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No Inflation in China

Stable Prices and the Reasons

by Chi Ti

[This article is reprinted from Peking Review, #19, May 9, 1975, pp. 17-20.]

This is the first of three articles explaining why there is no inflation in China. The other two—“Long-Term Balance of in Revenue and Expenditure” and “Long-Term Stability of ‘Renminbi’”—will be published in the following issues. —Ed.

MARKET prices in our country have long been kept stable in the last more than 20 years. In 1952 people could buy the following items for daily use with Renminbi (RMB) 15 yuan*: 10 kilogrammes of rice, 5 kilogrammes of flour, 1 kilogramme of pork, half a kilogramme of sugar, half a kilogramme of table salt, 15 kilogrammes of vegetables, 1 metre of white cloth, 2 cakes of soap, 25 kilogrammes of coal, half a kilogramme of edible oil, half a kilogramme of kerosene and some other consumer goods such as aluminium ware, stationery and medicines.

In general these items can be bought with the same amount of money today.The picture was an entirely different one in old China. In the 12 years between the outbreak of the anti-Japanese war in 1937 and the collapse of reactionary Kuomintang rule in 1949, bank notes issued by the Kuomintang inflated more than 140,000 million times and prices soared over 8,500,000 million times. The plummeting of the purchasing power of the fapi, the currency issued by the reactionary Kuomintang government, can be shown by the following examples: One hundred yuan of fapi could buy two oxen in 1937, but only two eggs in 1945 and only a sheet of toilet paper in May 1949.

Stabilizing and Adjusting Prices

The inflation handed down by old China was ended as a result of a series of effective measures by the Party and government following liberation. Prices of such articles in daily use as grain, cotton cloth, table salt and coal have been kept low and stable from the start. Prices of certain industrial goods for daily use like radios, plastic goods and enamel ware have gone down, while those for drugs have been reduced several times, with the average price today 80 per cent less than in 1950. With the growth of the petroleum industry in recent years, the state has reduced the price of gas for home use. Living expenses such as rent and water, electricity and transportation have not changed much. Rent generally accounts for only 3 to 5 per cent of the wages of workers and staff members.

China has adhered to the principle of ”stabilizing the market and the price” ever since liberation. Prices are stabilized while the people’s purchasing power has been steadily growing and their demand for commodities has been rising by big margins. China’s total, retail sales of commodities in 1973 rose more than seven-fold compared with the early post-liberation days. For example, taking 1952 as the base year, silk and woollen fabric sales increased more than 30-fold and knitting wool more than 20-fold. Compared with the early period of liberation, sales of wrist-watches, bicycles, sewing machines and radios also showed enormous increases, ranging from a dozen to 100 times.

While stabilizing prices, the state also properly, adjusted prices of certain commodities in a planned way. Imperialism and the domestic reactionary ruling classes, frantically exploited the peasants before liberation by buying farm products cheap and selling industrial goods dear, that is, by using the method of enlarging the ”scissors” differences between prices of industrial and farm products. Since the founding of the People’s Republic of China, the People’s Government considers rational adjustment of the price ratio between industrial and farm products an important political question in consolidating the worker-peasant alliance, and it has many times raised purchasing prices of farm and side-line products and lowered selling prices of such agricultural means of production as chemical fertilizers, insecticides, farm machines and diesel oil for farm use. Compared with 1950, purchasing prices of farm and side-line products have been nearly doubled and selling prices of chemical fertilizers, insecticides, diesel oil for farm use and other agricultural means of production have been reduced by from one-third to two--thirds. The price ratio between industrial and farm products has narrowed by 40.5 per cent compared with 1952. The peasants can exchange for a much bigger amount of industrial products than in the past with the same amount of farm products. For instance, herdsmen in Chinghai Province in western China could only get one and a half tea bricks or seven metres of cloth for 50 kilogrammes of wool before liberation. Now with the same amount of wool they can get 12 tea bricks or 70 metres of cloth.

The reactionary ruling classes also used regional price differences to oppress and exploit the working people in the old society. They pushed down the purchasing prices of goods at the places of production and raked in exorbitant profits by transporting them for sale in other places. They also amassed big fortunes by making use of seasonal fluctuations in prices. At harvest time, for example, they bought farm products at depressed prices and sold them at higher prices when the old stocks were nearly exhausted before the next harvest. After liberation the state commercial departments gradually narrowed regional price differences and abolished irrational seasonal fluctuations in the prices of major farm products. These differences and fluctuations were narrowed even more in remote border regions and mountain areas as well as places inhabited by national minorities. The prices of chemical fertilizers, insecticides, matches, and drugs of Western medicine are identical throughout the country.

While the purchasing prices of farm and side-line products have been raised, their selling prices on the market have always been kept stable. For instance, while the average purchasing price of grain has doubled as compared with that of 1950; retail prices have changed very little. Costs of storage, transport, processing and sales of grain are all state subsidized. The state also gives subsidies for vegetables, meat and eggs from year to year. These measures ensure stable retail prices and a secure living for the people in town and country. State subsidies for these items run up to several thousand million yuan every year.

Why Prices Are Stable

Why has China been able to keep prices stable for a long time?

Developing the Economy and Ensuring Supplies. Chairman Mao has pointed out: “The general policy guiding our economic and financial work is to develop the economy and ensure supplies.” (Economic and Financial Problems in the Anti-Japanese War.)

Only when the economy develops and there is an abundance of commodities can prices be stable. Our farm production has grown continuously since the founding of the People’s Republic of China. Grain output in 1974 was 2.4 times that in the days immediately after liberation. There have also been enormous increases in cotton, oil- and sugar-bearing crops, bast fibre crops, tobacco, tea and other industrial crops. On the basis of all-round development in farm production, both light and heavy industries have rapidly advanced. Commodities on the market rose from several-fold to more than tenfold. Commodities held in stock-by commercial departments also showed steady increases. Such commodities at the end of 1974 had ahnost doubled compared with 1965, the year before the Great Cultural Revolution started. Stock increases were even faster for such major commodities as grain, cotton and other daily necessities. For every yuan of currency issued by the government, there are seven or eight yuan of commodities circulating in the market. Besides, every yuan is backed by four or five yuan’s worth of commodities kept in stock. This is the material basis for stable prices.

Planned Adjustments of Currency in Circulation. Another important reason for China’s long-term price stability is centralized and unified state management of currency issuance and state’s planned release and withdrawal from circulation of currency. Currency issuance has always been limited to the needs of production development and enlarged commodity circulation. Revenue is not increased by means of issuing bank notes.

Renminbi is the only money in circulation in China. All economic dealings among enterprises, public undertakings, government offices, organizations and P.L.A. units above an amount specified by the state are settled through accounts in banks without using cash. No bills circulate in the market. Speculation in bills as practised in capitalist society has no place in China.

More than 90 per cent of the money released in China is for paying wages and purchasing farm and side-line products. Balance between the release and withdrawal from circulation of this part of the money is ensured through planning. The number of new workers and staff members to be added, wages paid and commodities needed every year all proceed according to state plans. In deciding total wages, the state considers the possibility of economic conditions and arranges the supply of commodities accordingly. Before the state releases currency to the rural areas for purchasing farm and side-line products, paying out financial funds in support of agriculture and issuing agricultural loans through banks, it arranges appropriate supplies of industrial products for daily use and agricultural means of production for the rural areas. This ensures the timely withdrawal from circulation of the money thus released.

Of course, the plan for the circulation of money, when implemented, may meet unforeseen changes. Such a new situation will be solved by adjusting state plans. For example, if the release and withdrawal from circulation of money cannot be balanced in the process, this can be adjusted on the one hand by increasing or reducing the amount of loans issued by banks and the amount of money released and on the other by withdrawing money from circulation through boosting the supply of commodities from stocks.

Unified Management of Prices. Prices in our country are managed by the state according to the principle of unified centralized leadership and local management at different levels. Production and sales units have no power to set prices.

The price level and amount of profits in capitalist society decide production, consumption and circulation. In exposing the capitalist mode of production, Marx pointed out: “Production of surplus-value is the absolute law of this mode of production.” (Capital.) Therefore, producing whatever makes more money, prices going up or down when there is a scarce or ”plentiful” supply of commodities and artificial raising of prices and cornering the market become inevitable social phenomena. Taking society as a whole, production proceeds blindly. All this is the result of the contradiction between the private ownership of the means of production and socialized production in capitalist society.

Public ownership of the means of production has been established in socialist China and the vast majority of industrial and agricultural products are produced by enterprises under socialist ownership by the whole people and enterprises under socialist collective ownership by working people and rural people’s communes. Production is aimed not at individuals getting rich but at developing socialist economy and meeting the needs of the whole society. Production is managed and adjusted by state plans according to needs and possibilities, and the greatest portions of the commodities are in the hands of the state. Products turned out by the state-owned enterprises belong to the state while the farm and side-line products produced by the rural people’s communes or their brigades and teams, except those for their own consumption, are purchased by the state at rational prices.

The establishment of the socialist system makes it possible for China to put commodity production and circulation and price setting under a unified state plan. With regard to the important commodities relating to the national economy and people’s livelihood, plans for their purchase, allocation and sale are made and their prices set by the departments concerned under the central authorities. Prices of other commodities are set and managed by provincial, prefectural or county people’s governments under the unified principles, policies and regulations of the central authorities. This eliminates blindness in social production and unrestricted ups and downs in market prices.

Free From Influence of International Market. We have adhered to the principle of “maintaining independence and keeping the initiative in our own hands and relying on our ovm efforts” in socialist construction over the past two decades and more. We have never been frightened by imperialist ”blockades and embargoes,” nor have we submitted to the political and economic pressure imposed by social-imperialism. Proceeding from our actual conditions, relying on the strength and wisdom of our own people and on domestic accumulation and using our own resources, we are building an independent and relatively comprehensive industrial and economic system. From raw materials to finished products, the greatest part of our commodities is produced by ourselves. The commodities are sold mainly to the Chinese people, particularly the peasants. We have an enormously huge domestic market.

Adhering to the principle of self-reliance does not, of course, mean seclusion from the outside world. China has economic and trade activities with more than 150 countries and regions in the world on the principle of equality, mutual benefit and exchanging what each needs. This also has enhanced friendship between the Chinese people and the people of other countries.

Since the founding of New China we have adopted the policy of putting foreign trade under state control, abolished the various privileges enjoyed by imperialism in old China and freed foreign trade from dependence on imperialism. Plans for our imports and exports are rationally arranged according to the needs and possibilities for developing the national economy. Trade and foreign exchange are kept in balance. Gone for ever are the days of old China when the market was flooded with foreign goods and the country was ruthlessly exploited by imperialism through exchange of unequal values. Owing to the unfavourable balance of trade at that time, gold and foreign exchange reserves were completely depleted and debts piled high. Hence devaluation of the domestic currency and soaring of prices. Now all this has been wiped out for good.

China’s imports and exports are under the unified management and accounting of foreign trade departments in accordance with state plans. Goods for domestic and foreign trade are separately priced which severs the direct price connection between domestic and foreign markets. Therefore, prices on the domestic market can be consistently kept stable despite sharp price fluctuations on the international market.

* * *

“The correctness or incorrectness of the ideological and political line decides everything.” China is a developing socialist country and the people’s standard of living still has to be raised further. However, the people enjoy a secure life because prices have long been kept stable and low and the supply of the basic means of subsistence has been ensured. This is an achievement of the Chinese people who, under the guidance of Chairman Mao’s proletarian revolutionary line, have united in struggle and smashed the interference and sabotage by class enemies at home and abroad.

_______________ * According to the exchange rate between Renminbi and U.S. dollar released on April 29, 1975, by the People’s Bank of China, 15 yuan is equivalent to 8.37 U.S. dollars.

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