like Vice
President Wang Zhen, China is moving ahead on stock issues in the cities
of Shanghai and Shenzhen. Canton may get a stock market by the end of
next year, and foreigners will be permitted to buy special "B Shares"
beginning early next year.
"Li Peng personally favors central planning," said an economist who has
discussed economics with the Prime Minister. "But he knows that he has
no choice. He's got to move toward the market, and that's what's
happening in China now." Shift to Market Continues Apace
Aside from the nurturing of stock markets, there are several other reforms
now gaining momentum:
*The Government this year began to raise money by issuing bonds
underwritten in part by securities firms, in place of the old system of
issuing bonds that people were simply forced to buy. Chinese workers used

to dread the automatic deductions from their paychecks to pay for bonds,
but now the securities pay reasonable interest and can be sold before they
mature.
*China, beginning this year and next, is inaugurating large-scale "housing
reform," by raising rents from their present unrealistic levels (a few dollars
per month or less) and by encouraging families to buy the homes in which
they live.
*The Government this year raised prices of grain, cooking oil, bus fares,
rail transportation and other goods and services to levels that more closely
reflect their value. Already, most goods in Chinese shops are sold at
market-determined prices, rather than at state-fixed prices.
*China is moving toward making the yuan a convertible currency. A 31
percent devaluation over the last two years has left the official exchange
rate little different from the black market rate, and many companies and
some individuals can now trade their foreign exchange at near-market
prices at specially created currency markets in major cities.
While foreign economists applaud these moves to rationalize the Chinese
economy, ironically many ordinary Chinese are far less enthusiastic. In
particular, workers are alarmed by the freeing of prices and rents, because
the upshot is that they will have to pay more for their apartments and more
for food and other necessities.

Thus some Chinese economists say, with barely disguised glee, it will be the
hard-liners who will be blamed for the costs of market liberalization.
Already in China, it is sometimes startling how enthusiastic many people
are about anything that smacks of capitalism.
When a liberal American man married a Chinese woman who had
graduated with a degree in economics, he was surprised to find her a
disciple of Milton Friedman and an absolute believer in markets. In their
dinner table discussions, it was left to him, the nominal capitalist, to
defend the proposition that the Government sometimes has a role to play
in the economy.
"You just look at our economy and it's pretty obvious," said an economics
professor, looking over his shoulder to make sure no one will overhear his
heresy. "What's the most vibrant sector? Private business! What's next?
The collectives. And which is least efficient and always manages to lose
money? The state sector!"
Yet most fundamentally, what is changing is not so much the policies as the
attitudes toward markets and competition. These attitudes have yet to
infiltrate state-owned companies in any concerted way, which is partly why
the state conglomerates are in such trouble, but they have spread
throughout society itself. Business Careers Gain in Status

Until a few years ago, for example, many intellectuals held the traditional
Confucian view that business was a low-status occupation and beneath
their efforts. Consequently, many of China's entrepreneurs were
ex-convicts who could get no other jobs and were forced to sell clothing or
videos in small stalls.
In the last few years, however, more and more university graduates have
also gone into business, largely because they can earn incomes many times
greater than those if they work as Government officials. Most people expect
that the boom in the private sector will continue, with at least the tacit
approval of the Government, and entrepreneurs are enjoying rising status.
"It used to be a girl wanted to marry a guy who had a nice job as an
official," said a 20-year-old woman in the town of Bijie in Guizhou
Province. "But now a lot of girls say to heck with that. They'd rather marry
a guy who's into business, and who can spend some money on them."
Joint ventures with foreign companies are particularly prized employers,
and the most brilliant graduates of Beijing universities now often aim for
jobs at such concerns in the way that students a few years ago used to seek
jobs with the Communist Party Central Committee. Now there are more
such companies than ever, and foreign investment has picked up
particularly quickly in the last few months.

Even after the 1989 crackdown, foreign investment rose somewhat, against
most predictions. Taiwan companies poured in cash to make up for the
slowdown in investment by American and European companies.
And in any case, China gets far more hard currency from exports than from
investments or tourism, and exports to the United States and other
countries have been booming for the last two years. This export boom
might collapse, however, if the United States revokes -- as Congress
threatens to -- the trade benefits known as most favored nation status. The
New Breed Of Businessman
Zhong Hongru, a 47-year-old man with piercing eyes and thick hair
brushed neatly back over a high forehead, is an example of the new breed
of businessman in China. Until 1987, he was a doctor here in Guiyang,
earning $40 a month. Then he left the hospital and started his own trading
company, initially bringing sweaters from Shanghai to sell in local shops.
Last year, Mr. Zhang's company earned nearly $1 million in profit. He has
diversified into everything from chopsticks to Maotai wine, and his
apartment boasts a Japanese-made television and an enormous stereo
system. As he relaxed on his couch on a recent afternoon, Mr. Zhang
seemed confident that the Government would continue to tolerate private
enterprises like his own -- if for no other reason than that they are too

important to squelch. He notes that he pays $100,000 a year in taxes and

employs 500 people.
"Look, I'm contributing to the state," Mr. Zhang said, with a twinkle in his
eye. "So whatever the problems with this or that policy, I think the
direction of reform will continue."
-------------------- Next: The stagnating state sector.
Photos: So far, against most expectations, China has not paid any
overwhelming economic price for pursuing a hard-line ideology. "We have
most things we could want," said Jiang Lianxiang. She and her husband,
Yu Qian, watched their 10-year-old son, Yu Jiang, practice calligraphy at
home in Guiyang.; Zhang Hongru is an example of the new breed of
businessman in China. Formerly a doctor in Guiyang earning $40 a month,
Mr. Zhang started a trading company that last year earned nearly $1
million. (Photographs by Nicholas D. Kristof/The New York Times) (pg.
A10) Map of China highlighting Guiyang (pg. A10)

In China, Capitalism Inches On

By SHERYL WuDUNN,
Published: September 18, 1991

BEIJING With the hard-line rhetoric blaring from the central

Government these days, it may seem from abroad that China has
abandoned liberalization in any form. But while the pace of economic
change certainly has slowed significantly since the mid-1980's, in the last
two years necessity has prompted leaders at all levels to take small but
important steps toward a market system.

"There is reform, but it's regionalized," said a Chinese business executive.

"It's coming from the bottom up. It's the local governments that are
implementing reform, and they'll do as much as they can get away with."

Many of the visible changes are in trade, already much more unfettered
than other areas. Export and import subsidies have been reduced, for
example. But, Chinese economists say, there also have been a few price
adjustments, advances in the bond and stock markets and city-by-city,
county-by-county attempts to tackle the complex problem of urban
housing, welfare and enterprise ownership. 'Moves Ahead Slowly'

"I wouldn't say reform is on the front burner, and Li Peng does not have a
big appetite for reform," Nicholas R. Lardy, an economist at the University
of Washington, said, referring to the Prime Minister. "But when faced with
the alternatives, he moves ahead slowly."

China allowed its first government bond underwriting earlier this year and
already the city of Shanghai and Shenzhen, the special economic zone
created next to Hong Kong, have started modernized stock exchanges;
Canton is waiting for approval. Scores of enterprises are hoping to raise
money by obtaining a listing soon on these exchanges.

Shanghai, Canton and counties in poorer provinces like Anhui in central

China, also have begun their own experiments in revamping housing. So
far, however, there has been no nationwide attempt to overhaul urban
housing, which is provided by employers.

One proposal supported by some Westerners is a national housing

corporation that would buy homes and apartments from the various
enterprises and manage them. Workers would turn to the housing
corporation, rather than their employers, for mortgages and living
accommodations. But so far, there seems to be no consensus on the
concept.

Because of their financial burdens, as well as their overall inefficiencies, up

to 38 percent of China's industrial state-run enterprises were losing money
by the middle of this year, according to materials presented privately at a
recent economic planning session. But China has been loath to make
significant changes to loosen up government-run industry.

For this reason, some Chinese economists say that the last two years have
been largely wasted from the standpoint of reform. They say that since the
military crackdown in June 1989, central planners have regained control
over much of the economy and that there is no longer much chance of a big
change in the ownership system.

Proposals a few years ago to transform state-owned companies to

shareholder-owned ones have been dropped or starkly scaled back because
of accusations that this was the same as privatization -- an ideological
taboo.

These economists also say that Chinese leaders missed an attractive

opportunity to retool their economy, to raise prices during a period of low
inflation, to close down money-losing enterprises and to literally force
those enterprises to improve, instead of bailing them out with government
loans.

"Parts of the economy show signs of improvement, but there has been no
fundamental change," said a Chinese economist. "I don't think that in the
next one to two years there'll be any major reform." A Solid Exchange Rate

One of the more noticeable changes in the direction of a market economy

has been in the foreign exchange markets. Since the 1989 crackdown in
Tiananmen Square, China has devalued the renminbi, the local currency,
by 43 percent. The rate of 5.3 yuan, as the unit of currency is called, to the
dollar is generally thought to be not too far off from what it would be in a
free market. Economists say a realistic exchange rate is very important in
pricing imports and exports appropriately, and in this respect China is well
ahead of many other developing countries that enormously overvalue their
exchange rates.

A year ago, Prime Minister Li agreed to a plan to allow the Government's

Administration of Foreign Exchange Control to make tiny, daily
adjustments to the exchange rate, according to a Chinese official. The
purpose apparently was to save companies from having to accommodate
large jumps in the exchange rate.

But it also meant that China's exchange rate began to operate almost as a
managed floating exchange rate. In fact, the rate has gradually risen
another 2 percent in the last 10 months.

These days, many companies trade their dollars legally on the swap
markets, where last month, 5.8 yuan could be changed for one dollar,
essentially a market rate. Last year, a total of $13.16 billion was traded in
100 such official exchange centers, compared with $8.57 billion in 1989. In
the first half of this year, $8.75 billion passed through swap centers,
according to an article last month in the English-language China Daily.
Companies still have to give a portion of their foreign exchange export
earnings to the Government, but now, much of those earnings are
converted into local currency at the swap market rate, which offers a
greater incentive to export. In return for this benefit, however, the
Government this year began slowly reducing export and import subsidies,
in part because it could no longer afford the swelling payments. Price
Revisions
Some of the most important measures in the last two years involved raising
fixed prices for food and raw materials, which had been sold well below
market levels. Economists regarded it as crucial to rationalize these prices
and the Government has now obliged. But the main reason apparently was

not so much an enthusiasm for markets but that the Government could not
afford the subsidies.
China this year, for example, raised the prices of steel and cement, and it
took a big step in May by raising the average price of grain by 71 percent
and the average price of edible oils by 168 percent. For years, the
Government had purchased grain and oils from farmers at prices much
higher than it charged urban residents for them.
Such subsidies amounted to the equivalent of $7.5 billion in 1990, but the
new price hikes will shave the burden by nearly a third in the case of grain
and by more than two-thirds in the case of edible oils.
"They have been raising some prices, but in many cases it's been more for
budgetary reasons rather than to rationalize prices," said Christine Wong, a
China economist at the University of California at Santa Cruz. "It's hard to
say they aren't moving forward on reform because they've done little things
here and there. What's lacking is a comprehensive vision of where they
ought to be going and what they need to do to get there."
Still, China's state sector is shrinking as a share of the economy and by the
end of the 1980's, it produced less than 40 percent of China's national
income. That is not far off from government contributions in Italy and
France, according to Professor Lardy.

One Chinese business executive said he remained optimistic even though

he expected few big reform measures from the nation's current leadership.
"The leaders?" he asked rhetorically. "It is not in their interest to reform.
Their interest lies in planning, which means control and power. Power
means better treatment, better living conditions."
But he added that 60 percent of the labor force, most of which is in the
countryside, is essentially working for itself, and that even if China took no
steps toward reform, the state sector would continue to shrink.
With a smile, he added, "The private sector will just keep expanding, and as
long as more people are working for themselves, things will get better."
Photo: The Chinese Government permits local and foreign currencies to be
exchanged at official foreign exchange centers. At the Shanghai center,
currency trading calculations are made and recorded on computers. But
the clerks have a low-tech backup system, an abacus, handy just in case.
(Associated Press)

A Year Later, Signs That Deng Guides China

By NICHOLAS D. KRISTOF, Special to The New York Times
Published: January 29, 1991

BEIJING, Jan. 28 After a year of playing with his grandchildren

during a quiet retirement, Deng Xiaoping appears to have returned to the
political scene in recent weeks to direct basic elements of national policy
and to give a boost to the leaders he favors.

Mr. Deng, who is 86 years old and frail, has appeared in public only once
recently, while voting in municipal elections at the end of December. But
he has contributed his calligraphy to many organizations recently, possibly
as a way of reasserting his primacy, and he is believed to have issued
crucial political instructions recently on important issues.

While Mr. Deng's highest remaining position is Most Honorary President

of the Chinese Bridge Association -- in recognition of his skill at his favorite
card game -- most Chinese expect that as long as he breathes he will be the
ultimate arbiter of political disputes in China. He is clearly not involved in
day-to-day decision-making, but foreign diplomats and Chinese officials
alike believe that in the last several weeks he has demonstrated his
authority and set the framework for policy in key areas.

Chinese officials say that in an important internal document now

circulating in the Communist Party apparatus, Mr. Deng tells younger
leaders that they should not quarrel among themselves about ideological
matters. Economic Development Is Urged

"We needn't spend our time debating the relative proportions of the
planned economy and the market economy; the important thing is simply
to look for ways to develop the economy," the officials quoted Mr. Deng as
saying. "A market economy is not necessarily capitalist, and a planned
economy is not necessarily socialist."

In addition, the Hong Kong press has reported that Mr. Deng recently
instructed that China should take a firm line in negotiations with Britain in
the years before the British turn Hong Kong over to China in 1997.

There are also whispers in Beijing that Mr. Deng himself decreed that
China should not take a stand on the use of force in the Persian Gulf.

"He really did want to retire from decision-making," an official said. "But
then he saw his reforms under threat, and the political system in a
stalemate, and he decided he had to return to give the reforms a push. He's
concerned about how he'll be judged by history, and so he wants to make

sure that the reforms continue to go forward." Still Wary of Democracy

Moves

Most foreign diplomats and Chinese officials believe that Mr. Deng's flurry
of activity has succeeded in giving a bit more impetus to economic
liberalization, and in slightly easing the atmosphere of repression that has
hung over major cities since the military crackdown on the democracy
movement in June 1989. But a Western diplomat cautioned that Mr. Deng
remained as wary as ever of any major move toward a more democratic
system.

Mr. Deng retired from his last Communist Party position in the fall of 1989
and from his last Government post in the spring of 1990. Afterward, he
largely disappeared from view and apparently tried to withdraw from
politics.

When he withdrew from center stage, disputes broke out among other
players, particularly about the five-year plan that runs from 1991 to 1995,
and about division of finances among provinces and the central
Government. Mr. Deng's intervention in December resulted in a
compromise that did not particularly satisfy any faction.

Mr. Deng's absence from the scene also appeared to encourage some other
senior officials to try to push a harder line in economic and ideological
issues, and even to undermine his policies and reputation. They did this in
part by raising the banner of Chen Yun, the 85-year-old mastermind of
Chinese central planning, who is both a friend and rival of Mr. Deng. A
Phrase Causes a Stir

The strongest attack on Mr. Deng is said to have come in an unpublished

speech in late December by Deng Liqun, a 77-year-old associate of Mr.
Chen who is among the hardest of the hard-liners. Two Chinese officials
with independent knowledge of the incident said Deng Liqun warned at a
conference on Mao's legacy at the end of December that "capitalist roaders"
still held significant influence in the party.

The use of that phrase immediately caused a stir in the capital, both
because of its harshness and because Mao had used precisely those words
in criticizing Deng Xiaoping. Some knowledgeable officials regarded the
speech as an implicit accusation that Deng Xiaoping himself was a
"capitalist roader."

A remarkable article, which appeared as the main article in People's Daily

recently and the first item on the television news, also suggested that some
hard-liners are still pressing their case against Mr. Deng.

The article concerned a year-old speech by Mr. Chen that called on Chinese
officials to examine actual conditions in their areas and not simply obey
orders from above. The article also did not mention Mr. Deng, an omission
that in several places seemed conspicuous.

"The speech tells people to resist authority, and I think that is a reference
to resisting Deng Xiaoping," an Asian diplomat said.

How successful Mr. Deng will be in reasserting his authority may depend
to some extent on his health. While he is said to have prostate problems,
and he is clearly shaky and deaf in one ear, Chinese officials say they know
of no life-threatening ailments and say he is likely to outlive the bed-ridden
Mr. Chen.

China's Premier Talks Of Economic Distress

Published: January 3, 1991

BEIJING, Jan. 2 Prime Minister Li Peng acknowleged in a speech

made public today that the Chinese economy faced severe difficulties, and
he called for greater restructuring of prices and enterprises and the
elimination of export subsidies.

In his speech, which was given on Dec. 1 at a National Planning Conference

but published only today in The People's Daily, Mr. Li spoke more openly
than in the past about the economy. But while he made many proposals, he
was vague about when and how they would be carried out.

He acknowleged that there was a debate at the highest levels about whether
the Government should now begin to free prices in a systematic way. Mr. Li
did not take a position on the timing, but he said that the market should
eventually set prices for almost all commodities, including oil and steel.

He also said the process of price liberalization should be gradually

undertaken to avoid alienating the public.

China's Divided Economy

Published: December 18, 1991

BEIJING, Dec. 17 About 60 percent of China's labor force is engaged in

agriculture, where farmers essentially grow and sell their produce on the
principle of private enterprise.

In 1990, agriculture accounted for about 33.3 percent of national income.

Farmers do not own the land but since the early 1980's they have been
given the right to use individual plots. They must sell a certain part of their
produce to the state, but then can sell the rest on a relatively free market.

About 17 percent of the work force is involved in industry, which produced

46.5 percent of 1990's national income. The state sector is the largest
category in industry, producing about 53 percent of industrial output in
1990. But private and collective enterprises in the countryside -- which are
often far more efficient than state enterprises -- are gradually producing a
larger share of the nation's industrial output.

Collectively owned enterprises sometimes blur the distinction between

state and private sectors because they sometimes are run partly by village
or township governments. In any case, they tend to operate on market
principles and are much more entrepreneurial than Government-run
enterprises.

Other parts of the economy, such as construction and retailing, are split
between the private and state sectors. For example, large department
stores are largely Government-owned, but in recent years, there has been a
proliferation of small free markets and private stores and stalls. A growing
number of collectively-owned construction companies also are now
competing with large state companies for contracts to build homes and
small buildings.