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Beijing, Fearing Unrest, Moves to Curb Sharp Rise in Food Prices

  • Claudia Blume

Steep food prices have pushed inflation in China to its highest level in a decade this summer, causing hardship for millions of low-income families. Worried that anger about rising prices could lead to political unrest, Beijing has taken a number of measures to control inflation. Claudia Blume reports from VOA's Asia News Center in Hong Kong.

Grocery shopping has become a lot more expensive for Chinese consumers.

In July, food prices went up more than 15 percent from a year earlier. Meat prices alone jumped almost 50 percent compared with the same month a year earlier.

The main reason for the increase: supply shortages, caused by severe flooding in parts of China and a disease that killed millions of pigs over the past year. Pork is one of China's top sources of protein.

In Hong Kong, where most staple food items are imported from mainland China, grocery shoppers are also feeling the pinch.

Sixty-one-year-old Mr. Chen sells meat and vegetables at a Hong Kong market. He says the prices for all items he sells have gone up. A half kilogram of pork, for example, now costs about $4, while a month ago it cost $3.50.

The steeper food prices pushed the overall inflation in China to 5.6 percent in July, the sharpest rise in a decade. But prices for non-food items rose more slowly, by less than one percent.

In the past, high inflation has led to political unrest in China, as it hits the poorest the hardest. Anger about rising prices was one of the factors that triggered massive pro-democracy protests in China in 1989.

The steep inflation this year comes at a sensitive time, shortly before the Communist Party congress in October.

Sun Mingchun, a senior economist in the Hong Kong office of the investment bank Lehman Brothers, says, "I think it's pretty sensitive because inflation affects everybody's life, especially those in the urban area, even in the rural area inflation is also rising because of rising pork prices. I think it's pretty sensitive and the government is trying to do a lot, tries to stabilize the inflation and also stabilize inflation expectation."

Sun says the government is trying to stabilize food prices by using food reserves and by giving subsidies to low-income households and farmers, encouraging them to raise more pigs, for example. Authorities also are investigating whether food producers colluded to push up prices.

Last week, the central bank raised interest rates for the fourth time this year - to help control inflation and reduce investment in some industries. Sun says the government wants to demonstrate it is taking action.

"If inflation keeps rising, the central bank sends a signal to the public that they are going to tighten the monetary policy if the inflation could not come down," he said.

Sun and other experts think China's inflation figures will have no international consequences as they are mostly driven by food prices, which mainly affect local consumers. Sun says prices of exported consumer goods did go up slightly in recent months - but for other reasons.

"One is that the currency is appreciating, starting from July 2005 it has appreciated by about 9 percent," he said. "The second reason is that the government tries to reduce trade surplus, they have tried to remove value-added tax rebates to exporters and basically try to lower the profit margins."

Sun says rising global commodity prices play a role in higher export prices. Half of China's exports are made from imported materials.

Howard Gorges, vice chairman of South China Brokerage in Hong Kong, thinks this year's high inflation is a temporary phenomenon, driven mainly by falling pork production and other problems that raised food prices.

"The inflation in China is not structural inflation. In other words: inflation is not a big concern in China. But it is trending up and the government definitely wants to get on top of it, make sure that the high growth of the economy doesn't cause structural inflation where all kinds of other prices go up," he explains.

Sun Mingchun expects food prices to drop as early as December, resulting in lower inflation next year. He says, however, the government should find ways to make sure agricultural products and livestock supplies remain stable. Sun says the government could, for example, give long-term subsidies to farmers so that they do not suffer losses if meat prices drop next year.

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