Wang Qishan, Chinese vice-premier, this week became the latest senior official to identify the fight against inflation as his government’s most important task this year.

“The most pressing problem we face right now is the problem of inflation,” Mr Wang said in an interview on The Charlie Rose Show in the US on Monday. “In order to do this, we have to use monetary policy, fiscal policy and at the same time economic restructuring,” he said.

Wen Jiabao, China’s premier, used a more colourful turn of phrase recently when he described inflation as a tiger that, once freed from its cage, is nearly impossible to put back.

But the policy measures taken by Beijing in its fight against inflation do not reflect the kind of life and death struggle suggested by comments from the country’s leaders.

For one thing, Beijing is encouraging double-digit wage increases — of up to 40 per cent a year in some places — as a way of reducing the country’s wealth gap and shifting the country away from over-reliance on cheap, labour-intensive manufacturing industries.

The government has also allowed several increases in tightly regulated energy prices in recent months, which feed directly into higher prices of most other consumer items.

According to official data released on Wednesday, annual consumer inflation in April was 5.3 per cent, moderating only slightly from a nearly three-year high of 5.4 per cent in March. Both figures were higher than many analysts had expected and indicated that government efforts to rein in surging prices have not yet had a major impact.

There are a number of reasons why Beijing’s actions are a lot less forceful than the rhetoric of senior officials would suggest.

Firstly, analysts say there is no real consensus over the actual causes of inflation among the various government departments responsible for economic policymaking.

For example, the central bank and banking regulator argue inflation is a direct result of the huge liquidity overhang created by the credit-fuelled, post-financial crisis stimulus package, which has been described by some economists as the greatest ever financial and monetary easing in history.

Other government agencies, such as the powerful National Development and Reform Commission, argue inflation is a result of transport and infrastructure bottlenecks as well as profiteering and price manipulation. Until recently, many Chinese officials also blamed loose monetary policy in the US and elsewhere and argued inflation was mostly being imported.

With no clear consensus on the causes or the severity of the problem, China’s leaders are trying a wide range of policy initiatives without fully committing themselves to any of them.

While Beijing is reducing the availability of credit in the economy, mostly through direct orders to Chinese banks to slow lending, the government is wary of damping growth too much, as many believe it did in the early part of 2008, when inflation spiked above 8 per cent.

“In hindsight Chinese policymakers overtightened in 2008 just before the world fell apart,” said Stephen Green, chief China economist at Standard Chartered. “They are clearly tightening monetary policy, but overall growth is already slowing and there is a lot of tension between those arguing now is not the time to overdo things and those who want to act more aggressively to tackle inflation.”

Since last October, the central bank has raised interest rates four times and increased the proportion of deposits banks must hold in reserve eight times.

But the average weighted annual lending rate offered by Chinese banks at the end of March was 6.91 per cent, well below 8.72 per cent at the end of March 2008, according to Standard Chartered figures, indicating that monetary conditions are still much looser than during the last serious bout of inflation.

At that time, in late 2007 and early 2008, Beijing introduced strict direct price controls on a wide range of products but now the government is relying more on moral suasion and scare tactics to deter price rises of key consumer items.

Last Friday, the NDRC fined Unilever RMB2m ($308,000) for suggesting to Chinese media that it might raise detergent and soap prices, saying the Anglo-Dutch consumer goods giant had “intensified inflationary expectations among consumers” and “seriously disturbed market order.”

Analysts describe the fine as an example of “killing the chicken to scare the monkey”, and believe the government is more likely to use such public shock tactics than direct price controls, especially considering growing evidence the economy is starting to slow.

“China is entering an awkward phase now where inflation will stay higher than 5 per cent in the coming months but growth will continue to decelerate,” Mr Green said. “The question is how fast the deceleration will be.”

http://edition.cnn.com/2011/BUSINESS/05/11/china.inflation.tiger.ft/index.html