China's Industry in Transition: To what?

Abstract

China's industrial reforms, while bringing major changes in the management of industry, are not particularly innovative compared to reforms in Eastern Europe. While the reforms are moderate ones, China is noteworthy for its persistence along the path of reform despite the emergence of serious problems. The problems are generic ones that have plagued previous piecemeal reforms in Eastern Europe. They are due to an unreformed price structure not designed to send signals to enterprises; to continuing shortages of industrial supplies; and to the soft budget constraint under which enterprises operate. The problems have included an uncontrolled investment drive by enterprises, price inflation of producers' goods and construction materials, shortages of materials for state-sponsored construction projects, a larger budget deficit, and indiscriminate payment of bonuses. There is still no improvement in the main measures of industrial productivity. Despite these difficulties, reform continues in all areas.