Editor's note: The following article was written by Zhang
Liqun, an economist from the State Council Development Research
Center, an important government think-tank.
The consumer price index (CPI) will remain basically stable this
year, rising around 3 percent. It should be slightly higher in the
first half, dropping back down in the latter part of the year.
Food, services and other industrial consumables account for 30
percent, 20 percent and 50 percent, respectively, of the CPI. The
jump in prices last year mainly stemmed from rising food and
service costs, leaving an elevated CPI in the first quarter of
2004.
Food prices are closely associated with grain supply and demand.
Higher grain prices have stimulated planting: there were 545,000
more hectares planted at the end of 2003 than there were a year
earlier. The summer harvest should put the brakes on climbing
costs.
Prices for transportation, natural gas, water and electricity,
influenced by the supply of coal, electricity and oil, are
predicted to continue increasing. Medical care and education fees
are rising as well. In general, food prices will maintain stable
while costs for services will continue rising, albeit at a slower
rate.
Supply continues to outstrip demand in industrial consumables,
making it difficult for manufacturers to raise their prices even
though their production costs are already elevated.
Climbing production costs should slow
Rising production costs last year mainly stemmed from high
demand from manufacturers for energy, transportation and some raw
material.
The supply of energy products and some raw materials picked up
in 2003. For example, coal production hit a record 1.6 billion
tons; electrical generation capacity in the first 11 months last
year reached 1. 7 trillion kilowatts, up 15.5 percent. Production
of steel and steel products reached 200 million tons and 214
million tons, both up 21.5 percent; and production of 10 black
metals increased 20 percent.
But it will be difficult to maintain those levels this year.
Building additional power generation facilities takes a lot of
time, and production at some coalmines has already been excessive.
Some problems have emerged in the realm of iron ore imports, and
transportation capacity is restricted.
Fortunately, overall demand from manufacturers is being curbed
since the government doused the flames on some overheating
industries in the second half of 2003. For instance, it stopped
approving the construction and expansion of development zones and
slowed money supply.
The real estate and auto industries are the main contributors to
soaring demand for energy, transportation, and chemical materials.
Now, influenced by government policy, demand for housing and autos
is under control.
In general, raw materials supply and demand should be well
balanced and prices will remain stable. The forecast growth rate
for raw materials prices is no more than 4 percent.
No inflation this year
In 2003, China's economy cast off the problem of deflation. Last
year, loans increased 20 percent while investment jumped nearly 30
percent. However, worries about the possibility of inflation have
gradually been escalating.
The real estate sector is one of the overheating industries.
However, its growth rate slowed in 2003, although the average
housing price still rose. With the acceleration of urbanization,
housing supply will increase and prices will remain level. In
addition, huge saving deposits and an adequate forex reserve should
maintain stability in the price of capital.
China has become a buyer's market, with supply at its highest
ever. Enterprises in general have great production capacity and can
react rapidly to fluctuations in market demand. Supplies of
capital, technology and labor are also adequate. Therefore,
inflation cannot occur in spite of China's rapid economic growth,
ample money supply and soaring demand.
(China.org.cn?by Tang Fuchun, April 2, 2004)