Rising labor cost and more buying power has shot up prices of
essentials and other goods. Even after the shortage in supply of
essentials, especially pork, and other commodities is overcome, the
trend of rising prices is expected to continue for some time. The
cost of labor in the country's coastal region has been increasing
by up to 20 percent a year since 2004, pushing up prices of most
consumer products. And why has labor cost gone up? The answer is
not difficult: Because there has been a dearth of laborers in
China's economic hubs of Yangtze River Delta and Pearl River Delta
regions since 2003.
These are the views of Justin Lin, director of Peking
University's China Center for Economic Research. Talking to
China Daily after the consumer price index (CPI) hit a
10-year high in July - a year-on-year increase of 5.6 percent, Lin
said: "We have already entered a cycle of high prices and the trend
will last for a relatively long period."
Official analysis, however, blames prices of food products and
pork that jumped 15.4 percent year-on-year in July, for the record
rise in CPI. The blue-ear pig disease outbreak has forced many
breeders to slaughter their sows and piglets this year making pork
scarce in the market. In fact, pork price in June soared 74.6
percent year-on-year, playing havoc with the market.
Though Lin is worried about the dramatic rise in pork price, he
is pretty sure that the measures taken by the government will bring
it down. But what he is also pretty sure of is that overall prices
will remain high. Lin should know what he is talking about because
he is vice-chairman of two top-notch advisory bodies to the
government: Committee for Economic Affairs of the Chinese People's
Political Consultative Conference (CPPCC) and the All-China
Federation of Industry and Commerce.
But why does he think so? Lin said that's because urban and
rural consumers both have more buying power today. In the first six
months of the year, the per capita disposable monthly income of
urban residents reached 1,175 yuan ($155), a year-on-year increase
of 14.2 percent, and that of rural residents, 352 yuan ($47), a
13.3 percent increase.
Moreover, for the first time in a decade the income of both
urban and rural residents has exceeded the pace of economic growth,
which was 11.5 percent in the first half of the year.
Also, over-production has been dropping, coupled with which the
growing demand for goods is shooting up prices, Lin said. Official
studies recorded over-production in 12 categories of commodities in
2003. Today it has dropped to just six categories. "We will realize
gradually that consumption plays a bigger role in keeping up
prices," Lin said.
Lin urged the central bank to use interest leverage to rein in
the blistering investment growth. "As a short-term leverage tool,
the government should increase the interest rate to check the fast
pace of investment growth," rising at 25 percent a year since
2003.
The government, however, will also have to update its industrial
policy guidelines and standards for entry into the market to meet
its macroeconomic control goal, he said. The government should
stipulate a higher ratio of capital owned by investors and banks
when a business is set up, Lin said, and suggested "30 percent
should be reasonable".
"It's a pity," he said, "that there's no minimum capital
requirement for some sectors."
(China Daily August 20, 2007)
