Li sets sights on higher growth and drastic cuts

PEKING - In an upbeat assessment of China's economic reforms, the Prime Minister, Li Peng, yesterday raised the targets for growth but also dwelt on the huge changes that will be necessary in the next stage of reform, writes Teresa Poole. He launched a drastic streamlining of the country's civil service and said government employees at all levels would be cut by about a quarter.

By bowing to pressure from reformists - and particularly from China's paramount leader, Deng Xiaoping - to revise upwards the economic growth targets, Mr Li has probably ensured himself another five-year term as prime minister when the new line-up is announced in two weeks' time. But his speech to the opening session of the Eighth National People's Congress, China's parliament, also stressed the problems facing the government, including a 'constant threat of inflation', energy and raw-material shortages, corruption, a tax system that did not work, and the need to establish a social security system.

The huge changes in China since market reforms and the open-door policy were introduced in the late 1970s now call for a far-reaching overhaul in the way the economy is run.

Since Mr Deng's trip to the south of China a year ago, the reformists have had the upper hand over the hardliners in the argument about how fast the economy should grow. A year ago, Mr Li's political future started to look in doubt after he came down on the side of the conservatives and opted for a 6 per cent average growth target for the 1991-95 Five-Year Plan. Yesterday the Prime Minister said that 'necessary adjustments' had raised this to 8 or 9 per cent.

Moreover, in setting an 8 per cent target for 1993, Mr Li admitted this left room for 'unforeseen circumstances; that is, the figure may be exceeded'. Last year the economy boomed by 12.8 per cent. He also appeared to give an unfettered go-ahead for China's fast-growing coastal regions and Special Economic Zones to move as fast as they wished: 'Where conditions permit, a higher rate can and should be achieved,' he said.

The possible social problems that could result given the growing regional and local disparities in wealth were not addressed. 'We must uphold the principle of allowing some areas and individuals to grow rich first through hard and honest work, and we must continue to combat egalitarianism,' he said.

The arguments within the Communist Party leadership over possible over-heating, and in particular whether the inflation rate is danger of heading back towards levels seen in the late 1980s, were not discussed. But the Prime Minister did emphasise the structural changes that will be needed in the workplace as the planned economy gives way to the 'new invention' of the socialist market economy. The labour market should be free, contracts introduced, and pay linked to performance, said Mr Li.

Most striking were the planned reforms of the government bureaucracy. Dismantling China's cradle-to-grave employment and social systems - the so-called 'iron rice bowl' - is now the most difficult task facing the economic reformers.

China is already struggling to deal with its hugely over-manned loss-making industrial state enterprises and the challenge of finding alternative private-sector employment for redundant staff when factories are told they have to start making profits. The same problems have now arisen in the overstaffed and inefficient government ministries, whose workload has shrunk as the planned part of the economy has decreased in importance.

Mr Li announced plans to reduce the size of ministries and cut the number of administrative offices under the State Council. Operations that can be privatised will be spun off as companies, leaving a leaner administrative civil service. The 25 per cent reduction in jobs will affect millions of government workers who, according to Mr Li, will have to be retrained and transferred to areas in need of workers - such as tax collection and public security.

(Photograph omitted)