Beijing Pressured on Price Policy


2008.02.07

China’s government is defending its economic policies amid mounting criticism over shortages and price controls, experts say.

On Jan. 9, the State Council announced a price freeze on fuel, utility, and transport costs. A week later, the National Development and Reform Commission (NDRC) ordered a series of price controls on food and staple items to slow inflation.

Analysts say the government expected popular support for the moves, which were intended to ease consumer burdens after inflation hit 4.8 percent last year, the highest rates since 1996.

Markets, I think, have been broadly accepted in China as a sort of index of reform.

But on Jan. 25, the official People’s Daily newspaper was forced to defend the price freeze in a commentary, calling it “proper and legitimate in both theory and procedure.”

“The commentary came after criticisms which challenged the legitimacy of the government move,” the official Xinhua news service reported.

“The discussion is fierce in academic circles,” said Hu Xingdou, a Beijing Institute of Technology political scientist, according to the South China Morning Post . “Critics say China is going back to a planned economy.”

Government ‘caught off guard’

China analysts said the government appears to have been caught off guard by the strength of pro-market sentiment.

“The conventional wisdom is that people are fine with free markets as long as prices are stable, but once prices start to go up, then you get people who are concerned,” said David Bachman, a political science professor at the Jackson School of International Studies at the University of Washington in Seattle.

Now, criticism of the government’s policy is a measure of how far China’s economy has advanced toward a free market since the days of central planning, Bachman said.

“It may be that either we’re hearing the more sophisticated commentators and analysts criticize this, or simply that other people realize that this simply isn’t going to work—that this sort of fiat announcement of price freezes doesn’t have a place in the Chinese economy these days.”

But complaints about government price policy have spread beyond academic circles.

On Jan. 19, Xinhua reported that “some of the country’s farmers are arguing that their interests might be ignored.” Farmers who have already paid higher prices for fertilizer and pesticides now face trouble in recovering their costs, Xinhua said.

China’s recent snowstorms have further reduced food supplies by delaying shipments and damaging crops. But sellers may be punished if they try to pass on the higher cost of scarce supplies.

Profiteering criticized

In late January, seven food vendors were accused of profiteering when they tried to charge higher prices at the Guangzhou railway station, where thousands of migrant workers were stranded by the heavy snows, according to official media.

In an editorial, the paper called the vendors “despicable economic creatures [who] should be put to shame.” Provincial governments have also tried to keep hotels and restaurants from raising prices, state media said.

But Xinhua reported that vegetable prices have more than doubled in many cities, despite government controls. Some prices have nearly tripled in Beijing, the report said.

Lowell Dittmer, a China specialist and political science professor at University of California-Berkeley, said free-market principles have become a measure of change in China, though democratic freedoms have lagged since the Tiananmen crackdown in 1989.

“Markets, I think, have been broadly accepted in China as a sort of index of reform,” he said.

Despite public support for free markets, though, government leaders have felt compelled to intervene because of concerns about social unrest, Dittmer said. “Food price inflation is very dangerous to them. They’re afraid that there will be some sort of political repercussions.”

Original reporting by Michael Lelyveld. Edited for the Web by Richard Finney.

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