Wang Jianren, a 56-year-old retiree in Shanghai, a bustling city of 20 million, says that over the years China has benefited tremendously from rapid economic growth. But like so many people here, he complains that inflation is beginning to eat away at those gains.
"Prices have gone up a lot," Mr. Wang said at an outdoor vegetable market here on Friday. "It’s a very bad thing to have prices go up and down. Unstable prices make people nervous and make society unstable. In this sense, our generation even has some nostalgia for Mao’s era."
This is the predicament China finds itself in today: fast growth has fired up the country’s economic engines, but it has also led to stubbornly high inflation, which threatens to overheat the economy and undermine the long-running boom the country has experienced.
The latest evidence of this came Friday when China said its economy had grown 9.7% in the first quarter of this year, certainly the strongest performance among the world’s biggest economies. But the government also said that in March the consumer price index had risen 5.4% from a year ago, the sharpest increase in 32 months.
Analysts were not surprised by the figures, but some experts say they believe they may understate the real rate of growth and inflationary pressure here. Bank lending, for instance, picked up strongly last month, and food, energy and raw material prices have risen sharply this year. In March alone, the government said food prices rose 11.7%.
To prevent overheating, Beijing is now trying to moderate growth and rein in inflation. During the past six months, the government has tightened restrictions on bank lending, raised interest rates, increased agricultural subsidies and even prevented Chinese companies from raising consumer prices.
Analysts, however, say the results have been mixed. Growth has begun to moderate from last year’s torrid pace of 10% annual growth, but inflationary pressure has not abated; in fact, it has strengthened. Some analysts say inflation may not peak until June.
Although the government has promised to tame the property market, housing prices continue to climb, and much of this country’s growth continues to be fueled by real estate projects and government investment in infrastructure.
In the first quarter of this year, fixed asset investment jumped 25% from a year ago and real estate investment soared 37%, the government said Friday.
Gas prices have also jumped sharply, in line with global oil prices. Gasoline prices in China have risen from about $3.82 U.S. a gallon in 2009 to about $4.50 U.S. a gallon today. Fast food chains have hiked prices, and during just the past year the price of fruit has jumped more than 31%.
Export prices are also rising because of higher commodity, raw material and labor costs. And since China is the world’s biggest exporter, what happens in its coastal factories could eventually have a major impact on prices in other parts of the world.
Indeed, in the country’s biggest export zones, factory bosses regularly complain about worker shortages and higher labor costs.
The government has encouraged higher wages in the hopes of reducing the big income gap between the rich and the poor, and the urban and rural. But that is driving up the costs of production.
Many analysts say the government is going to have to do more to tame inflation.
China’s current boom got underway in early 2009, during the global financial crisis, when Beijing moved aggressively to ramp up growth with a $4-trillion U.S. government stimulus package and record lending by state-run banks.
A loose monetary policy and massive investments in local government projects revived powerful economic growth that analysts say quickly sent land, housing and food prices soaring.
As early as 2009, however, there were already concerns about the health of Chinese growth, largely because of worries about high property prices, heavy bank lending and overly aggressive investing by local governments, many of which had been amassing huge debts.
In recent months, the International Monetary Fund and a growing number of economists have warned China that a credit and asset bubble could derail the nation’s growth. Some experts are suggesting that soaring asset prices could eventually tumble, leading to a wave of non-performing loans at the big state-owned banks.
For now, China’s chief concern seems to be fighting inflation and preventing high housing prices from fueling social unrest.
