By Xinhua writers Cheng Yunjie, Wu Zhi
BEIJING, Jan. 25 (Xinhua) -- Many factors are driving up inflation in China, some of them being felt throughout the world, and the government is turning to various methods to deal with the situation.
Some of these tools, like monetary tightening, are widely used. Others, like price caps and "moral suasion" in the form of warnings to industries, are viewed with skepticism in some economic quarters.
Indeed, they're not a common policy in post-reform China. Price caps have been imposed only twice in the past 12 years: in 1996, when the consumer price index (CPI) surged to a record high of 8.3percent and in 2003, when China was affected by the SARS (severe acute respiratory syndrome) epidemic.
Analysts both within and outside China say that efforts to keep prices down, including by less conventional methods such as price caps on a small number of items, could be useful temporarily, but what's most important is what comes next.
Renewed efforts this week to control fertilizer prices were an example of central government preemptive actions that stop short of an order -- so-called moral suasion. On Tuesday, the top economic planning agency, the National Development and Reform Commission (NDRC), gathered executives of 30-strong nitrogenous fertilizer makers that control more than half of the country's supply.
At a meeting in Beijing, the NDRC cautioned the manufacturers against disguised price hikes or price rigging and said there would be penalties for such actions. The agency also said it might "overhaul" prices during the spring planting season two months from now. Prices of agricultural inputs have already risen sharply and could limit farm production, which would mean higher downstream prices later on in the year.
Other industries are under tighter scrutiny. In mid-January, 12major producers and retailers of daily consumer goods such as edible oil, dairy products and instant noodles were told they would have to seek official approval for prices hikes of certain percentages within certain periods.
Analysts said that such 'administrative interventions' and a number of outright price caps could give the country a cushion against inflation, which has only become an issue of public concern in roughly the past year.
In the case of the consumer goods companies, Tang Min, vice-secretary general of the China Development Research Foundation, said freezes were "necessary" to avoid profiteering, hoarding and other activities that could drive up the inflation indices during the shopping run-up to the Lunar New Year, which begins on Feb. 7.
And such actions do appear to get results, at least in the short term. An NDRC report showed that a previous clampdown had reduced liquefied petroleum gas (LPG) retail prices by 19 percent in major Chinese cities as of last week.
These actions could affect company profits, of course, and moves such as the talks with fertilizer makers get a quick reaction in the market. The day after the meeting, the mainland yuan-denominated A-share stock market was jolted, with agro-industrial companies especially hurt by investors' fears over the companies' profits.
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 insetting 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.
