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Curbing price hikes
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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)

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