TO STABILIZE THE ECONOMY, IT’S ESSENTIAL TO STABILIZE PRICES1
JULY 10, 1989
The most important way to win people’s hearts is to punish bribery and corruption. However, if the economy isn’t stable, if prices increase, or if there’s another round of panic buying, it will be very hard to carry on with our work, and then we will be in dire straits and things will become very dangerous. Therefore a very important task in the second half of this year will be to stabilize the economy by stabilizing prices—they cannot rise any more.
When I say the city government should stabilize prices for the second half of the year, I don’t mean “freeze” them—freezing prices won’t work, but we should at least stabilize them. There mustn’t be an all-out race to increase prices or to engage in panic buying—that would be terrible. That’s why the Municipal Bureau of Prices should raise its thinking and policies to a somewhat higher level, be aware of the present situation, and keep prices stable at all costs. After half a year, production and exports will have increased and the situation can change. If there was sudden volatility in prices at the moment, however, we wouldn’t be able to cope. The Bureau of Prices must therefore track and supervise prices every month or even every 10 days during the second half of this year—it must not let up.
As for the first half of the year, I’ve already printed and distributed to you the report on deregulated prices compiled by the Municipal Federation of Trade Unions. It shows that the price of decontrolled small commodities rose a lot in this period: soy sauce was originally a little over RMB 0.20 per jin2 and now it’s over RMB 0.50—how can this be? This is the kind of thing that causes us to lose support; moreover, it wasn’t essential for the prices of many of these items to increase—it was due to a lack of supervision and management on our part. The deregulated items in this trade union report account for 60–70% of what we eat, wear, and use, yet the Bureau of Prices didn’t do anything—this is unacceptable! We still have to supervise and manage; if any arbitrary price increases are discovered, they must be dealt with.
What should we do? I agree with the following proposals of the Bureau of Prices.
1. Keep Prices Stable
Resolutely keep prices stable in the spirit of the Party Central Committee and the State Council. There must be no wavering whatsoever, and no need to worry that enterprises won’t survive—we’ll worry about that next year. Above all, policies and thinking must be very clear.
2. Keep the Price of the “Vegetable Basket” Stable at All Costs
Other things are easier to deal with: clothes can last for three years, but we encounter the price of the vegetable basket every day, so it would be terrible if this weren’t stable. People say we win hearts when we focus on the vegetable basket; if we can’t win people’s hearts, it will be because the vegetable basket rose in price, so that’s why we must keep it stable.
The problem is, we must also preserve the zeal of the farmers to produce, which is done through the purchase prices for non-staples. If those prices aren’t raised suitably, however, we won’t be able to keep the price of the vegetable basket stable either. So what should we do? A sentence [in the report] suggests: “We ask the fiscal departments to arrange for essential subsidies to stabilize prices of non-staples; otherwise these prices cannot be kept stable.” I think this is the only thing we can do at the moment. We must subsidize so that at least this half-year can pass by stably. If the situation looks better after the third quarter, we can look at policies again in the fourth quarter. These will be “three-level subsidies”; if only the city government were to subsidize, we wouldn’t be able to cope.
What are “three-level subsidies”? First, county governments must establish price adjustment funds; that is, they will adjust by using taxes from township and village enterprises (TVEs). The collection of this money must be spelled out in a law and institutionalized, and it must be used to raise the purchase price of non-staples. There are a great many loopholes right now, and money from TVEs isn’t being properly used to support non-staples—work in this area must be strengthened. This year, there was a considerable increase in county government revenues whereas city revenues have been decreasing, so it won’t do to put all the pressure of increasing subsidies on the city’s finances. Thus the first step is for counties to subsidize and raise purchase prices for non-staples.
The districts are next—we must make it clear that district heads will be held solely responsible for price stability in vegetable markets. At present, many revenues go to the districts, so in fact they have more money. I’m not being jealous. The question is what are you doing with the extra money? I say use it first for education and second for keeping non-staple prices stable. The current losses at vegetable markets should not be addressed by raising retail prices—instead, the districts should give them some subsidies or preferential policies. The city must also increase its subsidies somewhat, but these can’t be much greater than what was budgeted—we’re already out of money.
We must study this problem further and in more detail; as we do so, we must also treat it as an extremely challenging political task. Three levels must assume this responsibility, and all levels must be responsible for strengthening internal management.
Do you all agree? The districts and counties will have objections, but it can’t be helped—for now, we must all get through our difficulties together. Every district head must make a great effort to rectify “the black, the white, and the green” [coal briquet stores, grain stores, and vegetable markets]. They must all go down to help them strengthen management and overcome difficulties; they must not permit them to shortchange or cheat people. We will collapse if we still fail to serve the people. I’m now asking the top district heads to personally take the lead in going to vegetable markets; we mayors must also go to vegetable markets and non-staple food stores. We must all get firsthand experience and strengthen operational management. There are incredible numbers of loopholes in this area. No matter what, we must keep prices stable.
3. “Try to Keep Prices Stable”
I suggest adding one phrase: “and, in particular, keep the prices of raw materials stable.” We grumble at others when they raise the prices of raw materials that they supply us, but then we go all-out to raise prices ourselves—how can we do that? Although we are having difficulties, we can’t raise prices arbitrarily; we must keep them stable.
The Municipal Price Commission should carefully study whether prices of some items controlled by the city—such as toothpaste, beer, and light bulbs—should be raised. Keep them stable if possible. We must do this a bit more openly: we should report to the Municipal People’s Congress, and certain things should be clearly explained to the people. Don’t create a panicky mindset among the people, and don’t trigger a race to increase prices.
4. Strengthen Guidance and Management of Deregulated Commodities
This is what I meant just now, and I also signed off on the municipal labor union’s report—their ideas are very good. I’m asking the Municipal Bureau of Prices to take the lead in drawing up strict rules and mobilizing the people to oversee matters—what [those who increase prices are] most afraid of is oversight by the people. We also need to take some measures here. For example, why are they raising prices? Of course many prices shouldn’t be raised, but there are also reasons to do so in some cases—mainly for raw materials. That’s why we have to do our best to control the prices of raw materials, but it won’t do to freeze them. For items that have increased in price, our city government should strengthen its macroeconomic management somewhat; we should have some measures along these lines.
One thing to mention concerns small commodities, such as hairpins. At the moment, there are no hairpins in the market. How much steel could that require? The Bureau of Materials must look into how to give them some special consideration, how to supply some inexpensive raw materials for the production of small commodities. We have to give them some special treatment through the supply of various raw materials or through other means—we must give them some guarantees.
5. Draft a Document That Spells Out These Measures Specifically
It should include some tough measures. We must be extremely cautious about price increases for several types of public goods, for example. Such increases might very easily lead to price increases across the board; they might start a frenzy for raising prices. Moreover, we must have some differentiated treatment for certain industries—this will help with industrial restructuring, and with power conservation. I said at the beginning of the year that we must derive 12 months’ worth of benefits using 11 months’ worth of raw materials. Actually, this is the same as forcing you to adjust, to conserve a bit.
After the final revisions to this plan are made, we should try to prepare some estimates based on various circumstances for a batch of enterprises and several bureaus. Start computing from January 1, 1989, and see if they can survive. This work can’t be done by the Bureau of Prices alone; it should be done in conjunction with the Municipal Economic Commission. It’s also an excellent opportunity for the Economic Commission to learn about the profit-and-loss situation of enterprises. Identify a few bureaus, identify a few factories, and visit them one by one to learn about their situations. Be a bit more cautious and do a bit more preparation. The Bureau of Prices and the Economic Commission will take the lead on this. There’s no need to be impatient—wait until things have stabilized a bit before making an announcement.
1. This is part of a speech by Zhu Rongji at the 41st mayor’s administrative meeting of the Shanghai municipal government.
2. One jin is equal to 0.5 kilogram.