Wednesday, January 09, 2008

Well, first Q inflation will continue to be robust, and the State Council has rolled out another series of price freezes. This is not going to work, since such price freezes usually result in a spade of "scheduled maintenance" at refineries operated by Sinopec and Petro China, which causes shortage. I think we will gain see truck lines in Guangdong next to gas stations. Also, this shows again how unsuccessful macroeconomic control has been. Facing Wen and the State Council is an increasingly powerful real estate investment lobby that cautions against overly restrictive macro policies. I am not sure who is behind this lobby, but they are powerful. For one, while Wen said that real estate prices were on the top of his agenda in Singapore, the central economic conference right afterward did not mention inflated asset prices as a top worry for the regime. Someone is probably singing a different tune in the Politburo. If I had to take a wild guess....the princelings.

January 9, 2008

China, Fighting Inflation, Freezes Energy Prices

BEIJING — Prime Minister Wen Jiabao responded Wednesday to growing public anxiety about inflation by announcing that China would freeze energy prices in the near term, even as international crude oil futures have topped $100 a barrel.

The move to hold down prices came as inflation hit an 11-year high in China. A recent nationwide public opinion survey found that “rising prices of consumer goods” ranked as the top public concern, followed by income inequality and corruption.

The freezes, announced on the government’s main Web site, followed a meeting of the State Council led by Mr. Wen on Wednesday to revise policies on price controls.

Prices of oil products, natural gas and electricity will be frozen in the near term. Rates for public water bills will be frozen, as will the cost of public transportation tickets.

The edict also called for stabilizing prices on medical services and for certain agricultural fertilizers. It ordered local governments to closely monitor prices and warned that punishments would be strengthened for those who violate government price control policies.

Ben Simpfendorfer, an economist with the Royal Bank of Scotland in Hong Kong, said the announcement underscored how seriously the State Council regards public attitudes toward inflation.

“The State Council is worried about public sentiment,” he said. “They are worried that rising prices will have a negative impact.”

China raised gasoline prices by 10 percent in November after state-owned refineries, complaining that price controls were forcing them to accept higher world crude oil prices, cut production, causing long lines at fuel stations around the country.

But the November price increase helped drive consumer prices up 6.9 percent from a year earlier — a figure that represented an 11-year high.

“It was a shock,” said Mr. Simpfendorfer.

Now, oil futures have continued to rise on world markets and Chinese refiners are again raising the same concerns. Again, lines are forming at service stations, particularly for truckers in southern China.

Even Wednesday’s announcement hinted that domestic price increases might be inevitable later this year in response to world markets.

“Prices of crude oil, grains and other primary products are still rising on the international market, and China faces relatively large pressures of further price increases,” the announcement on the government Web site said.

For ordinary Chinese citizens, inflation has emerged as a major concern. Last year, food prices rose roughly 12 percent, eliciting an often angry public response. More recently, prices for eggs and pork have fallen, though flooding in farming regions of central China damaged vegetable production and kept those prices high, Mr. Simpfendorfer said.

Last week, the Chinese Academy of Social Sciences released a national survey that found 30.5 percent of respondents considered inflation the country’s top problem. Stories about the urban poor struggling with rising prices have become common in the Chinese media.

China’s rapid economic growth has been fueled by rising demand for oil, coal and other energy sources.

Comments: Post a Comment

This page is powered by Blogger. Isn't yours?