A view of Tian'anmen Square during the grand gala held on Wednesday, August 08, 2007, in celebration of the one-year countdown to the 2008 Beijing Olympic Games - - Photo: Xinhua China's central bank said on Wednesday that the country is coming under increasing pressure from price hikes, and acknowledged inflation risks are "worthy of attention". The People's Bank of China said in its second-quarter monetary report published on Wednesday that the current rising prices were not solely caused by accidental and temporary factors, adding that inflation risks were on the rise. It warned that the price hikes of food products could spread to other consumer products. The report identified four reasons behind the increasing risk of inflation. It said prices for grain and meat products would not fall in the short term and uncertainties over the autumn harvest were aggravated by the ongoing drought and the demand for grain is increasing from both the public and the bio-fuel industry. Meat prices would probably continue to rise in the long term owing to rising feeding costs and the short supply, which would not be replenished in the short term due to the breeding cycle of pigs, and the price hikes of meat could easily spread to other food products, the report said. Prices of energy and resources are under pressure as the world petroleum price has climbed to an even higher level and the domestic pricing reform of resources and the country's environmental protection efforts would also push the prices higher, it said. The report also said labour costs were rising which would eventually raise the prices of consumer products. People's anticipation of inflation had been enhanced, and it would put further pressure on price hikes, according to the report. A survey by the central bank in the second quarter showed that 40.2 percent of those interviewed, the second highest record since1999, said they were worried about inflation. China's consumer price index (CPI) rose 3.2 percent in the first half of this year, and the growth rate was 1.9 percentage points higher than the year-earlier level.

 

The People’s Republic of China will have to embrace inclusive growth to ensure that its thriving economy benefits the entire country, according to participants of a workshop organized by the Asian Development Bank (ADB) in Beijing.

Participants of the Inclusive Growth toward a Harmonious Society in China workshop held on 9 August underscored that increasing inequalities, if left unchecked, could have significant negative social and economic impacts and undermine stability. It could also make reforms more difficult and lead to inefficient utilization of human capital, constrain economic growth and social development, and undermine the country’s long-term prosperity.

The workshop gathered more than 100 participants from domestic research institutes, think tanks, universities, government agencies, and international organizations, to discuss the challenges facing China, arising from increasing inequalities. Participants also discussed policy choices for developing a harmonious society, which is the vision highlighted by the Government in its 11th Five Year Plan.

Speakers at the workshop noted that inclusive growth, with its focus on creating economic opportunities and ensuring equal access to them, provides a useful approach to developing a harmonious society. High and sustainable economic growth is essential to create decent employment and other development opportunities. Rapid growth alone cannot guarantee equal opportunities. This is especially true for China, which is still in the process of transition from a planned economy to a market economy.

“It is important to differentiate inequalities in opportunities from inequalities in outcomes. The former are mostly related to differences in individual circumstances as opposed to efforts, and reflect social exclusion arising from institutional weaknesses or market failures”, says Ifzal Ali, Chief Economist of ADB. “Equality in opportunities, which emphasizes eliminating circumstances-related inequalities so as to reduce inequalities in outcomes, is at the heart of an inclusive growth strategy.“

China’s per capita GDP has grown at an average annual rate of more than 8% over the last three decades, leading to a dramatic decline in poverty. But China
’s rapid growth has been accompanied by rising income inequalities.

To a large extent, rising inequalities have resulted from increasing income disparities between urban and rural areas and across regions.

“The widening income gaps are rooted in the incomplete transition from a planned economy to a market economy, with remaining administrative price distortions and interventions in resource allocation inherited from the era of planning,” says Professor Justin Lin, Director of Chinese Economy Research Center of Beijing University. “Institutional weaknesses and market imperfections also leave a significant room for rent-seeking activities by individuals and enterprises. Increasing income inequalities further lead to increasing inequalities in the access to basic education and health care,” he adds.

Non-income inequalities in China have also increased. The most notable aspect of non-income inequalities is the access to basic medical services and health care.

The Chinese government has been taken steps to address increasing inequalities. The government’s 11th Five-Year Plan announced in 2006 made the establishment of a harmonious society the basic development goal. But there are debates on how to achieve this goal among academia and policy researchers.

“On one hand, a harmonious society will have to be based on high and sustainable economic growth. Only through growth can productive employment and other development opportunities be created. On the other hand, a harmonious society requires investing in basic social services and physical infrastructure and ensuring the equal access to them, in order for all society members to benefit from growth,” says Toru Shibuichi, Country Director of ADB’s Resident Mission in China. “This is what an inclusive growth strategy about,” he adds.

It was noted that promoting equality of opportunities requires investing in education, health, physical connectivity, and other social services to expand human capacities, especially of the disadvantaged, and strengthening social safety nets to prevent extreme deprivation and alleviate transitory livelihood shocks.

“Carefully designed redistributive policies are also part of an inclusive growth strategy. But the purpose of the redistribution is not simply to equalize incomes, but to promote equalization of opportunities and, through which, to reduce inequalities”, Ifzal Ali says.

Speakers at the workshop also underscored that equality of opportunities requires good governance so as to promote economic and social justice, level playing fields, and prevent corruptions; and continued market and institutional reforms to make factors of production more freely mobile across regions, among sectors, and between urban and rural urban areas, and economic structure more consistent with the country’s factor endowments, thereby, creating more employment opportunities.