Some experts from the National Development and Reform Commission (NDRC) and NBS repeated that the recent rises have been partial and temporary, and that China is not saddled with nationwide inflation. But others claim that China has entered a period of an overall inflation, and are increasingly concerned that the increase in food prices will spill over into other sectors, especially when the CPI increase was coupled with the dramatic growth of the producer price index (PPI), which increased 4.8 percent year on year in November, the highest level in the past two years.

The annual Central Economic Work Conference held on December 3-5 stated that next year's top macroeconomic priorities would be preventing the economy from overheating and keeping the current partial price rises from evolving into "evident inflation."

Effective macro control

Statistics from the central bank show that China's M2, a broad measure of money supply that covers cash in circulation and all deposits, has been higher than 18 percent year on year for five consecutive months, contributing to an excessive money supply. The narrow money supply (M1), an indicator reflecting liquidity and covering cash in circulation and current account deposits, has also risen dramatically. This rise reflects the fact that bank savings are shifting from time accounts to current accounts and that growth of liquidity has accelerated, although the inclination to save picked up slightly after the most recent interest rate hikes.

Huge foreign exchange reserves due to the expanding trade surplus and excessive credit growth spurred by an excessive money supply in the banking sector have created excess liquidity, resulting into negative interest rates, excessive investment, an overheated economy and worries of serious inflation.

The central bank engaged in a "moderately tight" monetary policy all year in an effort to check excess liquidity. On December 8, the central bank announced its 10th reserve requirement ratio increase of 2007, pushing it to a record high 14.5 percent. The 10 rises of reserve requirement ratio have locked in a total of 2 trillion yuan ($270 billion). Besides these moves, the central bank raised interest rates six times this year, something rarely seen in the past.

Furthermore, the central bank had issued bills worth 3.93 trillion yuan ($532 billion) by December 12, with six issuances of over 100 billion yuan ($13.5 billion).

Emissions cuts

China's energy consumption per unit of GDP dropped 3 percent year on year in the first three quarters of 2007, according to NDRC statistics, marking a turning point of China's campaign of cutting energy consumption and pollutant emissions.

China has vowed to cut the energy consumption used to generate per unit of GDP by 20 percent and major pollutants emissions by 10 percent between 2006 and 2010. The first drop in the per unit energy consumption offered hope for further slashing energy consumption.

Measures the government adopted this year to cut emissions have already taken effect.

From January to September, China's daily sewage handling capacity in cities went up 9 million tons.

During the same period, 253 small coal-fired generating units, with a combined capacity of 9.03 million kilowatts, were shut down. Operations in more than 500 paper mills were suspended, and nearly 400 paper mills were asked to improve their wastewater processing facilities.

By the end of October, the State Environmental Protection Administration (SEPA) had inspected more than 860,000 enterprises nationwide and suspended operations in more than 1,200.

Furthermore, the government abolished tax rebates on 553 exported commodities that harm the environment and consume large amounts of energy and resources as of July 1.

Input of investment is an important guarantee of the effectiveness of this campaign. NDRC statistics show that by the end of November, a total of 21.3 billion yuan ($2.88 billion) has been earmarked for the national energy-saving and emissions-cutting campaign, of which 9 billion yuan ($1.22 billion) was allocated for major projects of energy saving as well as building up related administration capabilities, 12 times more than last year's amount.