Is macroeconomic stability the Achilles heel of the Chinese economy? Recurrent bouts of inflationary disorder lead some observers to worry that the Chinese government is unable to control the economy. Macroeconomic difficulties show up in a pattern of repeated boom and bust cycles, in which each boom is accompanied by an acute inflationary phase and significant disruption. Moreover, since the reform era began, the peak annual inflation rate of each successive cycle has been higher than that of the preceding one. The most recent attempts to cool off the economy have only led to additional questions. An austerity policy was decreed at the end of June 1993, yet inflation actually accelerated in 1994, and it was not until mid-1995 that it dropped to the levels of mid-1993. The Chinese government was engaged in a quest for an economic “soft landing” for two years without a net reduction in the inflation rate!
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