Announcement of The China's Reform and Development in 1992 - 1993 on August 25, 1993

FOR IMMEDIATE RELEASE World Bank 1818 H Street, N.W., Washington, D.C. 20433, U.S.A.* Telephone: (202) 477-1234 NEWS RELEASE NO. 94/S10 EAP Contact: P. L. Stephens (202) 458-0344 CHINA: REFORM AND DEVELOPMENT IN 1992-93 WASHINGTON, D.C., August 25, 1993--The Chinese Government will need to redefine its role and take urgent economic measures to stop the economy from overheating, according to a newly-released World Bank discussion paper. The paper singles out tax reform, encouragement of savings and easing barriers to imports as among the crucial steps needed to avoid a "hard landing" of the economy. Noting the 1992-93 growth rate of 14 per cent, the paper says that by this past Spring it was clear that "the economy was overheating and that growth at such high rates was not sustainable. "However, it was our judgment that the situation was not out of control, and that the application of a range of tightening measures could permit the economy to have a 'soft landing,' and eliminate the overheating. The concern was rather to avoid the need for a 'hard landing' of the type that had to be instituted at the end of 1988.' The discussion paper, which draws on the latest World Bank economic data, was prepared as a guide to the changes taking place in China as the country moves toward its goal of a 'socialist market economy." The paper was written by the principal economist in the Bank's China Country Operations Division, Mr. Peter Harrold, and by a senior economist in the division, Mr. Rajiv Lall. China's Economic Growth Rate 1983-92 (Z) 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 10.2 14.6 13.1 8.2 11.2 11.2 4.5 3.8 7.2 12.8 The Director of the China Department, Mr. Shahid Javed Burki, said that the paper recorded policy changes to mid-June 1993, and 'therefore forms a useful backdrop against which to assess the measures being undertaken by the government to overcome the short-term difficulties facing the Chinese economy, and to introduce more fundamental reforms to the system of economic management.' -2- The report attributes the reemergence of inflation and the central government's inability to control the economy to the "half-reformed" status of the economy. Although short-term action is important, the report argues, "it is critical that this situation should impel the government to move rapidly to deepen a wide range of reforms. This applies especially to those reforms that will equip the government with the tools and institutions of macroeconomic management, and will create enterprises responsive to indirect economic levers. "In particular, this concerns the fiscal system and financial sector reform. While increased attention began to be paid by the Chinese authorities to these issues in 1992, concrete measures have yet to be taken." Fiscal reform would be the main instrument of macroeconomic management in the period ahead, the papers says, and it should now be taking center stage in the reform effort. China's Retail Price Increases (Z increase over the previous year) 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1.5 2.8 8.8 6.0 7.3 18.5 17.8 2.1 2.9 5.4 The paper calls for a broadening of the tax base, price reform, enterprise reform and reorganization of government economic management. "The market economy does not necessarily require less government, just different government, and in many reform areas, defining this new role for government, and designing appropriate new institutions is the challenge to be addressed." * "China: Reform and Development in 1992-93", by Peter Harrold and Rajiv Lall. World Bank Discussion Paper 1215. Copies of the discussion paper are available free to members of the news media. Please fax your request on letterhead to (202) 477-1837.