Chinese leadership admits mistakes

China's Prime Minister, Li Peng, yesterday made a rare admission of "mistakes" in handling the economy and said that high inflation had "aroused great resentment in the masses". In an unusually blunt assessment of the problems besetting China as it prepares for the post-Deng Xiaoping era, Mr Li pinpointed rampant corruption as "a matter of life and death" and urged the population to adhere to "the principle of plain living".

Mr Li's state of the nation address, at the start of the National People's Congress - China's rubber-stamp parliament - set a cautious tone for this year's two-week session. "We should be concerned about the weal and woe of the people," he warned the 2,811 delegates. With the health of 90- year-old Mr Deng declining, the government's priority is maintaining social stability ahead of any of transition.

Mr Li set a slightly lower than expected target for this year's economic growth of 8-9 per cent, down from actual growth of 11.8 per cent in 1994 and around 13 per cent for each of the previous two years. The goal for inflation in 1995 is 15 per cent, which would be an ambitious reduction from last year's 21.7 per cent increase in retail prices. As in previous years, however, economists say that these official targets are unlikely to be met.

The most distinctive feature of Mr Li's address was his account of why last year saw the highest rise in consumer prices since the founding of the People's Republic in 1949. This was due "both to objective reasons and to mistakes of government at all levels". Much of the increase was due to higher food prices, but this in turn was a consequence of dismantling the old centrally-planned pricing system for agricultural commodities. Further price reforms have been put on hold for this year.

Mr Li further acknowledged excessive growth in fixed assets investment and in the money supply. Agricultural output and loss-making state enterprises were the other "serious problems". "We invested insufficiently in agriculture," he conceded. Arable land shrank and grain production dropped 12 billion kg to 444.5 billion kg last year. Such are China's fears of not being able to feed its growing population that provincial governors have been given direct responsibility for the "rice bag".

Senior Chinese leaders rarely admit to mistakes, and diplomats were divided on how to interpret this. With most analysts expecting a protracted top-level power struggle after the death of Mr Deng, Mr Li's comments may have been less a corporate mea culpa than an attempt to lay the blame for the economic problems on vice premier Zhu Rongji, a reformer who has been in charge of managing the economy. Others say China's enormous problems have forced a greater co-operation among the rival factions and Mr Li's speech was aimed at maintaining a new consensus.

On corruption and crime, Mr Li painted a picture of a nation of cadres who have taken free market opportunities to illegal extremes. "The power in our hands is given by the people. We should only use it to work in their interests and must on no account abuse it for personal gain or small group interests."

Corruption, endemic in business and everyday life, is the top complaint among the masses. Mr Li told of "shameful practices in government departments, trades and professions".

His description of the crime wave was just as stark. The authorities would concentrate "on areas where criminal activities run rampant". They would combat "violent crimes, drug-related crimes, banditry, abduction and sale of women and children, ... gangsters and hoodlums ... graft and embezzlement, bribery, tax evasion and fraud, counterfeiting , financial swindling and smuggling".

In a plea likely to fall on deaf ears among China's getters and spenders, Mr Li called for "plain living and hard struggle". He added: "We should oppose money-worship, ultra-individualism and decadent lifestyles, advocate healthy and civilised lifestyles and create a society with high ethical standards."