China's consumer prices, repeating their July performance,
climbed 5.3 percent year-on-year in August, putting more pressure
on the central bank to raise Renminbi interest rates for the first
time in nine years.
Higher food and public utility prices during the month kept the
consumer price index (CPI) -- policy-makers' key inflation gauge --
at a relatively high level, said Qi Jingmei, an economist with the
State Information Center (SIC).
Prices for public utilities such as water, electricity and fuel
rose 9.6 percent year-on-year in August, according to the National Bureau of
Statistics. Grain prices jumped 31.8 percent while egg prices
increased 30.3 percent. Prices for fresh vegetables edged up 5.8
percent year-on-year.
Governor Zhou Xiaochuan said last week that the central
bank would decide whether to raise the interest rate or to resort
to other tightening measures after the National Bureau of
Statistics released major economic figures in August.
The figures, however, are mixed. Growth in fixed asset
investment and money supply slowed in August, but the industrial
output growth picked up.
Niu Li, also a SIC economist, said the government should keep a
close watch on prices, because the upward pressure is already
great.
International oil prices rose as high as US$49 per barrel during
the past few weeks.
"There are also signs that raw material prices may rebound,"
said Niu.
The rising CPI has already put consumer savings into negative
interest rate territory, which can lower consumer expectations for
the future. A recent survey by the People's Bank of China -- the
central bank -- indicates that public satisfaction with current
consumer prices is at its lowest level since 1999.
The negative interest rate also leads to a decline in bank
deposits.
Many analysts and economists believe that the government should
raise the Renminbi interest rate to increase consumer
confidence.
Ba Shusong, a senior financial analyst from the State Council's
Development Research Center, believes the time has come for China
to make the move.??
"The detailed methods can cover many areas, for instance,
adjusting interest rates to a certain level, giving the market a
role in deciding the rates and continuing to expand interest rate
fluctuation margins."
Meanwhile, Premier Wen
Jiabao told a meeting of the State Council on Monday that the
government should continue to control credit growth and the use of
land for new projects strictly to prevent further economic
overheating.
Growth in fixed asset investment and loans -- two key indicators
that policy-makers have been watching for the impact of the cooling
measures -- has been declining.
"It proves that our policies and measures are correct and
effective," said Wen. "The policies should be stable."
M2, a major measurement of money supply and a key indicator of
credit growth, grew 13.6 percent year-on-year by the end of August,
the People's Bank of China announced Monday. This compares to 16.2
percent at the end of June and at the end of last year, and 15.3
percent in July.
Figures for August investment growth have yet to be officially
released, but National Bureau of Statistics spokesman Yao Jingyuan
was quoted by Reuters as saying that fixed asset investment grew
26.3 percent year-on-year. This compares with 31.1 percent in July
and 28.6 percent for the first six months of the year.
Wen said that the essence of this round of macro-control is to
adjust the economic structure and correct unhealthy systems and
mechanisms. A combination of economic, legal and administrative
measures is being used to solve these problems.
But the government did not implement the measures across the
board; rather, it suppressed some sectors while supporting others,
Wen said.
While controlling investment in some industries, the government
actually increased its input into agriculture, considered a weak
point at the moment. Steel, aluminum and cement are among the
problem sectors that the government has named for excessive
investment. Investment in these sectors has been strictly
controlled.
"We should pay special attention to reforms that correct defects
in the economic systems and mechanisms to consolidate the
achievements of the macroeconomic control and adjustment," Wen
said.
Tight control of land use and credit is key to controlling fixed
asset investment, he asserted.
The State Council members called for the improvement of the land
management system and the establishment of a clear responsibility
system.
They also said money supply and credit growth should be kept
within a reasonable range.
(China Daily, CRI.com September 14, 2004)