China says it has capacity to curb inflation

[November 22, 2010]  SHANGHAI (AP) -- Beijing has the capacity to control surging prices while keeping economic growth on track, China's main planning agency said Monday, in the latest effort to quell public anxiety about simmering inflation.

Conditions are right for cooling prices, despite worries over rising food costs, the National Development said Reform Commission said Monday on its website.

"This fear is understandable, but we can safely say that the current conditions in China are fully conducive to maintaining basic price stability," the statement said. "This country has the capacity to keep the price level basically stable."

The effort to defuse public unease came after Beijing announced its second bank reserve increase in two weeks on Friday in an effort to curb lending and cool inflation that rose to a 25-month high in October.

Many in China expect an interest rate hike to follow.

Food costs jumped 10.1 percent in October over a year earlier, boosting inflation to 4.4 percent, well above the government's 3 percent target. That worries Chinese communist leaders who fear price hikes could trigger unrest.

Chinese stock markets have fallen amid investor fears a rate hike or tighter economic controls imposed to control inflation might further slow growth that has declined after hitting double-digit levels this year.

The planning agency said supplies of farm products such as poultry, eggs, grain and cooking oil are sufficient. It said the government has adequate reserves, even after droughts and other natural disasters this year.

The agency called on local authorities to ensure steady production and supplies and to better regulate markets to prevent any disruptions.

Economists say money flooding through the economy thanks to stimulus spending and bank lending helped push up October inflation.

China's regulators also worry that soaring lending is fueling overspending on real estate and other assets and could leave banks burdened with unpaid loans if ill-considered projects default.

Beijing has slammed the U.S. for monetary policies it says are flooding emerging economies with cash seeking higher returns due to low interest rates and the weakening U.S. dollar.

China's Cabinet promised last week to ensure adequate supplies of coal, power, oil and gas and said it would impose price controls on daily necessities if required.

The government also has promised food subsidies for the poor and increases in pensions and minimum wages.

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Online:

National Development and Reform Commission (in Chinese): http://www.ndrc.gov.cn/

[Associated Press]

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