CHINA: GROWTH AND INFLATION

CHINA’S STRUGGLES WITH BOUTS OF POLITICALLY DANGEROUS INFLATION AS ECONOMY BOOMS

Associated Press

The Washington Post, February 9, 2012

China’s ruling Communist Party has faced repeated struggles to tame bouts of politically dangerous inflation while keeping economic growth strong.

Chinese leaders are trying to shore up slowing growth by loosening lending curbs imposed to cool an overheated economy and inflation. But they are moving cautiously for fear of reigniting a price spiral.

Some of the challenges Chinese leaders have faced and their responses:

—1989: Inflation spikes to 18 percent, adding to public frustration that helps to fuel the Tiananmen Square pro-democracy protests. The government’s military crackdown on protests plunges China into international isolation, causing economic growth to plunge to 3.8 percent in 1990 while inflation falls to 3.1 percent.

—1994: Inflation soars to 24.1 percent while economic growth is just 4.1 percent, eroding gains that underpin the Communist Party’s claim to power. A former Shanghai mayor, Zhu Rongji, is put in charge of taming prices. He imposes price controls and clamps down on lending to state companies. Inflation falls to 2.8 percent by 1997, winning Zhu a reputation as China’s leading reformer and appointment the next year as premier, its top economic official.

—September 2007: After inflation rises to a decade high of 6 percent, Beijing responds by freezing prices of electricity and some other goods. That backfires when utility companies respond by cutting coal purchases. Power stations run out of fuel when freak snowstorms hit in January, leaving wide sections of southern China without power in freezing weather.

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