China's price reform

Abstract

The expansion of the regulatory function of the market mechanism is an important component of China's current economic reform. Prices should be allowed to play their full role for the following purposes: —regulating the supply of, and demand for, goods and services; —promoting market equilibrium; —regulating resource allocation; —promoting technical progress, growth of labour productivity and cost reduction, improving the quality of goods and services; —promoting fair competition among enterprises; —providing accurate information rapidly to both producers and consumers to guide them in making decisions; —promoting the development of international economic relationships. Today China's price system cannot perform these tasks properly: the price system (both the price level of goods and services, and the structure of relative prices) is seriously distorted; moreover, the former highly centralised price management system excluded any role for the market mechanism. In order to allow prices and the market mechanism to play their full part, both the price system and the price management system need to be reformed. These two aspects are analysed in Sections 1 and 2 respectively of this article. Section 3 looks briefly at the question of the relationship between domestic and international prices.