While announcing price controls on a number of daily
necessities, China's pricing authority explained the difference
between the latest price intervention and an infringement of
enterprises' pricing autonomy.
Such an explanation is badly needed because price controls look
increasingly like an anachronism in China today.
After three decades of market-oriented economic reforms, the
country has liberalized more than 95 percent of the domestic prices
of goods and services.
To facilitate pursuit of energy-saving and
environmentally-friendly sustainable development, Chinese
policymakers also recognized the necessity to remove the lid on oil
prices, one of the few remaining prices under government control,
to balance supply and demand as well as reflect environmental
cost.
Under such circumstances, a sudden reintroduction of price
controls over household commodities - the pricing of which has long
been left to the market - must be mind-bending, not only for the
suppliers.
The National Development and Reform Commission, the country's
pricing authority, issued a circular on interim price intervention
on Wednesday, covering products like grain, edible oil, meat, milk,
eggs and liquefied petroleum gas. The circular also required major
enterprises to submit price-raising schemes for official
approval.
Clearly, the move marks a policy response to the country's
surging inflation which has hovered above 6 percent for five
months.
To prevent the rapid rise in prices, especially for food, from
evolving into serious inflation, it is imperative for the
government to check illegal or speculative price hikes.
More than likely, some enterprises will try to capitalize on
soaring inflationary expectations with excessive price gains. And
such price speculation can seriously undermine the government's
efforts to stabilize overall prices and cause unnecessary consumer
panic.
It is in this sense that the pricing authority is justified to
take pre-emptive price intervention measures as the annual Spring
Festival shopping spree is approaching.
It is worth taking the trouble to stress that the intervention
is only temporary and aimed at undue price hikes. Only when
enterprises are assured of their legitimate pricing autonomy can
they decide what to produce and in what proportions in line with
supply and demand in the market.
(China Daily January 18, 2008)