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241 28 Taking a Critical Step Forward in Financial Reforms1 August 15, 1994 Generally speaking, there’s no comparison between the situation regarding macroeconomic controls in the first half of this year and last year. It’s much better than it was last year. Think back to the situation last year—it was “the wind before the storm” and couldn’t go on any longer. Developments and the Reform Situation in the First Half of This Year, and Work for the Second Half of the Year Once Party Central Committee Document No. 62 was issued, the entire Party was aligned in its thinking, and macroeconomic controls proceeded quite smoothly. In exercising these controls, we used mainly financial techniques and “led the ox by the nose.”Don’t think it was just RMB 40 billion in irregular interbank loans that were recovered—this was a demonstration of determination. I’ve often said that by recovering RMB 40 billion of irregular interbank loans, executing a Shen Taifu,3 convening a national conference on financial work, and drawing up the “Three Ground Rules,” we reversed the irregular fund-raising, irregular interbank lending, and irregular loans. This achievement should not be underestimated. However, last November grain price increases drove overall prices up, and at the time some people attributed this to the macroeconomic controls. Some 1. A symposium for presidents of the branches of the People’s Bank of China was held in Beidaihe on August 12–16, 1994. Participants included the presidents of the branches of the People’s Bank from all provinces, autonomous regions, centrally administered municipalities, special economic zones, and municipalities separately listed in national plans, as well as presidents of the specialized banks, the Bank of Communications, the China Development Bank, the Export-Import Bank of China, and the China Agricultural Development Bank. This is part of Zhu Rongji’s speech at the symposium. 2. Party Central Committee Document No. 6 is the “Opinion of the Party Central Committee and State Council on the Current Economic Situation and on Strengthening Macroeconomic Controls ” issued on June 24, 1993. 3. On the Shen Taifu case, see chap. 17, n. 5. 242 Taking a Critical Step Forward in Financial Reforms also said that we didn’t carry out the macroeconomic controls through to the end, that the loosening of the money supply after August led to the sharp price increases of November. These analyses are all wrong. The price hikes of last November were the inevitable result of the large issuance of money since 1992, especially in the first half of 1993, and of the large scale of newly started infrastructure projects. They were also the inevitable result of neglecting agriculture and chaotically building development zones and real estate over the last two years. They were absolutely not due to the macroeconomic controls or a failure to carry them out to the end. Last July, after we had a meeting in Nanjing to resolve the problem of working capital in Jiangsu, Zhejiang, and Anhui provinces, I had the presidents of the head offices of all the banks investigate the matter in one province after another. On the one hand, we studied the tax-streaming program, and on the other hand, we relaxed lending for working capital—this was entirely necessary. Why did we need to loosen up a bit on working capital when we hadn’t exceeded the quota for fixed-asset loans by so much as one renminbi? Because we recovered RMB 40 billion of irregular interbank loans, and the loans that had been turned into steel rebar and concrete couldn’t be recovered, so we could only recall the working capital. The enterprises were in real difficulty—SOEs would have had a hard time getting by, and their production would soon have slipped into negative growth if we hadn’t loosened up a bit on working capital. Because of this slight loosening, the situation at SOEs took a turn for the better by the second month. All regions were very satisfied with the entire fourth quarter of last year. They felt that the loosening of working capital was a “timely rain” that had prevented sharp swings in production, and this created a positive and relaxed environment for this year’s reforms. The roughly RMB 30 billion we put in this way could not possibly have shown up three months later as sharp price rises in November—the lag time for inflation is generally nine months to one year. That’s why...


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