Inflation Being Strangled To Feed Pork To The Poor
Sydney Morning Herald
Friday October 19, 2007
LI WENJUN, 83, has lived in the same tiny house on the western edge of Tiananmen Square for 49 years. He doesn't know much about economics, but he knows he can't afford China's staple meat any more.
"I haven't eaten pork in three months," Li says. "I can only afford pig intestines, and cabbage-and-chicken bone soup." The price of pork has almost doubled this year, while the price of cooking oil has also risen out of the old man's reach. Worse, coal bricks for his cooking stove have jumped from 49 fen (Chinese cents) to 80 fen since last year. In the same hutong (small lane), Li's neighbour is complaining to his mother that he hasn't eaten red-sauce pork for three months - and receives a sarcastic reply that she would raise a pig herself right there if she could afford the corn to feed it. A few hundred metres to the north, China's top politicians and policy-makers are gathered in the Great Hall of the People for the most important political gathering in years. They see inflation as a threat to social stability and their own control. So they are yanking on levers left over from the time China was a centrally planned economy - and it seems to be working. Next week, the bureau of statistics is likely to show inflation has peaked after jumping to 6.5 per cent in the year to August. Huge subsidies for pork producers, including pig insurance and vaccinations, are boosting supply and helping to overcome the mystery blue-ear pig disease that scourged pig stocks across much of the country. "It costs more to insure a pig than it does a person," complains one official, who believes the Government's subsidies will only hurt farmers by triggering a supply glut next year. At a small market in Beijing's inner west, butcher Gu Yuegui says much of her pork was left to rot in the hot summer heat because her customers could no longer afford it. But the price has eased to between 8.50 and nine yuan ($1.25 to $1.35) for 0.5 kilograms, from 13 to 15 yuan in August. While politicians are madly trying to reduce food prices by increasing supply, financial markets are awash with rumours that large and medium-sized commercial banks have virtually shut their lending books for the year. According to the rumours, the central bank threatened "serious" repercussions for those who breached a 15 per cent lending growth quota, in a move to quell inflation. One senior investment banker said analysts had often "cried wolf" about credit restrictions but this time the wolf was really at the door. "At one bank we spoke to, loan officers have been assigned to different jobs because they no longer have any lending work to do," the banker said. Asked about the rumours on Tuesday, the Governor of the People's Bank of China, Zhou Xiaochuan, said it was true that he would like to see slower credit growth, but he only used market mechanisms to achieve that goal. Whatever the Government has been doing, it is working, says Citigroup's China economist, Shen Minggao. He expects figures next week will show inflation dropped to 6.3 per cent in the year to September. "Our view is that inflation has already peaked in August."
© 2007 Sydney Morning Herald
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