Monday, February 11, 2008

China struggles to avoid past mistakes in controlling food prices

Terra Daily, via Agence France-Presse: Rocketing food prices in China have sown deep concern among the communist leadership, ever wary of social unrest, as they fumble to control inflation without repeating past mistakes, analysts say. Overall inflation in China is running at a 10-year high -- around 6.9 percent in November year-on-year, official statistics show. Inflation is now being driven almost exclusively by increases in the price of food, in particular the staple meat, pork, which has spiked 60 percent year-on-year.

Prices have faced even greater upward pressure in recent weeks, as severe weather has crippled the country's transport system at the time demand is greatest, over Lunar New Year, the major annual holiday when millions of people return to home. A report by Credit Suisse said 10 percent of China's farming land has been affected by the extreme cold, and one percent could see a complete loss of crops and vegetables.

…Analysts say authorities in Beijing are becoming increasingly concerned about the prospect of food prices getting out of hand, but add that the problem is not yet approaching the levels that led to widespread popular dissatisfaction almost a decade ago. "They (the central government) are increasingly nervous about it," said Andy Rothman, Shanghai-based China Macro-Strategist for CLSA. "But it is a long, long way from the inflation problems before 1989."

In January, the National Development and Reform Commission announced tightened supervision of prices for grain, edible oils, meat, poultry, eggs, feed and other items in both wholesale and retail markets. This followed the announcement in late December that from January 1 the government would slap taxes ranging from 5-25 percent on exports of a range of products including wheat, corn, rice and soybeans to try and ensure stable food supplies at home. The actions appeared to be stoked by memories of the widespread protests that resulted from the government's clumsy handling of food price controls that led to inflation of around 50 percent in the summer of 1988.

Public anger about inflation prompted the demonstrations that the following summer morphed into anti-government protests and the death at the hands of the army of hundreds, possibly thousands, of unarmed civilans in central Beijing

This tremendous shot of terraced rice fields in Yunan Province, China, is by Jialang Gao, from Wikimedia Commons

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