Price Reform in China, 1979-86.

The economic liberalization process and the movement towards a competitive market mechanism in China started in 1978. Guo focuses on the producer and procurement part of the reform, investigates the characteristics, the difficulties involved, and the achievements of this process.

In Chapter 1, a theoretical framework is developed to analyze the research objectives of the book. The socialist pricing system as well as price reform in the historical and international context are among other topics discussed in this chapter.

China's price reform began in 1979. Chapter 2 discusses the characteristics, goals, methods, stages, time frame and achievements of this reform. According to the author, the price reform policies were the compromised outcome of the conflicting views of the Centralists, Decentralists, and the Market Reformers in China.

Chapter 3 focuses on price formation, price determination, and price implementation in the administrative price reform. During this reform the administration placed more emphasis on supply and demand, quality, and cost structure. However, absence of proper price calculation, existence of conflicting views among administrators, and also lack of the needed skills to implement the related policies resulted in an irrational and inefficient pricing system.

During the post reform period, Guo claims that prices were adjusted continuously to reflect international prices, cost structure, desired price ratios, peasants' standard of living, government revenue, and quality. Chapters 4 examines the effect of administered prices on output in the cotton and coal industries. Guo concludes that, depending on the nature of the commodity and the government policies, the price reform affected different industries differently. While cotton output responded to price changes significantly, steel output remained insensitive to price fluctuations.

In Chapter 5, Guo investigates the effect of producer price adjustments on the composition of output within the steel and bicycle industries. He concludes that the coexistence of shortages and surpluses in these two industries are fundamentally due to direct administrative controls, as well as irrational price ratios.

In 1985, the government concluded that efficient resource allocation could not be achieved through the price adjustment process or by relaxing price control at one stroke. Therefore, a dual pricing system, a combination of bureaucratic control, and market mechanism was adopted to determine the price of limited number of important commodities. Chapter 6 discusses the evolution of the Dual Pricing System. This system, according to the author, had both positive and negative consequences. It caused more illegal trade and failed to protect the public and priority sectors from experiencing higher prices. On the other hand, by playing the role of a bridge between direct control and indirect control of the economy, it significantly mitigated the risks involved in such reforms.

Chapter 7 examines the responsiveness of firms to the price reform in both input and output markets. The post-reform firms, according to Guo, are dependent on both the government and the market for their input, output, and financing. This has created a complicated pattern of incentives and behavior. Firms respond to change in prices and also change in input and output quotas. They manipulate these changes to their own advantage through market activities and administrative negotiations.

A summary, a brief look at the future, and some recommendations conclude the book in Chapter 8. The author believes that the price reform in China can succeed if (1) various political factions can achieve more unanimity, (2) policies be enforced more efficiently, (3) effective network and institutions be established to undertake the relevant fiscal and monetary policies, and finally, (4) all other areas of the economy go through a similar reforms.

This book is packed with extensive descriptive information that will be of interest to those seeking an expeditious assessment of China's economic reforms.