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Last updated at: (Beijing Time) Thursday, August 15, 2002

China's On-going Reform Calls for Better Economic Illumination

"Mo zhe shi tou guo he", or cross the river by groping the stone under foot, has, for a long time, been a pet phrase of Chinese policy-makers. The gradualism they think has helped China avoid the sometimes destructive impact following the bold shock remedy taken by, for example, Russia. But is it still a correct philosophy by now?


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"Mo zhe shi tou guo he", or cross the river by groping the stone under foot, has, for a long time, been a pet phrase of Chinese policy-makers.

The gradualism they think has helped China avoid the sometimes destructive impact following the bold shock remedy taken by, for example, Russia.

But the effectiveness of such a strategy is falling into question as China's on-going reform goes deeper.

"If scrutinized in line with China's actual reforming experience, correctness of the cross-the-river-by-groping-the-stone-under-foot strategy is quite dubious," said Wu Jinglian, a famous economist with the Development Research Center under the State Council (DRC), in his signed article published in the Beijing-based Caijing magazine.

"Such a manner is, at most, a have-to option when leaders were generally insufficiently-armed with modern economics during the early days of China's reform."

Now, reformers must bear in their mind some specific guidelines instead of mere semi-blind fumbles if they want to push the reform farther, according to the economist.

When the most populous nation started their reforming process, what in face of Chinese reformers seemed only two problems - the pervasive poverty and the empty shelves in State-owned stores.

During the time of late Chinese leader Deng Xiaoping, the general architect of China's reforming plan, overly stringent government command was widely fingered as the culprit for the wilting economy. As a result, the policy keynote during the initial period of China's reform was based on how to loosen the over-rigid government control.

Nearly immediately, it worked. Both farmers and urbanites were better off by a large margin up to the mid-1980s.

With all this, however, policy-makers also found themselves have touched off a vicious circle: Whenever they loosened the rein of the economy, it tended to run out of control. The runaway inflation in 1988 and 1994 - with a price rocket as high as 27 percent - eventually forced reformers to poke at new ways.

In 1998, Chinese reformers finally came to the cornerstone of a market-oriented economy: They decided to set up a modern enterprise system, whose core concept is reforming of the property rights, especially of the large number of State-owned firms.

"Throughout the whole process, we can see that each step forward is driven by a deeper understanding of the modern economics," said Wu, who together with the other 11 economists were invited by Premier Zhu Rongji to an economic policy consultation in late June.

The establishment of a modern enterprise system turned out to be much more difficult than provide Chinese with enough food and passable shelter.

To some degree, the attempt is actually a systematic overhaul of China's economic regime instead of the small tinkering here and there. Even until now, no substantial breakthrough is in sight in this respect.

Currently, China's economy is showing some inconsistencies among its indicators, according to Zhang Liqun, a research fellow at the DRC, a government think tank.

On one side, the economy is growing at a rate of around 8 percent; on the other hand, however, there is no a big improvement of the overall efficiency in the economy.

Worse than that, the rapid economic growth has not turned down the social intensity, for example, reduced the number of the jobless.

Instead of the official less than 4 percent of unemployment rate, some domestic scholars post the figure at 7 or even 10 percent, indicating a smothering social instability.

Experts agree that China is cracking the toughest chestnuts in its reforming efforts.

According to Wu, these challenges include: the under-developed medium-&-small enterprises in China's hinterland; unfinished restructuring of State-controlled economic sectors; the massive number of poor farmers; the imbalanced economic development between coastal and inland provinces; unrestrained administrative interference into enterprises' businesses; and the habitual disregard of the rule of law.

"Without a profound grasp of the law in the operation of the market, it's almost impossible to tackle successfully all these problems," Wu said.



By PD Online staff Forest Lee


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