China walks fine line to preserve growth while fighting inflation
Updated: 2008-01-26 10:24
Deputy director Zhou Wangjun of the NDRC Pricing Department has acknowledged as much, saying that interventions would target only unreasonable price hikes. "The government has not asked and will not ask companies to run their business at a loss," he said.
"The pricing interventions only involved a small number of companies and goods and thus would not affect the market's role in setting prices for the majority of goods."
To cushion the impact, affected companies could be eligible for such benefits as preferential treatment in power and natural gas supplies and transportation services.
The government hasn't said how long these price caps and interventions would last. However, said Tang Min, the freeze "should not last too long because otherwise it would be unfair for companies and may lead to short supply. A long-term policy should be providing subsidies to the poor."
Jonathan Anderson, an economist with UBS, said he expected that price controls would be short-lived.
"We're not looking for a major impact on the Chinese economy. If they lasted all year, we would be much more concerned," he said.
Zhuang Jian, senior economist with the Asian Development Bank mission in China, said: "Price interventions, though not so popular in the rest of the world, are understandable at this particular time and will have more positive effects than negative ones."
TRIP BACK TO INFLATION
Historically, inflation is no stranger to the Chinese, but it's been a rare occurrence in recent years. The world's fourth largest, and Asia's second biggest, economy has enjoyed fast growth and low prices for nearly a decade. Prices rarely rose more than 2 percent a year during most of the early part of the new millennium.
In 2002, prices actually declined by 0.8 percent, before turning around and posting a gain of 1.2 percent in 2003. Between 2003 and 2007, economic growth was in double-digit territory, while the CPI mostly remained tame -- except in 2004, when it spiked to 3.9 percent.
Prices began to climb noticeably last year, with the monthly CPI figure hitting an 11-year-high of 6.9 percent in November, driving up the annual CPI level to 4.8 percent, the fastest in a decade. Correspondingly, public concern with inflation intensified.
To ease public concern and maintain social stability, the government has focused on the prices of a small number of widely used items and public discussion of "structural" inflation, which it said was being driven at least partly by short supplies of farm produce and rising world commodity prices.
At the same time, sweeping policy changes were put into force.
Stockpiles were released; pensions and stipends for low-income earners rose; income taxes were cut and export taxes were imposed on grain items; train fares during the Spring Festival were capped. The government also increased medical assistance, raised subsidies for school canteens and reduced tariffs for farm produce imports.
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