In their zeal to tame inflation, the Chinese government is pulling out most of the stops. It's using a variety of market-oriented mechanisms (slowing the growth of the money supply, requiring banks to have higher reserves), but it is also resorting to a variety of administrative measures.
One of the most interesting approaches is to recruit Chinese industry associations to help spread the message and police their members in order to halt the rapid rise in prices, particularly for food. The National Development and Reform Commission (NDRC) and other agencies have been meeting with industry associations during the last few weeks, impressing upon them the need to keep prices from rising too quickly. At the end of March, the NDRC held a gathering with associations related to food, beverages, milk, home appliances, sugar, alcohol, grains, meat, and vegetables. And just today, the All-China Federation of Industry and Commerce (工商联) hosted a meeting where 24 sectoral chambers of commerce affiliated to its national headquarters pledged to have their members not raise their prices too drastically. The signatories included associations for not only agriculture and aquaculture, but also medicine, motorcycle parts, cosmetics, book publishing, new energy, and kitchen equipment.
The alcohol and brewing associations have been particularly active, and perhaps that may allay the concerns of the beer and baijiu drinkers amongst you.
The ongoing effort is quite similar to the 1998-99 campaign to have industry associations have their members adhere to "self-discipline prices" (自律价), though at that time, the problem was massive oversupply and deflation. At the time, companies were cutting prices left and right, and this cut into the profits for most companies, particularly those less efficient, and the taxes going to governments. In some instances, associations had their members sign pledges to not drop their prices by more than x amount and that if they did, the association would fine them. In one case, a local Sichuanese steel association, companies handed over deposits to their associations and those who violated their pledges lost their deposits.In short, the associations organized price cartels.
What happened? The cartels all collapsed. Prices stabilized briefly, but within a month or two, association members (and non-association members) began to cheat, dropping their prices further than others, generating a price war. At the time, many observers blamed the failure on the lack of representativeness of Chinese associations -- most were originally arms of the government and still were run by former officials. In reality, the main culprit was China's extremely large and highly competitive market in which industry concentration is extremely low across every sector, even in steel, chemicals, and telecom. It would have been impossible for any association, no matter how independent, to successfully monitor and penalize their members. Such cartels worked in Japan, but there industry concentrations were far, far higher than in China, then and now.
I have not yet seen industry associations identify specific price ceilings, perhaps because this would likely violate China's Antimonopoly Law (AML), but it is an interesting question whether the type of government and association involvement we are now witnessing violates the spirit of the the AML. Of course, some in the Chinese government would claim that the steep price hikes are the result of collusion and hoarding, which also violates the AML or other statutes, and hence, promoting some sort of collective action is a necessary countermeasure.
What's likely to happen? These efforts may temporarily affect prices, but given the continued low concentration of industry after industry -- and even lower tariffs than in 1998-99 (prior to WTO entry) -- prices will be subject to the vissitudes of supply and demand. In one sense, this reaffirms the broader market orientation of the country; but it also means that taming inflation will require policies that more broadly affect supply and demand. Prices are just the symptom of other forces.
The involvement of the ACFIC and its affiliated chambers of commerce is new and suggests the growing heft of the ACFIC and the greater importance of the private sector to the economy as a whole. These sectoral chambers are generally more autonomous than the more traditional industry associations, which are affiliated with government bureaus and overseen by the State-owned Assets Supervision and Administration Commision (SASAC). If we find that the ACFIC-related chambers are having more success than the SASAC-affiliated industry associations in keeping prices under control, then we will need to re-visit the theory of industry autonomy as determining the ability of associations to affect price trends.