By Editorial board
Published: 2008-06-23

The recent rise in fuel and electricity prices has to some extent rectified price fixing mechanisms, which have long been distorted.

For some time authorities have controlled the prices for fuel and electricity to avoid exacerbating inflation. The result was dissatisfactory, however.

In one way, it had worked against inflation control efforts—low oil and electricity prices encouraged investment in China, touching off fierce criticism from the market that China is subsidizing the rest of the world with its low prices.

Generally speaking, price rises are inevitable during a period of economic growth. In response, market participators will increase supplies to ease the pressure of rising demand, thereby not only boosting the economy but striking a new balance between the two at the same time.

In recent years, we have delighted in talk of keeping up "high growth and low inflation", without considering the sustainability of such a situation. Evidence now shows that price controls to keep inflation low is just one side effect here.

Price fixing leads to the further scarcity of supply, which was proved again by oil and electricity shortages in China presently.

The media has also reported that food smuggling in China had recently increased. This was partly a rectification response to the market's twisted prices, even if through the black-market. How could Chinese food producers and merchants control their impulse to sell through illicit channels in face of rising food prices across the globe, and artificially depressed prices at home?

Famed economist Milton Friedman made efforts to fight against price fixing on rental rooms in New York after the Second War. He believed price fixing would weaken the desire to invest in rental houses and would decrease home-owners' incentive to renovate. Beyond that, it would harm the whole home rental market, and ultimately, hurt consumers.

The fight against food prices has gone on throughout China's economic history, from which we should draw lessons for our future development.

Take grains for example, as China continue in opening up, eventually, when following market principles, although food prices may rise sharply in the short term, the inflationary pressure caused by food shortages would be eased owing to a greater incentive for farmers' to increase production.

Looking back to the recent energy price adjustments, we should applaud the NDRC's courage of raising prices before the Beijing Olympic Games.

But we still regret that the price adjustment is a manipulation by regulators.We believe people are more willing to analyze price trends based on market fluctuations as opposed to guessing at the will of regulators. The only way to solve this is to loosen up governmental controls and let the market lead the way.