Correct, timely government intervention
By Liu Shinan (China Daily)Updated: 2007-07-11 07:07
The government of Lanzhou could not have anticipated that its decision last week to cap the price of beef noodle, a regular breakfast of the Northwest China city's residents, would have yielded a by-product - food for thought.
After the local media reported that the price administration
of the Lanzhou municipal government ruled that the price of a regular bowl of
the noodle should not exceed 2.50 yuan (32 cents), commentators of traditional
and modern media outlets across the country became excited. Criticizing the
local government, they all used the same accusation: "Violation of market
rules".
Though expressed in different ways, they all based their arguments on a common understanding, the rise and fall of the price of a commodity should be left to market forces, which exerts influence according to the fluctuation of supply and demand. If the price exceeds a certain level, consumers would shun the commodity for alternatives; the dwindled demand would then force the price to return to a reasonable level. This is one of the core theories of classical economics.
However, a complete or perfect model of market mechanism is only an ideal concept, which never exits in reality. Real market conditions are much more complicated. Non-market forces, such as laws and regulations, are needed to curb or prevent artificial moves that lead to unfair competition or a distorted supply and demand. Administrative measures are also needed to address non-commercial concerns, such as protection of the environment and energy sources.
In the beef noodle case, the government move was targeted at one of the market irregularities - the city's beef noodle restaurants' attempt to monopolize the price.
As if having foreseen what media critics would say, the price bureau of the Lanzhou municipal government made a careful investigation on the production cost of the beef noodle and the retailers' move to raise the price. The bureau said that even with the rise in the cost of raw materials such as flour, beef, oil and pepper being taken into account, the 20 percent rise in the price of each bowl "far exceeds the price rise of the raw materials".
Food prices, in the case of pork, beef, eggs and rice, have soared
dramatically in recent months. It is understandable restaurant owners would
raise their prices to offset the loss. In reality, however, the price rise of
raw materials is all too often used as an excuse by these people to garner more
profits by excessively raising the prices of their products. 
Some people may argue that the increase in the beef noodle's price will go toward workers' wages who are also feeling the effects of rising prices. But I dare to assume that not a single owner has or will increase the wages of his or her employees.
And the Lanzhou authorities have pointed out that the city's beef noodle restaurant owners raised their prices simultaneously, indicating a unanimous move in price fixing.
I admit market irregularities should be dealt by laws rather than by government instructions and that improvement of the market environment should be guaranteed by legislation rather than by administrative interference. In today's China, however, where market mechanism is in the process of becoming mature and economy-related legislation is yet to be completed, certain government interference is needed for maintaining fairness.
Beef noodle is the staple breakfast for 80 percent of Lanzhou residents. A rise of 50 fen for each bowl is quite a burden for ordinary residents, whose monthly income per household ranges from 500 yuan to 5,000 yuan.
Email: liushinan@chinadaily.com.cn
(China Daily 07/11/2007 page10)
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