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China Announces Controls on Food Prices to Battle Inflation

  • Claudia Blume

China has introduced price controls to slow a rapid rise in politically sensitive food prices. Claudia Blume at VOA's Asia News Center in Hong Kong reports on Beijing's latest attempt to battle the country's surging inflation.

Price controls were imposed on a range of essential goods, such as flour, meat products, milk, cooking oil and liquefied petroleum gas.

These are not price freezes per se: under new rules announced by Beijing this week, large producers or processors of these products must obtain government permission if they want to raise prices.

Wholesalers and retailers do not need permission to change prices, but they have to notify the authorities within 24 hours of any price increase of more than four percent.

China's rulers are worried about rising inflation, which reached an 11-year high of six-point-nine percent in November. The rise was mainly limited to food prices, and was blamed on shortages of grain and pork.

Inflation has been a spark for social unrest in the past, and Beijing is seen as worried, but some economists have warned that the control of food prices could lead to shortages and the development of a black market.

Stephen Green, a senior economist with Standard Chartered Bank in Shanghai, thinks these fears are exaggerated.

"Everyone in the central government is aware that food price controls, if they are implemented too severely, do create shortages, but what has happened so far is, they have asked producers to report price increases," he said. "We haven't seen the government actually coming and saying: 'Pork must be sold at this price, gas must be sold at this price.' It's a question of managing price increases, not telling companies what prices to sell their food at - at the moment at least."

Green says price controls are just one of several measures used by the government to battle inflation.

"There is a strategy for bringing down inflation, which uses things like interest rates and loan controls and the exchange rate. But in the short term, there are concerns that food prices will continue to rise, and so what they are trying to do is introduce a framework where they manage their inflation," he explained.

Green says the controls do not mean that China is reverting to the old controlled-economy days, when the government set the price of everything.

Beijing says the measures are temporary, but has given no indication when they will end.

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