News

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."



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