Chinese fight against price hikes

BEIJING - An end-of-year survey of the most commonly used Chinese characters in 2010 by Internet forum Tianya had the term "price hike" at the very top.

The list of items that elevated the term's usage is extensive: mung beans, which sold in May at double their price at harvest in October 2009; garlic, which rose 40 percent in the seven months to November; sugar; ginger, and so on.

And that's just the basics. With meat and gasoline on the list, many ordinary Chinese are wondering if they can continue the standard of living to which they are accustomed.

As the consumer price index climbed from 1.5 percent at the start of the year to a 28-month high of 5.1 percent in November, many people began hoarding or cutting back in fear their incomes were failing to keep pace.

Alarmed, the government began to promulgate regulations and controls in late November, which have pressed down some prices, bringing slight relief to consumers.

However the knock-on effect had already been felt.

Since July, the prices of agricultural produce like vegetables, ginger, apples and sugar have risen swiftly, and leading to soaring costs for Chinese medicinal crops, beverages, rice and cotton, causing particular harm to the urban poor.

Wang Yanhong, a cleaner with a property management company in northeast China's Changchun city, says inflation has cast a pall of depression over her family:"My husband and I make only about 1,400 yuan ($208.18) a month. My son is preparing for the college entrance examination and I can't afford to buy him proper food."

The Civil Affairs Bureau of Changyang District, Changchun, has opened a supermarket in its office building, selling rice, wheat flour, edible oils, clothes and other daily necessities exclusively to the urban poor.

Guo Wei, chief of the bureau's low-income family support section, says, "All the goods here are sold at 20 percent discount off the purchase price. Rice is 87 yuan for 25kg, 25 yuan lower than the market price."

Changchun has extended the meagre subsidies to low-income families three times since April. Customer Li Shengshi, 66, says, "My wife and I can support ourselves on low incomes because the government gives us subsidies. I bought a pile of Chinese cabbages at the door with a 50-yuan subsidy."

Easy money

Wang Yan, head of the comprehensive pricing division of Beijing Municipal Development and Reform Committee, says higher costs of production materials, labor and land prices are a major driver of inflation.

Bulk commodities, priced in US dollars, are rising under the impacts of low interest rates and easy monetary policies of major developed countries, and continuous depreciation of the dollar. They have driven up resources-based commodity prices in China, raising expectations of inflation and subsequently prices in China.

And it's all propelled by excess liquidity and rising demand, says Wang Yan.

According to the National Bureau of Statistics (NBS), rural residents saw their incomes grow faster than urban residents in the first three quarters, launching a wave of rural spending on household appliances, clothes and new homes.

However, many farmers, such as Wang Yuchang, of Shouguang, Shandong province, wonder if their period of bounty is sustainable.

Wang, 55, estimated in January he could earn 50,000 yuan this year from his five greenhouses of tomatoes, but he has since doubled his forecast. "The vegetables are selling high. But growing vegetables is a long-term business. I'll earn more money this year, but what will happen if my buyers cannot buy my produce next year? We farmers will suffer in the end."

His expenses have risen too: "The costs of planting is much higher. Fertilizer prices are rising fast -- I spent about 2,000 yuan on fertilizer this year. Pesticides are also rising fast."

Labor accounted for about a fifth of the total planting costs. "When the tomatoes are flowering, I have to pollinate hundreds of thousands of blossoms. My family and I can't do it ourselves, so I hire someone to help. Labor cost 10,000 yuan, double the cost of last year."

Wang says his tomatoes pass through five or six links in the distribution chain before reaching the customer, accounting for half of the final price. "I hope vegetable prices stabilize soon. When the market fluctuates, we farmers are the ultimate victims."

Price controls

Government measures to stabilize prices are having an effect although the battle is not yet won.

On Dec 10, the People's Bank of China, the central bank, announced a rise in the deposit reserve ratio of banks by 0.5 percentage points from Dec 20. It was the sixth such rise this year and the third in 30 days.

On Nov 17, the State Council, China's Cabinet, decided at an executive meeting to adopt temporary price controls for daily necessities and production materials, when necessary, to stabilize prices and maintain living standards, in addition to extending subsidies for the poor.

Three days later, the State Council promulgated 16 measures to stabilize consumer prices and guarantee basic household essentials.

Since Dec 1, all loaded vehicles approved to transport fresh and live farm produce have been exempt from highway tolls nationwide. Since late October, the central government has sold 25.5 million tons of grain from state reserves on to the market to stabilize prices.

The prices of some farm produce items have dropped, while overall farm produce prices are rising at an apparently more moderate pace, according to six supervision teams dispatched by the State Council in late November to 18 provinces.

According to Ministry of Commerce, 18 major vegetable wholesale prices were down 5.9 percent on average on Dec 1, compared with a week before. Staple commodity prices also dropped markedly, with sugar down to 6,300 to 6,500 yuan per tonne from a record 8,000 yuan a ton over about 10 days.

The government's Central Economic Working Conference, from Dec 10 to 12, reiterated that price regulation and controls remained a priority for the health of the economy.

Some, like Xu Shanda, former vice-director of the State Administration of Taxation, says China might face moderate inflation over the next five years, with the CPI at 4 percent or above.

"On the whole, we're having some difficulty stabilizing commodity prices," says Yao Jingyuan, chief economist of the National Bureau of Statistics. "But we can do it."

source:Xinhua