№ 3/2021

Fìnansi Ukr. 2021 (3): 114–128https://doi.org/10.33763/finukr2021.03.114

MONETARY POLICY

KHOKHYCH Dmytro ¹

¹Kyiv National Economic University named after Vadym Hetman
OrcID ID : https://orcid.org/0000-0003-3787-939X

Inflation in China during the economic reforms of the 1980s: causes and effects

The article studies the development of inflationary processes in China in the period of 1979-1989, their causes and effects. In particular, based on the analysis of statistical data, it is established that inflation in China is manifested in price and non-price forms, and also has a pronounced directive nature. This means that even excessive public investment can cause inflation. Two ways of reforming the fixed price system are considered: 1) simultaneous weakening of all prices 2) gradual weakening of prices, their slow adjustment towards the market. The relationship between inflation and macroeconomic indicators, including capital investments, wages and economic growth rates, is given. The inflation transmission mechanism of excess demand in China manifests itself due to overinvestment of state-owned enterprises, which leads to budget deficits and surplus issuance of the Yuan and causes inflation. Three phases of the Chinese phenomenon of "money illusion" are considered: the illusion of strong money without inflationary expectations (1979-1984); weakening of money illusion with some inflationary expectations (1985-1986); the formation of expectations without money illusion (since 1988). The method of using inflation to regulate the distribution of income is analyzed.. With the reform, income distribution became more uneven. To some extent, this is a desirable outcome, but the intensification of the public sector reforms resulted in not just inequality but injustice. Thus, the problem to be solved immediately is whether China can use inflation to regulate income distribution. Statistics show that per capita consumption in China in the late 1980s was only 640 Yuan. The proposed reduction in inflationary pressures views monetary policy as regulating the money supply and curbing inflation. Setting an inflation target is considered an effective tool to achieve the planned inflation rates.

Keywords:inflation, target, monetary policy, People’s Bank of China, consumer prices, economic reform, growth

JEL: E31, E32

KHOKHYCH D. . Inflation in China during the economic reforms of the 1980s: causes and effects / D. . KHOKHYCH // Фінанси України. - 2021. - № 3. - C. 114-128.

Article original in Ukrainian (pp. 114 - 128)

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