Op-Ed Contributors

Bigger say in price discovery

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

China's primary products imports face the risk of rising prices in the context of growing global inflation, partly as a result of excessive liquidity in the global market.

To effectively decrease its cost of imports, the country should not just focus on the development of its futures market. Efforts are also needed to promote macroeconomic policy coordination in the international arena to curb excess liquidity, which is the main reason for soaring commodity prices.

At a time when global inflation remains inevitable, China must not focus its efforts on seeking low prices for its imported primary products, as it will come to no avail.

Instead, it must direct its energies on how to share the benefits brought about by a bullish market and on how to raise the prices of its exported finished products.

Due to the country's enormous international payment surplus and a series of preferential government policies, domestic enterprises have launched an accelerated campaign for foreign direct investment in recent years, most of which have found its way in the field of resources.

However, the country should try to avoid large-scale purchase of resources at a time when global primary products are enjoying a bull run.

On the contrary, we should launch a purchase campaign based on a longer-term perspective after enough signs have emerged that the bullish market will come to an end. This will help reduce possible political restrictions.

The country should single out certain commodities, such as soybean and iron ore where it enjoys a certain advantage, in efforts to increase its say in the international pricing process.

The country should devise strategic ways to break the looming bottleneck in its resources development, use some substitute products and weaken the West-led monopoly in the primary products market.

At the same time, efforts should be made to form alliances among domestic enterprises to increase the country's edge in international price negotiations.

To get more support from other countries, China should make efforts to increase its international pricing power under the context of its long-standing goal of setting up a new international economic order.

The author is a scholar with the Institute of American Studies under the China Institutes of Contemporary International Relations.

(China Daily 05/31/2010 page8)