China unlikely to suffer serious inflation
(Xinhua)
Updated: 2004-04-15 16:18

Following consecutive fast economic growth and fast investment in some industries, China is facing inflationary pressures. Analysts say China has encountered mild inflation but it will not develop into a serious problem.

The National Statistics Bureau (NSB) said the economic growth rate in the first quarter this year rose to 9.7 percent. Consumer goods prices rose 2.8 percent in the first quarter of 2004, following a rise of 3.2 percent last year. In the period, the investment in fixed assets increased by 43 percent, much higher than the 26.7 percent in 2003.

China has encountered mild inflation and fast growth of investment has led to serious shortages in energy and resources, said Qiu Xiaohua, deputy director of NSB.

Statistics show the power use in the first quarter rose by 16.4 percent over the same period of last year and 24 provincial power networks took measures to restrict the use of electricity in face of power shortages. In the first two months, national coal production hit a record high for the period. However, coal reserves kept dropping.

The pressures were rooted in the fast growth of some industries and some regions, said Jing Xuecheng, researcher with the People's Bank.

Steel, electrolytic aluminum and cement industries are controlled by the government. However, since the beginning of this year, the investment in the three industries increased greatly. Jing Xuecheng predicted that production of the three industries would be far more than the market requires.

However, analysts say that the overheated investment and rising prices would not lead to the serious inflation that happened in China in the 1980s and 1990s.

The present growth was still on the right track, which was based on market adjustment, said Zhang Liqun, with the Development and Research Center of the State Council.

As the market plays a better adjustment role now, it is likely China will realize fast growth and low prices at the same time.

The fast industrial growth in the first quarter is partly caused by climate factors, according to analysts. Last winter was very warm and many projects did not stop as usual during the season. Also, migrant workers returned to work very early after the Spring Festival holidays.

Moreover, the price rises of consumer goods was caused by the price rise of grain, which was a normal recovery of the lowered grain price in the past years, said Qiu Xiaohua.

China's capacity for grain production has stayed as high as 1,000 billion kg a year since 1995. More grain supply had lead to drops in the price, said Qiu.

As the country's economy has turned from producer-oriented market to consumer-oriented market, manufacturers in China face heavy pressure to lower their prices to win in the competitive market, especially industries of TV production, textiles and auto manufacturing.

In recent years, China has started a series of important projects including water diversion from the south to the north, the Three Gorges Project and railway building connecting west China's Qinghai Province with the Tibet Autonomous Region.

These projects all required big investment, said Qiu.

China has entered the stage of accelerated modernization and urbanization, which meant more infrastructure development and more investment. Besides, more and more international companies were coming to China, which also led to fast growth in investment, said the official.

However, as China has not set up a mature mechanism for investment restriction, the investors do not have a sound sense of security when they make the investment. Meanwhile, local governments' blind pursuit of GDP (gross domestic products) caused overheated investment in some regions.

Experts agree that China is at a crucial moment of economic development and proper macro control is of special significance now.

Since the beginning of this year, the central government has made a series of policies and measures to promote agriculture and grain production.

The agriculture was getting better and the price of grain would be stable this year, said Qiu.

The State Council held an executive meeting on April 9 to highlight the importance of macro economic control in a bid to slow the fast-growing fixed asset investment and avoid serious inflation.

On April 11, the central People's Bank of China announced a new hike in mandatory bank reserve requirements to harness the country's accelerating credit growth and cool off inflationary pressures.

If the adjustment measures for macro control were effective, China could avoid serious inflation and big swings in the economy, said experts.

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