Professor makes plea for bolder reforms

PUBLISHED : Monday, 28 March, 1994, 12:00am
UPDATED : Monday, 28 March, 1994, 12:00am

A SENIOR government adviser has criticised the leadership for lacking a strong will in using market forces, warning that the consequences could be costly.

The challenge to Beijing's economic strategy was made by Professor Wu Jinglian, senior researcher at the Development Research Centre under the State Council.

''I told [former party chief] Zhao Ziyang [in 1988] that the slower the pace of reform the greater the instability,'' the liberal economist said.

He said if he had the chance to talk to current Chinese leaders, he would tell them the same thing.

Professor Wu praised the 50-item economic blueprint adopted at the Communist Party's third plenum last November as an outstanding achievement, and said he was upset it had not been implemented.

''[The leadership's] understanding on the market economy is not deep enough,'' he said.

Professor Wu warned that the use of more state fiats would be ineffective and produce adverse side effects for the country.

''It is also against the trend of building up a market economy,'' he said.

''We need to adopt economic tools to change the system in order to attain quick results . . .

''But the reduction of administrative measures has been contentious. I'm in the minority.'' Professor Wu said the Central Government should rely on interest rates as the major economic weapon with which to readjust the country's economy.

He said the annual interest rate of 10 per cent had been far below inflation, and this had overheated the economy.

''The result is that you have to intensify state fiats to curb the growth of money supply.'' He said enterprises had been badly hit and had complained strongly to the Government, forcing it to relax credit again since last September.

Present inflation was a direct result of that relaxation of credit between September and November, he said.

''It is a question of whether the central Government is determined to withstand the pressure from enterprises . . .

''The use of negative interest-rate policy is not the answer to solve the plight of money-losing enterprises,'' he said.

Professor Wu warned that the ''vested-interest persons'' who had the privilege of access to low-interest credit certainly would not want an increase in the interest rate.

But leaders should not be influenced by their lobbying, he said.

Professor Wu conceded that as inflation had increased there had been calls to slow the pace of reform in areas such as tax and finance.

''This is an old argument used by some to explain the failure of the reforms in 1988 . . .

''But it's not because of the rapid pace of reform, but the wrong money-supply policy,'' he said.

He said the success of reform in state firms was crucial to the task of keeping inflation below 10 per cent this year.

However, state firms now were ''like a funnel'' through which money for investment flowed out again.

''I'm pessimistic about the future of the state sector,'' he said.

''The national economy will be bolstered by the non-state sector in future.''