Setbacks in the Emergency Braking for a Crisis

The relaxation of state direct control on the economy after 1984 stimulated China’s economic development greatly. In 1988, China had an “extraordinary development speed, oversized investment and a too fast-growing consumption fund.” The industrial gross output value above township level grew at a rate of 17.7 percent. The total social investment in fixed assets increased from 379.2 billion yuan in 1987 to 475.4 billion yuan in 1988, an increment of 25 percent. The high-speed expansion brought serious inflation. Although in October 1988, the CPCCC decided to “govern, reorganize and reform” the over-heated economy and started to reduce the money supply, the prices still continued to rise rapidly. There were four large-scale panic purchasing rushes and the overall level of annual retail price rose by 18.5 percent in 1988. In the first quarter of 1989, the overall retail price rose by 27 percent, compared to the same period of the previous year (Chinese Price Statistics Yearbook 1990, p. 3 and 11). The inflation caused a rather short supply of producer goods. Many TVEs suspended their production because of lack of raw materials and energy. “In January and February 1989, electricity was unable to meet the demand. In some regions there was no electricity during daytime at all and electricity came only after 10 o’clock in the evening. Some supplied electricity four days and stopped three days each week. Self-generated electricity was also difficult because it was hard to buy oil, and even coal was seriously short” (Zhang, 1990, p. 349).