(China Daily)
Updated: 2007-11-22 07:12

When forecasting that China's economy is to grow 11.5 percent this year, Premier Wen Jiabao put in perspective the country's robust economic growth.

This year, the fifth year in a row of double-digit growth, does not amount to a big departure from the country's long-term growth trend which has stood at about 9 percent for almost three decades.

The more important message Wen delivered during his visit to Singapore is the need for the Chinese government to prevent the economy from overheating and make sure that structural price rises do not move toward high inflation.

Though the Chinese economy soared 11.5 percent year on year in the first three quarters this year, mounting inflationary pressure has weighed more and more heavily on policymakers. To ensure its economy grows in a stable and healthy way, China must prepare for a tough battle against rising inflation.

The current round of consumer price inflation has so far largely been driven by food price rises.

From an optimistic point of view, the country can bring prices under control by increasing the supply of key food items. But pessimists are also justifiable to argue that things may get worse as non-food inflation is yet to follow.

Since food makes up a third of the consumer price index, accelerated inflation has already bitten disproportionately into the pockets of low-income families. It is an urgent task for the government to take measures to cushion these people against the rising cost of living.

Yet, the long-term impact of high inflation is a more serious cause for concern. Soaring consumer prices may push up the country's salary level rapidly to undermine the country's international competitiveness.

A global economic slowdown already poses a big challenge to China's economy next year.

If the government cannot effectively temper the inflationary expectations, a rise in the cost of labor plus climbing producer price inflation may seriously affect the country's exports and slow economic growth.

The Development and Research Center of the State Council predicted that China's economic growth may slow a bit to 10.5 percent if consumer prices gains ease to around 4 percent next year.

That will be a fine growth scenario. But the premier's emphasis against inflation indicates that it is far too early to take it for granted.

(China Daily 11/22/2007 page10)