CHINA'S inflation rate in the first quarter rose to its highest since 1988, with prices in major cities up an average of 15.7 per cent. A spokesman for the State Statistical Bureau, Mr Zhang Zhongji, said yesterday economic growth also continued to surge ahead with the country's gross domestic product reaching 527.8 billion yuan (about HK$715.7 billion) in the first three months of the year, a 14.1 per cent increase over the same period last year. He said excessive money supply, over-investment in fixed assets and the removal of price subsidies last year were the main causes of the dramatic increase in inflation. ''We can now say that the forces putting pressure on inflation have now been released,'' he said. Mr Zhang was quick to play down the danger signs, saying he was still ''cautiously optimistic'' about the economic situation in general. Inflation across China as a whole grew 8.6 per cent, more than 50 per cent higher than the government's target, while prices in the normally stable rural areas rose 8.5 per cent. The surprising increase in rural inflation was largely the result of higher fuel, fertiliser and other raw material costs, Mr Zhang said. Although farmers' average per capita income rose 15 per cent to 80 yuan a month, analysts said this would be largely offset not only by increased costs in raw materials but by the arbitrary taxes charged by local governments and the system of IOU payments used by the local authorities. ''The government is trying to crack down on IOUs and arbitrary levies but there is a lot of resentment building up in the countryside and these price rises will only make the situation worse,'' a Beijing-based economist said. Urban inflation was also a major cause for concern, he said. ''For the first time we are seeing the kind of price rises that occurred in the late 1980s and unless the situation is brought under control, it will not be too long before popular resentment starts bubbling to the surface,'' he said. Retail price increases in the first quarter for the four main cities - Beijing, Shanghai, Tianjin and Guangzhou - were 14.6 per cent, 16.7 per cent, 12.3 per cent and 17.2 per cent, respectively, according to official figures. But Mr Zhang stressed that the current situation was very different from 1988 when excessive consumer demand sent prices soaring and caused near riots in many cities as residents fought for scarce commodities. ''It is not like 1988. The market is basically balanced and the income of urban residents increased faster than inflation. So the residents [in the cities] are generally confident,'' he said. Per capita urban incomes rose 27 per cent in the first quarter to reach 195 yuan a month, according to official statistics, but government officials admit their figures usually underestimate actual incomes by about 50 per cent. Mr Zhang also played down the fact that the economic growth rate was continuing to rise despite government attempts to gradually slow it down. ''The growth rate may be higher or lower than the government's target; it is just a little bit higher at present,'' he said. The actual growth rate was nearly twice as high as the government's target of eight to nine per cent set during last month's National People's Congress. Many analysts now fear the Chinese economy is getting out of control as the central government delegates more autonomy to local authorities. Most of the 70.7 per cent growth in investment in fixed assets came from local rather than centrally approved projects, with local investment rising 80.9 per cent compared with a 37.6 per cent jump in central government-approved investment. Mr Zhang himself admitted that the economy was caught in a kind of limbo between central planning and market forces and this was causing some problems. There was an urgent need for more effective macro-economic control measures and new legislation to prevent the situation from getting out of hand, he said. Mr Zhang also said China registered a US$1.2 billion deficit in its foreign trade in the first quarter on continued strong import growth. Two-way trade rose 16 per cent to $33.35 billion, with imports gaining 25.4 per cent to $17.26 billion and exports up 7.4 per cent to $16.09 billion. The deficit compared with a $1.2 billion surplus in the same period last year. For the whole of last year, import growth pushed China's trade surplus down to $4.4 billion from $8 billion in 1991.
