Op-Ed Contributors

Bigger say in price discovery

By Mei Yuxin (China Daily)
Updated: 2010-05-31 07:50

The flood of dollars in the global market has caused the prices of some dollar-priced bulk commodities to rocket, which has been aggravated by unrestrained speculation by some Western plungers.

The liquidity excess in the global market can be traced back to the relaxed monetary policies adopted by the West. The zero interest rate policy adopted by the Japanese central bank and the decrease in interest rates on as many as 13 occasions by the US Federal Reserve, between January 2001 to June 2003, have infused excess liquidity into the market.

Despite rate hikes by the two countries' financial authorities two years ago, intensive market rescue measures following the US-originated sub-prime mortgage crisis have prompted central banks in the US, EU, Japan and other major countries to inject a huge amount of liquidity into the market.

Together with low interest rates, the large-scale fund injection has directly stimulated final demand. At the same time, it has also led to an increased supply of speculative funds, which serves as the culprit in the price hikes of some bulk commodities in recent years.

Compared with some powerful transnational corporations that have long established their monopolies in the international pricing mechanism, most Chinese enterprises have failed to form an alliance with one another in their discussions with international suppliers of primary products.

Such an asymmetrical position in negotiations, or rivalry, has been instrumental in the lack of say with regard to pricing in international trade.

This unfavorable position has come about due to some historical and geographical factors.

Compared to the centuries-long monopoly established by some Western countries over the primary products market as the result of their long colonial rule over some developing countries, China is a resources-destitute nation.

Although some developing countries are also rich in resources, the exploitation, development and sale of much of their resources have been manipulated by some Western corporations under the active support of the political and military hegemony of Western powers.