China Attempts to Grapple With 18.5% Inflation

China, struggling to stem record inflation and public unrest over the spiraling cost of living, announced a series of measures today to restore central government price controls that were dropped under the country’s economic reforms.

The measures, the latest taken by the government in a sweeping retrenchment of the market-oriented reforms launched by senior leader Deng Xiaoping in 1978, were announced by a Chinese official at a meeting of the ongoing session of China’s Parliament.

The package included a ban on local governments’ approving price hikes without authorization from Beijing. The meeting was reported by the official New China News Agency.

Price reform--ending artificially set low prices and allowing the market to reflect major commodity prices--has proven the most controversial of the economic reforms. Although giving incentive to producers, it has contributed to record inflation.

Vast Consumer Demand

Inflation, unknown in China until recent years, ran officially at 18.5% last year and is estimated unofficially at more than 30%, in part reflecting vast consumer demand on a still-inefficient supply system and erratic monetary policies.

Premier Li Peng, in a speech Monday to the opening session of the National People’s Congress, the nominal legislature, called inflation the key problem the country faces and warned of several years of tighter central control and austerity.

At an NPC session today, Ma Kai, vice director of the State Price Administration, said the State Council, China’s cabinet, would set “price control goals” for provincial and local governments.

At the same time, he said, officials would “concentrate pricing power in the central government,” adding that no local government would be allowed to approve price hikes on goods without State Council authorization.

The measures also include efforts to increase the supply of daily necessities, tighten controls on prices of energy, raw materials and agriculture-oriented products, possibly through price ceilings, and establish a system by which local governments would apply in advance to hike prices of major commodities.