China's market-based pricing system won't be affected by a requirement for food producers and sellers to seek government approval for price rises, the top economic planning body said yesterday.

The latest measure to curb price rises is aimed at combating speculation and illegal manipulation, Cao Changqing, director of pricing at the National Development and Reform Commission, said in a webcast on the government's website.

China's inflation jumped to an 11-year high of 6.9 percent in November. It was led by food costs, as surging global agricultural commodity prices increased import costs.

Analysts at Merrill Lynch & Co said the price controls may hurt earnings at companies that supply food for the world's most-populous nation, according to Bloomberg News.

Qiu Yiping, general manager at Zhejiang Dadi Futures Co, said, "The government is making sure the price increases don't become irrational; it's not trying to put a lid on prices, but just wants to moderate the movement.

"Fundamentals still rule the market at the end of the day."

Producers and sellers of staple food, including the largest vegetable oil supplier Wilmar International Ltd and the largest milk producer China Mengniu Dairy Co, must consult the government before raising prices by set limits, the planning agency said yesterday.

"The government cannot possibly ask firms to operate at losses," said Zhou Wangjun, deputy pricing director.

"Our pricing law clearly states that the government wants to have a market-based pricing system."

Two separate rules apply to firms according to their market share, Cao said. The largest firms need prior approval because they have greater impact on the market, while medium firms are required to report to local authorities if price increases trigger limits set by the government, he said.

"We're setting the 'significant-size' boundary," Cao said. The rules don't apply to small vendors, he said.

(Shanghai Daily January 18, 2008)