THE deployment of riot police in big cities to prevent unrest over food prices, as has been ordered in China, does not look like the action of a government confident of its economic policies. Indeed, it is a sign of a government facing immense problems. But given the difficult task of moving from a centralised, command economy to a market system, China seems to be striking a balance between the text-book orthodoxy economists demand and the short-term compromises needed to keep its people fed. Developments over recent days have put the dual approach to reform by economic chief Zhu Rongji into perspective. The announcement that China is to unify its official and swap-market exchange rates and float the yuan is a sizeable step in the direction of a convertible currency. Currency reform must come before any attempt to join the General Agreement on Tariffs and Trade (GATT). It will also be a boon to foreign businessmen and tourists and will remove the subsidy to state-owned businesses which have only gradually been weaned off the right to buy dollars cheaply and spend at the official rate. Yet officials insist the new floating exchange rate will be controlled, suggesting intervention by the Bank of China to keep it in a narrow range. Even less in line with the demands of purists was the re-introduction yesterday of price controls for dozens of goods and services. Like last week's introduction of grain price controls in Beijing, this move is intended to slow inflation in the run-up to the Lunar New Year. But it is also a measure of the rage the Government believes its economic reforms have sparked among workers on fixed salaries, who have failed to reap the benefits. The price controls look like a panic measure. But, provided they remain temporary, they are a politically sensible complement to the longer-term macro-economic levers put in place earlier this year to cool the economy. As the currency reform indicates, China has not given up on the market economy or shirked the tough decisions needed to make it work. But with the East European example to learn from, China has understood that there is no straight road from socialism to capitalism. As state statistical bureau spokesman Ye Zhen said this week, new problems will require new measures to regulate economic development. Macro-economic regulation is a long-term, not a short-term, operation. Provided the direction is right, the goals are still in sight and price controls are lifted quickly after the New Year, China will remain on the path to economic reform, flexibility and growth.