TO THE POINT: China's central bank increased the interest rate for the sixth time in 2007 to try to prevent excessive liquidity. The government banned around 600 items from the low value-added processing industry, and decided to import grain products at a higher cost to ease domestic shortages. The country is now reading a law draft in order to safeguard state-owned assets. The stock market rebounded after its largest monthly drop in history, and trading activities in a mysterious account was suspected of causing the stock market disaster.

By LIU YUNYUN

Take a Hike

The People's Bank of China decided to raise the interest rate for the sixth and final time in 2007 in a bid to cool the economy and honor the government's commitment to a tightened monetary policy.

The central bank raised the benchmark one-year deposit interest rate by another 27 basis points to 4.14 percent and the lending rate by 18 basis points to 7.47 percent as of December 21, 2007.

Unlike the previous five rate increases, the central bank this time lowered the interest rate for current deposit by 9 basis points. The move was meant to encourage people to put more money in the bank for a fixed period, rather than having it readily available for stock or property investment.

The central bank's decision was based on the surging consumer price index (CPI) growth rate, a key barometer for inflation, which soared to a 11-year high of 6.9 percent in November. The climbing CPI has been driven up by increasing prices for food, largely due to higher pork prices.

"If this move fails to ease inflationary pressure over a certain period of time, the central bank may announce more hikes in interest rates and bank reserve requirements," said Tang Min, chief economist with the China Mission of the Asian Development Bank.

Analysts expect the central bank will raise the interest rate another two times in early 2008, then gradually reduce the rate in the second half of the year.

When the central bank conducted its fourth quarter survey among depositors, it showed only 30 percent were willing to buy stocks. Half of the respondents said current commodity prices were "unbearable" and 64.8 percent believed that prices would continue to rise in 2008.

Far From Enough

The large fall harvest could not satisfy consumer demand in 2007, meaning China had to turn to imported grains at a higher cost.

China's Minister of Agriculture Sun Zhengcai said the country's grain output, which includes rice, wheat, corn and soybeans, exceeded 500 million tons in 2007, making it the fourth consecutive year of output increase since 2004.

The bumper harvest was supposed to ease grain supply pressure in the domestic market. However, Minister Sun said that output still fell short of demand in 2007.

Sun said the grain supply per capita dropped from 412 kg in 1996 to 378 kg in 2006. Historically, grain output had declined until 2004. It is estimated that the country will have to maintain an annual grain output of 500 million tons up to 2010 if it wants to secure an adequate food supply.

However, China is confronted with great challenges in feeding its huge population of more than 1.3 billion as the amount of farmland shrinks and more farmers relocate to towns and cities. Extreme weather brought about by global climate changes will also make agricultural disaster prevention and reduction more difficult.

Numbers of the Week 122 million The Ministry of Information Industry said the number of broadband users has reached 122 million in China, making up 60 percent of all netizens. About one third of the newly added broadband users in 2007 were from the countryside. 0.1 yuan Zijin Mining Group Co. Ltd. won approval for an initial public offering from the regulator and will issue its shares at 0.1 yuan of paper value, the first of its kind in history. Chinese stocks are usually set at 1 yuan per paper value.

To cope with supply pressure, the country scrapped export rebates for 84 agricultural products on December 20, 2007, in an effort to discourage exports of farm products and boost domestic supplies.

China also increased imports of agricultural products to ease domestic shortages. It imported 21.7 million tons of soybeans in the first three quarters of 2007, a growth of 2.1 percent over the year before.

Xinhua News Agency quoted Customs sources who said the imports were valued at $7.36 billion, up 32.5 percent. The import price averaged $339.8 per ton, up 29.8 percent. Of the total imports, 99.1 percent came from Brazil, the United States and Argentina.

The higher import cost was due largely to mounting domestic demand, decreases in production and rising transport costs worldwide, sources said.

Laying Down the Law

Chinese legislators are reading the State-owned Assets Law, which has gone through 14 years of drafts and deliberations.