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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

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.

Voices From Boao

At the Boao Forum for Asia Annual Conference 2011 held in April, participants also discussed the inflation situation in China and the Chinese Government's action to deal with this problem. Edited excerpts of their remarks follow:

Xiong Weiping, President of Aluminum Corp. of China Ltd. (Chinalco), China's largest diversified mining company:

I think inflation in China is under control. China's inflation is affected by changes in the international market. The quantitative easing policy of the United States and other Western countries has caused the U.S. dollar to depreciate and push up commodities prices. As a result of excess liquidity, a huge amount of capital has entered the markets of emerging economies, including China.

Inside China, a series of factors, including infrastructure construction, economic restructuring, energy conservation, emission reduction and wage increases, have boosted demands and costs, which in turn led to inflation. Setting curbing inflation as the government's primary task at this point is the right thing to do.

As a resource processing enterprise, Chinalco has felt the effects of inflation. And while we enjoy large profits from rising commodities prices, our profits are also squeezed by the surging prices of the upstream raw materials.

Therefore, inflation is both a challenge and an opportunity for us. Rising commodities prices can bring us more profits, but it may weaken our capability in making profits. If a sudden event occurs and the commodities prices fall, our company as well as the whole industry will suffer heavy losses.

I think it's essential for companies to strengthen themselves in four areas—structural adjustment, cost control, technological innovation and capital operation.

Alberto Weisser, Chairman and CEO of Bunge Ltd., a global agribusiness and food company based in White Plains, New York: One very important component of inflation in China was the food price. The food price has doubled in the past year because of the issues of weather. The bad weather led to decreases in the food supply from Europe, Australia and Russia.

Another reason is a weaker dollar. A weaker dollar means all other currencies are stronger. This has a side effect for food production. For instance, Brazil produces more than 50 percent of world's sugar exports and it also is a major producer of soybeans. As its currency becomes stronger, these products become much more expensive than they used to be. A weak dollar means we are going to have much more expensive food production.

I don't think China is exporting inflation elsewhere in the globe. There's enough room for China's adjustments. China is carrying out strong macro-economic policies to protect the country against further deteriorating inflation. I think China is in a very privileged position.

Toshire Mutoh, Chairman of the Daiwa Institute of Research Ltd., a Japan-based company on research on economic and social issues:

Indigenous inflation and imported inflation co-exist in China. To deal with indigenous inflation, China has adopted a tight monetary policy, resulting in positive results. However, as for imported inflation, China's policies have yet to bear fruit. I'm afraid the easiest solution to is the appreciation of the yuan.

But allowing the yuan to appreciate too rapidly will have a negative impact on China's economy. The appreciation will also not solve all China's problems. We think it is essential to fully consider domestic economic situation and resort to a gradual appreciation of the yuan rather than a large increase in the short term.

If inflation isn't suppressed soon, China won't be able to maintain its 10-percent GDP growth rate. Once this comes to pass, China's demand for oil and iron ore will decline and greatly affect the global market.

I believe the Chinese Government must and will certainly take action to prevent inflation from deteriorating the Chinese economy.

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