The People's Republic of China: Rapid growth and the risk of economic instability

Conclusion

At the People's Congress this March, the Chinese leadership restated its commitment to continue with, and accelerate the economic reform programme. Several important steps along the road to reform have already been taken. At the same time, a number of domestic and foreign-trade developments call for important decisions to be made: China will only escape from the cycle of inflationary expansion and subsequent contraction of economic activity if the taxation system and enterprise management and administration — including a clear definition of ownership and managerial rights — are restructured. Only when public revenue is at a high and constant level and an effective capital market is in operation will the state be in a position to realise its ambitious investment programme without recourse to central-bank borrowing and thus without continually creating an inflationary potential. The support of a broad majority of the population, who are increasingly keen to participate in determining the course of economic policy, will also be required if the reforms are to succeed.