China targets liquidity to cool inflation

By Gao Changxin, Wang Xiaotian and Lan Lan (China Daily)
Updated: 2010-11-17 11:21
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China targets liquidity to cool inflation

China's Ministry of Commerce said on Tuesday it will adopt measures and work in concert with other government agencies to cool the inflation heat prevailing in the country. 

Govt may adopt extra measures to guard against rising food prices

BEIJING - China's Ministry of Commerce said on Tuesday it will adopt measures and work in concert with other government agencies to cool the inflation heat prevailing in the country.

"We would enhance the connection between vegetable production and sales to stabilize supply and prices in winter and next spring," said Yao Jian, a ministry spokesman, at a news conference.

Since the end of September, 62,400 tons of pork and 210,000 tons of sugar from reserves were sold by the ministry to ensure sufficient supply in the market.

"The supply of most goods is sufficient, except for a few products such as diesel," said Yao.

In the first 10 days of November, China's average wholesale prices for 18 types of vegetable in 36 cities surged by 62.4 percent year-on-year, according to data from the ministry.

The National Development and Reform Commission (NDRC) and other ministries may impose measures such as price limits on food, reinforced punishments on speculation in agricultural products such as corn and cotton, action to prevent hoarding, and the offer of food subsidies to curb inflation, the China Securities Journal wrote, citing unidentified sources.

The government may also force local mayors to take responsibility for insufficient vegetable supply and unstable prices, the report said.

"Market-oriented methods should become a top priority in easing rising food prices but moderate regulations are needed if prices surge too quickly," said Ma Xiaohe, deputy head of the Academy of Macroeconomic Research affiliated to NDRC.

Price hikes of agricultural products are an inevitable result of economic growth, excess liquidity and rising costs. Inflation in China is still mild and bearable given the country's fast economic growth rate, he said.

China's Consumer Price Index, a main gauge of inflation, rose to 4.4 percent in October, marking the fastest clip in 25 months and leaving little margin for the government to realize its full-year inflation target of 3 percent.

The Shanghai Composite Index tumbled 4 percent on Tuesday, amid speculation that surging inflation may trigger monetary tightening. It plunged 5 percent on Nov 12.

The central bank raised bank reserve requirements on Nov 10 after raising interest rates for the first time in three years to soak up over-liquidity and control inflation.

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Chinese Central Bank Governor Zhou Xiaochuan said on Tuesday that China is under "pressure" from capital inflows. He said at a forum in Beijing that the government goal is to provide "moderate" credit growth and stronger liquidity management.

Speculative capital, also known as "hot money" that affects a country's balance of international payments and financial stability, also played a role in spurring prices, said analysts.

The Ministry of Commerce will also further tighten management of foreign investment to stem inflows of hot money, according to the ministry spokesman, Yao.

Foreign direct investment (FDI) in China registered a single-digit monthly growth in October after the indicator plummeted in August.

Experts and observers said the slowdown in growth is a reflection of recent government measures to guard against the influx of speculative capital, some of which goes into the country's capital market in the guise of direct investment.

China attracted around $7.7 billion worth of foreign direct investment in October, up 7.9 percent from a year earlier.