Tight monetary policy must not be relaxed
Updated: 2008-03-04 08:50
Under the present market economy, administrative price controls only have a short-term effect. When this ends, commodity prices bounce back to their original levels, or even higher, making it even more difficult for the government to contain.
The CPI growth in 2007 was 4.8 percent, which was not a surprisingly high figure. However, it is necessary to stress that this figure is only an average for the year. Since July last year, the CPI growth rate has been above 6 percent, never witnessed in the past decade.
Another important factor contributing to the latest round of price rises is the rapid rise in property prices and capital growth. If the property prices remain at their present levels, CPI growth will unlikely be stemmed.
The US dollar has been depreciating steadily in recent years, causing price rises in almost all commodities traded in that currency, including agricultural produce and mineral products. The price increases in the global market will soon find its way into the Chinese market.
The Chinese government also recently introduced several rules and regulations governing labor relations, and better environment protection on the part of manufacturing enterprises and mines. With these rules taking effect, manufacturing costs will increase, driving up prices of goods.
Therefore, decision-makers must realize that the price rise issue is a serious and complicated one. Substantial measures must be taken to contain further price rises.
More importantly, the tight monetary policy should be continued and not relaxed. Otherwise, more bubbles in the capital and property markets may appear, and inflation continuing to swell, endangering the long-term prosperity of the Chinese economy.
The author is a researcher with the Institute of Finance and Banking under the Chinese Academy of Social Sciences
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