Getting Priorities Straight: Controlling Prices
In the second quarter economic growth moderated slightly in China, yet prices kept rising. The lingering tightening climate has impacted China's imports and the outlook for industrial growth, while exports and the trade surplus have reached new heights. The priorities for China's economy thus remain the same: control prices at all costs.
In the second quarter of 2011, China's economy grew at a GDP growth rate of 9.5 percent. This is only slightly down from 9.7 percent in the first quarter, and 9.8 percent in the fourth quarter of 2010. It is actually a higher growth rate than analysts were expecting, considering the current tightening climate in China to stabilize prices.
China's central bank has raised interest rates five times and bank reserve requirements nine times since October last year. Yet inflation has continued to rise, and in June CPI (Customer Price Index) climbed further to 6.4 percent (see Chart 1), a three-year high. Rising food prices were again the main factor driving inflation. In June, food prices increased by 14.4 percent; pork prices in particular increased by a full 57 percent year-on-year, prompting the government to promise measures to support the live pig industry, including providing subsidies to farmers. Non-food prices, on the other hand, increased by only 3 percent.
The utter seriousness with which China's government is viewing price fluctuations at the moment was illustrated in mid-July in a set of rules on price controls issued by the National Development and Reform Commission. The new rules laid down fines of up to 5 million yuan ($769,231) for companies found to be colluding in jacking up prices or failing to implement emergency price control measures.
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