If Beijing does not stop inflation, serious social unrest might follow
Beijing (AsiaNews/Agencies) – US policy could push world inflation up, forcing Beijing to do what Washington wants, namely raise the value of the yuan, in order to fight rising prices. On the short run though, this might lead to popular unrest and street protests at home.
Inflation is now 4.4 per cent over a year ago, a record for the past decade. However, food prices have actually increased by more than 10 per cent. To counter its effects, the Chinese government approved on Saturday a set of subsidies for vegetable producers and cheaper energy for fertiliser makers. Financial aid will also go to poor families and students. The minimum wage is also expected to rise and special measures for the unemployed are expected.
Last week, Prime Minister Wen Jiabao announced the government would sell wheat, cooking oil and sugar at marked down prices. He also threatened to impose a price ceiling on some food items.
For experts, such steps will only meet the short-term needs of an exasperated population, but they will not lead to a long-term solution to rising prices. In fact, they might have the opposite effect by reducing production and pushing up prices.
For many observers, rising prices are not due to food shortages but rather to high production costs by state monopolies in area like coal and oil.
At the same time, food constitutes a rising part of the consumer price index across Asia.
With more credit and cash thrown into the economy through China’s stimulus package in the wake of the global crisis, “you’re sitting on a volcano,” Patrick Chovanec, an associate professor at Beijing’s Tsinghua University, told the Bloomberg News agency.
By pumping more cash into the economy, US economic policy has also pushed up inflation worldwide. All of which may be part of its plan to get China to appreciate its currency, says Société Générale's chief economist Albert Edwards. If the surge in food prices feeds into wages, this will force a real (after inflation) rise in the yuan's exchange rate as mainland authorities try to reduce the cost of foreign goods and stop importing inflation. Until now, China had artificially kept its production costs low in order to boost exports.
According to Edwards, social unrest is a major concern for decision-makers in Beijing since tens of millions of Chinese still live in poverty and are highly vulnerable to major increases in food prices.
In fact, inflation is a greater headache for the Chinese government than dissidents or popular dissatisfaction over the effects of forced demolitions because inflation hits everyone, Hu Xingdou, of Beijing’s Institute of Technology, told the South China Morning Post. Price-related protests would probably find widespread support in the populace.
Dissatisfaction is already visibly rife among those who have to cut back on spending and choose lower quality goods, which in turn has an immediate impact on retailers and manufacturers.
At present, many mainlanders from Shenzhen end up going to Hong Kong to buy toothpaste, shampoo and similar items.
In the meantime, Standard Chartered PLC has issued a bleak picture for China. Its economists expect prices to rise by 5.5 per cent in 2011, with a peak in June of 6.3 per cent.
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10/04/2008
