Signs Of Recovery In Cash Chaos

Sydney Morning Herald

Friday November 12, 1993

By TONY WALKER Herald Correspondent

BEIJING, Thursday: China's tense debate over curbs on an overheating economy surfaced in the official press today with a spirited defence of the austerity-reform program of senior Vice-Premier, Mr Zhu Rongji.

The Chinese newspapers prominently featured remarks by a deputy Governor of the People's Bank, Mr Dai Xianlong, claiming success in the austerity campaign as the Central Committee of the ruling Communist Party was due to begin discussions in Beijing of a new reform program.

"In recent months, China's financial departments have been blocking evil ways while opening correct roads," Mr Dai said bluntly.

Mr Zhu and his team at the central bank, who have been presiding over a squeeze on credit in an effort to combat inflation, have been accused of stifling State enterprises, some of which are having difficulty paying workers.

Reports circulated in Beijing that Mr Zhu was in trouble politically for having pushed too hard with his economic stabilisation program. But while there is no doubt that he has offended powerful officials in the State sector and in the provinces, there appears to be no alternative to his prescription for the economy.

This combines a squeezing of credit to "hot money" areas like real estate to infrastructure combined with determined efforts to reform China's inefficient financial system.

Mr Dai's remarks seem designed to claim victory for bringing the economy under control - inflationary pressures eased slightly in September - and also to offer reassurance that the Central Bank was sensitive to the plight of State industry.

Starting in August, he said, the Central Bank had eased credit restrictions. In the first 10 months of the year, banks had provided 30 billion yuan ($A7.94 billion) more in loans than in the same period last year

Mr Zhu, who doubles as the Governor of the Central Bank, is certain to face sharp questioning at the Central Committee meeting over hardship caused to the State sector.

The session is expected to last until the weekend, although true to tradition, no details of when it would actually meet or how long it would sit have been released officially in advance.

The plenum will approve sweeping reforms in finance, taxation, trade and investment.

Among important reforms is a new federal tax system designed to improve sharing of revenues between the centre and the provinces.

Mr Dai blamed lax policies earlier in the year for allowing an explosion in credit that had helped to fuel inflation. Money in circulation in June on an annualised basis had grown 54 per cent - the highest monthly rise ever.

The previous Governor of the Central Bank, Mr Li Guixian, was sacked in June and replaced by Mr Zhu Rongji. Among Mr Li's patrons was the Premier, Mr Li Peng, who suffered a heart attack in April and underwent a long convalescence.

The unusual public criticism of the previous regime at the Central Bank indicates that below the surface, the leadership has been engaged in some stirring argument about the implementation of Mr Zhu's austerity package.

Early in July, Mr Zhu announced a 16-point plan to combat inflation and bring order to China's chaotic finances. Pressure was also exerted on faltering State industries by squeezing available credit.

© 1993 Sydney Morning Herald

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