Price is a barometer of economic performance. Since the reform and opening up, China’s economy has developed at a high speed, accompanied by severe price fluctuations. By combing and analyzing the past price fluctuations, we can get some enlightenment that is beneficial to the current price work.
Division of price fluctuation cycle in China since reform and opening up
Using the "Valley-Valley" method, the fluctuation of prices (in this paper, consumer price index CPI) since China’s reform and opening up is divided into cycles, and there are five representative price cycles.
The first time was from 1978 to 1983. In this cycle, the peak price appeared in 1980, which was 7.5%, and the gap between peak and valley in the price cycle was 5.5%. The actual situation is: on the one hand, there are obvious situations such as overheated investment and increased consumption expenditure in China, and the increase in fiscal expenditure leads to a serious fiscal deficit; On the other hand, the state has adjusted the unreasonable price system, which has pushed up prices to some extent.
The second time was from 1984 to 1986. At this time, China’s price reform has entered the second stage. The full liberalization of prices has effectively activated the market, and also made the hidden supply shortage and suppressed demand further open. In addition, the overheated economy and uncoordinated economic development have led to an overall increase in prices. In 1985, the price increase reached 9.3%, and the peak-valley gap in the price cycle was 2.8%.
The third time was from 1987 to 1990. The country has implemented loose monetary and fiscal policies, and the macro-economy has recovered. However, the deep-seated problems accumulated in economic operation for many years have become increasingly prominent. In addition, in 1988, the price rose by 18.8%, and in 1990 it dropped sharply to 3.1%, and the peak-valley gap in the price cycle was as high as 15.7%.
The fourth time was from 1991 to 1999. This is the longest and largest price cycle since the reform and opening up, and the peak-valley gap is as high as 25.5%. Among them, from 1992 to 1994, the growth rate of the total investment in fixed assets of the whole society reached 44.4%, 61.8% and 30.4% respectively, and there was a nationwide real estate fever, which led to the price increase of 24.1% in 1994, which was the highest year since the founding of New China.
The fifth time was from 2007 to 2009. During this period, the price gap between peak and valley was 6.6%, and the main reasons for price fluctuation were the price increase of agricultural and sideline products such as pork and the price fluctuation of international commodities.
The main factors leading to price fluctuation
The price fluctuation since the reform and opening up is the result of many factors at home and abroad. First, the impact of external shocks on price fluctuations. In the past 10 years, the international economic situation has been turbulent, the drastic fluctuation of commodity prices and the weakening of external demand have formed an impact on China’s economy, and domestic prices have fluctuated due to the impact of the international economy. Second, from the perspective of China’s classified price index, food prices have significantly led the CPI, and the structural increase is obvious. Third, the factors of asset price fluctuation are mixed. In the process of establishing and perfecting China’s socialist market economic system, both real estate prices and stock prices have experienced abnormal and violent fluctuations, which inevitably lead to price fluctuations. In addition, some policy factors also play an important role in the price cycle fluctuation.
Thoughts and suggestions on stabilizing prices
At present, China’s prices are relatively stable, but there are still some uncertainties and risks, so we need to attach great importance to and do a good job in price work to keep the overall price level basically stable. First, optimize the monetary policy system and maintain a stable market environment. While regulating the money supply, the central bank should pay attention to the transformation of the intermediate goal of monetary policy to the marketization of interest rates; Fine-tune the interest rate through open market business to maintain the stability of the money market environment. The second is to increase the strategic reserve scale of energy, minerals and other commodities, and ease the resource bottleneck in China. Further improve the commodity futures and spot markets, establish an international pricing center in China, and gradually acquire the pricing power of international commodities. Third, vigorously develop modern agriculture, improve the reserve mechanism of grain and agricultural and sideline products, and improve the supply capacity of grain and food. Promote the construction of agricultural and sideline products circulation system, reduce the circulation cost of agricultural and sideline products, and improve the circulation efficiency of agricultural and sideline products. The fourth is to promote the all-round development of capital market tools such as stocks, bonds, futures and financial derivatives, expand the breadth and depth of the capital market and diversify investment risks. Formulate a reasonable real estate pricing mechanism to promote the sustained and healthy development of the real estate market.
(Author: School of Economics and Trade, Hunan University)