Tong : Practice has refuted the old concept that market economy and socialism are incompatible to each other. Now we can say that the establishment of a full-fledged socialist market economy is a feasible goal. Although there is a long way to go before we can reach the goal, we are making steady progress in that direction and the results are beginning to show themselves in a striking way.

Gao : Over the past decade and more, the market oriented reform has been crowned with substantial achievements. But from a nationwide view, our market economic system has yet to be established and much work remains to be done. In addition, market economy has its weaknesses. The pursuit of profits has led to the surfacing of all kinds of evils such as violations of laws and discipline, production and sale of fake and inferior products, tax evasion, the offering and taking of bribes, as many developed nations have experienced. But so long as we take all these seriously with forceful measures, market economy is bound to grow healthily.

Will Market Economy Cause Inflation and Unemployment ? 

During the 14th National Party Congress, an article published in the Japan Economic Journal had this to say : "The most worrisome element for China is inflation as the nation endeavours to establish a market economic system." Later, the Bank of Asia also warned China Against inflation. What are your opinions ?

Ma : I have a feeling that inflation should not be linked with market economy. Take Japan as an example. In the early 1980s' the inflation rate there was about 2 percent or even lower; in the late 1980s the figure dropped below 1 percent. During my one-year stay in Japan in 1989 the prices remained basically unchanged. Therefore, inflation should not be regarded as an inevitable companion of market economy.

Inflation is mainly caused by the imbalance between gross supply and gross demand in society. When supply falls short, prices will rise. Inflation also has something to do with the state monetary policy and the quantity of banknotes issued.

Inflation can not be brought down by relying on the market itself ; it should be tackled with macro economic regulation and control. When economy is overheated to the point of causing inflation, the policy of austerity is called for and the issuance of banknotes should be curtailed. Of course, inflation is a hard nut to crack, and a real headache for many countries worldwide.

Fan : Didn't we have inflation under planned economy ? We did indeed. Shortages in materials and commodities resulted in long waiting queues at the shops. As the state exercised strict control, you could not buy what you wanted. consequently some materials and goods flew into the black market and prices skyrocketed. Moreover, they caused chain price increases. So inflation did exist in the past.

He : In China, when the market was liberalized, prices rose higher but at the same time they stimulated production. Subsequently prices dropped. For instance, in Beijing's fruit market last year, a good variety of products were available while prices kept steady and some even fell. At first grapes were comparatively expansive at three yuan for one kilogramme; usually their prices go up considerably when their season ends but they actually went down one yuan and the supply lasted for longer than usual. The quality was also better, to the great delight of Beijing's.

In the past, people worried they could not buy what they wanted and they further feared the food they got from the market might not be edible. Now the seller's market plays a role as a regulator. That's why we say market economy does not necessarily cause inflation.

Tong : In our transition from planned economy to market economy, the prices of farm produce, minerals, crude oil, coal and other basic products had been kept so lowunder the old irrational price system that, once readjusted, they went up to certain extent, causing an overall price rise. This is the cost we have to pay in the reform. But the problem should be seriously dealt with and vigilance must be maintained to prevent a hike in prices indices.

The 3,000-member Chongqing Knitting Mill has been reportedly ruled bankrupt by a court. This is the biggest case of bankruptcy in China involving a stateowned enterprise. Bad management caused the mill to begin losing money from 1986 on and it had to declare insolvency because with its assets it could not repay its debt and had no hope of revival. Then came the story that the first enterprise that went bankrupt in the Shenzhen Special Economic Zone (the Guangchang Color Printing Apparatus Co. Ltd.) was auctioned off. The market is ruthless. In the future, more enterprises with poor economic returns will be forced to file for bankruptcy. Moreover, governments at all levels will see tremendous layoffs. This is quite worrisome.

Ma : This is really a knotty problem. It is estimated that at least 20 million of the 100 million staff and workers in state-owned enterprises are superfluous. But this is a consequence of planned economy rather than a product of market economy. The development of the market economy has actually furnished favourable conditions for resolving this dilemma. Over the past 14 years, the growth of market economy and the establishment of non-governmental economic concerns, cooperative groups and foreign-funded enterprises have provided many employment opportunities. What a heavy burden employment would become if we continued to practice the old planned economy whereby everything was under state control, and farmers were allowed neither to work in cities nor to solve their food problems with their own hands. The result would be social instability. Under planned economy, urban middle school graduates were required to go down to the countryside to support agricultural production. Did agriculture really need this labour force ? No. This was unemployment in a disguised form. But the marketoriented reform has helped solve the problem. Now the country is developing the tertiary sector in a big way, which has provided yet another solution to the employment problem.

He : For a long time, latent lack of employment has been a big problem in rural areas. Fortunately, rural enterprises which have emerged in the reform have absorbed 100 million surplus rural labourers. It was unimaginable in the past that 100 million people could solved their employment problem by themselves without depending upon the state. Every year about 10,000-20,000 rural enterprises go bust, but nobody goes to protest at government buildings. Why ? Because it is market competition-incessant elimination and incessant development. If an employee loses his job today he may find another tomorrow. I believe that any country needs a labour market to function as a cistern, which is used when needed and stored when out of use. So I say that unemployment is not an evil. 

Ma : Professor He has said a mouthful about market economy providing jobs for surplus labour. But I take exception to his opinion that unemployed is not a bad thing. "Smashing the iron rice-bowl" makes sense, but the problem is that we have not established a social guarantee system, so where can the unemployed find new jobs ? The State Council has made attempted to solve this problem by endorsing in principle the draft regulations on the placement of surplus staff in public-owned enterprises and the draft regulations on unemployed insurance for workers and staff members in public-owned enterprises.

Gao : Market economy has brought the problem of unemployment to light. Is it good or bad ? I think it is good. Now a quarter of workers in state-owned enterprises are under-employed. This has made it impossible for workers and their colleagues to do a good job. To face unemployment squarely helps increase productivity and raise economic efficiency. The prospect of unemployment constitutes a pressure for a worker. If someone loses his job, how can he manage ? If he finds a new job, he will work hard for fear of losing it. In addition, the employed have to perform well or else be replaced by those awaiting jobs. So we don't worry that market economy will cause massive unemployment. Of course, this does not mean it is better to have more unemployment, which should be kept within society's means. By establishing a social guarantee system and keeping unemployment within bounds, the labour market can develop rapidly and workers can compete to contribute more.

Ma : Wherever the market economy develops quickly, the economy is dynamic and unemployment becomes less a problem. For instance, large numbers of hinterland labourers have flocked to Guangdong and other coastal areas because there are more job opportunities there. Carpets produced in Weihai of Shandong Province are in great demand but labour shortage in the city made it difficult to expand production. The factories had no alternative but to extend their operation into the rural areas in the vicinity. This has nurtured a group of rural enterprises which have provided jobs for villagers awaiting jobs. Now Weihai carpet manufactures have extended their operation into Jiangxi Province, giving an impetus to local economic development. This is the advantage of the market economy that makes the Weihai success possible.