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Correct, timely government intervention
[ 2007-07-11 17:32 ]

The government of Lanzhou could not have anticipated that its decision last week to cap the price of beef noodle, a regular breakfast of the Northwest China city's residents, would have yielded a by-product - food for thought.

After the local media reported that the price administration of the Lanzhou municipal government ruled that the price of a regular bowl of the noodle should not exceed 2.50 yuan (32 cents), commentators of traditional and modern media outlets across the country became excited. Criticizing the local government, they all used the same accusation: "Violation of market rules".

Though expressed in different ways, they all based their arguments on a common understanding, the rise and fall of the price of a commodity should be left to market forces, which exerts influence according to the fluctuation of supply and demand. If the price exceeds a certain level, consumers would shun the commodity for alternatives; the dwindled demand would then force the price to return to a reasonable level. This is one of the core theories of classical economics.

However, a complete or perfect model of market mechanism is only an ideal concept, which never exits in reality. Real market conditions are much more complicated. Non-market forces, such as laws and regulations, are needed to curb or prevent artificial moves that lead to unfair competition or a distorted supply and demand. Administrative measures are also needed to address non-commercial concerns, such as protection of the environment and energy sources.

In the beef noodle case, the government move was targeted at one of the market irregularities - the city's beef noodle restaurants' attempt to monopolize the price.

As if having foreseen what media critics would say, the price bureau of the Lanzhou municipal government made a careful investigation on the production cost of the beef noodle and the retailers' move to raise the price. The bureau said that even with the rise in the cost of raw materials such as flour, beef, oil and pepper being taken into account, the 20 percent rise in the price of each bowl "far exceeds the price rise of the raw materials". 

Food prices, in the case of pork, beef, eggs and rice, have soared dramatically in recent months. It is understandable restaurant owners would raise their prices to offset the loss. In reality, however, the price rise of raw materials is all too often used as an excuse by these people to garner more profits by excessively raising the prices of their products.

Some people may argue that the increase in the beef noodle's price will go toward workers' wages who are also feeling the effects of rising prices. But I dare to assume that not a single owner has or will increase the wages of his or her employees.

And the Lanzhou authorities have pointed out that the city's beef noodle restaurant owners raised their prices simultaneously, indicating a unanimous move in price fixing.

I admit market irregularities should be dealt by laws rather than by government instructions and that improvement of the market environment should be guaranteed by legislation rather than by administrative interference. In today's China, however, where market mechanism is in the process of becoming mature and economy-related legislation is yet to be completed, certain government interference is needed for maintaining fairness.

Beef noodle is the staple breakfast for 80 percent of Lanzhou residents. A rise of 50 fen for each bowl is quite a burden for ordinary residents, whose monthly income per household ranges from 500 yuan to 5,000 yuan.

Email: liushinan@chinadaily.com.cn


(China Daily 06/06/2007 page10) 

 

About the author:
 

刘式南 高级编辑。1968年毕业于武汉华中师范学院(现华中师范大学)英文系。1982年毕业于北京体育学院(现北京体育大学)研究生院体育情报专业。1982年进入中国日报社,先后担任体育记者、时政记者、国际新闻编辑、要闻版责任编辑、发稿部主任、《上海英文星报》总编辑、《中国商业周刊》总编辑等职。现任《中国日报》总编辑助理及专栏作家。1997年获国务院“特殊贡献专家政府津贴”。2000年被中华全国新闻工作者协会授予“全国百佳新闻工作者”称号。2006年获中国新闻奖二等奖(编辑)。

 
 
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