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Inflation rises sharply in China
Fang Han
11/18/2003

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BEIJING - Inflation in China disappeared after the Tianamen Square incident in 1989, but recently returned with a vengeance. Experts believe that the 4 trillion yuan issued by the government to erase bad government bank loans is causing the inflation.

According to financial experts, the problem started when The People’s Bank of China issued huge amounts of currency over the period of a year to stimulate the economy. Premier Wen Jiabao announced that the government would repay 800 billion yuan every year for five years to pay off bad loans that were made by the banks.

The price for agricultural products continues to increase. The price of rice, flour and cooking oil increased an average 10-20% at Beijing Markets. Red and green beans rose from 2 yuan per kilo to 3 yuan per kilo, a 50% price increase. Reports from the Bureau of Agriculture in November show the average price of 54 varieties vegetables is the highest since 1992 in Beijing, with the price of 38 of them increasing nearly 50%.

After Deng Xiaoping’s southern China tour and speech in 1992 and 1993 to promote the Open and Reform Policy, China experienced an overheated real estate market, and induced inflation. Former Premier Zhu Rongji’s policies that followed ten years later caused prices to decrease significantly resulting in deflation. It further developed into recession in certain sectors of the economy and stagnation in product sales with the supply far surpassing demand. Economists believe that the sudden inflation after a long period of deflation in China could cause social chaos.

Xiang Dong, a specialist in the Chinese economy, now living in Washington said, “In order to repay the debt, the current government has quietly allowed inflation to happen without any intervention. But inflation is a double side sword, if not used well, it will cause social crisis with people struggling to make a living. The price increase will definitely impact basic living expenses, so the Chinese government must control the price increase on the one hand, and on the other hand, tighten the control of society and take strict precautions against any chaos happening.”

Chinese financial column writer Liao Shiming said, “People still can bear the price increase right now. However, if the prices continuously increase, it will be very serious by the end of December. By the latter part of March 2004, the overall prices for all sectors could be 50% higher than they are now.”

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