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China in the Global Economy

Edited by P. J. Lloyd and Xiao-guang Zhang

China in the Global Economy focuses on the theme of twin transitions occurring in the Chinese economy: the transition from a centrally planned economic system to a market oriented one, and from an agrarian to a modern industrialised society. China’s exporters face unprecedented competition in the world market and the flow of foreign direct investment has fallen restraining the growth of the domestic economy. These new challenges have fuelled debate on the perspective of the Chinese economy and its role in the global economy.
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Chapter 2: The adjustment of macroeconomic policies in China

Fureng Dong


Fureng Dong MACROECONOMIC TRENDS This chapter will discuss China’s macroeconomic policies and reforms since 1998. Since 1998, China’s macroeconomic policies have gone through a profound adjustment. To understand such an adjustment, we should look at the macroeconomic policies since July 1993. In 1988 China had severe inflation. Compared to the previous year, the retail price index rose by 18.5 per cent and the consumer price index (CPI) by 18.8 per cent. This was the highest inflation rate in the post-reform period, except for 1994. Consumers rushed to purchase goods around the country. The Chinese government took decisive measures to cut investment and the money supply. The rectification and contraction resulted in a big drop in the inflation rate. In 1990 the retail price index increased by merely 2.1 per cent and the consumer price index rose by 3.1 per cent. The severe contraction also caused the growth rate of the economy to slide quickly; in 1989 and 1990, GDP grew by 4.1 per cent and 3.8 per cent respectively, which were the lowest rates for the reform period. To prevent the economy from sliding further, macroeconomic policies were relaxed immediately. In 1991 the economy speeded up, and began to overheat again in 1992. In the first half of 1993, because investment in general and real estate investment in particular (economic development zones had been set up around the country) expanded greatly, inflation was even more severe than in 1988. The retail price index rose by...

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