May 19, 1988

The central theme of both the Thirteenth National Congress of the Chinese Communist Party and the First Plenary Session of the Seventh National People's Congress [March 25-April 13, 1988] was that we must further emancipate our minds and liberate the productive forces.

We cannot speed up the reform without rationalizing prices. The problem of prices has remained unsolved for many years, during which the state set all the prices. For example, for a long time the purchasing prices of grain and non-staple foods were too low. Although we raised them several times in the past few years, they were still too low. In the cities, however, we could not raise the selling prices beyond a certain point. This led to a disparity between the purchasing and selling prices, so the state had to make up the difference. This is contrary to the law of value. On the one hand, we cannot arouse the enthusiasm of the peasants for production, and on the other hand the state bears a heavy burden -- that is, every year it must use tens of billions of yuan for subsidies. Consequently, the state doesn't have enough money for economic development, let alone for educational, scientific and cultural undertakings. So if we want to lighten our burden and move forward, we have to solve the price problem.

Recently we decided to take the first step and to lift controls over the prices of four kinds of non-staple foods: meat, eggs, vegetables and sugar. In ancient China there was a story about Guangong [a famous third-century warrior of the Shu Han Kingdom], who fought his way through five passes and killed six enemy generals. We may have more "passes" to go through and more "enemy generals" to behead. It is hard for us to break through each pass, because it involves great risks. As soon as we lifted price controls on non-staple foods, there was a rush of panic buying. Everybody is talking about prices, and there are a lot of complaints. However, I think the masses understand the decision of the Central Committee and the State Council and believe it was correct. We cannot yet say with certainty that we can make our way through this pass, but we hope we can. This means that when we take each step, we should work hard, be daring but act prudently. We should also review our experience frequently and, when we find problems, make adjustments in light of the conditions. However, we have no choice but to carry out price reform, and we must do so despite all risks and difficulties. We should make it clear to the Party membership and the people that the reform is a hard task, that there are no perfect policies or methods, that we are dealing with new problems and that we have to learn from experience.

We say that practice is the sole criterion for testing truth. Practice will prove whether it is right for us to lift price controls and accelerate the reform. Some of our measures may go well while others may not. Fortunately, over the past ten years China has made gratifying progress in economic development, the standard of living has risen and the people can tolerate some price rises. I always tell my comrades not to be afraid of risks but to be daring. We shall get nowhere if we are plagued by fears.

The Chinese economy will not grow too slowly. Although we are having difficulties, the growth rate for 1988 may still exceed 10 per cent. Every day we have to brave winds and waves, but I am convinced that we can reach the goal of quadrupling the GNP. That is the present situation and those are our plans.

(Excerpt from a talk with a military delegation from the Democratic People's Republic of Korea, headed by O Jin U, Minister of the Korean People's Armed Forces.)

(From Selected Works of Deng Xiaoping, Volume III <1982-1992>)