China on Tuesday defended its controversial talks with firms on stabilizing prices, saying they are not a form of administrative intervention.

The goals of the talks are to remind firms to abide by the country's laws and regulations and prevent collusive price increases and follow-suit practices, said Zhou Wangjun, deputy head of the pricing department of the National Development and Reform Commission (NDRC), the country's top economic planner.

The NDRC and other ministries have brought in representatives from firms that produce everyday consumer products for talks over their planned price hikes since March, which spurred criticism of administrative intervention and disruption to the market order.

"It is not an administrative intervention, but a mild precaution," Zhou noted, adding that China respects pricing autonomy.

"As far as we know, some enterprises wanted higher product prices because higher costs of labor, land and raw materials have resulted in mounting pressure for them," he said.

However, there were some businesses which colluded to lift prices or followed suit on price hikes, and some spread news of price increases to test market reactions before acting on it, he said.

Such practices will fuel market tension, exacerbate inflation concerns and thus lead to panic-driven purchases, he explained.

If firms' price hikes violate laws and regulations, they would face punishment with fines, which would add administrative costs for the government and business costs for enterprises, he added.

The NDRC published amended rules about prices in December of last year, saying that it would severely crack down on collusion to increase prices, hoarding of goods and price gouging.

It raised the maximum fine for retailers that collude to increase prices to 5 million yuan ($ 765,521) from 1 million yuan previously.

"The talks have generally brought about good effects as most enterprises understand and are supportive and willing to shoulder more responsibility for keeping prices stable," he said.

The talks came as the Chinese government attempts to combat stubbornly high inflation, which rose 4.9 percent over the previous year in February and then quickened to a 32 month-high of 5.4 percent in March, exceeding the full year target of around 4 percent.

Premier Wen Jiabao has reiterated that keeping overall prices stable was the priority for the government's macro control this year, as soaring prices might pose a threat to social stability.

Zhou said that price hikes in China are due to many factors, including higher costs, soaring commodity prices, excessive liquidity, speculative funds and increases for more profits.

China has employed a series of measures to stabilize prices, such as controlling its money supply, boosting production, guaranteeing supplies and strengthening supervision, he said, noting that "the talks are only assisting these moves."

The People's Bank of China, or the central bank, has hiked the required reserve ratio for banks seven times since last October and raised interest rates four times since then in an attempt to remove monetary factors related to inflation.

"The latest rise in prices is driven by complicated factors at home and abroad. There is no fundamental change in these factors so far, and we face big challenges to achieve the full-year 4 percent control target," said Hu Xiaolian, deputy governor of the central bank.

She said that there is considerable room to increase the deposit reserve ratio in the future and that China will continue to mop up excess liquidity.

(China Daily April 20, 2011)