China walks fine line to keep growth with low inflation
Updated: 2008-01-25 20:14
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.
CURE FOR COMPLICATIONS
Containing inflation has been listed as the top priority of China's macro-economic policy this year. But analysts are divided over the likely course of inflation, with some expecting it to subside during the summer as supply constraints ease and others foreseeing a long struggle.
Likening inflation to a "complication" triggered by excess liquidity around the world and domestic economic-restructuring policies that are also changing (and raising) the cost structure, managing director Zhang Ning at UBS Global Asset Management said that China needed a cocktail of therapies.
"Though unable to curb inflation, the administrative interventions will slow it down and prevent it from becoming malignant," he said.
His list of therapies would include a stronger yuan to accompany what he expects will be lower capital inflows, as well as incentives for capital outflows.
By accelerating the appreciation of the yuan, China could ward off at least some imported inflation, curb its rocketing trade surplus to ease the inflationary pressure exerted by massive foreign exchange reserves, and cut demand for oil, metals and grain, curbing domestic price hikes, Zhang explained.
|
|
|
||
|
||
|
|
|
|