ASSESSMENTS

In China, the Challenge of Price Reforms

Nov 7, 2013 | 11:35 GMT

A worker changes prices at a petrol station in Sichuan province in March 2012.

(STR/AFP/Getty Images)

Summary

China's new administration will introduce its economic reform agenda at the Communist Party's Third Plenary Session on Nov. 9-12, with an emphasis on continuing to adapt market-oriented policies for the regime's political purposes. The government hopes to use some elements of capitalism to increase efficiency and forestall economic stagnation while retaining central control over political institutions and core industries in order to avoid liberalizing too rapidly and inducing a post-Soviet-style shock. Simultaneously, Chinese leaders are attempting to make a credible effort to convince a broad swath of the public that their concerns — over livelihoods, pollution, health, education and official corruption, among other things — are being addressed.

One particularly important element of reform is allowing prices on various goods and services to move with fewer restrictions. This could help curb excesses in resource-intensive heavy industry and encourage new growth in high-end manufacturing and underdeveloped services. However, the government has tried and failed to implement price reforms in the past, and its newly redoubled efforts will face considerable complications once again — especially in the finance and energy sectors. An ongoing dispute between natural gas producers and middlemen in Shaanxi province is indicative of the type of issues China will run into as reforms proceed.

A natural gas rate dispute in Shaanxi province is indicative of the complications facing Beijing's economic agenda....

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