Newspaper article The Christian Science Monitor

China Pulls Hard on Reins to Slow Runaway Inflation BELT-TIGHTENING TIME

Newspaper article The Christian Science Monitor

China Pulls Hard on Reins to Slow Runaway Inflation BELT-TIGHTENING TIME

Article excerpt

IN recent days, Beijing has declared a war on inflation that analysts say carries high political and economic stakes for China's ruling communists.

After months of wavering over steps to curb inflation and runaway growth, a cash crisis in the banking system and outbreaks of rural unrest forced the government to act.

In a report by Wen Wei Po, a pro-China Hong Kong newspaper, Beijing detailed 16 belt-tightening measures aimed at taming 20-percent urban inflation. Some Chinese analysts claim the measures are harsher than those taken in 1989.

At that time, rising prices and hoarding of consumer goods precipitated government economic tightening and a power struggle that led to the Army massacre of pro-democracy demonstrators in Beijing and other cities. To defuse new turmoil, the plan calls for tightening bank credits, freezing price reform, cutting government spending, and restricting real estate speculation.

Last week a senior Chinese cadre was summoned urgently to a briefing where leaders of work groups were asked to play down economic trouble and "concentrate on propagandizing the positive side and the very good situation so as to avoid social shocks," the official said.

Zhu Rongji, the government's economic troubleshooter and new head of the People's Bank of China, has taken steps to create a Western-style institution that implements monetary policy and operates with a measure of political independence. In the past, political dictates drove Chinese economic policy. Mr. Zhu has blocked banks from raising interest rates independently, barred payment of commissions for loans, and ordered an end to bank-funded businesses. In addition, the government has raised interest rates for the second time in two months.

The bank has hinted its intention to rein in two chaotic infant stock exchanges. In recent months, financially troubled state enterprises have scrambled to avoid collapse and rushed to issue shares as a way out of insolvency. …

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