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Tuesday, 31 July, 2001, 13:08 GMT 14:08 UK
China lifts price controls
Traffic outside MacDonald's restuarant in Beijing
China is preparing for increased foreign competition
China is to lift price controls on 128 items as part of preparations to enter the World Trade Organisation and persuade the international trade body to classify it as a market economy.

The impact on the cost of living will be slight, because most items on the list are already traded at market prices, according to Chinese officials.

But the deregulation, which comes into effect on 1 August, could assist China in future trade disputes, correspondents say.

Price controls will be lifted on sugar, silk, natural rubber, gold jewellery, steaming coal and tea for sale in border areas, according to the State Development Planning Commission (SDPC).

Some controls stay

But controls will remain on a list of more economically significant and strategically important items. It contains 13 categories.

They include natural gas, most electric power supplies, train tickets, basic telecommunications services, fees charged by ports along the Yangtze river, educational supplies and some pharmaceuticals.

"They've been gradually lifting price controls for almost two decades... it's got to the point of a small number of very important items, but they're the kinds of thing many western countries would be careful about," said Bill Overholt, head of Asia strategy and economics at ING Barings in Hong Kong.

"China still views those things as of strategic importance to the economy," said Sandy Chen of ING Barings in Shanghai.

Greater transparency

Nonetheless China is moving towards greater transparency in pricing these items. Officials said the government would soon issue rules for holding public hearings on pricing policy decisions.

The National People's Congress in March 2001 highlighted the need to improve price setting mechanisms by breaking industrial monopolies and removing barriers to trade between China's regions, said Dr Shaun Breslin of Warwick University.

The NPC mentioned many of the items that remain price controlled.

Part of the reason is that there are huge - and increasingly unpopular - regional variations in the price of basic services, said Dr Breslin.

In the case of China Telecom and the wireless operator China Mobile, these have led to complaints in the press, said Mr Chen.

Reform of the pricing system remains a sensitive matter, able to cause tension inside China's leadership. Disagreements between reformers and protectionists focus on the pace of reform.

Reformers vs protectionists

"It will be necessary to build up the competitiveness of the operators to prepare them for the competition... From the government point of view the more controversial point is how quickly should this be happening," said Mr Chen.

"Deregulation will be the longer term trend," he said.

Many of the market-opening measures negotiated in China's WTO entry accords take effect up to five years after the country joins, but entry does set a deadline.

The key to the Chinese government's approach so far has been to take price reform slowly to give domestic industries the chance to adjust to the world market.

Managed liberalisation

The petroleum products industry is an example of how the gradual approach has operated, according to Mr Chen.

It underwent "a managed liberalisation" from late 1998 onwards in which prices were set at international market levels, but with a one-month time lag, he said.

The government was able to cut subsidies on crude oil and to refineries while refineries retained a cushion against the market.

"It was an exercise by the domestic refineries, so they have to operate in a competitive context," said Mr Chen.

China began lifting price controls when it initiated market reforms in the early 1980s, before it began before it began the marathon negotiations on WTO membership, which have already lasted 15 years.

"Price controls have been gradually going off since 1979," said Dr Peter Ferdinand of Warwick University.

Trade disputes

But the latest deregulation is partly aimed at improving China's status in international trade disputes, commentators say. At present China is classed as a non-market economy.

In anti-dumping cases, India's prices have been used as a benchmark of reasonable market prices, not China's, and Beijing has been unable to cite domestic costs as a defence.

There have been 420 anti-dumping cases involving China in the past 20 years - 68 of them brought by the United States and seven brought by China.

A surge of WTO cases involving China is likely once it joins. The Japanese government, which accuses China of dumping agricultural products, has stressed it wants to be able to settle such matters using WTO hearings.

China is drafting its own anti-dumping laws to prepare for WTO membership and analysts expect to see Beijing initiate cases.

See also:

16 Jul 01 | Business
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09 Jun 01 | Business
China and US clinch WTO deal
10 Jul 01 | Business
China concedes in WTO talks
11 Jan 01 | Business
China reports import surge
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