China learns to live with inflation

By Mitch Moxley

BEIJING: At Mr Ma’s fruit and vegetable shop, located in a historic Hutong alleyway a few blocks from the Lama Temple, the impact of China’s growing inflation is evident.

In recent months, the prices of Ma’s products have soared. Eggs have gone from RMB7 (6.5RMB to a dollar) to RMB10 per kilogram. Tomatoes have almost doubled. Cabbage has tripled.

Despite the government’s pledge to rein in food prices, Ma’s not so sure – a sentiment shared by a growing number of ordinary Chinese. “Prices will definitely keep rising,” he tells IPS. “There’s not much we can do.”

Soaring inflation has been the dominant news story coming out of China in recent months. In January, consumer prices in China climbed 4.9% compared to the same month a year ago, according to government figures.

That was lower than expected, but still cause for concern. Critics claimed that the statistics bureau had recalculated the index to give less weight to food costs, meaning inflation might have actually been higher than reported.

Consumer confidence dropped four points to 100 in the fourth quarter of 2010, the lowest level since 2009, indicating concern among Chinese about inflation’s impact on their daily lives and salaries, according to a survey published by the China Economic Monitoring and Analysis Centre and the Nielsen Company, a media research firm.

According to the survey, numbers above 100 indicate degrees of optimism, while numbers below the 100 mark reflect pessimism. In the second quarter of 2010, Chinese consumer confidence was at 109 points.

The cost of food, most notably fruits and vegetables, has been climbing for the past year, and food prices now rank as the country’s third largest concern, behind income stability and health, the study found. January’s food prices soared 10.3% from the month before, and 84% of consumers believe food prices will continue to climb in the next 12 months.

Economists also expect more price increases the months ahead, as demand outstrips food supply and commodity prices remain high.

China analysts have said that inflation is a major concern for the Communist Party, which has based its legitimacy to rule on economic prosperity. In many areas of China, families spend up to half their income on food.

‘You have to eat’

For ordinary Chinese, life goes on. Small business owners interviewed by IPS on a recent morning say that although they were concerned about rising prices, most weren’t expecting a dramatic drop in business.

“Yeah, the prices are going up, but there’s nothing we can do,” says Shao, the owner of a tiny convenience store a few doors down from Ma’s vegetable shop.

She says that the cost of most of the items she sells is on the rise, including milk, sugar, beer, cooking oil and flour. Cases of a popular brand of instant noodle are up from RMB36 last fall to RMB45 today. All major beer labels are hiking prices.

Shao has run this convenience store for eight years, and these are the highest prices she’s seen. But she’s not overly concerned – business is down slightly, but not significantly.

“People seldom complain. They know about inflation. You have to eat.”

On a busy street in the heart of central Beijing, Boss Liu barely has time for questions, his bread stand is so busy. His product has gone up from RMB0.6 (less than a penny) to RMB0.8, and he expects to sell each shao bing – layered flatbread with sesame seeds on top – for RMB1 each soon enough.

He’s not too confident the government will be able to control prices, but his business has been largely unaffected by rising inflation.

“Some old people aren’t buying them anymore, but maybe just one percent of customers. We’ll be OK.”

Subsidies to poor families

The central government in Beijing has promised to rein in inflation by raising bank reserve requirements and interest rates.

The central bank recently raised the reserve requirement ratio for banks by 50 basis points, or 0.5 percentage points, and it has raised interest rates three times since October, with more increases likely.

Beijing has tried to calm public concerns by paying subsidies to poor families, keeping prices low at university cafeterias and ordering local governments to ensure vegetable markets are well stocked.

But the government’s pledges offer little comfort to Tong, the owner of a beef noodle shop near Andingmen subway station.

Rising costs are eating into her profit and she’s having trouble retaining staff. Over her lunch she says she’s thinking about closing shop and heading back to her home province of Shandong.

“Nobody wants to work here. They have to work long hours – it’s hard work,” Tong says.

“The price of materials keeps rising and workers keep asking for raises. I can’t afford to keep this place anymore.”

- IPS