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Cover Story Series> Business
UPDATED: May 16, 2011 NO. 20 MAY 19, 2011
Inflation on the People's Minds
Stabilizing prices and preventing rampant inflation are the Chinese Government's biggest challenges this year

Facing long-term inflation expectations, some companies are simply raising product prices. According to NBS figures, in the first quarter the producer price index (PPI) rose 7.1 percent year on year and in April the index rose 6.8 percent.

However, both economists and consumers are questioning these price increases. CASS Vice President Chen Jiagui said enterprises should shoulder their responsibilities, continue to promote stable and fast consumption growth and stimulate domestic demand. For now, companies should appropriately reduce their expectations of profits. Large state-owned enterprises, in particular, should stabilize their prices.

Labor-intensive companies in China's coastal areas have moved their factories to underdeveloped areas in central and west China to reduce production costs. According to the figures released by the Fujian Provincial Development and Reform Commission, the province's textile companies have been busy establishing factories in Henan Province and Chongqing Municipality. By making the move inland but keeping its headquarters in Fujian, the company has been able to save 10-20 percent on production costs.

Government actions

With controlling price hikes at the top of its list, the Chinese Government has adopted various measures to act quickly and efficiently against inflation.

On May 18, the central bank raised the reserve requirement ratio, the fifth this year. The reserve requirement ratio for large banks now sits at 21 percent, a record high. On April 6, the central bank also raised the interest rate for the second time this year, intensifying market expectations for tighter monetary supplies. Industrial insiders expect these rates to be increased further if inflation is not alleviated soon.

The National Development and Reform Commission (NDRC) has also started asking companies and industrial associations to stabilize product prices. At the end of March market rumors abounded that four major cleaning and household producers—P&G, Unilever, Liby Group and Nice Group—were planning to raise prices of their products as of April 1. The NDRC was quick to act, summoning heads of the companies and requesting them to refrain from such increases. On March 31, NDRC's Department of Price criticized both the China National Association for Liquor and Spirits Circulation and China Alcoholic Drinks Industry Association for increasing liquor prices and requested the liquor industry to stabilize prices for the first half of this year.

The Ministry of Commerce (MOFCOM) has strengthened efforts to increase effective market supplies. At a press conference on April 19, MOFCOM spokesman Yao Jian said that while inflation expectations do exist, the major task of the ministry is to secure market supplies.

To ensure supplies, MOFCOM has adopted three measures. It has strengthened market supervision by monitoring key commodities in 36 large and medium-sized cities and real-time monitoring on 139 large-scale wholesale markets.

"Through market monitoring MOFCOM is providing the public with valuable information and is also guiding the logistics sector to replenish supplies," Yao said.

MOFCOM has also strengthened effective market regulations, timely ensuring market supplies in accordance with market monitoring information. Yao said the ministry has formulated emergency plans to ensure supplies for the whole logistics sector and established effective commodity reserves on pork and vegetables. Local governments have also increased the varieties of reserves.

Additionally, MOFCOM has effective channels for supplying reserve commodities. The ministry has established a database of more than 1,600 enterprises to ensure effective market supplies. It has also set up emergency supplying points all over the country.

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