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Change growth path to cage inflation tiger
Source: Xinhua |
January 4, 2012, Wednesday
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Print Edition
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WU Shu earns around 6,000 yuan (US$949) a month and doesn't have much left over after paying rent, buying food and getting clothing. Despite price drops in recent months, he hopes prices will drop more.
Wu works in a Beijing-based information technology firm, and quite a few of his colleagues have moved from downtown to the city's suburbs to cut rent costs.
According to a blue book published by the Chinese Academy of Social Sciences (CASS), 70 percent of the surveyed Chinese urban and rural residents said they felt the pressure of rising prices has affected their lives over the past year.
The CPI (Consumer Price Index) eased to 4.2 percent in November from last year's peak of 6.5 percent in July. It hit 5.5 percent year-on-year during the January-November period, well above the government's full-year target of 4 percent.
"The difficulties in taming inflation will largely come from external situations, which are uncertain and uncontrollable," said Peng Xingyun, a researcher at the Institute of Finance and Banking under the CASS.
The loose monetary policies adopted by developed economies, the debt crises in the EU and the United States, as well as rising global commodity prices have pushed up imported inflation for China and put the country's macro control in an adverse environment, Peng said.
The US Federal Reserve has maintained near-zero interest rates for three years and promised to keep the levels at least through mid-2013, while the European Central Bank on December 9 lowered its key interest rate to a record 1 percent following the 25-basis-point drop last month.
Meanwhile, domestic factors, including rising labor costs caused by demographic transition, higher resource prices due to resource price reforms and reduced land areas as a result of rapid urbanization, will continue to work on the market and push up consumer price levels in the mid- to long-term, said Lian Ping, chief economist at the Bank of Communications.
Policy loosening
While projecting CPI in 2012 between 3 percent and 3.5 percent, Lian said inflation will not be a primary issue for the nation's macro economy in 2012, but warned that a large-scale policy loosening may cause prices to bounce back.
Zuo Xiaolei, chief economist at Galaxy Securities, echoed Lian's views, saying that "if the ongoing drops in prices are seen largely as results of government control efforts (rather than the market's regulation), these efforts should not be relaxed in 2012."
China made controlling prices a top priority in 2011 and implemented a series of measures to address the issue, including tightening monetary policy, cracking down on speculation, increasing food supplies and reducing circulation costs.
But it will be a delicate job for the world's second-largest economy to stabilize growth while avoiding retriggering inflation.
Due to government tightening efforts and weakening external demand, China's GDP growth slowed to 9.1 percent in the third quarter last year from 9.5 percent in the second and 9.7 percent in the third quarters.
"China's economy is like an auto that runs at a high speed but tries to make a turn. It will need multilateral coordination, including stepping off the accelerator, turning the steering wheel and even braking occasionally," said Wang Dan, a researcher at the Development Research Center of Shanghai's municipal government.
The government's price controls can only hold the inflation tiger in a cage temporarily. What's needed to tame the beast is a major growth model transformation, although reducing the country's dependence on investment and exports is hard in the short run, Wang said.
Wu works in a Beijing-based information technology firm, and quite a few of his colleagues have moved from downtown to the city's suburbs to cut rent costs.
According to a blue book published by the Chinese Academy of Social Sciences (CASS), 70 percent of the surveyed Chinese urban and rural residents said they felt the pressure of rising prices has affected their lives over the past year.
The CPI (Consumer Price Index) eased to 4.2 percent in November from last year's peak of 6.5 percent in July. It hit 5.5 percent year-on-year during the January-November period, well above the government's full-year target of 4 percent.
"The difficulties in taming inflation will largely come from external situations, which are uncertain and uncontrollable," said Peng Xingyun, a researcher at the Institute of Finance and Banking under the CASS.
The loose monetary policies adopted by developed economies, the debt crises in the EU and the United States, as well as rising global commodity prices have pushed up imported inflation for China and put the country's macro control in an adverse environment, Peng said.
The US Federal Reserve has maintained near-zero interest rates for three years and promised to keep the levels at least through mid-2013, while the European Central Bank on December 9 lowered its key interest rate to a record 1 percent following the 25-basis-point drop last month.
Meanwhile, domestic factors, including rising labor costs caused by demographic transition, higher resource prices due to resource price reforms and reduced land areas as a result of rapid urbanization, will continue to work on the market and push up consumer price levels in the mid- to long-term, said Lian Ping, chief economist at the Bank of Communications.
Policy loosening
While projecting CPI in 2012 between 3 percent and 3.5 percent, Lian said inflation will not be a primary issue for the nation's macro economy in 2012, but warned that a large-scale policy loosening may cause prices to bounce back.
Zuo Xiaolei, chief economist at Galaxy Securities, echoed Lian's views, saying that "if the ongoing drops in prices are seen largely as results of government control efforts (rather than the market's regulation), these efforts should not be relaxed in 2012."
China made controlling prices a top priority in 2011 and implemented a series of measures to address the issue, including tightening monetary policy, cracking down on speculation, increasing food supplies and reducing circulation costs.
But it will be a delicate job for the world's second-largest economy to stabilize growth while avoiding retriggering inflation.
Due to government tightening efforts and weakening external demand, China's GDP growth slowed to 9.1 percent in the third quarter last year from 9.5 percent in the second and 9.7 percent in the third quarters.
"China's economy is like an auto that runs at a high speed but tries to make a turn. It will need multilateral coordination, including stepping off the accelerator, turning the steering wheel and even braking occasionally," said Wang Dan, a researcher at the Development Research Center of Shanghai's municipal government.
The government's price controls can only hold the inflation tiger in a cage temporarily. What's needed to tame the beast is a major growth model transformation, although reducing the country's dependence on investment and exports is hard in the short run, Wang said.
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