ACCESSION NUMBER:354181 FILE ID:EPF505 DATE:07/22/94 TITLE:CIA: ECONOMIC 'SOFT LANDING' PROVES ELUSIVE FOR BEIJING (07/22/94) TEXT:*94072205.EPF *EPF505 07/22/94 CIA: ECONOMIC 'SOFT LANDING' PROVES ELUSIVE FOR BEIJING (Article on annual CIA report on China economy) (450) By Robert F. Holden USIA Staff Writer Washington -- China's efforts to cool its overheated economy have failed to yield the "soft landing" of manageable growth levels Beijing wants so badly, according to the most recent Central Intelligence Agency (CIA) assessment of China's economy. The report, which is prepared annually by the CIA for the Subcommittee on Technology and National Security of the Joint Economic Committee, was released July 22. "Beijing's administrative measures to cool the economy have produced mixed results," the report says. "China's investment boom eased somewhat in the first half of 1994, for example, but inflation levels have remained stubbornly high and have been accompanied by social strains." According to the report, urban living costs in China increased by more than 23 percent in 1993, 10 percent higher than 1992. "Beijing continues to face demands to provide new loans to help state enterprises pay workers and to fund higher grain prices for farmers," the report says. "These pressures threaten the regime's hopes of achieving a soft landing and could set the stage for another round of retrenchment in China's boom-and-bust cycle." The report suggests that Beijing's failure to conclusively hit the brakes on the economy has bolstered the demands of policymakers calling for changes in China's reform strategy. "Whereas previous reforms frequently stimulated growth by giving local authorities more autonomy, a new approach 1mplemented in early 1994 has attempted to recentralize some powers to help Beijing modulate the boom-and-bust cycles as well as to enforce financial discipline on the local authorities," the report says. Establishing the economic institutions -- a strengthened central bank and a sounder regulatory framework for its emerging financial markets -- needed for Beijing to improve its ability to regulate the economy will be neither easy nor fast, the report says. "Many local leaders, for example, appear worried that Beijing will use enhanced powers gained from taxation and other centralizing reforms to stifle local development efforts," it says. "Local resistance will probably result in further slippage in Beijing's reform timetable." Sustained long-term growth in China will require further expansion of market forces within the country, the report says. "Beijing's challenge is to construct a sounder institutional and regulatory framework to support these markets without stifling them," the report says. If Beijing can combine a successful centralizing reform effort with a renewed commitment to the role of markets in the economy, the report says, the results could include "smoother economic development, less opportunity for corruption, and improved ability by Beijing to transfer coastal resources to boost hinterland areas, ultimately benefiting the entire country." NNNN .