China still dogged by inflation

INFLATION is defying attempts by the Chinese government to cool the economy and remains the country's most stubborn challenge, according to figures released yesterday.

Consumer prices rose 27.4 per cent nationwide in September, year on year.

This is the highest since 1988, when inflationary pressures contributed to growing popular discontent in the run-up to the pro-democracy movement.

Third-quarter economic figures released yesterday by the State Statistical Bureau revealed that consumer prices are now rising just as fast in rural areas as in the cities. This has exacerbated the pressures on the government as it tries to steer its fast-growing economy towards the market economy while maintaining social stability.

Last year stricter money supply targets were imposed to cool the economy and halt speculation, especially in real estate. For the first nine months of 1994 GDP growth was 11.4 per cent, down from an annual rate of 13 per cent for the past two years.

Investment in fixed assets was 'under control', claimed the bureau spokesman, Qiu Xiaohua. In the first three quarters it still rose 43.9 per cent, but that was much slower than the growth rate for the same period last year.

Bank credit controls have since been eased, however, because loss- making state enterprises were facing bankruptcy, with the danger of throwing tens of millions of factory workers out of work. Mr Qiu said 44.5 per cent of state enterprises were still in the red. The worst-performing sectors were machinery, textiles, defence and coal.

Over the past two months the money supply growth picture has worsened because of the need to ensure adequate funds are available to pay farmers for this autumn's harvest. Two years ago there were instances of rural unrest as farmers protested at being given 'white slips' or IOUs when local governments bought their crops. High inflation has increased the pressure on central government to ensure that farmers are paid promptly this year, particularly as many areas have suffered from flooding or drought.

Money supply growth has rebounded in the third quarter. By the end of September, M0 was up 26.3 per cent, M1 up 29 per cent and M2 up 34 per cent, all ahead of this year's official targets.