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Updated: November 17, 2010 23:55 IST

Rising inflation prompts controls in China

Ananth Krishnan
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In this photo released by China's Xinhua News Agency, Chinese Premier Wen Jiabao chats on-line with netizens at two state news portals in Beijing. Mr. Wen said 2010 would be the most complicated year for the country's economy, and he promised the government would fight inflation and soaring property prices. File photo: AP.
In this photo released by China's Xinhua News Agency, Chinese Premier Wen Jiabao chats on-line with netizens at two state news portals in Beijing. Mr. Wen said 2010 would be the most complicated year for the country's economy, and he promised the government would fight inflation and soaring property prices. File photo: AP.

The Chinese government on Wednesday said it would put in place price control guidelines and new subsidies to combat spiralling inflation, often regarded in China as a threat to social stability.

Inflation last month increased to the highest rate in more than two years, rising 4.4 per cent year-on-year in October and exceeding the 3 per cent target usually set by the government. Food prices rose even faster – according to one government report, in the first ten days of November the average wholesale price for commonly-used vegetables in 36 cities was as much as 62.4 per cent higher than a year earlier.

“Great attention should be paid to market supply and demand and prices because they are related to the public's basic interests,” Premier Wen Jiabao warned on Wednesday.

In China, inflation has historically been regarded as a crucial benchmark for the country’s rulers, perceived as a major source of social unrest.

The last time the ruling Communist Party had on its hands widespread instability was two decades ago, during the Tiananmen Square protests, which unfolded against the backdrop of spiralling inflation.

The last year has seen record lending from Chinese banks as the government loosened monetary controls to help stimulate the economy following the financial crisis. But in the past twelve months, the threat of inflation, coupled with a rapidly rising housing market, has prompted the government to introduce new tightening measures, which have, however, only had limited effect.

Mr. Wen said the State Council, or cabinet, would introduce measures “to curb the overly fast rises of prices," though he did not specify what those measures were.

The government would also improve subsidy systems, introduce price controls that were “more targeted” and strengthen market supervision.

The price of power and gas for fertiliser producers would be reduced, and diesel oil production and coal supply would be expanded.

Beyond the current inflation threat, China also faces more long-term food security concerns, with growing urbanisation and shrinking farmland.

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