China walks fine line to keep growth with low inflation

(Xinhua)
Updated: 2008-01-25 20:14

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 February 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 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."

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