Economy

Price rises must stop, group says

By Li Xiang and Chen Jia (China Daily)
Updated: 2011-04-14 06:58

BEIJING - Businesses were urged not to raise prices of consumer goods by a leading industry group on Wednesday as the State Council said that taming inflation is the government's most pressing task.

Companies must not collude in increasing prices or reduce supplies, the government-backed All-China Federation of Industry and Commerce (ACFIC) said in a statement, endorsed by 24 of its 28 chambers of commerce.

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The 24 groups represent businesses including agriculture, fishery, pharmaceuticals and textile.

The statement came just two days before the National Bureau of Statistics releases first-quarter economic data and inflation figures for March.

Economists have forecast that the consumer price index, a main inflation gauge, is likely to rise to 5.2 percent for March year-on-year, which would surpass the 28-month high of 5.1 percent recorded in November 2010.

An executive meeting of the State Council (the Cabinet) on Wednesday, which was chaired by Premier Wen Jiabao, said economic growth in the first quarter was stable and the situation was encouraging.

The State Council also substantially raised the maximum fine for illegal hoarding and price manipulation from 1 million yuan ($152,900) to 5 million yuan.

However, a statement about the State Council executive meeting on the Chinese government's website said that it is a concern that inflation pressures are spreading from emerging economies to developed ones and domestic price increases also pose challenges.

The ACFIC also said that companies should bear the social responsibility of easing livelihood difficulties.

Authorities have taken a number of measures recently to tame inflation and asset bubbles.

The National Development and Reform Commission, the country's top economic planner, has reportedly arranged meetings with companies, including producers of alcoholic drinks and consumer goods manufacturers, asking them not to raise prices.

Multinational companies may also be pressed not to raise prices when their domestic rivals heed the government's call and keep prices stable.

Unilever, the world's second-largest consumer-goods maker, said recently that it will postpone price increases in China at the government's request.

While the government is stepping up efforts to stabilize prices, industry analysts warned that price controls may result in smaller profits for domestic companies.

"A reduction in profit is inevitable if companies are not allowed to raise prices because production costs are increasing, driven by higher wages and rising raw material prices," said Yin Qizhong, honorary chairman of the China Aquatic Production Chamber of Commerce.

The People's Bank of China, to tackle inflation, has raised interest rates four times in less than six months.

"China has entered the early stages of a prolonged monetary tightening cycle as inflation pressures are likely to persist," Tomo Kinoshita and Sun Chi, economists at Nomura Securities, wrote in a report. They also forecast another rate hike of 25 basis points in June and one more in the third quarter.

Chen Xingdong, chief economist with BNP Paribas Asia Ltd, said that if the country's inflation rate exceeds 6 percent for two consecutive months, it may prompt the government to take administrative measures to control prices.