ABSTRACT
China's economic reforms clearly envision a greater role for the banking system, as it is expected that bank loans will gradually replace budgetary grants as the main form of investment throughout the economy. Rather than readjusting prices administratively through the planned economy, Chinese planners were hoping to simply let the market play a more and more important role in production decisions, until it gradually usurped many of the functions of the planners. Planners would gradually gain experience in operating in the marketplace, while protecting their priority projections from disruption; in time, planned prices would be adjusted with reference to market prices, and the economy would be guided towards a socialist market economy, as planned and market prices came together. The events of 1985 provide evidence of the continuing difficulties China's planners have in controlling the economy.
