Chapter 16 Chapter 15 "Breakthrough" failed

When scholars of later generations study the history of China's reform, they often discuss such a topic again and again: What changes happened in the summer and autumn of 1986, which led to the sudden shift of the central economic policy? There are two "sudden shifts" in the central policy: one is that at the end of February and early March, it suddenly changed the tight macro policy decided at the Fourth Plenary Session of the Twelfth Central Committee held in September last year, and began large-scale lending; It was in October that the overall supporting reform plan approved by the executive meeting of the State Council and the central financial and economic working group in August was suddenly abandoned, and the enterprise reform was the main line instead.

In the book "Contemporary China's Economic Reform", Wu Jinglian recorded: "According to the original plan of the Chinese government, the policy of economic work in 1986 was to continue to stabilize the economy in order to meet the 'big step reform' that began in 1987. However, At the beginning of 1986, economic growth showed signs of decline, and in February there was zero growth in GDP. At this time, the government leaders decided to loosen the control on bank loans, and as a result, the money supply expanded rapidly from the second quarter of 1986.” He said in The oral history also recalled a detail: In late February, the State Council held a reform work seminar. After sitting down, the person in charge of the State Council said that the growth rate has now slowed down, and the forecast seems to drop to zero. Loans are drawn too tight.Liu Hongru, vice-governor of the People's Bank of China who was present here, argued a few words, saying that this is not the reason. According to our investigation, it is caused by the supply and transportation of coal, electricity and oil not being able to keep up.The person in charge was upset and said, coal, electricity and oil are always tense, why did the speed drop to such a low level?I think your position control is too tight.At this time, Liu Hongru walked out of the conference room and came back after a while. He reported that I had already called President Chen Muhua, and we will send a telegram immediately to relax the loan control.

Xue Muqiao recalled in his memoirs: due to the implementation of the credit tightening policy at the end of 1985, by the first quarter of 1986, industrial production encountered difficulties, and because a large number of infrastructure projects had been launched, the supply of raw materials and energy became more tense. Most of the investment in fixed assets, business liquidity has become extremely scarce, resulting in a significant decline in the growth rate of industrial production, the first quarter increased by only 4.4% over the same period last year.Many places and enterprises have strongly demanded to loosen credit, and shouted loudly.At the same time, some young comrades exclaimed loudly that the economy had "slumped", saying that the "tightening policy" had destroyed the just-started economic take-off.

It was against this background that the central government changed the tightening policy that had been implemented for half a year and began to lend a large amount of money, and the inflationary momentum that had just been suppressed made a comeback. Among economists, Ma Hong, Xue Muqiao, Liu Guoguang, and Wu Jinglian believed that the slowdown was originally a temporary phenomenon that occurred when the economy was overheated, and there was no need to panic.At the National People's Congress meeting in April 1986, Xue Muqiao said that the reason for the shortage of funds is that a large amount of money has been invested in fixed assets, and there is insufficient liquidity. We can absorb the accumulated currency through the development of banking business. Promote the optimization of investment structure and economic structure, so that the economy can run normally, but the policy of curbing inflation must not be abandoned.After the sluice of credit was opened, it became more difficult to implement the overall supporting reform plan. Therefore, on June 27, 1986, Xue Muqiao wrote to the person in charge of the State Council, proposing that "strictly controlling the balance of total social demand is the The key to the success or failure of reforming the unreasonable price system and straightening out economic relations.”Wu Jinglian later recalled that Xue's letter was sent to the office of the person in charge of the State Council by himself.However, news soon came that Xue's opinion was considered "outdated", outdated and lacking in new ideas.

As soon as the credit is loosened, there will be a scene of "chaos as soon as it is released". In 1986, the investment in fixed assets soared by 47.7 billion yuan compared with the previous year, and the additional currency was 23.1 billion yuan, an increase of about 20% year-on-year. In October 1986, Wu Jinglian wrote worryingly in an analysis report titled "Analyzing the Current Economic Situation and Thinking about the Ways of Future Reform": In view of the current situation, if we do not find a way out from the strategic improvement of the system reform, but If we follow the old path of "increasing investment, loosening money, reducing taxes, and increasing bonuses", it will have extremely negative and far-reaching effects on system reform and economic development.

However, this voice has still not been adopted. The overall reform expected by Wu Jinglian and others will inevitably involve the adjustment of interests in all aspects. In an overheated economic environment, the difficulty of adjustment will not only increase unprecedentedly, but it will even be considered to "contain economic development."Therefore, the overall plan was suddenly abandoned in October, and the main battlefield of reform turned to enterprise reform. In the case of setbacks in the joint-stock system pilot, the State Council successively proposed "enterprise contracting", "departmental contracting", "financial contracting", "foreign trade contracting" The five major contract systems including "credit contract" and "credit slicing contract".In Wu Jinglian's view, this is a return to the old practice of maintaining the coexistence of the commodity economy and the planned economy, hoping to improve the operation of the state-owned sector through some small repairs.

In January 1987, Hu Yaobang resigned as General Secretary of the CPC Central Committee.The central government announced that it would hold the 13th Congress of the Communist Party of China in the fall of that year, and the new central leadership therefore asked various advisory bodies to summarize the experience of economic construction and reform since 1978.Wu Jinglian wrote the "Research on Construction and Reform Experience Since the Third Plenary Session of the Eleventh Central Committee", and once again pointed out that "in the 'run-up' stage of economic take-off, important attention should not be placed on pursuing the recent high speed, but should Focusing on preparing the basic conditions for high-speed growth, the overall effectiveness of the operating economic system must always be maintained.”He wrote that from 1984 onwards, some comrades became less calm-minded, and everywhere raised the temperature and pressure, calling for "doubling ahead of schedule", which caused all regions to compete with each other in terms of growth rate, forming a wave of upsurge; The situation of "over-distribution" of national income with simultaneous expansion of accumulation and consumption and inflated demand has been avoided. The wave formed by the mutual promotion of "over-distribution" and "ultra-high speed" has damaged the steady progress of the foundation work in many ways, not only caused the deterioration of the economic structure, eaten up the "old capital" of natural resources and the national economy, but also hindered the economic development. The reform went smoothly.Although this research report was generally affirmed, the statement of "over-distribution of national income" also aroused some people's displeasure, because in their view, the phenomenon of "over-distribution" does not exist at all.

In the second quarter of 1987, Ma Hong, Wu Jinglian and others issued a warning to the central government, believing that the economy was in danger of inflation, and demanded macro control to resolutely curb the occurrence of inflation.According to available information, at a meeting on April 3, Ma Hong reported that many comrades believe that there are considerable transitional symptoms in the current economic life.These symptoms are mainly manifested in the fact that the total social demand exceeds the total social supply, especially from 1984 to 1986, the "over-distribution of national income" increased rapidly and the number was very large. Effective mitigation and corresponding measures must be taken to avoid uncontrollable situation.Ma Hong's speech was interrupted by the leaders of the central government. He lost his temper and accused Ma Hong of using old viewpoints to analyze the new situation. There is panic and pessimism", and said that the term "over-allocation" itself is unscientific and should not be used in the future.Ma Hong, who had suffered a lot in many political campaigns in the past, also "retired despite the difficulties" at this time. After the meeting, he wrote a short message with the meaning of review, expressing his support for the leaders' meeting on panic and denial of reform. Tendency to criticize, and said that "with regard to the issue of national income over-distribution, we have not done enough research, and there are mistakes in formulation."

The differences between the decision-makers and the academic circles on the status quo are partly due to their different judgments on inflation.At that time, prices were in a state of half control and half release, and the threat of rising prices increased, so administrative price limits were used to deal with it. Most of the excess money could not be offset by rising prices, which became "hidden inflation" and led to price increases. A new distortion of the system.According to data from the National Bureau of Statistics, even in 1987, when prices continued to rise, the national retail price index only rose by 7.3%.But in fact, the planned prices of energy and raw materials that are in short supply have been restricted, and the price of the bargaining part has skyrocketed, and the institutional drawbacks of the "dual-track system" have been greatly stimulated.Without a clear understanding of this reality, any decision can be misguided.

In September, a production materials price supervision and inspection team composed of various ministries and commissions of the State Council system submitted a report to the State Council. According to the situation of 28 teams' field investigations in various places, "the arbitrary price increases and arbitrary charges for production materials are quite serious. and domains have reached the point of lawlessness".In the following period of time, despite repeated orders from the central government, more and more government agencies and state-run institutions were still unable to prevent more and more government agencies and state-owned organizations from engaging in the reselling of materials. People used their powers, large or small, to gain benefits from the "dual-track system". "Nihon Keizai Shimbun" reported a very exaggerated case. In Nanjing, 1,000 tons of steel were speculated 129 times without moving, and the price nearly tripled. People from Jiangsu, Guangdong, Anhui and Hubei participated in this incident. There are 83 departments, and the main parties involved are the material circulation departments such as the Nanjing Material Trading Center with franchise rights.Folks began to spread folk proverbs: "One billion people and nine hundred million are down, and another one hundred million is looking for it." "Economic Daily" put forward the theory of "official downfall is a disaster for the country", which concluded that "the price of production materials is soaring, and the state repeatedly prohibits arbitrary price increases. But it has had little effect, and the main cause of this situation is those companies that have no separation between government and enterprise, and government and business.”According to Wu Jinglian's recollection, "Actually, civil conflicts at that time were not mainly directed at the company, but at some so-called 'prince companies' with powerful backgrounds." In the whole year of 1987, fixed asset investment increased by 62.1 billion yuan, and currency issuance increased by 23.6 billion yuan. Under the condition of overheated investment, prices gradually became uncontrollable, and the prices of raw materials such as pork, steel, and coal began to rise.While prices are soaring, the reform of the contracting system of enterprises has not yet achieved great results. Enterprises have reported losses of 40 billion yuan, and the loss subsidies and price subsidies are equivalent to one-third of fiscal revenue. Aggravated sight.In order to get rid of the predicament, the central government was forced to issue more currency, which further pushed up the momentum of inflation.

According to Wu Jinglian's recollection, before and after the Second Plenary Session of the Thirteenth Central Committee in February 1988, there was a debate about inflation in theoretical circles. Xue Muqiao, Ma Bin, Wu Jinglian of the Development Research Center of the State Council and Liu Guoguang, vice president of the Academy of Social Sciences all believe that inflation has become the "biggest enemy" of the current economy and must be dealt with.On the other hand, Li Yining and some scholars of the Economic Reform Institute affiliated to the State Economic Reform Commission held the opposite view, and the decision-makers also held the latter opinion. In 1988, the "No. 1 Document" of the central government changed the practice of focusing on agricultural issues over the years, and focused on macroeconomic issues.The document pointed out that "effective growth was achieved in 1987 at a high rate without the risk of inflation" and that "scientific analysis should be carried out on the price issue".The decision-makers at that time determined that the focus of the current price problem was food, not other things.The reason why food prices rise, in the final analysis, is because of insufficient supply.In the book "Contemporary Economic Reform in China", Wu Jinglian wrote: The leaders were confused by the view that "inflation is harmless", and still believed that the problem in 1987 was not a total problem, but only a local problem of agricultural production. However, Wu Jinglian still did not flinch. On April 26, 1988, Wu Jinglian and his assistant Li Jiange wrote a research report to the leaders of the Development Research Center of the State Council, entitled "Controlling Demand, Channeling Currency, and Reforming Prices."In the article, they reiterated Wu's policy proposition of "controlling the currency and liberalizing the price" proposed by Wu in 1985. That is to say, price reform is imperative, but only under the condition of "controlling the currency", Price reforms are likely to succeed. They believe that under the current circumstances, it is difficult to maintain the method of price control.According to the experience of the Federal Republic of Germany and Japan after World War II, "holding the currency and letting go of the price" is "the only possible choice to succeed."Timely introduction of price reform is difficult, but there is no other way, and as time goes by, the difficulty and risk will become more and more serious.Therefore, they wrote, the hurdle of price reform "sooner or later, it is better to pass it sooner than later, short-term pain is worse than long-term pain, and the most important thing is to make a decisive decision."However, their argument is also focused on controlling demand and keeping money in check.They point out that after the majority recognizes that price reforms can neither be bypassed nor postponed, the likelihood increases that leadership will make aggressive moves to advance price reforms without changing expansionary monetary policy. decision making.However, in their view, "this is a choice with little possibility of success, because in the case of inflated demand and a large accumulation of purchasing power to be realized, it is possible to make a large adjustment to the price and liberalize the price of some products. could trigger severe inflation."In the research report, they also cited several cases of price reforms in Yugoslavia, explaining that because the economic system that caused demand inflation was not changed and anti-inflationary macroeconomic policies were not adopted, "the result was that the prices soared beyond the capacity of society to bear. Terminate reforms and refreeze prices." The views of Wu Jinglian and others have not yet been adopted by the highest level.Only a few months later, the scene they described played out in China. In April 1988, the Seventh National People's Congress was convened, the former chief of the State Council was transferred to the vice chairman of the Central Military Commission, and Li Peng became the new Premier of the State Council.In early May, there was a sudden change in the central leadership.The then general secretary proposed to start the price "breakthrough". "Crossing the barrier" means quickly straightening out the disordered price system in a short period of time, so that the economic operation tends to be normal.Due to the great gap between the inside and outside of the system, once the prices are aligned, it will inevitably lead to a rise in prices within a certain period of time. Therefore, this is a dangerous "pass", and it must be passed in a "breakthrough" way. This is an economic decision with enormous risks and controversy. According to Wu Jinglian's analysis in the future, according to the speech of the leader who decided to "break through the barrier" at that time, the reason why he made up his mind to "break through the barrier" was to eliminate the corruption caused by the "dual-track system".When making decisions, the risk of inflation is underestimated.Wu Jinglian believes that this judgment is one of the important reasons for the failure of "price breakthrough". What happened next was the most chaotic and deplorable scene in the reform history of more than 30 years. From May 16 to 19, the Standing Committee of the Political Bureau of the CPC Central Committee formulated a price reform plan, announcing that it would take five years to liberalize prices.To this end, the State Council established the Price Committee, with Yao Yilin, Vice Premier of the State Council, as its director.On May 19, when the Politburo Standing Committee was closed, Xinhua News Agency issued a telegram to the whole country saying, "China's price reform is a bold move, and it will take certain risks, but the central government is confident that it will be done well..." This is a sign that the signal to start the "price breakthrough" was fired. Also on May 19th, Deng Xiaoping received a group of foreign guests who came to Beijing to attend an international economic seminar.In his speech, he pointed out that the reform has to go through five hurdles, and it is not easy to pass the price hurdle. No", "I always tell my comrades not to be afraid of taking risks, but to be more courageous. If you are afraid of wolves and tigers, you will not be able to walk."During the conversation, a president of a Latin American national bank responded and said: "This is called long-term pain is worse than short-term pain." Deng Xiaoping said: "You are right, long-term pain is worse than short-term pain." However, Deng Xiaoping said this when receiving foreign guests The speech was not published at the time. From May 25th to 27th, the then general secretary called a meeting of leaders of more than 10 central ministries and commissions to discuss price reform. Among the participants were two economists, Liu Guoguang and Wu Jinglian.At the meeting, the leaders of various ministries and commissions agreed to immediately carry out the "price breakthrough".Liu Guoguang put forward a different opinion. He believed that due to the continuous increase in prices for several years, people's inflation expectations are forming. Since the beginning of the year, there have been sporadic panic buying in various places. If the price reform is carried out immediately, inflation expectations will be fully formed. Therefore, it should take one or two years to manage the economic environment first, and then carry out price reforms.The general secretary did not take Liu Guoguang's opinion seriously. He said that you economists have limited thinking, thinking that high speed will inevitably lead to high inflation, and you need to control the environment first, and then let go of prices.He cited South Korea's experience and said that South Korea's strategy is to first inflate and then govern to fight the "time difference". Practice has proved that this is a successful experience. Wu Jinglian felt that what the general secretary said was wrong, so he also joined the debate.He said that Liu Guoguang's basic truth is correct.The "time difference" must be based on the premise that residents still have currency illusions and have not formed inflation expectations. At this time, they will not respond immediately when there are more bills.However, negative savings growth and sporadic panic buying have already appeared since April. Therefore, the implementation of a radical price reform plan under such a macro environment may fully form inflation expectations and lead to bank runs and panic buying.As for South Korea, Park Chung-hee launched the "Heavy Chemical Industry Movement" and thought it was a good idea to fight the "time difference". As a result, severe inflation and political turmoil were caused, and Park Chung-hee lost his life. This kind of lesson must be learned.The leader also disagreed with Wu Jinglian's opinion.As a result, there was a fierce debate between the two scholars and the leaders, so that the blush was so thick that the neck was thick, and more than 10 ministers looked at each other in blank amazement. At the second day's discussion, the atmosphere eased.The leader still stuck to his view that inflation was unlikely to happen, and that if it happened, it would not be terrible.He mentioned that a group from the Economic Reform Institute was investigating in Latin America, and they sent back many telegrams, saying that the inflation rate in Latin America was as high as several thousand percent, but the economy was still developing.He also gave an example that Argentine President Alfonsine visited China a few days ago. When he learned about China's inflation rate, he said, "What is your inflation rate? If you can be like you, I will be thankful." I learned later that a group from the Economic Reform Institute was visiting Latin America at that time. They sent telegrams from the embassy to the General Secretary and the leaders of the State Council, saying that there is nothing terrible about high inflation and that the economy in Latin America is very prosperous. At this point, the decision to "break through" is finalized. It can be seen from the above details and other later historical materials that there are actually two opinions among those who are in favor of price reform. The first is the opinions of Xue Muqiao, Liu Guoguang and Wu Jinglian. They all believe that the economic environment should be governed first, and then price reforms should be carried out, but they have different estimates of the strength and time required for governance.Liu Guoguang thinks it will take two years; Wu Jinglian thinks that as long as the efforts are sufficient, it does not need two years. The second is the opinion of "breaking through the barriers" immediately. They think that inflation will either not happen, or it is not terrible. As a result of the debate, the second opinion was adopted and implemented.The decision-makers at that time did not design a preventive plan for the market and social turmoil that might be caused by the immediate "breakthrough".In Wu Jinglian's words, "I don't believe that prices will skyrocket at all." The debate is not over yet. On May 30, the State Restructuring Commission held a seminar on the medium-term planning of economic system reform. During this period, experts also naturally discussed the imminent issue of price reform. On June 1, Premier Li Peng of the State Council received the experts present at the meeting. Representatives of each program including Wu Jinglian, Li Yining, Zhang Zhuoyuan, Wang Jue and Wu Shuqing made speeches.It can be seen from the meeting briefing issued at that time that they all supported price reform.Both Wu Jinglian and Zhang Zhuoyuan reiterated the need to manage the environment and prevent inflation.Li Yining mentioned that the government can use the six resources of gold (gold reserves), wood (state-owned real estate), water (introduction of foreign capital), fire (state-owned factories), soil (land use rights) and people (hukou) To prevent serious inflation by selling gold and real estate, issuing state-owned enterprise stocks, selling small businesses, transferring land use rights with compensation, and selling household registrations. In August, the Beidaihe Politburo meeting officially announced the decision to "break through barriers" and determined the five-year price plan. In the first three years, we will make big strides, and in the next two years, we will make fine-tuning. It is planned that prices will increase by 70% to 90% and wages by 90% ~100%. As soon as the policy of "passing through barriers" was announced, it quickly shocked the whole country.Since that month, the price of pork and other meat in central cities across the country has risen by about 70%, and other small commodities have quickly followed suit.Contrary to the expectations of the decision-makers, the "price breakthrough" soon showed a terrible trend of being completely out of control, and prices in various places ran like wild horses running wild.At that time, the deposits of the national residents were 300 billion yuan (1 trillion yuan in 1992 and 24 trillion yuan in 2008), which was not a very large number, but due to the public's bullish panic, it caused a nationwide panic buying Wind, this seems to be in response to Keynes' famous saying, "social psychology determines the permanent economic problems of mankind".According to a newspaper report at the time, "People seemed to be in a daze, buying everything they saw, snapping up value-preserving commodities as well as basic consumer goods, even slow-moving ones, hugging TV sets when they had pictures, and buying electric fans when they turned on. , the refrigerator must be air-conditioned.”What is unusual is that the panic buying of the public has become out of touch with the actual supply and demand. Taking electric fans as an example, there were more than 200 electric fan factories in the country at that time, with an annual output of 34 million units, making it the world's largest producer. Since two years ago, domestic The oversupply of production and sales resulted in a serious backlog of electric fans. However, in the panic buying, all electric fans in domestic warehouses were sold out. In late August, the panic-buying frenzy in Shanghai reached its climax, and the municipal government had to take emergency measures to supply salt and matches by ticket. Aluminum pots could only be traded in for new ones or purchased with marriage certificates and household registration certificates. On the evening of August 27, the General Secretary of the Central Committee held an emergency meeting and announced the suspension of the price reform plan. On August 30, the State Council officially issued a notice that no new price adjustment measures will be introduced in the second half of the year, and the price reform in the next year will also be a small step. The focus of work has shifted from deepening reform to governing the environment and rectifying order. The soaring prices and panic buying that broke out in the autumn of 1988 are considered to be the biggest economic loss of control since the reforms in 1978.The "China Price Yearbook" of the State Price Bureau records: "1988 was the year when my country's prices rose the most since 1950 and inflation intensified significantly. Among the 383 commodities in which the country calculates the retail price index, the dynamic price level reaches 95. %, the overall retail price index for the whole year rose by 18.5% over last year, and this increase was based on the cumulative price increase of 23.7% for three consecutive years.” In Wu Jinglian's view, the later implementation of the "breakthrough" plan - the practice of liberalizing prices under the inflation policy was too reckless. He said in his oral history in his later years, "This is called misfortune. Panic buying is foreseeable and will definitely happen.” According to the "Memoirs of Xue Muqiao": "On December 1, 1988, the then general secretary came to talk to me, Liu Guoguang and Wu Jinglian, and expressed his acceptance of our criticism of him, saying that he had made a mistake in inflation in the past year. I It’s not a year, at least it’s been three years. Guoguang and Jinglian also talked about their opinions... But considerable losses have been caused, and the reform has taken an unnecessary detour.” The failure of the "price breakthrough" in 1988 was the most frustrating event in the history of China's economic reform. Its suspension greatly changed the path of China's modernization. After the failure of "passing through the gate", the macro economy fell into chaos, and the whole country was filled with a gloomy and tense atmosphere.