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The government doesn't necessarily need to intervene in price hikes, which are a common phenomenon that can be solved by the market mechanisms, says an article in Beijing News. The following is an excerpt:

 

Food price hikes have become a hotter topic than the hot summer itself. The limit of the government's rights has been questioned as the price hike-caused problems get more conspicuous. The questions are: should local governments directly interfere in price hikes and how do local governments control the price of water and electricity? We should be cautious about price hikes triggering overreaction, or not enough action from the government if the above-mentioned questions have no clear answers.

 

According to reports, the National Development and Reform Commission recently issued a directive that requires local governments not to overplay its role in price changes.

 

With the improvement of China's market economy, most of the commodities are placed in an effective market competition. Therefore, even if price hikes really happen, it is still the best solution for consumers to accept the rises if the price is a natural result of market forces - otherwise producers may drop out of the market because prices become too low, meaning the consumers ultimately lose.

 

It is a pity that some local governments still have the impulse to directly intervene in price hikes. For example, the municipal government of Lanzhou, capital of Gansu Province, issued an order to curb the price of beef noodles last month.

 

The NDRC's directive is to check the impulse of local governments, but local governments may go ahead and directly intervene to control price hikes. The key to solving this problem is to make it abundantly clear that the government should neither overreact, nor sit on its hands.

 

In detail, the government should raise the subsidies of lower income families to safeguard their basic living conditions. As for the others, just let them ride out the price changes.

 

(China Daily August 3, 2007)