Chen Zhiwu, a professor of finance at the Yale University School
of Management and an eminent economist, told Xinhua his views on
the recent food and energy price hikes in China.
China is getting a bum rap
Xinhua: Recently some consumer products prices
have been surging in China and other countries. This has triggered
fears about a looming "global inflation era". Some people believe
China is to blame for this; what is your take on it?
Chen Zhiwu: I think such fears are overblown.
It is also groundless to say that China is now exporting inflation,
rather than deflation, to the rest of the world. In fact, the
global market has not seen such an obvious upturn in manufactured
goods prices overall. That is because the world still has spare
productive capacity. There is a labor surplus in the emerging
markets. All these factors will curb the rise in prices of
manufactured goods. In this sense, China will continue to play a
positive role in stabilizing consumer goods prices and holding down
global inflation.
Xinhua: Agricultural products and other
commodity prices, metals and energy prices in particular, are going
up even more sharply compared to manufactured goods. What has
caused this price jump?
Chen Zhiwu: Mainly it resulted from growing
demands and tight supplies. The recent fever over bio-fuels has
driven up agricultural product prices. With skyrocketing oil
prices, some countries began to adopt alternative energy
strategies. Corn, a key raw material for bio-fuels, suddenly became
extremely precious and stimulated the price upsurge of all
agricultural products. But products such as corn can be very easily
reproduced; a persistent price hike is highly unlikely.
Compared with agricultural products, iron ore, nonferrous
metals, oil and other commodities are non-renewable resources with
limited reserves and supplies. Price pressures on these commodities
have been around for years and will continue for years to come. On
the demand front, the insatiable appetites of China, India and
other emerging economies have been pushing up crude oil prices
globally.
However, I do not think we need to be over-concerned about the
future. History told us that capital and human resources would pour
into the development of alternative solutions when a commodity's
price has risen to a certain level. As a result, cheaper and better
alternative products or technologies will emerge.
Let the 'invisible hand' play its role
Xinhua: What should the government do in the
face of record consumer goods prices?
Chen Zhiwu: The market economy has scaled
considerable heights in today's China. This has weakened the
government's grip on the market. If the government goes against the
market rules and tries to stabilize prices through administrative
measures, even more problems will surface.
In fact, it is useless to worry too much about inflation.
Small-scale inflation is inevitable during any sustained growth
period. Its damage on the economy is very limited if is kept under
control.
Xinhua: What else can the government do aside
from reducing intervention?
Chen Zhiwu: Market mechanisms could play a
bigger role in agriculture. The government has introduced futures
for some agricultural products and I think there should be more.
China could have pork futures, for example. Future contracts could
be used to? lock in manufacturers' profits. They also reduce
market risks, guarantee supply and stabilize prices. Many developed
countries use them.
In terms of energy, the government should work harder to cut
down energy consumption and look for energy alternatives such as
solar, wind, and atomic.
Everyone has a stake
Xinhua: What lessons can China draw from the US
sub-prime loan crisis?
Chen Zhiwu: We can learn a lot from this credit
crisis. The most important lesson is that every country is heavily
influenced by what is happening overseas. With increasing
integration of the world's economies, it is impossible to remain a
bystander.
It was not the Federal Reserve, but the European Central Bank
and the Japanese Central Bank?- they first took action right
after the crisis. The European Central Bank alone has pumped 94.8
billion euros into the euro-zone banking market. One country's
economic risks could translate into global risks. That is why it
would be a lot easier if different nations joined hands and tackled
problems together.
(china.org.cn September 2, 2007)