PRC inflation likely reached 8.3% last month, bank says

AFP, BEIJING
Monday, Mar 10, 2008, Page 1

China's inflation likely hit a new 11-year high of 8.3 percent last month on the back of rising food prices, state media said yesterday, triggering speculation of a modest hike in interest rates.

Severe winter weather that crippled transport networks, and the Lunar New Year festival, which traditionally brings a surge in demand, were also seen as helping drive up the price of food and other basic commodities.

The estimate of 8.3 percent was given by the Bank of China, the country's second largest lender, and reported by Xinhua news agency.

It came ahead of tomorrow's publication of official inflation data from the National Bureau of Statistics, which is used by authorities to decide whether to tighten monetary policy.

The consumer price index (CPI) had already risen 7.1 percent in January from a year earlier, the highest since September 1996.

"Everybody knows it's going to be more than 8 percent in February. Logically, February's CPI must be higher than January's," said Chen Xingdong (陳興動), Beijing-based chief economist with BNP Paribas Asia.

In its report, the Bank of China said last month's increase in the CPI was fueled mainly by food, which rose more than 22 percent from a year earlier, Xinhua said.

"Making things worse ... when people expect prices to keep rising, they will spend more to avoid those future rises, which in turn will push prices up," it said, quoting the bank.

The central bank governor said last week there was "definitely room" for more interest rate hikes.

If he does raise interest rates -- the classic response to rising inflation -- he could deter producers of basic commodities, making the scarcity of these products even worse.

Another problem is that since early last year, China has hiked its interest rates six times, while the US Federal Reserve has steadily lowered them.

As a result, the spread between the two has widened, with the benchmark US federal funds rate now at 3 percent, compared with 7.47 percent for China's one-year lending rate.

Chinese policymakers fear that a big gap between Chinese and US rates will attract more speculative funds into the economy, fueling liquidity.

KMT's economic ideas lack vision
　

By Lin Cho-shui 林濁水
Monday, Mar 10, 2008, Page 8

The Chinese Nationalist Party (KMT) looks over its decades of governing and the so-called "Taiwan miracle" -- the transformation into a strong economy and democracy -- and pats itself on the back.

It has an elitist attitude and deceives itself into believing Taiwan's success story was somehow all the result of its wisdom and foresight.

Based on that view, it has not changed its belief that such a regime is justified. It gives orders from the top and proposes projects with grandiose titles: the Asia-Pacific Regional Operations Center (APROC), an airline hub connecting Northeast and Southeast Asia; the dual purpose operations center for domestic and foreign enterprises; the "cross-strait common market," the global value-added services center; and the global innovation center.

The KMT has dominated the discussion of such issues. But ironically, in spite of a constant string of proposals and impressive project titles, its economic strategy boils down to one principle: complete reliance upon the US and China.

In the years before the KMT lost the presidential office, its economic policies focused on two areas: the development of the electronic information industry with a focus on manufacturing and the APROC.

The latter was a policy proposed by KMT vice presidential candidate Vincent Siew (蕭萬長) in 1995.

To bolster the electronics and information technology sectors, the KMT allowed the manufacturing industry to move operations abroad to gain cheaper access to land, capital and laborers. But the industry focused entirely on original equipment manufacturing of hardware, while the innovative integrated-circuit and software sectors, which focused on research and development, were grossly underestimated.

Companies working in these sectors had difficulty listing themselves on the stock market and gaining access to Hsinchu Science Park and were usually excluded from tax incentives.

The government's priorities back then resulted in an economic reliance on technology from upstream companies and orders from downstream companies. There was no effort to promote independent technologies or brands.

As for Siew's APROC, which was copied from Hong Kong, the KMT tried to used Taiwan's location to build a "greater China" economic zone.

KMT Vice Chairman Chiang Pin-kun (江丙坤) even suggested to the party's 2004 presidential candidate, former KMT chairman Lien Chan (連戰), that the government allow the entire manufacturing industry to move abroad.

The "greater China" approach was based on the erroneous judgment that the nation had gone from reliance on the US economy to reliance on the Chinese economy. To compete in the Chinese market, the argument went, Taiwan's manufacturing industry must have access to the same cheap Chinese laborers; the service industry must ape Hong Kong and focus on China; and Taiwan must serve as a door for China's imports and exports.

This is the approach that the KMT is promoting even today.

The Democratic Progressive Party (DPP) has a different vision for continued economic transformation. That vision is based on creating technology.

From building up brands to developing the service and cultural sectors, the nation's economy must seek its future in innovation. The key is research and development. Industries will gradually gain in independence by innovating and marketing their developments.

The economic policies offered by the DPP and KMT reflect the difference between independence and dependence. They represent two completely different economic maps for the growth of the nation's industries. They are the difference between looking over the horizon to create a global center for logistics and innovation or limiting Taiwan to a "greater China" economic zone.

Hong Kong is an excellent example. It is a door to the Chinese market and some have called it the hub of East Asia. But Hong Kong's success remains limited to taking advantage of its location. It has capitalized on its position to become what it is today, but failed to innovate and grow in other directions. Siew's vision is exactly this: Taiwan, another Asia-Pacific center.

There is no doubt that Siew is right in one aspect. The nation would be foolish not to take advantage of geography to grow. But Taiwan is more than the "city economy" that is Hong Kong. Taiwan has long had global ambitions. Instead of vying to compete within the region, the nation's economy needs to aim for competing globally. Our ambitions should be much higher than simply hoping China and other countries continue to transit their goods through here.

Taiwan and Hong Kong have taken different paths for centuries and should not start mirroring each other now. The pan-blue camp keeps warning against policies it labels as "isolationism," but its strategy would undermine the nation's strides as a global player and turn it into a regional player.

Lin Cho-shui is a former Democratic Progressive Party legislator.