Unrest set to force action on inflation

CHINA will soon launch new programmes to cool its overheating economy, with forecast full-year inflation hitting 20 per cent, says Hong Kong economic analyst Thomas Chan Man-hung.

Looming social unrest throughout the country, will force the government to adopt a policy of retrenchment in the coming few months, Mr Chan quoted sources as saying.

He also said there were unconfirmed reports of reshuffle of the Chinese leadership as a move to over-ride Vice-Premier and economic chief Zhu Rongji, who was criticised of failing to observe a tight money policy.

The State Statistics Bureau on Tuesday also forecast the full-year inflation would hit 19.5 per cent, nearly twice the government's original target.

'I believe the government will soon adopt the one and only method - to retrench funds for credit and other investment projects,' said Mr Chan, reader and co-ordinator of the China Business Centre at the Hong Kong Polytechnic.

He attributed the alarming inflation rate to farm product prices which have soared by about 50 per cent since last December, as the state increased prices to pacify discontented farmers.

'The government has also injected too much money for investment expansion in the past two years. It's a totally wrong approach,' he said.

He estimated with proper policies, China's economic growth in two years would reach a low but stable level of about seven per cent, before peaking again in 1997.

He said, however, a 'soft landing' would not happen in the next few years as the economic problems for the country were so complex.

To combat raging inflation, the central bank recently announced its highest interest rate subsidy so far this year.

The State Planning Commission also has banned or delayed many development projects at the regional level, according to Mr Chan.

Meanwhile, the State Information Centre said yesterday it expected overall prices to fall during the next few months.

The centre said the rise in the retail index price would be 14 per cent to 15 per cent in the fourth quarter of this year, following a 19 per cent rise during the third quarter, the China Securities Daily reported.

The nationwide consumer price index rose 22.8 per cent between January and August.

During the first eight months of this year, China's aggregate retail sales have shrunk by 12.6 times to only 968.5 billion yuan, compared with the same period last year.