Chapter 4: 1978–1989: Prices, Trade, and Rural–Urban Interactions

Reforms in the 1980s accomplished institutional changes that bore even more plentiful reform fruit in the 1990s. However, they also set in play unavoidable tensions. By 1984–1986, price reforms had disturbed rural– urban terms of trade and caused domestic supply–demand imbalances that led to a severe crisis for China’s balance of payments and foreign exchange reserves. This crisis, and additional price reforms in 1988, generated inflation so harsh that it undermined urban living standards. The government’s response failed to resolve the situation peacefully, in part because senior leaders at the highest levels disagreed over the appropriate nature and pace of economic and political reform. A critical issue was reforms of Maoistera prices, which lasted more than two decades.