During the 1980s, China's reforms led to average annual rates of growth of 10% in agricultural and industrial output. Rural per capita real income doubled. Industry posted major gains especially in coastal areas near Hong Kong and across the strait from Taiwan, where foreign investment helped spur output of both domestic and export goods. China became self-sufficient in grain production; rural industries accounted for 23% of agricultural output, helping absorb surplus labor in the countryside. The variety of light industrial and consumer goods increased. Reforms began in the fiscal, financial, banking, price setting, and labor systems.
At the same time, however, the leadership has often experienced in its hybrid system the worst results of socialism (bureaucracy, lassitude, political corruption, disrespect of personal property) and of capitalism (windfall gains, a huge and widening gap between rich and poor, stepped-up inflation). Beijing thus has periodically backtracked, retightening central controls at intervals. At the end of 1988, in reaction to a surge of inflation caused by accelerated price reforms, the leadership introduced an austerity program.
Perhaps as a result China’s annual rate of inflation slowed to an average of 6 percent per year during the 1990–2002 period. Although consumer prices declined by 0.8 percent in 2002, they increased by 1.2 percent in 2003. China’s estimated inflation rate in 2005 was 1.8 percent.
