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Summer harvest helps stabilize prices
Recently in China, the good news of a likely bumper summer grain harvest has exhilarated policy-makers. At a time when the country is troubled by mounting inflationary pressure, growing grain production is good news. The harvest is the result of the central government's macroeconomic policies. It will, in turn, ease the tight strain on the country's current policy-making. According to the Ministry of Agriculture (MOA), the wheat output per mu (0.066 hectare) is expected to increase more than 10 kilograms, and the country is expected to reap 2.5 million tons more wheat this summer, a year-on-year increase of 3 per cent. That almost confirms a good summer harvest, because in China wheat harvest accounts for nearly 90 per cent of summer grain harvest. The 3-per-cent growth rate is not a historical record, but it is a historical turn in China. It does not come easy. Since the second half of last year, the central government has been implementing monetary measures to rein some overheated sectors, including auto, steel, cement, real estate and aluminium. Meanwhile, it has been giving more fiscal support to agriculture, energy and resources sectors. Early last year, the central government released the "No 1 Document," to grant farmers direct subsidies. This year, the central government assigned a record-high fiscal farm subsidy of 150 billion yuan (US$18 billion). Until early May, direct subsidies from the central and local governments to the nation's 12 major grain growing provinces reached 8 billion yuan (US$963 million). The government also plans to take 10 billion yuan (US$1.2 billion) from the country's grain risk fund to subsidize grain growers. The most recent support came from the Agriculture Development Bank of China, who announced last Tuesday it would issue 40.8 billion yuan (US$4.9 billion) worth of one-year bonds in four batches this year. The first batch of 8 billion yuan (US$963 million) worth of bonds will be issued next month to support the ongoing summer grain purchases. Premier Wen Jiabao in March promised to cut agricultural taxes gradually to zero in five years. The government's agricultural policies and measures are effective, as the summer grain harvest demonstrates. "The central government's policies encouraged farmers' cultivation enthusiasm," said Feng Huaisong, director of MOA's grain and edible oil division. "In turn, a good summer harvest offers the central government leeway to implement other macro policies." Many agricultural analysts say the summer grain harvest sets a good note for the year and they expect a bumper autumn harvest to follow. That greatly relieves people's concern over food security. Last October, grain prices soared throughout the nation, the first time in six years. A consensus explanation was the grain output had decreased in recent years. In 2002, China produced 457.06 million tons of grain, a 10.78-per-cent decrease from 512.3 million tons in 1998. Last year, total grain output further decreased to 431 million tons and summer grain output recorded a fourth consecutive year decline. Experts worried if the situation continued this year, China would face a food security crisis in the next couple of years. However, the situation has turned better. The summer grain harvest is expected to help stabilize consumer prices. According to the National Bureau of Statistics, the consumer price index (CPI) in May reached a year-on-year increase of 4.4 per cent, the highest in seven years, nearing the central bank's 5.31-per-cent one-year bank loan interest rate. Xu Hongyuan, a senior economist with the State Information Centre, a key think-tank for the National Development and Reform Commission, said the growth rate of grain prices will slow down, although prices may not decline. Song Hongyuan, vice-director of MOA's research centre of rural economy, agreed: "The growth rate of grain and food prices will slow down in the third quarter." According to a recent statistical release on the new CPI structure, food accounts for 33.6 per cent and grain contributes 3.1 per cent to the consumer prices. The relieved consumer price situation helps ease pressure on interest rate hikes. The central bank's monetary authorities announced in a recent meeting that the bank will keep interest rates unchanged in the short term, and currency exchange rates will remain stable at a reasonable and balanced level. With a good harvest, Chinese farmers are expected to earn more. Their bulging pockets will help boost domestic consumption at a time when the investment growth rate is slowing down after the authority's measures to cool down overheating take effect. Thus domestic consumption may contribute more to economic growth and offset side effects of an investment slowdown. The summer grain harvest is, to some extent, contributing to the country's sustained economic development. |
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