“Prices have gone up a lot,” Mr. Wang said at a vegetable market Friday. “It’s a very bad thing to have prices go up and down. Unstable prices make people nervous and make society unstable. In this sense, our generation even has some nostalgia for Mao’s era.”
This is the predicament China finds itself in today: Fast growth has fired up the country’s economic engines, but it has also led to stubbornly high inflation, which threatens to overheat the economy and undermine the long-running boom that the country has experienced.
The latest evidence of this came Friday when China said its economy had grown 9.7 percent in the first quarter of this year, certainly the strongest performance among the world’s biggest economies. But the government also said that in March the consumer price index had risen 5.4 percent from the level of a year earlier, the sharpest increase in 32 months.
Analysts were not surprised by the figures, but some experts say they believe they may understate the real rate of growth and inflationary pressure. Bank lending, for instance, picked up strongly last month, and food, energy and raw material prices have risen sharply this year. In March alone, the government said, food prices rose 11.7 percent.
To prevent overheating, Beijing is trying to moderate growth and rein in inflation. During the past six months, the government has tightened restrictions on bank lending, raised interest rates, increased agricultural subsidies and even prevented Chinese companies from raising consumer prices.
Analysts, however, say the results have been mixed. Growth has begun to moderate from the torrid pace of 10 percent annual growth last year, but inflationary pressure has not abated; in fact, it has strengthened. Some analysts say inflation may not peak until June.
Although the government has promised to tame the property market, housing prices continue to climb, and much of this country’s growth continues to be fueled by real estate projects and government investment in infrastructure.
In the first quarter of this year, fixed asset investment, a broad measure of building activity, jumped 25 percent from the level of a year ago and real estate investment soared 37 percent, the government said Friday.
Gasoline prices have also jumped sharply, in line with global oil prices. Gasoline prices in China have risen from about $3.82 a gallon, or $1 a liter, in 2009 to about $4.50 a gallon today. Fast food chains have raised prices, and during just the past year the price of fruit has jumped more than 31 percent.
Export prices are also rising because of higher commodity, raw material and labor costs. And since China is the world’s biggest exporter, what happens in its coastal factories could eventually have a major effect on prices in other parts of the world.
Indeed, in the country’s biggest export zones, factory bosses regularly complain about worker shortages and higher labor costs.
The government has encouraged higher wages in the hopes of reducing the big income gap between the rich and the poor, and the urban and rural. But that is driving up the costs of production.
Many analysts say the government is going to have to do more to tame inflation.
“Despite the most aggressive period of tightening in years, the government cannot seem to slow the economy down,” Alistair Thornton, an analyst at IHS Global Insight, wrote in a research report Friday. “With inflation expectations still running high and prices at disconcerting levels, the government will need to press on with its tightening schedule.”
China’s current boom got under way in early 2009, during the global financial crisis, when Beijing moved aggressively to increase growth with a $4 trillion government stimulus package and record lending by state-run banks.
A loose monetary policy and big investments in local government projects revived powerful economic growth that analysts say quickly sent land, housing and food prices soaring.
As early as 2009, however, there were already concerns about the health of Chinese growth, largely because of worries about high property prices, heavy bank lending and overly aggressive investing by local governments, many of which had been amassing huge debts.
Article source: http://www.nytimes.com/2011/04/16/business/global/16yuan.html?partner=rss&emc=rss
Speak Your Mind
You must be logged in to post a comment.