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Stopgap price control
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The Chinese government is taking action to keep a firm lid on inflation as it has promised.

The State Council urged on Wednesday all local authorities to strengthen price management and supervision and to take necessary steps to keep market prices in order and safeguard consumers' interests.

Such a national effort to contain price hikes is well expected since the central authorities made it a clear-cut priority at the end of last year to prevent current price hikes from evolving into overall inflation.

China's inflation rate hit a new 11-year high of 6.9 percent last November. The acceleration of price gains in the second half of 2007 had already bitten deep into the pockets of low-income families.

To ensure that people's livelihood can be improved along with the country's economic expansion, policymakers recognized that more efforts must be made to stabilize prices and tame inflationary expectations.

Now, as the Spring Festival, China's traditional lunar new year, approaches, it is fairly understandable that the authorities have taken pre-emptive measures to check possible price hikes amid the coming spending spree.

Yet, in the fight against inflation, price intervention is always only a stopgap measure that policymakers can make use of when racing against time to bring into place targeted subsidies.

A blanket subsidy in the form of controlled prices usually benefits the rich who consume a lot more than the needy who are most affected by rising costs. Even if the government has the wherewithal to support such universal price subsidies, it should not stick to them for they are just too insufficient and inequitable.

It is going to be a very painful process to adapt the nation to higher living costs, especially when the country's wealth gap is huge and widening.

For the government, during a year of continuous price gains driven by a number of domestic and international factors, top priority should be given to identifying who are those most affected and subsiding those most needy promptly and properly.

Nevertheless, before such targeted subsidies have assumed their roles in cushioning specific needy people against sharp rises in inflation, efforts to pre-empt further excessive price hikes are still needed as a stopgap anti-inflation measure.

That is why the State Council announced that it would only "temporarily intervene" in the setting of prices of daily necessities in line with the Price Law.

Eventually, the market will take the lead to rein in upward price spirals by encouraging supply and holding down demand.

(China Daily January 11, 2008)

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