6 - Relationship between economic reform, growth and industrial restructuring (1988)

Summary

An unanswered question in our nation's economy is how to foster a congenial relationship in which economic reform, growth, and industrial restructuring supplement each other, so that the economy can grow effectively in the course of economic reform, a new mechanism for resource allocation can be found through economic growth and industrial restructuring, and the traditional economic system can be converted into a brand-new one.

This is no easy mission. The Chinese economy is in a state of disequilibrium. The market is incomplete. Resources are in shortage. Firms are yet to become commodity producers that are motivated by their own interests. Under these circumstances, if we rely mainly on market regulation to decide prices when our firms cannot pursue their own interests, and if the flow of production factors is still hampered by ambiguous property rights, we are courting two dire results. For one thing, prices will rise, market information will be distorted, and our industrial structure, instead of running on an even keel, will become even more lopsided to inhibit future economic growth. For another, if we count mainly on government regulation and allow the government to impose restrictions on prices and quotas on commodities, some industries may grow fast, but the development of other industries will be hindered. Economic growth may be maintained at a certain rate, but because firms are apathetic about improving their efficiency, the establishment of a new resource allocation mechanism will inevitably be delayed or encumbered.