In terms of the monetary policy, China will tighten it in 2008. Controls over the total money supply and credit supply will be stricter so as to curb excessive expansion of aggregate demand, and prevent a rebound of fixed-assets investment, a continuous increase in trade surplus and quickfire price hikes. On January 16, the PBOC announced that it would raise the reserve requirement ratio of all commercial banks by 0.5 percentage points from January 25. The ratio now stands at 15 percent, a historical high.

A stable table

To some companies, the government's price stabilization policy comes as a warning, because many companies are not pressured to raise prices and do so simply to follow the trend set by others.

Master Kong, an instant noodle brand under the Ting Hsin International Group, one of the 12 companies that need permission from the NDRC before raising prices, saw its business volume surge 40 percent and the gross profit surpass 24 percent in the first half of 2007 when grain prices were increasing fast. But in July 2007, together with other instant noodle producers, it raised prices with the excuse of cost increases.

Dou Erxiang, researcher at the Financial and Industrial Development Research Center of Peking University, deems that the government's measures are of great importance, especially as a deterrent to companies raising prices in conspiracy or complicity, suspending or restricting supplies and hoarding profits.

According to Dou, it is estimated that the CPI still remained high in December 2007. In early 2008, some companies already began to raise prices to comply with market price trends.

Tough administrative measures being used by the Central Government to regulate prices are relieving a potential emergency.

Zhou Wangjun, Deputy Director of the Price Department of the NDRC, says that when prices are increasing, the country should first adopt economic and legal means to regulate them. The administrative measures now adopted are supplementary, aiming at preventing a rapid increase in price levels and establishing stability.

According to him, at present, China's fiscal revenue and foreign exchange reserves are increasing fast, while economic strength and regulatory capabilities are greatly improved. In addition, said Zhou, grain production has seen a bumper harvest for four consecutive years, pig breeding and edible oil plants are recovering, the supply of capital goods has increased markedly, and the supply of industrial consumer goods now exceeds demand. These factors indicate that the Chinese Government is able to stabilize the market supply and prices.

Illegal pricing

However, illegal pricing is becoming more serious, disturbing the market price order and corporate operations, something that has to be stamped out, in accordance with relevant laws and regulations.

"What the government intervenes in is the unreasonable price adjustments by some companies. After the spate of price hikes disappear, the government should lift the intervention measures accordingly," said Zhou.

However, Zhou admits that it is difficult to say when prices can stabilize.

According to the "Economy of China Analysis and Forecast 2008" issued by the CASS, China is in a period of price hikes and the CPI will rise about 4 percent in 2008, slightly lower than its 4.8-percent increase in 2007.

Zheng Chaoyu, professor of economics at Renmin University of China, said that the price increase will decline, but that it's difficult for the absolute price level to decrease.

In his opinion, the most important factor to decide price levels is cost. Take grain price as an example. Because of the increase of capital goods and labor prices, the cost of grain production is increasing. Conversely, as China's trade becomes more and more liberalized, grain price hikes on the global market have driven up grain prices in China.

January is the time for provincial-level people's congresses to convene their annual sessions. Faced with the surging prices, some deputies to the people's congress in Guangdong Province even proposed to adopt a system of using coupons for buying daily commodities if prices continue to rise.

Before the 1990s, China had adopted such a system. At that time, people needed coupons to buy grain, clothes, oil and meat. The root cause of this system was that commodities were in seriously short supply and had to be allocated to people through the use of coupons. In effect coupons can neither increase supplies nor help to tackle price hikes.

As online surveys carried out by websites such as sina.com reveal, stable commodity prices are the biggest wish of the Chinese people in 2008. NDRC's Zhou hopes this wish can be realized sooner, rather than later.