In the recent governance concerns in the Chinese government, inflation is the subject for discussion as the monthly inflation is setting records recently in the economic arena (Harper 2008). This is evident that the CPI (Consumer Price Index) rose by 8.7 percent in February 2008 (Song Garmut 2006), which is so far the highest level the country to experience. The government lists the inflationary pressure as the most important economic issue that needs to be tackled by the National Economic Work Conference due to its intensity and urgency (Grayson 2008). In this regard, it clearly indicated from the statistics that uncovers that China inflation rate is about 8.5%.
that stays near 12-year highs ( media 2006). This is higher than the country have experienced in the past and therefore calls for the measures to handle the nations’ most intractable economic problem it is currently facing. China National Bureau of Statistics shows that there is a re-acceleration of the consumer price index to 8.3% growth from 8.7 %. ( media 2006) for instance, inflation has been triggered.
By soaring, food prices have increased by 22.1%, while pork which is the favorite meat for the vast majority of Chinese people, is 68.3% ( media 2006) more expensive in the market. In addition, the rural inflation is 9.3%, while the urban inflation rate stood at a more moderate 8.1 % (Ross Song 2006).
This emerging issue of high inflation to the Chinese government undermines the welfare of the broad mass of Chinese people and all business operations in the economic environment and the china sociological goal of harmonious society (Dnnithome 2008) in its governance system. This matter has seen the leadership expressing concerns such as Premier Wen says that the political onus will be on government officials and all stakeholders concerned to ensure that price rises are controlled and the inflation issue (Song Garmut 2006). This is important because price stability has a direct bearing on the quality of people’s lives in the country as it affects their welfare and generally socioeconomic aspect.
The economic expatriates and the leadership wing attribute to the internal Chinese policies and the global economic policies that are resulting in the tragic inflation (Ross Song 2006). Like for instance, Vice Premier Mr. Qishan says that global inflation poses a threat to the country’s speedy growth economy as the high prices abroad constituted a major pressure for the economy in China (Grayson 2008). In his view is that the ongoing Global inflation has to create major outside pressure for China’s economy, therefore, contributing to the internal inflation being experienced. This is because China is a major economic block in the world. Therefore it follows that China’s economy is quite well connected to the world economy (Grayson 2008), and the act of balance of trade results in the inflation influence. But however, apart from the global trading trends, the Chinese government policies to necessitates a favorable environment for inflation occurrence especially arising from within the institution of control like the central bank.
The other dominant issue that contributes to the inflation in china it’s because of the higher value of the yuan that keeps a lid on the imported inflation by lowering the cost of imported goods (Dnnithome 2008) and services, in addition, reduces the amount of yuan the central bank needs to print to counteract the impact of China’s trade surplus on the exchange rate, (Grayson 2008) therefore reducing domestic money supply growth within the Chinese monetary market. Under the same context, the Chinese government has had more control over the yuan that can not let it appreciate, which is a negative impact on the economy (Ross Song 2006). Other resultant can be used in fighting inflation includes the reserve ratios, exchange rates monitoring, agriculture sector issue, the domestic trade and industrialization, social and institutional issues, and the political and leadership factors (Song Garmut 2006).
In the history of the Chinese communist rule, there has been no good and quality record in the government on meeting the economic targets in its planning g and running of the state affairs. For instance, in the year 2007 government set a target for inflation of 3 percent, which was against an outcome of 4.8 percent (Grayson 2008). In addition, the same year, the target for GDP growth was estimated at 8%, this was far exceeded by the actual rate of 11.4% (Song Garmut 2006) in the financial year. Therefore this indicates the loophole in the economic strategy planning and achievement within the Chinese administration. But never the less any institution of power that is entrusted by the people to run their affairs must at all costs fight that shortcoming that hampers the welfare of its citizens.
With respect to inflation, the Chinese government has set out some tangible strategies to alleviate and manage the high inflation rate in the country (Grayson 2008). This translates that macroeconomic regulations in the country should work towards preventing the fast economic growth of china from becoming overheated growth, balance it with a view of keeping structural price increases from turning into significant inflation in the Chinese economic market scale. The government, in order to curb the inflation trends, should come with the economic tool of design that would regulate the economic transactions of the country, that would be beneficial rather than harmful to the economy (Ross Song 2006). These policies can include improving macroeconomic regulation in order to maintain a fast and steady economic development. But in order to achieve this, the Chinese government will need to use prudent fiscal policy and tight monetary policy ( media 2006). This would help because the past policy of slow economic growth had failed. In this regard, the prudent fiscal and monetary policies (Sim 2003) will make china reduce the budget deficit, which is not necessarily its spendings. Then the china Government spending should be focused on areas like social safety, agriculture, education, medical health care, emissions reduction, and energy conservation (Harper 2008). Since this key sector plays a major role in the economic system of the nation and the stability of the currency. For instance, the projected predictions reveal that China is likely to face a shortfall of 7.3 million tonnes of (LPG) supply by 2010 (Harper 2008). This is evident because the country’s oil demand of LPG is forecast to hit 26.2 million while the supply is expected to stand at 18.9 million tonnes (Grayson 2008). This, in economic terms, will mean that the demand for energy is high with low supply in the country. Therefore this may translate to a negative impact on productivity (Grayson 2008) that may shift trade equilibrium. The employing of the tight monetary policy will counteract the causes of overheated growth and inflation, such as prevention of excessive money supply and credit, a resurgence in fixed-asset investment, creation of excess liquidity leading to inflationary pressure in the economic system ( media 2006). Within the framework of the same policies should include measures directed toward increasing the effective supply while curbing excessive demand at the same time. Which would help to expand the production of basic necessities such as meat, vegetables, and grain for the local market (Sim 2003).
The other key area the should be emphasized by the Chinese government is the agricultural sector. Government should promote the development of agriculture by increasing farmers’ incomes using a wide range of support measures, including subsidies to farmers and investing in rural areas to facilitate production (Ross Song 2006). The other area to be addressed is promoting economic adjustment and changing the pattern of development in the structure of the economy (Song Garmut 2006). The adjustment in a number of external concerns as the role of exports in balancing economic growth by strengthening domestic demand, investment, and consumption. Then change from economic growth that is driven by investment and exports to an economy that relies on a combination of exports, investment, and consumption (Grayson 2008).
In conclusion, to sum up, the issue of inflation has been the key issue in the recent economic occurrence in the country. But fact that it is a global concern, the Chinese government should take initiatives by revising its monetary governance structures, social and domestic economic factors. For instance, the government set a target of 8% GDP growth for the 2008 financial year, if achieved, may relieve inflationary pressure on the china government. However, these economic targets can not be achieved without covering such fundamental issues that constitute the economic development and maintainers as food supply, housing, health, education, social incomes, security, and employment. In addition, the key issues like increasing the reserve like People’s Bank of China decision to commercial banks’ reserve ratio rise from 0.5% to 16.5%, and price freezes on electricity, gasoline, and basic goods in the market are important anti-inflation tools. As a result of these efforts, China has claimed a 12% Yuan appreciation against the US dollar and has improved trade Canadian lumber shipments to China to 450% from the previous 375% in the lumber industry.
Reference
Song L, Garmut R, 2006, China linking market, Oxford University, Oxford.
Grayson R, 2008, Economics, ANU E Press, Sydney.
Ross G, Song L, 2006, The turning point in the China economy development, ANU E Press, Sydney.
Dnnithome A, 2008, China economic system, Routledge, New York.
Sim S, 2003, China in transition, nova Press, Boston.
China briefing media, 2006, Business guide in China, china briefing media ltd, Beijing.
Harper D, 2008, China economic view, lovely planet , Kyoto.