THERE can be no ''middle road'' for China in its transition from a totalitarian system to an open and free market economy, according to Nobel Prize laureate Milton Friedman. Professor Friedman, fresh from an eight-day tour in China after meeting Chinese President Jiang Zemin and a number of regional officials, said yesterday there could be no compromise. ''The answer to the question of how to go about getting a free market system is very straightforward - you get the Government out of the way [and] privatise, privatise, privatise.'' While he highly valued the progress China had made, Professor Friedman did not hide his disapproval that the communist regime still maintained an iron grip on the economy. ''I believe China needs some movement . . . in the direction of reducing the role of the Government, of reducing the arbitrary power of individuals over others at the same time it moves towards a free market. ''A free market is an essential pre-condition . . . for a free human market, human freedom and for political freedom. It is a necessary but not a sufficient condition,'' he said. He declined to compare Mr Jiang with his predecessor Zhao Ziyang whom he met five years ago. ''I am not sure there was a Zhao Ziyang policy. There was a China policy that was determined by [a] group thing. ''The talk continues to be talk about moving towards market mechanism, [but] the reality tends to be the agricultural and rural areas. There has been really a very tremendous movement in that direction. ''But in the large industrial sector, there has been much less movement in that direction . . . As I understand it, it [heavy industry] is still predominantly state-owned,'' he said. The professor said China had made little progress in streamlining its bureaucracy and he made his point using the business cards of Chinese officials as examples. ''The Hong Kong businessmen have in the left-hand corner the name of one company. Chinese namecards have at least six lines of this committee on this, that committee on that, that body here, vice-chairman of that,'' he said. ''What that reflects is an extremely large administrative apparatus, [and] there certainly is no noticeable evidence that there are any fewer bureaucrats than five years ago,'' he said. Meanwhile, the monetarist guru said China should quickly turn its central bank into a pure monetary institution by separating its credit activities from the monetary-creation activities. ''What they need to do in China is to separate the control over the quantity of money from the allocation of credits,'' he said. ''Investment is a good thing provided it is financed through voluntary saving. [It] is not necessarily a good thing if it financed through the printing of money.'' He was also critical of China's multiple exchange rate system. ''I think exchange control and the multiple exchange rate are absolutely certain recipes for corruption,'' he said. ''That was true for World War II . . . and it is true now.'' And he believed Beijing should not drag its feet in abolishing the multiple rate system for fear that it would lead to market confusion.