Price hikes of farm produce leads to biggest CPI increase in 6 years. Hoping to prevent massive price hikes nationwide, the central government will curb the rising cost of basic utilities.

The freeze means residents will not see any immediate hikes in the cost of water and electricity.

An official from the National Development and Reform Commission, who wanted to be known only by his surname Zhang, told China Daily that the no-hike policy will be effective for at least the first quarter of 2004.

What happens after that is still up in the air.

Whether we increase the prices of daily necessities or not will depend on China's whole economic situation, he said.

In November 2003, the consumer price index (CPI), a widely used economic indicator, saw its sharpest hike in more than six years.

As the nation's economy opens up, costs for more goods and services become more dependent on market forces. Only essential necessities, such as gas and crude oil, are still priced and supervised by the government.

By the end of last year many expected the government to increase the prices of water, gas and electricity to reduce waste and curb growing shortages.

Although it did not go through with planned price hikes, in late December, the commission had announced a jump in the cost of coal-produced electricity. As of January 1, prices would jump by 0.7 fen (0.08 US cents) per kilowatt hour. The government had earlier suggested a price hike of up to 12 yuan (US$1.44) per ton for coal used for power generation.

At the same time, some local governments have been considering boosting water prices.

But Zhang said all the price hikes will be banned and the commission's focus will be centered on keeping them stable.

Experts believe the new policy is aimed at preventing nationwide inflation.

China's consumer prices were 3 per cent higher in November 2003 than a year earlier.

The hike was driven by surging food prices, the National Bureau of Statistics said.

November's jump in the CPI was the highest monthly hike since April 1997, when CPI rose 3.2 per cent year-on-year.

"The trend is continuing. If prices for daily necessities, including water and electricity have been increased, the trend will speed up,'' said Lin Yueqin, researcher with Chinese Academy of Social Sciences. "The consumers' buying enthusiasm will be hampered in the long run.''

Statistics also show that in November, food prices rose a year-on-year 8.1 per cent. Grain prices surged 10.8 per cent last month while fresh vegetable prices jumped 19.4 per cent and edible oil prices soared 27.2 per cent.

At the same time, price hikes have affected rural residents more than people living in cities.

Bai Cheng, a 45-year-old shopkeeper in a mountainous town of Sichuan Province has seen the higher costs hurt his business.

"Many people just look around and ask about prices but don't buy even though the Lunar New Year is drawing near,'' said Bai.

In previous years, the month before the festival is traditionally full of shoppers as migrant workers returned home with money.

That's not the case this year. What's more, Bai fears a hike in the cost of water and electricity would exacerbate the situation.

"If the government raise the prices of water and electricity, which will increase the cost of other commodities in turn, the situation will become even worse,'' said Bai.

The government will not take a laissez-faire attitude toward the trend.

National Development and Reform Commission Vice-Minister Li Shenglin said China has established a nationwide rural price supervision system at the county, township and village levels.

The commission has pledged to keep an eye on prices of products for agricultural use, such as fertilizer, pesticide and diesel oil, as well as prices of services like cattle butchering, to prevent overcharging.

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