There was bad news and good news when China’s State Statistics Bureau made its quarterly report Monday. It showed urban inflation is running at a record 15.7 percent this year while production has jumped 14.1 percent for the same period.
The inflationary spiral has reinforced economists who have warned that China’s booming 12.8 percent growth rate posted for 1992 is in danger of overheating the economy as it did in 1988, when panic buying and rising prices contributed to nationwide student demonstrations that ended with the bloody crackdown by troops at Tiananmen Square on June 4, 1989.
Although Chinese governments have been notorious for manipulating economic statistics to conform with political expediency, last year’s growth rate, the highest in Asia, was generally considered to be more on the conservative side rather than inflated. In contrast, the inflationary rate was thought to be higher than Monday’s announcement by the statistics bureau, which is the official mouthpiece on the nation’s economic performance.
With inflation now the worst since 1988, Statistics Bureau deputy director Qiu Xiaohua told a press conference that for the moment there was no run on goods, and supply still exceeded demand by 6 percent this year.
Bureau officials blamed the effects of the free-market economy, with the lifting of price controls, for almost doubling the inflation rate over the same period last year. The bureau said grain prices, which had been maintained at the same level for more than thirty years, had gone up 33 percent in the first quarter of 1993. Fuel went up 30 percent, building materials 20 percent and service items 25 percent.
Qiu said about 1,200 cities and counties in China had lifted control over grain prices, while the glut for energy and fuel, prompted by new enterprises and a boom in the purchase of vehicles, was responsible for a third of the inflation.
Meanwhile, the bureau said China’s industrial sales climbed by 26.1 percent in the first quarter from a year earlier. Eastern China, with its new development zones, had posted a 31.8 percent increase in sales.
The bureau attributed much of the growth rate to investments in fixed assets, which in the state-owned sector alone soared by 70.7 percent.
But bureau spokesman Zhang Zhongji admitted the economy was “not in an ideal situation” and agreed too much money was in circulation, partly because the government no longer wanted to pay farmers for their products with IOUs. The issue of IOUs last year caused riots in several provinces.
Under the current legislation, farmers are obliged to sell a fixed quota of their produce to the state as a pay-back for state-owned machinery used in cultivation and the grant of their plots.
But local governments, anxious to create lucrative industrial ventures, have withheld payment on the IOU vouchers. This led to unrest and even riots in several provinces last year, when farmers complained they did not have sufficient funds to purchase seeds and fertilizers for the next crop.
Zhang however predicted a bumper harvest for 1993. He said China expected to produce 442.5 million tons of grain, 5 million tons of cotton, 35 million tons of meat, 16 million tons of marine products and 16.5 million tons of edible oil.
Perhaps in an attempt to offset the shock of the inflation, the bureau said average individual incomes increased 27 percent in urban areas and 15 percent in rural zones. Independent sources said the figures indicated that some people in China are becoming very rich while the wages of the great majority have remained stagnant or were even depleted by inflation.
Many Chinese obviously fear the market reforms will cause even worse inflationary trends. A black market to convert the yuan to hard currencies, mainly U.S. dollars, has boomed over recent months. The black market exchange rate steadily climbed from 6.30 yuan to the dollar last year to 9.50 yuan last week. At the same time many Chinese are converting their cash into luxury items, especially jewelry, gold and the latest electronic gadgets.
The bureau admitted China’s infrastructure, roads and particularly rail traffic, were badly lagging behind economic growth and the government would need to tighten control over capital investment.
In an unusually frank comment, Zhang said none of China’s regions were short of enthusiasm in leaping on the economic bandwagon, “but they have yet to develop a mechanism of self-restraint.”
