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Strategies & Market Trends : China Warehouse- More Than Crockery -- Ignore unavailable to you. Want to Upgrade?

To: RealMuLan who wrote (3187)	5/12/2004 3:10:01 PM
From: RealMuLan	Read Replies (1) \| Respond to of 6370

China authorizes price cap in bid to curb inflation Price restrictions to be implemented mainly for water, electricity, gas, health care sectors 2004-05-11 / Agence France-Presse / In a return to the days of command planning, China yesterday ordered provincial governments to cap price increases in a bid to rein in inflationary pressures and slow down its runaway economy. Local officials will have to freeze price rises on a range of goods and services for three months if consumer prices in their regions increase more than one percent on a monthly basis or four percent annually for three consecutive months, the State Development and Reform Commission said on its website. In areas where the Consumer Price Index does not breach the SDRC's ceiling, authorities have been told to control the timing of any price increases and make sure there are no sudden and sharp fluctuations. Those who violate the mandate will be punished, the SDRC said. The price restrictions are mainly aimed at service areas of the economy, such as suppliers of water, electricity, gas and healthcare - segments where higher charges would hurt lower income groups. "It reflects the concern of policy makers about inflation, basically in the low income segments of the population, where increases could generate social instability," said Deutsche Bank economist Ma Jun. China's roaring economy has showed few signs of braking, expanding 9.7 percent last quarter after 9.9 percent in the three months to December. To blame is soaring fixed-asset investment, which rose 43 percent in the first quarter, fuelling inflationary pressures in sectors such steel and construction. Cooling measures aimed at these overheated sectors have so far failed to temper the world's sixth largest economy, which surged 9.1 percent last year, and has led to mounting fears of an investment bubble as prices march higher. In the frankest admission to date by China's leaders, Premier Wen Jiabao acknowledged this month that the economy was at risk of overheating but insisted his government was taking action to ensure a soft landing. China has maintained an average annual growth rate of 9.4 percent over the past 25 years as it has moved away from the dictates of Marxist central planning to a capitalist market economy. In hopes of dampening the boom, the State Council, China's top lawmaking body, last month ordered a halt to new steel, aluminum, cement and property projects, adding to lending restrictions already in place. Despite the steps, China's CPI has continued to gain pace after months of deflation, rising 2.8 percent in the first quarter. It was up three percent in March alone on the back of strong growth in food and raw material prices. While an increase in food and grain prices, which jumped 7.9 percent and 30 respectively year-on-year in March, does not worry many economists, the pickup in overall CPI does. "In the short-term, inflation is the key risk," said Huang Yiping, an economist at Citigroup. China's hunger for greater volumes of raw materials to maintain its economy is driving much of the inflation, Huang said, even though most mainland producers still suffer from weak pricing power. This, to some extent, alleviates worries of inflation spiralling out of control across the economic spectrum yet also limits the policy tools available to the government. The upturn in inflation has led many economists to speculate that an interest rate rise is on the cards. While that option is still available, policy makers do not want to slow economic activity across the board, analysts said. "It is not necessarily the ideal option," Huang said, adding that a rate hike could exacerbate appreciation pressures on the Chinese currency. etaiwannews.com