SUBSCRIBE:

Thursday, May 15, 2008

Inflation, price control and earthquake rescue

In watching China's earthquake rescue, I was stunned by one interview clip in which local official complained that due to lack of diesel oil, the heavy rescue equipment could not be put into use. At every gas station, diesel is sold out.

Why is there a shortage of diesel in China? That's because Chinese government thinks price control is the way to deal with inflation. The unintended policy consequence is the suppliers (such as SINOPEC and China Petro) all cut down their supplies. This reminds me of the price and wage control in the US back in 70s under President Nixon, and the long wait line at the gas station... Politicians just don't learn their lessons.

Also, with commodities prices all time high, I think it's a good time for Chinese government to re-evaluate their policy toward auto industry: Whether public transportation should be preferred in a country with 1.4 billion population? Whether gas guzzlers like GM's Hummer shall ever be allowed to be produced in China? Yes, there are plenty of Hummers in China.