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China to decontrol price of grain, its most politically sensitive commodity . . .


BEIJING -- China announced yesterday that it will decontrol prices of grain -- its most politically sensitive commodity -- throughout most of the country within two to three years.

Beyond reflecting concerns over the ability of the world's most populous nation to continue to largely feed itself in the future, the move represents a major step toward creating a market economy here.

It follows recent aggressive steps to give Chinese state-run enterprises more autonomy, reduce mandatory state industrial and agricultural plans, open more sectors of China's economy to foreign investment and trade, and step up deregulation of the prices of a wide range of long subsidized goods.

The drive to allow market forces to hold sway in China's once centrally planned economy was kicked off earlier this year by Chinese patriarch Deng Xiaoping in response to the fall of communism in the former Soviet Union.

As indicated by Premier Li Peng's National Day speech Wednesday, it will be the central theme of the Communist Party's upcoming congress.

"We will further deepen the reform," said Mr. Li, a reluctant reformer known for following rather than leading the party line. "In the economic restructuring, we shall speed up the development of a market system, let the market play a bigger role."

This was followed yesterday by a front-page editorial in People's Daily, the party newspaper, which went so far as to acknowledge the failings of central planning.

"Socialism's basic system is to work for the benefit of the people, but the old economic structure has fettered the development of productive forces and blocked the expression of the superiority of the socialist system," the party mouthpiece said.

China's leadership now can admit this safely because of the very successes of its last 13 years of economic reform, successes that essentially account for the party's continued hold on power here.

Since the reforms began in 1979, China says the average annual increase in its gross national product has been almost 9 percent.

Although still facing huge problems with efficiency, land misuse and poor distribution, agricultural output has similarly boomed.

Already, about 75 percent of all goods here are free from price controls.

But of all goods, grain has been among the most heavily subsidized in China since the Communists took power in 1949 with a mandate, if nothing else, to provide the world's largest population with its daily rice.

Even through the 1980s, grain farmers have been subject to state production targets and have had to sell large portions of their harvest to the state at low, state-set prices. Urban consumers have been provided grain ration coupons, allowing them to buy a monthly quota of rice at below-market prices.

While political stability still largely depends on providing sufficient bowls of rice, the Chinese government can no longer tolerate mounting deficits from grain and other price subsidies, which are eating up about 30 percent of the national budget.

Authorities also are concerned about their long-term ability to grow enough grain to meet the needs of China's 1.16 billion people. Under the partial economic reforms to date, many farmers have shifted to market crops, such as vegetables, rather than grow grain for sale at low state prices.

As a consequence, while China has reported that this year's grain harvest is expected to reach a new record of 440 million metric tons, per-capita grain output has fallen dramatically since the mid-1980s. Also, the heavy subsidies have devalued grain so much that wastage amounts to more than a quarter of the crop in some areas.

Chinese farmers probably will welcome the grain decontrol, which already has been initiated without visible disruption throughout the southern provinces of Hainan and Guangdong and in parts of Sichuan Province.

Urban consumers, who are suffering regular sharp price increases on most daily necessities as they are pushed toward a market economy, are less likely to be pleased. But increases earlier this year in the prices of eggs, edible oils and grain did not provoke much reaction in Beijing, where the average income has been rising relatively fast.

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