“Inflationary Tango”

he spectacular performance of the Chinese economy over the last two decades or so has been only matched by the spectacular changes in the country’s economic policy. From a centrally planned economy, China has turned into an economy in which markets have become a powerful instrument of resource allocation. Even though the “hand ” of the bureaucrat continues to be still very “visible ” in many spheres of economic policy, the “invisible hand ” of markets for labour, capital and foreign exchange has been clearly playing an important role. From a country virtually completely closed to foreigners, China has become by now one of the biggest markets for foreign investment, an attractive destination for foreign tourists and businessmen and a country which has made a powerful mark on the ongoing process of globalisation. As a WTO Member, China is already treated as a “market economy ” which was, after all, one of the main strategic objectives of the Chinese govern-ment in pursuing its interest in the WTO Membership. However, the Chinese economy is still by no means a “laissez-faire” market economy. What continues to make the Chinese economy different from a bona fide market economy is the presence of state enterprises, which were the backbone of the centrally planned system before the introduction of reforms and which continue to play an important economic role in the economy even today. While the share of state enterprises ’ output in GDP has declined, it still represents about 30 percent of GDP. But even more significant is the engagement o