A research report released recently by the Macro Economy Analysis Panel of Financial Institutes affiliated to People's Bank of China (PBOC), the central bank, suggested that the devastating May 12 earthquake would not affect or tweak the basic trend of China's macro economic operation. In future, economic restructuring would step up while maintaining overall macro economic policies in stability.
Quake disaster likely to push up investment growth rate, and heighten short-term inflation pressure
The report pointed out that the quake disaster could impose little direct influence on China's economy as a whole, despite the heavy loss and damage it has caused so far. However, the disaster-induced influence would be found in the following two aspects: first, reconstruction after the quake would drive up the growth rate of asset investments. The central government has already allocated 70 billion yuan in reconstruction funds in affected areas, which is expected to be followed by more larger-scaled funding through various channels. This altogether will inevitably put assets investment on a rapid rise, as manifested in previous post-disaster reconstruction programs. Second, the quake disaster is likely to heighten the strain on short-term inflation. The massive quake brought severe destruction to industrial and agricultural production in the earthquake zone. Compounding the economic desolation in the disaster-hit region is the growing local demand for food and life necessities, which will create a fresh strain on existing price hikes. The shared experience in Japan and Taiwan, both of which were ravaged by powerful quakes, suggested that an adverse influence from the earthquake on CPI could emerge, but would not last long.
High risk in economic operation remains pressure on evident inflation
The report said that the ongoing economic growth is moderate, but the risk of inflation still exists.
First, cost-induced pressure still looms large. The price of international primary products is likely to keep rising, and pressure will likely mount to jack up the prices of oil and electric power in China. Since the new Labor and Contract Law was initiated in China, labor costs have been rising. In addition, the ever increasing standards for environmental protection will, without a doubt, heighten pressure to push up production costs in the future.
Second, the soaring grain price still poses a problem. While grain yields are expected to grow slightly this summer, and the current market for farm products is good – which could more or less ease the strain on food supply and demand – the balance between food supply and demand is still facing a menace in the backdrop of a fastened pace of industrialization and urbanization. What is more, grain production costs are rising rapidly and the price gap between the domestic and international grain markets is widening. In effect, the pressure of China's grain price intensified.
Third, there was a record increase in credit volume; and growth in the money supply rebounded. Although the trade surplus diminished in the first quarter of 2008, excess liquidity has yet to be resolved.
Price reform imperative to push forward price restructuring in oil, electric power and other resources
The report called for the flexible execution of various monetary policy measures. It pointed out that while giving all-out support to post-quake relief work and reconstruction; the government will enforce a tight monetary policy and manage liquidity.
The monetary policy will still center on limiting the growth of money-credit, and preventing all-out inflation.
To ensure a supply of petroleum and electric power, the government needs to enhance subsidies or reduce taxes in these industries. However, in the mid-and-long term, the subsidy policy could turn out to be a heavy financial burden; and do no good to the adjusting role that price plays in transforming economic growth style. Therefore, price reform must be enforced to basically settle price hike concerns brought about by extensive growth style and undue resources consumption.
By People's Daily Online
|
Comment
Tell A Friend
Print Format
Save Article