Here's a nice little piece from The Economist, dated July 4, 1992, that sounds at the same time a bit strange and rather familiar:
China: Return to go
THESE are heady days for China's economy: reformers are winning, business is booming and foreigners are scrambling to invest. The cautious, however, will recall that when China was last like this, only four years ago, the economy went out of control and inflation reached an annualised rate of 80%. The government responded with a tight squeeze on credit and imports. Economic growth fell from 11.5% in 1988 to 4% in 1989 (a decline sharpened by Western sanctions after the Tiananmen Square killings). Will it happen again?
Most people are to thrilled with recent events to waste time on such morbid speculation. In the first five months of 1992, China's real GDP was 11% bigger than in the same period last year; industrial output was 18% higher; real income per person in the cities 16% higher. In the southern Guangdong province industrial output was up by 26% and exports by 32%.
Meanwhile, the reformist directives multiply at bewildering speed. In mid-June it was suggested that five cities along the Yangzi river would be given the latitude to attract foreign investment; this week the government announced that the Yangzi's open cities would actually number 28.
Still more significant was the formal announcement on June 25th that service businesses such as retailing, transport and banking will be opened to foreign investors. This part of China's economy offers wider scope than any other for improved efficiency, growth and profits -- and the government seems unperturbed by the social implications of allowing foreigners to shape a consumer culture in China.
The foreigners are eager to begin. In the first five months of 1992 the government approved 8,900 foreign-investment projects, with a value of $ 10.5 billion, around three times the comparable figures last year. Overseas Chinese from Hong Kong, Taiwan and South-East Asia are showing especially keen interest. They know China better than other foreigners, and as they get involved will have a farther-reaching influence.
Li Ka-shing, Hong Kong's biggest businessman, has for the first time taken a share of big property deals in northern China (in Shanghai and Beijing). He is also committed to taking stakes in bridge and highway projects in Guangdong. Robert Kuok, a Malaysian tycoon who is a partner of Mr Li's in the Beijing and Shanghai projects, recently made three Chinese Property deals in four days. Over the weekend of June 27th-28th, Shanghai signed a total of 20 property-developmen agreements with foreigners.
The worry, however, is that such developments will help the economy overheat -- as it did in 1980, 1985 and 1988 -- and the government will then cool it by the same painful methods as before.
Danger signs are already plentiful. Consumer prices in the first five months of 1992 were 11% higher in the cities than in the same period last year. The government's budget deficit last year, by IMF rather than Chinese arithmetic (which includes foreign loans as revenue), was 78 billion yuan ($ 14.6 billion) -- around 20% of government spending and 3% of GNP. This year spending continues to grow faster than revenue.
The culprits, as usual, are the loss-making state enterprises. Despite government exhortations to improve their performance, the biggest state companies lost 8.2 billion yuan in the fist five months of the year, 20% more than in the same period last year. Although the central bank has increased banks' reserve requirements, rumour -- supported by a weakening of the yuan on the free market -- has it that money supply grew at its fastest-ever rate during the first five months of this year.
Optimists are undismayed. They say things have changed since 1988: more of the economy is in private hands and there are fewer of the rigidities that stopped supply from responding to price movements in 1988. True enough. But even if an economy is efficient, which China's is not, it will inflate predictably in response to the kind of pressure China is under. Go-go could all too easily become stop-go.