The government launches campaign against speculation, which it blames for high prices. But it has had to reveal that government waste in areas like road building is also to blame. Experts call for a change in economic and economic policy.

Beijing (AsiaNews/Agencies) – Beijing is cracking down on commodity speculation and government waste as it faces an uphill battle against rising inflation and fears of social tensions the latter might cause. Still, as much as it might show off its efforts, many experts point out that the root problem is elsewhere.

The National Development and Reform Commission (NDRC) asked local agencies to "severely investigate and punish speculative activities", which it says has pushed up commodity prices. For instance, it claimed that such speculation lay behind the sharp price rises of mung beans, diesel oil and cotton this year.

The NDRC also “named and shamed" six companies yesterday, including local units of state-owned giants Sinopec and PetroChina.

The cabinet (state council) announced it would increase vegetable supplies (whose prices jumped 60 per cent), provide income subsidies to the poor, stabilise natural gas prices, and manage the procurement of cotton and corn. It also said it would directly control prices of key consumer necessities if necessary.

The Transport Ministry yesterday announced measures to tackle illegal spending on infrastructure projects to ensure that they do not exceed the limits set by the central government. It slammed local governments for allowing construction, especially of local roads, without approval and proper government authorisation.

In Guangdong alone, the total cumulative investment in expressways was 200 billion yuan (US$ 30 billion) at the end of last year, said Zheng Tianxiang, a transport specialist at Sun Yat-sen University in Guangzhou.

At the same time, 200 billion yuan of principal was still owed to banks, and many expressways have been built in remote parts of the province where there is not enough traffic to recover the costs through collected tolls, he said.

State spending on roads hit a record 1 trillion yuan last year.

For experts, government anti-inflation measures are just a panacea since inflation is the result of excess liquidity caused by excessive bank lending and the government’s stimulus package during the global crisis. High liquidity and easy credit in the United States have also had a ripple effect in China.

“The government does not view the pick-up in consumer inflation as a sign of excess aggregate demand and general overheating and continues to worry about global growth prospects. So it is unlikely to tighten macro and monetary policies aggressively,” Wang Tao, an economist with UBS Securities, said.

“The government will be more reluctant to impose price controls this time—most key staple food items and production inputs have not seen price surges that warrant such controls. Also, the experience of oil price controls in 2007 and 2008 suggests that controls do not work well,” she added.

Hence, the Standard Chartered Bank yesterday adjusted its view on the forward yuan exchange rate from "neutral" to "overweight" and said it expected an annual 7 per cent yuan appreciation against the US dollar in the first half of next year, almost twice as much as previously forecast.

Analysts project inflation will reach 5.5 per cent next year. Inflation at 4 per cent this year was responsible for major price hikes, ten times more in the case of foodstuff. If this continues, minimum wages are bound to rise with a domino effect on all prices.

• china
• economy
• inflation
• foodstuff
• monetary
• policy