chapter  4
19 Pages

The Chinese Economy: On the Road to Recovery?*

WithBarry Naughton

In late 1989, in the wake of the traumatic political events at Tiananmen Square, the Chinese leadership clearly indicated its intention to launch a retrenchment of economic reforms. A recovering patient typically looks good in comparison with his appearance during his illness, and the Chinese economy in 1991 looks quite healthy in comparison with that of 1989-90. The prospect of price reform in the context of growing inflation caused alarm among the Chinese population. The Chinese leaders had shown that they could, at least temporarily, restore order to the economy through tight control of the banking system, state sector investment, and wages. Local government representatives pointed to their extensive expenditure obligations–many mandated by central government policies–and the reduction in their revenues that was occurring due to the central government's austerity policies. The government started an export promotion drive and slapped strict controls on imports, particularly of consumer goods.