Government and Policy

Support agriculture to 'curb inflation'

By Wang Xing (China Daily)
Updated: 2011-03-21 07:11

BEIJING - China's Finance Ministry has said that it plans to increase support for agriculture this year as part of the government's general effort to put a halt to growing commodity prices.

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Xie Xuren, the finance minister, made the remark at the 12th China Development Forum in Beijing on Sunday, where he told the gathering that fiscal measures could play a major role in the fight against inflation.

But economists and industry analysts have pointed out that the recent earthquake in Japan and the military strikes in Libya could make it more difficult for China to control inflation.

"This year we will fully support the production of staples like grains, oil, vegetables and cotton, and stabilize supplies of fertilizer, coal and oil," Xie said.

The government has pointed to inflation as the major economic threat, with the consumer price index growing about 5 percent a month in the past quarter.

On March 18, the central bank announced an increase in the reserve requirement ratio by 50 basis points to soak up liquidity in the market. That is the third hike this year. The new ratio will take effect on March 25.

"I think the government measures taken since last year have greatly contributed to curbing inflation," said Fan Gang, director of the National Economic Research Institute and a former central bank adviser.

But, Fan said, the recent Japanese earthquake could still bring some uncertainties to the fight against growing commodity prices, because many countries' rethinking of their nuclear plans may boost up prices of agricultural products and oil in the global market.

China said last week that it will suspend approvals for new nuclear power stations and take another look at all nuclear projects, including those under construction.

Michael Spence, a professor of economics at Stanford University in the United States, told China Daily on Sunday that if many countries abandon their nuclear plans and start using grain for bio-fuel, global food prices could spike over the long run.

The most immediate impact on world commodity prices could come from the military strikes on Libya, which could disrupt oil production in the Middle East and push up oil prices, Spence added.

Fan also pointed out that China may have to accelerate the pace of appreciation in the yuan to offset rising prices on the global market.

A "moderate" appreciation could essentially curb China's growing food prices, he noted.