Price controls risk worsening inflation in China: WB

Chinese price controls, introduced to rein in inflation which is now near a 12-year high, could backfire and lead to higher prices if they remain in place for too long, the World Bank warned Tuesday.
"It would worry us if the price controls start to be imposed for a longer period of time, then they start to have incentive effects," Louis Kuijs, the bank's acting China lead economist, told reporters at a briefing.
One of the major worries is that prices held at artificially low levels could discourage companies from producing enough, making commodities scarce and driving up prices, according to the World Bank.
"When that happens, then the price controls will actually increase inflation down the road because they reduce supply," he said. "That would be an unfortunate development."
Price freezes may be useful in the short term to guide expectations and to guide the market to get where the government thinks it should be, he said.
But the benefits will eventually fade away if the controls remain too long without easing the underlying problems in the economy that lead to inflation, he added.