In 2004, thanks to the correct leadership and prompt decision-making of the Central Committee of Communist Party of China (CPC), our national economy overcame the unsound and unstable factors in economic performance and kept rapid and sound momentum. Considering the unfavorable situation, especially where the price of such foodstuff as grain and such raw materials as steels, coal, petroleum increased by a large margin and where inflation and shortage of grain occurred at the same time, it was really difficult and amazing to keep the overall price basically stable. However, such problems should be more clearly noticed as the thorny issues and side effect caused by price structural change: still unstable foundation of grain, up side scale of fixed assets investment, increasing pressure resulted from price of means of production upon price rise of down-stream products, short-supply of coal electricity, petroleum and transportation, and the great pressure of overall price increase. These problems will naturally add some difficulty to overall price control, therefore, further measures are needed to keep price stable and to continuously strengthen and ameliorate macro control. 

Ⅰ. Survey of price performance in 2004

In 2004, the Consumer Price Index (CPI) increased by 3.93%, an increase of 2.7% over the previous year, of which urban Consumer Price Index increased by about 3.4% ,an increase of 2.5% over the previous year; rural Consumer Price Index increased by about 4.8%, an increase of 4.8% over the previous year. Generally speaking, price rise in 2004 is the bounce within the bearable scope of social development after consecutive years of low price and also the structural rise pulled by the price of such foodstuff as grain rather than overall price rise. Price change in 2004 was characterized by the following:

1. Universal price rise of non-staple foodstuff was caused by increase of grain price. In 2004, the price of foodstuff increased by 9.9%, which fueled overall price to rise by 3.5%, accounting for about 90% of the overall price increase, was the major factor to fuel overall price increase.

Grain price among foodstuff increased by 26.4%, an increase of 24.1% over the previous year, which fueled price of such non-staple foodstuff as meat and poultry and its processing food, egg, aquatic product to increase by 17.6%,20.2% and 12.7% respectively.

2. Price of the main non-foodstuff industrial consumables decreased continuously by fewer margins compared with that of last year. In 2004, price of such main non-foodstuff industrial consumables as clothing, household equipment and articles for daily use, means of transportation and communication decreased by 0.7%,1.2% and 0.7% respectively.

3. Service price increased continuously by gradually large margin. In 2004, despite the issue of measurement by national government on curbing local government public service price rise,   service price still increased by about 2.2%, approximately equal with that of 2003. Judging from the trend of price change, the range of price increase was becoming increasingly wider: in the first eight months of 2003, service price increased by about 6.2% compared with that of the same period in 2003, in September, October, November, service price increased to 2.6%, 2.6% and 2.9% respectively, of which the housing price in the fourth quarter increased by 6.2% , an increased of 2% over the first three quarters; the service price of entertainment, education and culture in the fourth quarter increased by 2.1%, an increased of 1.1% over the first three quarters. 

4. Price of means of production increased continuously, with evident range of increase compared with that last year. In 2004, price of means of productions in circulation increased by 13.61% increased by 5.47% compared with that of last year, of which prices of steels, non-ferrous metal, chemical products, raw coal increased by 25.22%, 34.84%, 15.09% and 14.85% respectively, an increase of 5.11%,26.81%,8.48% and 12.22% respectively. From January to November in 2004, the factory price of means of production increased by 7.7%, an increase of  4.1% over the same period of last year with increasingly upward trend, an increase of more than 10% in September, October, November.

Ⅱ. Price supervision in 2004 achieved remarkable success 

The reason why the price supervision achieved marked success with a rather moderate increase of overall price against huge difficulties in 2004 was that the central government took appropriate macro control measures, and departments responsible for price supervision implemented them strictly which gave full play to price supervision.  

1. Overall excessive price increase was avoided due to strengthened macro control over price. Considering the great pressure of price rise, national department responsible for price regulation, in accordance with the guideline of “appropriate and due, resolute and forceful, differential treatment and efficient”, promptly issued “two control lines” policy (the policy to control price excessive increase) to supervise local government price adjustment, established monthly Consumer price index notification system.  All the local government, starting from the requirement of overall national macro control, strictly implemented the “two control lines” policy, and mastered the appropriate time and strength to issue the price increase item. Subsequently more than 20 provinces in the whole year suspended the issue of price increase item, which to some extent alleviated the pressure from excessive overall price increase.

2. The minimum price of grain purchase was implemented and the inspection toward agricultural means of production was strengthened. In order to raise farmers’ enthusiasm for grain production and to resume grain production capacity, the minimum price of grain purchase was publicized to in the early of 2004 by the decision-making body to give farmers proper price expectation and to encourage farmers to invest more on grain production, which laid the solid foundation for the grain harvest. In order to curb the price of agricultural means of production, the department responsible for price supervision formulated and carried out a series of measures to support grain production, accelerate its circulation, guarantee supply of means of production and to stabilized price of agricultural means of production, and took temporary interfering measures to cope with excessive rise of fertilizer price, as a result, excessive price increase of such agricultural means of production as fertilizer was under control in time.

3. Price problems were alleviated due to deepening price reform. In order to alleviate contradiction between demand and supply of electricity, “different electricity price” was implemented to restrict the inefficient duplicated construction of such high-energy consumption industry as electrolyzed aluminum, ferroalloy, chlorine alkali, steel and iron, cement, calcium carbide. In order to soothe the contradiction between coal price and electricity price, electricity price was increased by 2.84cents per kilowatts-hour by two steps around the nation.  In order to strengthen demand side management of electricity, time-dependent Price was further perfected in 22 provinces on the basis of comprehensive peak-trough price.

4. Price order was rectified and normalized and price inspection was strengthened. In order to normalize market order, to create sound market surroundings and to prevent against volatile fluctuation, departments responsible for price supervision carried out special national inspection and rectification on price of agricultural means of production, charges that affected rural people and agricultural development, medicine price, educational fee, the prices of electric  power, electricity and coal, supervision and inspection upon inappropriate charges were strengthened, price inspection related to price tour inspection and measures against bird flu were carried out.  At the same time, the retail price of 24 anti-infection medicines was decreased by a large margin to alleviate the residents’ burden and pressure of price increase. Furthermore, “single fee system” in compulsory educational stage was implemented. In addition, the discriminative prescriptions against trans-regional and migrant workers in the citied were removed, and the means to charge fees in administration organs and institutions was comprehensively liquidated and put in order. 

5. Price supervision was strengthened and price fluctuation alerting system was established. The departments responsible for price supervision carried out urgent supervision upon such important commodities as grain, non-staple foodstuff, fertilizer, finished product oil, and daily or weekly inspection report upon the market situation. National single price abnormal fluctuation system alerting system was established to cope with urgent work plan and the problems related to price orientation, symptom and tendency in some regions were promptly reported.

Ⅲ. Problems in Price Performance

Against difficult situation in 2004, although the overall price was basically stable, many cumulated problems existed in price performance needed to be resolved, as a result, many potential unstable factors existed in future price performance.

1. The price difference between the means of production and industrial consumables was widened. In 2004, the retail price of means of production increased by 13.61%, an increase of 5.47% over last year, whereas industrial consumable price decreased continuously. The price difference between main means of production and main industrial consumables was widened further: in 2004, the price of steels increased by 25.22%, an increase of 4.4% over last year; the price of non-ferrous metal increased by 34.87%. Meanwhile, the price rise of means of production by a large margin and the price decrease of industrial consumable product occurred at the same time with widened difference and increasing unbalance, the possibility of price increase of down-stream products and price decrease of up-stream products by a large margin, as well as possible instability of price change in the future.

2. The consumer price difference between urban and rural residents was widened. In 2004, the urban consumer price increased by about 3.4%, an increase of 2.5% over last year; the rural consumer price increased by about 4.8%, an increase of 3.2% over last year, the rural consumer price increased more than that of urban, with an increase from 0.7% in 2003 to an increase of 1.4% in 2004. The price difference between urban and rural residents built up economic burden upon the rural residents, which was unfavorable to narrow the difference of living standard between urban and rural residents.

3. The remarkable price increase of foodstuff and housing put more pressure on low-income residents. In 2004, the price of foodstuff, especially grains, meat and poultry and its processing products, eggs increased by a large margin, which had great impact upon low-income residents: in some regions, the subsequent decreased living standard raised dissatisfactions among some residents. Recently, the price of housing increased continuously by about 6% from August to December. The schedule to raise the price of resident electricity, resident water and resident gas among many several cities is likely to spur the increase of housing price, which will put more pressure on urban low-income residents.

Ⅳ. The Analysis and Judgment of Price Performance Trend in 2005

In 2005, our national will carry out prudent fiscal and monetary policy, further strengthen and ameliorate macro control, adjust economic structure and transform economic growth mode, curb excessive economic growth through such two brakes as credit and land, as well as prevent the bounce of chaotic and excessive extension of some sectors. Judging from the economic growth objective and the possible result, the growth rate of GDP and investment may be lower than the possible growth rate of 2004. Therefore, the orientation of macro economic policy and pressure of economic performance will be less than that of 2004. Especially, the agricultural harvest and much more grain yield than expected laid the sound foundation for the price stability in 2005. Meanwhile, the current macro control has made remarkable achievement, the investment scale of fixed assets decreased gradually, the increase rate of currency credit slowed obviously, the blind investment extension in some sector was curbed, some weak links in economic development was strengthened, all of which will be helpful to alleviate the contradiction between supply and demand, and laid the favorable foundation for price stability in 2005. Furthermore, under the influence of over-supplied market and technical progress, price of such important commodities as automobile and communication facility may decrease; the price of medicine may also decrease because of the continuous deepening reform of medicine circulation market and the measures to rectify medicine market, which will also play an active role for the comparatively stable price as a whole. 

Judging from the above analysis and judgment, the increase of consumer price in 2005 may be controlled around 4%. It may be lower with appropriate control, well-coordination of all factors. Seeing from the analysis of the composite of consumer price, the impetus by grain upon consumable price will be remarkably weakened, the influence by price rise of service and non-foodstuff consumables upon the consumer price will be greater, of which price rise of non-foodstuff consumables refers mainly to the increasing transmission effect by price hike of means of production upon down-stream industrial consumption product price, price rise of service industry refers mainly to the administrative influence upon price rise of public service. Besides, it is estimated that the retail price in 2005 may rise by about 2.5%, sale price of means of production in 2005 may maintain obviously upward momentum, yet much lower than that of 2004.