National Agenda : China Frets Over Inflation : Leaders trumpet their concern but seem powerless to halt the rising prices.

BEIJING —  They were unlikely protesters--not idealistic students nor brooding intellectuals nor angry young workers, simply unhappy pensioners whose incomes were not keeping up with inflation.

The retired steel mill employees who staged a sit-in outside a factory gate in the central Chinese city of Wuhan this spring were hardly the sort of people who could bring down a government.

Perhaps for that reason, rather than face arrest, they won: The factory agreed to boost their pensions from 250 yuan (about $30) a month to a bit more than 300 yuan (about $36). But these days in China--amid an economic boom that is benefiting most people but leaving hundreds of millions of others behind--that isn’t enough to live on.

“We basically use our entire pensions on food because we can’t afford to buy anything else,” said one beneficiary of the protest, a retired steelworker named Zhang. “We can’t really live with our available money. We have a nephew who earns more, and he gives us spending money every month to help us get by.”

Five years after the People’s Liberation Army crushed pro-democracy protests fueled partly by outrage over rising prices, the specter of inflation is again at the top of China’s public concerns. Not since summer, 1988--when panic-buying of consumer items such as refrigerators and televisions swept shelves bare in cities across this nation--has the problem been so severe.

Inflation alone seems unlikely to lead to an explosion of social unrest, given the Communist Party’s continuing ability to impose police-state controls or call upon the army to crush any disturbances.

But with 90-year-old senior leader Deng Xiaoping in gradually failing health, China could, at any time, face a destabilizing succession crisis. Serious inflation would add to the uncertainties in any post-Deng power struggle.

Top leaders of China’s successor generation are trumpeting their concern about inflation but seem incapable of taking any measures to control it.

“Prices are rising fast and inflationary pressure is still too big,” Premier Li Peng admitted in a recent speech, published on the front page of the official People’s Daily. “A considerable number of state-owned enterprises are in difficulty, and at some inefficient firms the real income of workers is falling. Parts of the country are plagued by crime and social disorder. . . . The living standards of hundreds of millions of peasants has a direct impact on the entire nation’s economic development and social stability.”

Thus, controlling inflation must be the government’s “most important task . . . during the second half of this year,” Li said.

The fears of Chinese rulers have been stoked by statistics showing that annual inflation in major cities is running at 27%. Urban food prices this summer were up 32% from a year earlier, while grain prices soared 58%.

Last year, for example, half a kilogram of eggs--10 large eggs or a dozen smaller ones--sold for 2.40 yuan (28 cents) in Beijing; now they cost 3.30 yuan (39 cents). Broccoli has jumped to 3.18 yuan (37 cents) a pound from 2.27 yuan (27 cents) a pound.

Since the beginning of this year, pork, the most important meat in the Chinese diet, has jumped to 7.28 yuan (86 cents) a pound, up from 4.55 yuan (54 cents).

Concern about the social impact of price increases is chilling plans to force state-owned industries to face fiercer market competition, though squeezing greater efficiency out of poorly run factories would be a key step toward solving underlying problems. Authorities seem to be afraid that inflation and industrial restructuring make too volatile a mix.

“For a lot of workers . . . life is very very hard, especially now, when a lot of enterprises are closing down or reforming and they are laying off a lot of people,” said Zhang, the onetime steelworker who moved to Beijing from Wuhan after retiring. “I think the government should be very careful about what they do to the workers of China.”

After the bloody 1989 crackdown on the student-led Tian An Men Square protests, the government “covered it up pretty well, and they scared them” into silence, Zhang said. “But if they infuriate the workers, there will be no stopping them.”

But many others in Beijing believe that however angry people may get over price increases, there is nothing they can do. Most people’s incomes are also growing a bit faster than inflation, and consumers further benefit from availability of an ever-growing variety of goods.

In 1988, when similar rates of inflation caused a panic, China was emerging from almost four decades of stable prices. But now people are accustomed to seeing both wages and prices go up. And for ordinary people in Beijing, the key lesson of Tian An Men Square seems to be that challenging the government on anything is a dangerous exercise in futility.

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“If you try to defend your rights--in this case, consumer rights--you may be branded an ultra-leftist, an ultra-rightist, or something else extreme,” a 30-year-old tour guide said.

“Every single person in this country is under the Communist Party’s control. The Chinese people are like bricks in a wall. When you’re building it, you stack them up, one by one. If there are some that are too long or too short or misshapen, they’ll be banged into the right shape.”

Despite his bitterness and cynicism--or perhaps because of it--this man takes a long-term view about rising prices, saying:

“I’m sure inflation is a problem in every developing country in the world. Whatever problems this society has right now are natural for China.”

Zhai Huiru, 38, a teacher at a polytechnic school with a salary slightly more than 500 yuan ($59) per month, is typical of those managing to keep up.

“I’m sure most people are numb to all these price hikes, just as I am,” Zhai said. “It’s quite hard for me to make ends meet with my salary. I use it all to buy food--no clothes, no hairdos, just food.

“But I have to say that living standards now are higher than in the 1970s. All you need is money, and you can buy anything you want.”

Zhai’s way out is to take on extra jobs, which she said is how most people cope with inflation. “I also teach at night school, and sometimes edit other people’s papers,” she explained.

Some observers, noting that people in urban areas have accepted the inflation of the last year with very little open protest, wonder why the top leadership is jaw-boning about it now.

“You see (Premier) Li Peng and (Vice Premier) Zhu Rongji on television, and they’re so obsessed with this,” a Western diplomat said.

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“Why do they talk so much? If you have a problem with inflation, the central government shouldn’t talk so much about it, they should do something about it. It’s not the kind of thing you can appeal to the masses to solve. . . . I suppose they want to signal that they’re trying to do something about it.”

Some key steps that have been announced to fight inflation include imposition of temporary price controls on selected products, a ban on new government-implemented price increases for the rest of this year, and exhortations to state-run wholesalers to do a better job of purchasing pork and vegetables, with the goal of guaranteeing reasonably priced supplies to the urban areas.

But with more than half of the average person’s consumption now supplied through essentially free markets, the impact of these measures may prove negligible.

Top leaders thus seem to be “very afraid” that inability to stop inflation “may lead to social unrest,” the diplomat said.

“It led the KMT (Chiang Kai-shek’s Nationalist Party) to fall, and helped cause (the protests of) 1989. But the public--at least in the cities--has grown more accommodating. The danger is in the countryside.”

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Government talk about battling inflation may also be related to maneuvering over the post-Deng succession, the diplomat said, noting: “I think all of them are playing politics--short-term, positional politics.”

Top leaders may also be nervous because they know that, despite their continued ability to crack down on open opposition, the government faces a profound loss of public respect.

In prosperous Guangdong province, adjacent to Hong Kong, many people no longer bother to hide their contempt for the Communist Party and most of the nation’s top leaders. When a visitor mentioned to his taxi driver that early this year Li had said he aimed to hold inflation below 10%, the driver’s response was open and direct: “He’s a dirty liar.”

It is hard for outsiders to get a full picture of what is happening in the countryside. But scattered reports of peasant riots occasionally filter in from the provinces. And many Chinese have learned to read between the lines of the official media.

State-run television “shows programs about the burdens on peasants,” noted Shang, a middle-aged employee of a Chinese-foreign joint venture.

“Every time when a party leader somewhere in Shaanxi (a poor northwestern province) eats dumplings with peasants in their houses, it means something serious has happened.”

Despite the overall increased prosperity of today, some people say their living standards were, in some ways, higher during the days of Chairman Mao Tse-tung, when prices were controlled and egalitarianism was the official ideology.

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“This country has become more and more unfair,” complained Wu Li, 55, a mathematician who said he earns 400 yuan (about $47) a month.

“Those nouveau riche eat lobster and crab, while we cannot even afford high-class vegetables. I remember in the 1960s and 1970s I could eat a chicken or fish every week, but now for every meal we’re on a tight budget.”

But most people consider any talk of “the good old days” to be nonsense.

“During Mao’s days, the prices were stable,” acknowledged Liu Yumei, 60, a grandmother who lives with her son’s family.

“They never changed for 30 years. But so what? Everything was rationed. There was nothing in the stores.

“Could you imagine having meat every meal? Could you have so many kinds of vegetables to choose in the winter? People are always complaining about price rises. But no one’s living standard is truly falling.”

Victor Zatsepine of The Times’ Beijing Bureau contributed to this report.

Selected Inflation Rates

July, 1994, prices compared to July, 1993, prices: % increase

Food: 32.1% Services: 24.4% Housing: 18.7% Clothing: 17.5% Appliances: 11.4% Health Care: 11.3%

Source: China’s State Statistical Bureau