China The Role of Prices
Sources: The Library of Congress Country Studies; CIA World Factbook
As a result of the economic reform program and the increased importance of market exchange and profitability, in the 1980s prices played a central role in determining the production and distribution of goods in most sectors of the economy. Previously, in the strict centrally planned system, enterprises had been assigned output quotas and inputs in physical terms. Now, under the reform program, the incentive to show a positive profit caused even state-owned enterprises to choose inputs and products on the basis of prices whenever possible. State-owned enterprises could not alter the amounts or prices of goods they were required to produce by the plan, but they could try to increase their profits by purchasing inputs as inexpensively as possible, and their off-plan production decisions were based primarily on price considerations. Prices were the main economic determinant of production decisions in agriculture and in private and collectively owned industrial enterprises despite the fact that regulations, local government fees or harassment, or arrangements based on personal connections often prevented enterprises from carrying out those decisions.
Consumer goods were allocated to households by the price mechanism, except for rationed grain. Families decided what commodities to buy on the basis of the prices of the goods in relation to household income.
Data as of July 1987
NOTE: The information regarding China on this page is re-published from The Library of Congress Country Studies and the CIA World Factbook. No claims are made regarding the accuracy of China The Role of Prices information contained here. All suggestions for corrections of any errors about China The Role of Prices should be addressed to the Library of Congress and the CIA.