Chinese Leaders Push For Market-Based Reform In State-Run Industries

CHINA has announced cautious plans to advance market-oriented reforms in a bid to revive ailing state industries and ensure a steady rise in prosperity that the Communist Party says is the keystone to its rule.

"The pace of reform should be speeded up and the scale of reform should be expanded," Premier Li Peng said at the closing session of a five-day national conference on economic reform in Beijing on Friday.

Beijing will reduce the scope of mandatory state planning, expand market regulation of the economy, and "push enterprises to the market," the official New China News Agency quoted Mr. Li and Vice Premier Zhu Rongji as saying.

But while renewing its commitment to reform, China's leadership called for precautions to forestall worker unrest and unemployment as it attempts to make state firms more efficient and competitive.

"We should be bold in making experiments and prudent in extending them," said Li.

"Reform must be carried out under stable conditions," he warned.

The specific reforms mentioned by Li appear motivated more by the short-term imperative to shore up dwindling government revenues than by a strategic plan to transform the economy.

Nevertheless, Li's statements signal that following an intense debate after the fall of Soviet communism, a basic consensus is emerging among China's leadership that "prudent" reform is needed to sustain party rule, say Chinese officials and economists.

"The key problem is the economy. If the life of the people is being improved, the Communist Party can stay in power. If most people are relatively satisfied, if they believe their life today is better than yesterday, they will not take radical actions against the government," says one Chinese official.

China's leaders have often called for "deepening," but rarely for "speeding up" reform since September 1988, when Beijing halted bold strides toward a market economy and imposed a nationwide austerity drive after an alarming bout of inflation and panic buying.

The economic "rectification" sharply cut inflation, but tight credit and a market slump worsened the plight of China's dominant, state-run enterprises, nearly 40 percent of which are now losing money. Meanwhile, conservative leaders attempted to use the austerity drive to step up central planning and curb the growth of the private sector.

Reform-minded leaders in Beijing and the provinces managed to blunt the attempts at recentralization and shortened the rectification policy, which was formally called off recently.

Last week's conference, which was attended by high-ranking national and provincial officials, focused on ways to boost the efficiency of China's heavily subsidized state enterprises by making them more responsive to the market.

"Governments ... should not interfere in [enterprises'] internal concrete matters so that the enterprises can really be independent ... and responsible for their profits and losses," the state-run news agency reported.

Mr. Zhu said the State Council, China's Cabinet, is drafting further regulations aimed at promoting enterprise autonomy. The government is reducing taxes for the state firms from 55 percent to 30 percent, Chinese economists say.

Chinese and Western economists note that Beijing is also making efforts to create a social safety net that would provide security for workers as the government encourages firms to focus on the bottom line.

Within enterprises, the old system of guaranteed jobs and wages, known as the "iron rice bowl" should be broken, Li said. Factories should introduce incentives in the form of wage differentials, he said. And labor should be "optimized," a code word for laying off some of the estimated 20 million to 30 million "surplus" workers.

"They realize the big problem to tackle is the inefficiency of the state sector. They cannot go on subsidizing these white elephants, or the fiscal deficit will escalate," says a Beijing-based Western economist.

The controversial topic of price decontrol - seen by economists as crucial to providing firms with correct signals of market demand and supply - was not mentioned in the New China News Agency report on Li's remarks.

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