China moves to ease concerns over inflation

By Aileen Wang and Alan Wheatley , Reuters

BEIJING — China sought on Monday to reassure people that inflation will remain in check, voicing confidence that ample grain supplies and excess capacity in industry will keep a lid on price pressures. Economists said the effort to manage inflation expectations was meant to reinforce an array of measures in recent days to curb actual inflation, including Friday’s order to banks to hold more of their deposits in reserve instead of lending them out.

“We can understand the worries of residents about the relatively quick rise in food prices and other daily necessities,” the National Development and Reform Commission, China’s economic planning agency, said.

“But we also have the confidence to say that our country has the capacity and conditions to keep overall prices at a stable level,” it said.

Underlining its importance, the agency’s statement was carried on the front page of the People’s Daily, the mouthpiece of the ruling Communist Party.

The government followed Friday’s half-point increase in banks’ required reserves to 18.5 percent, a record high, by providing more details of the administrative measures it is drawing up to contain inflation.

Road tolls for vehicles carrying fresh produce will be scrapped from Dec. 1, and local authorities will have to ensure energy and transport prices for fertilizer producers are reduced, state media said.

Regional governments will also have to ensure a steady supply of coal and oil.

“The administrative measures until now are mainly aimed at speeding up supplies. But there’s a good chance that China will eventually resort to administrative price controls,” said Wang Han, an economist in Shanghai with CEBM, an advisory service. Beijing announced an initial volley of steps last Wednesday, including handouts to people on low incomes, after inflation jumped to a 25-month high of 4.4 percent in the year to October.

Qian Wang, an economist with J.P Morgan, said the government had rolled out similar measures after a spike in prices in late 2007 and early 2008. The difference now was that Beijing was acting earlier in the inflation cycle. “This could stabilize food prices in the short term, but the underlying inflation trend is quite strong,” she said.