and participation increased. In 1988, the market began to function just like the “exchange market” between the RMB and USdollar as all the enterprises which have the retention quotas were approved to take part in the system and the agency weakened the control of the FEACs. The official rate also remained.

In 1994, these systems were changed. From the beginning of 1994, China introduced the exchange rate based on the inter-bank exchange rate. In April 1994, the foreign exchange market system was established. Foreign exchange certificate (FEC), introduced in 1980 to enforce foreign currency control, was abolished.

The evaluation of any new system is difficult, but to get a seat in GATT, China has to abolish its dual-exchange rate.

3 Evaluation of the Reform and Prospect to the Future

## 3 -1 Deepening the Reform and Gaining More Macro Control Measures

The “gradual approach” characterizes China’s economic reform. $ ^{93} $ From the outlook, China’s reform has generally contributed to a good macroeconomic performance, especially compared with performances of the former Soviet Union and Eastern European countries, which took the prescription called “shock therapy.” Experiments with new measures before introducing a new system always make the effects and impacts of the policies clearer and milder. China’s large territory is suitable for “local experiment,” and its large economy needs some “tests” before widening any particular policy to the entire nation. $ ^{94} $ If the government finds some serious failure or defect in the new system, China cancels the reform, like they did in the price field from 1988 to 1989. For China, “social stability” has the most important priority. $ ^{95} $

Recently, China has suffered from high inflation caused by overheated economic growth and the poverty of macro management measures. $ ^{96} $ As China is on the way to a fully-equipped market system, even now China does not have full indirect macro control measures to the economy. Because of this handicapped situation, China has to combine the old command-oriented administrative measures to control the economy. $ ^{97} $ In many cases, China also has to deepen and proceed its reforms to get control of the newer situation. For example, China could not slow its economy whenever they wanted to slow down the speed. As China lacks sufficient macroeconomic control measures of fiscal, monetary, and other policies, it is not easy for China to slow the economy down. It tends to overkill economic growth.

“Deepen and advance the reforms,” is considered the only way to improve the present situation.

## 3 -2 “Socialist Market Economy”

“Socialist market economy” looks like something fresh. Certainly, it is a new term China invented. $ ^{98} $ This means the perfect separation between political and economic activities. China openly declared that its socialist governance system is equivalent to a dictatorship by the Communist Party. $ ^{99} $ From the political point of view, the socialist system means rule by the Communist Party.

In economic fields like macro and micro control, China looks like a pragmatist. Just like Deng Xiaoping's metaphor of a black cat and a white cat, in China's understanding, any