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China freezes prices of key products

A driver tops up his fuel tank at a Beijing gas station yesterday. The central government has ordered the prices on state-controlled products frozen through the end of the year, which would include gasoline. PHOTO: AP

China's government has ordered some prices frozen and told officials to closely monitor others in its most drastic step yet to contain a surge in inflation.

The order, issued by six government agencies on Wednesday, came after inflation rose to 6.5 percent last month -- its highest monthly rate in 11 years -- propelled by a double-digit rise in politically sensitive food prices, including pork, the country's staple meat.

The statement stressed the importance of maintaining "market stability" ahead of a key Chinese Communist Party meeting next month. It said controlling inflation would affect China's development, reform and stability.

The order said government-set prices would be frozen through the end of the year, though it did not specify which items were covered. A man who answered the phone at the Cabinet's planning agency, the National Development and Reform Commission, and refused to give his name said he was unclear what goods would be affected.

A list on the Web site of the Beijing city government planning agency said products for which the state still controls prices include cooking oil, sugar, gasoline, tobacco, salt, coal and fertilizer.

The government's latest move could help to contain inflation in free-market prices by reassuring producers of stable costs for energy and raw materials, said Shen Minggao (沈明高), a Citigroup economist in Beijing.

"I think it will help change expectations a bit," he said. "Some companies might have wanted to raise prices because of expected higher energy or resource prices. Now they can postpone that," he said.

About one-third of prices in China are government-set, with the rest left to the market, Shen said.

The inflation spike came amid a boom that saw the economy expand by 11.9 percent last quarter, while prices of stocks and real estate are soaring. The country's main stock index hit a new high of 5,460.08 points yesterday morning. The government has raised interest rates repeatedly and imposed investment curbs in an attempt to cool the boom, but its efforts so far have had little impact.

Market order has to be maintained to ensure the "smooth opening of the 17th Party Congress," said the government order.

It was issued jointly by the ministries of finance, agriculture and commerce, the Cabinet's planning body and two other agencies.

The party congress, held once every five years to appoint senior leaders, opens Oct. 15 and is expected to see Chinese President Hu Jintao (胡錦濤) consolidate his power by promoting allies to key posts.

Communist leaders are especially worried about the political impact of soaring food prices, which hit the country's vast, poor majority especially hard. Families in the countryside and the urban working class spend about one-third of their incomes on food.

Pork prices have soared due to shortages blamed on a decline in pig rearing, rising feed costs and an outbreak of a pig disease that killed more than 70,000 animals and infected 280,000 this year.

The government has tried to bring down the price of pork, the country's staple meat, by encouraging farmers to raise more pigs with promises of free vaccinations and other aid.

Wednesday's order told local authorities to closely watch market prices of pork and other meat, eggs, electricity and liquified gas but did not order controls on them.

In July, the central government barred local authorities from changing state-set prices for consumer goods in areas where they had already surpassed the official targets.
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