Beijing has lifted controls on food prices, the latest sign that its priority has changed from curbing inflation to defending against looming deflation amid the global economic downturn.
The National Development and Reform Commission (NDRC), the mainland’s powerful planner of the economy, said on its website that starting yesterday the caps imposed in January on a wide range of food items such as meat, grain, cooking oil and milk products would be suspended, and that companies were free to decide pricing.
“The new move indicates that inflation is not a concern for policymakers anymore,” said Xing Zhiqiang , an analyst for the China International Capital Corp. “Beijing is setting its sights more closely on how to guard against the deflationary risks.”
China froze food price increases in mid-January, when they seemed out of control. As a result, manufacturers had to apply for government approval for any substantial price increase. But food prices and overall inflation edged downward, easing worries of runaway inflation and gradually prompting it to shift its focus to propping up economic growth.
The mainland’s consumer price index rose 4 per cent in October from the same month a year ago, down from a 12-year high of 8.7 per cent in February. Food prices, which account for one-third of China’s CPI basket, rose 8.5 per cent in October, compared with 23.3 per cent in February.
“The apparently ebbing prices since the summer have actually made price controls on foodstuffs unnecessary and even meaningless as the risk of deflation creeps into China’s economy,” said Li Ruoyu , an economist with the State Information Centre, a government think-tank.
After five successive years of double-digit growth, China, the world’s fourth biggest economy, seems to be losing steam. The mainland’s economic growth for the third quarter this year was 9 per cent, compared with 10.1 per cent in the second quarter. It was the lowest quarterly growth since the second quarter of 2003.
With the financial turmoil centred on the United States rippling across the world, China started to feel the pinch when exports, a long-time indicator of China’s roaring economic growth, began to falter.
Chinese people’s unwillingness to spend money in the face of rising costs in housing and education and uncertainties in medical care, pension and other social security issues have also greatly reduced domestic consumption power. And their reaction to the world credit crunch is to tighten their purse strings even more.
The bigger picture shows that falling prices are signalling a deflationary risk in the economy.
“For the full year of 2008, we think China’s CPI will be around 6 per cent and for next year, it will be 1 per cent,” said Mr. Xing, adding that prices for non-food items would probably decrease next year.
Correspondingly, analysts are lowering their estimates of China’s economic growth for the year from generally over 9.5 per cent to around 9 per cent. Some even estimate it will fall below 8 per cent next year - a decline Beijing will do its best to stop so that there are enough jobs to maintain social stability.
The NDRC said it would continue keeping an eye on prices and work to ensure no one manipulates them.
1 comment:
Controls on Food Prices Removed
Move signals alarm over deflation risk
Woods Lee
2 December 2008
Beijing has lifted controls on food prices, the latest sign that its priority has changed from curbing inflation to defending against looming deflation amid the global economic downturn.
The National Development and Reform Commission (NDRC), the mainland’s powerful planner of the economy, said on its website that starting yesterday the caps imposed in January on a wide range of food items such as meat, grain, cooking oil and milk products would be suspended, and that companies were free to decide pricing.
“The new move indicates that inflation is not a concern for policymakers anymore,” said Xing Zhiqiang , an analyst for the China International Capital Corp. “Beijing is setting its sights more closely on how to guard against the deflationary risks.”
China froze food price increases in mid-January, when they seemed out of control. As a result, manufacturers had to apply for government approval for any substantial price increase. But food prices and overall inflation edged downward, easing worries of runaway inflation and gradually prompting it to shift its focus to propping up economic growth.
The mainland’s consumer price index rose 4 per cent in October from the same month a year ago, down from a 12-year high of 8.7 per cent in February. Food prices, which account for one-third of China’s CPI basket, rose 8.5 per cent in October, compared with 23.3 per cent in February.
“The apparently ebbing prices since the summer have actually made price controls on foodstuffs unnecessary and even meaningless as the risk of deflation creeps into China’s economy,” said Li Ruoyu , an economist with the State Information Centre, a government think-tank.
After five successive years of double-digit growth, China, the world’s fourth biggest economy, seems to be losing steam. The mainland’s economic growth for the third quarter this year was 9 per cent, compared with 10.1 per cent in the second quarter. It was the lowest quarterly growth since the second quarter of 2003.
With the financial turmoil centred on the United States rippling across the world, China started to feel the pinch when exports, a long-time indicator of China’s roaring economic growth, began to falter.
Chinese people’s unwillingness to spend money in the face of rising costs in housing and education and uncertainties in medical care, pension and other social security issues have also greatly reduced domestic consumption power. And their reaction to the world credit crunch is to tighten their purse strings even more.
The bigger picture shows that falling prices are signalling a deflationary risk in the economy.
“For the full year of 2008, we think China’s CPI will be around 6 per cent and for next year, it will be 1 per cent,” said Mr. Xing, adding that prices for non-food items would probably decrease next year.
Correspondingly, analysts are lowering their estimates of China’s economic growth for the year from generally over 9.5 per cent to around 9 per cent. Some even estimate it will fall below 8 per cent next year - a decline Beijing will do its best to stop so that there are enough jobs to maintain social stability.
The NDRC said it would continue keeping an eye on prices and work to ensure no one manipulates them.
Post a Comment