REFORM of China's economy grows increasingly difficult every year according to a report drawn up by the Economist Intelligence Unit (EIU) following a conference with the Chinese Government in October. The British-based EIU recently downgraded China's overall risk rating from a B to C, citing continued high inflation and a deteriorated political and policy environment. In its report, the EIU says: 'Reform is especially difficult when the ultimate goal is still not completely clear, when no one can . . . say clearly: 'We are on the road to capitalism - capitalism with state guidance and participation but capitalism nevertheless.' ' The EIU said that various parts of the central government bureaucracy were working to adapt, survive and flourish as the country moved from a planned to a market economy. The report also said the State Planning Commission (SPC) was carving out new tasks for itself in a climate of great and rapid change. Other parts of the bureaucracy appeared to have overlapping responsibilities and were in the process of defining their relationships to each other. One conference participant reportedly asked for a definition of the responsibilities of the State Economic and Trade Commission (SETC) in relation to the State Commission for the Reform of the Economic Structure (SCRES) and the Ministry of Foreign Trade and Economic Co-operation (MOFTEC). SETC vice-chairman Xu Penghang replied: 'SETC is a 'comprehensive' economic department. MOFTEC is a 'comprehensive' trade organisation. Their relationship is like that between relatives. 'SCRES is responsible for restructuring the economic system. The reform of state enterprises is its responsibility. Its mandate is limited to this, but SCRES is the overall co-ordinating body. 'The SPC is charged with a lot of responsibilities. Its function is to formulate medium to long term economic plans. SETC is confined to [an] economic operational role.' The EIU concluded: 'Five years from now, one or more of the organisations . . will probably not be on the scene.' It said there had been differing interpretations of reforms and differences rooted in concern about the speed of change and about which bureaucratic organs' interests were being enhanced and which were being damaged. 'China's economy today is in transition, with aspects of the market economy and of the traditional, state-controlled economy existing side by side.' It says that the duality of a market economy versus planned, private ownership is in place. But it adds that while the market economy is taking hold in major cities along the coast it is virtually non-existent in the interior. The report also says that reform of state-owned enterprises and the need to devise a viable social welfare system are urgent and unquestionably needed to improve the situation.