Monday, February 18, 2008

Chinese Leadership Trading Carefully in Controlling Food Prices

by Richard York

Food prices in China are rocketing to the skies and this has got the Chinese Communist leadership worried for the fear of a social unrest in the country. The Chinese government is finding it hard to reign in food prices and at the same time tame the inflation rate and the government this time is under great pressure to avoid its past mistakes that it made while controlling the food prices. The official statistics of China for inflation stands at a ten year high which was 6.9% in November. The rising of inflation is exclusively caused by the increase in food prices and in particular the rising cost of food items like pork, which is the basic meat item in the Chinese diet. The increase in the cost of meat is almost 60% on a yearly basis. In recent weeks the food prices were greatly affected with the bad weather and the worst in fifty years snowstorms got the transport system to a grinding halt. The demand of food at this time was also the greatest as the Lunar New Year was an occasion for millions of people to return to their homes and celebrate.

According to the report by Credit Suisse, extreme cold weather has affected 10% of the farming land of China and 1% of the land will have to suffer total crop and vegetable loss which will further pressurize the food prices in the country. The food price increase has been noticeable in items that include not only cooking oil but also apple juice. Global demand and China’s growth gives results in agflation, a term economists have dubbed. Agflation specifically refers to increase in the prices of agricultural produce. Economic analysts say that the Communist leadership of Beijing is getting more and more worried about the rising food prices and it getting out of control, however analysts also said that the problem has not multiplied that much as it had ten years ago.

Shanghai-based China Macro-Strategist for CLSA, Andy Rothman, stated that the central Chinese government is getting quite uneasy about the situation but this problem is far less intense than the inflation recorded before 1989. The National Development and Reform Commission in January declared close monitoring of the prices of commodities like edible oil, grain, eggs, poultry, meat and others and the monitoring of prices was not only in the wholesale market but also in the retail market of the country. The government had also declared that it would levy taxes from 5% to 25% on the exports of items that included rice, corn, wheat, and soybeans so that supply of food items in the country remains smooth and stable. These announcements by the government seemed to be influenced by unpleasant memories as it had badly handled the same problem in 1988 that led to an inflation rise of about 50%. The rise sparked great protests against the government which resulted in the killings of hundreds of innocent civilians. The government this time seems to be treading its feet very carefully while taming rising food prices and inflation.

 

 

 

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