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BIZCHINA / Weekly Roundup
Time to restructure the CPI
By Yi Xianrong (China Daily)
Updated: 2007-08-10 13:22
Moreover, profound changes have taken place in the country's economic
set-up and climate over the last three decades. In this context, the CPI
draw-up trails new developments - and its accuracy is questionable.
The current CPI calculation is based on the calculation system of the
national economy in 1993. This explains why spending on education,
healthcare, housing, communications and transportation, which constitute
very large portions of Chinese consumers' expenses, fail to be fully
reflected in CPI.
A CPI that is unable to accurately mirror people's consumption,
therefore, offers an inaccurate interpretation of the country's economic
life and is also prone to leading the government, enterprises and
ordinary households to erroneous decisions.
Related readings:
?Analysts say CPI may hit 5 percent
?Economists: 4% CPI rise still healthy
?Central bank warns of inflation risks
?Asset prices may keep rising in 2nd half
?Lending in decline on tightened control
?Central bank vows to prevent overheating
This writer believes many domestic economic problems have their roots in
the low-interest policy. This finds expression in a number of phenomena.
First, the banks' interest rate is lower than that of the
non-governmental credit market.
Second, the interest-rate level of the country is very much disengaged
from the nominal GDP growth.
Third, the United States and China both started raising interest rates in
2004, with the Fed having increased the interest rate 17 times so far,
but the People's Bank of China having raised the rate merely five and a
half times. This should be considered against the fact that the Chinese
economy is growing several times faster than the US economy.
Fourth, the domestic banks' interest-rate level is widely dislocated from
the high investment-return rate. Chinese enterprises' profits rate, for
example, currently stands as high as 20 percent, thanks to the booming
Chinese economy, and the real estate sector sees particularly higher
profits rate.
In view of all this, a conclusion can be drawn: It is simply impossible
to have various kinds of distorted economic behaviors corrected if the
current low-interest policy remains unchanged.
The modern-day central-bank working mechanism emphasizes foresightedness,
rather than merely working out monetary policies according to the latest
economic data. And the data for reference should not be exclusively
confined to CPI and they should also include fluctuations of assets'
prices. Moreover, some economic data is disconnected from the economic
reality.
In short, it is high time that the nation's CPI system be restructured.
It can be said that the end of the old CPI system means the end of high
growth speed and low inflation.
(For more biz stories, please visit Industry Updates)
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