China Says Rising Inflation Can Be Halted : Economy: In the first half of the year, the national cost of living index rose 14% over the same 1992 period and topped 30% in some cities.
BEIJING — China is confident it can beat public enemy No. 1--inflation--without repeating the politically wrenching slowdown of four years ago, government economists say.
In the first half of the year, China’s national cost of living index rose 14% over the same 1992 period and topped 30% in some cities, helping to fuel a 21.6% boom in retail sales as people loaded up on goods.
This threatens China’s leaders with a repeat of 1988 when rising inflation fueled a rash of panic buying that stopped only after Beijing rammed through an across-the-board austerity program lasting more than two years.
Economic instability during the late 1980s, which temporarily crushed hopes among China’s consumers, was a key reason behind the Tiananmen Square pro-democracy protests of 1989--the most serious public challenge to Communist Party rule in four decades.
Beijing last year changed gear and put the economy back on the high-growth track, leading some foreign economists to wonder if China was not steaming back on the rocks of inflation.
“The conditions today are different than 1988,” said Mao Zurong, an economist with the official National Information Centre.
“Then the only way people had of dealing with inflation was panic buying,” he said. “This time there are other channels for placing money, through bonds and securities and in banks, whose interest rates have been increased early enough.”
He said that in China, the supplies of 90% of all commodities exceeded demand and that much of the inflation this year was due to speculation in goods and not to real shortages.
An economist with the Agricultural Bank of China said ordinary people had enjoyed substantial rises in income since 1988 and did not fear a shortage of goods, since the stores were full of them.
“The price rises this year have been higher for industrial raw materials than for goods ordinary people buy,” he said. “The high purchases this year reflect higher incomes, not panic buying.
“People have confidence in the government’s strategy to bring down inflation. This is still a communist system. Regions must obey the center and banks have to cut loans to unapproved projects.”
Foreign economists say a loosening of the planned economy has weakened the central government’s ability to control the regions.
Recognizing the dangers of super-fast growth, the government in July announced a 16-point program to cut inflation and cool the overheated economy, including a rise in interest rates.
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