Inflation comes to China

Rise in China’s Pork Prices Signals End to Cheap Output - New York Times:

"Business executives say that with wages rising 10 percent or more a year in many Chinese cities, the country’s days are numbered as the world’s lowest-cost producer of many cheap labor-intensive products, like toys and shoes."

A crisis in China as pork prices rise might sound a bit over the top from our perspective, but pork accounts for a significant part of the protein in the diets of Chinese, especially the poor, in a nation which consumes over three ounces of pork daily for every man, woman and child - over 90 billion pounds.

As dire as the situation is now, the government is still hesitating to release supplies of pampered pigs from the subsidized strategic pork reserves.

The commerce ministry keeps a national reserve of frozen pork and live pigs, and local governments keep their own reserves as well, constantly selling older supplies and procuring fresh stock. Government agencies pay a pig subsidy to farmers to keep their animals in the program.

“The sties are very roomy, there is heat in the winter and fans in the summer,” the television program said, describing conditions very different from those endured by many other pigs in China, including those here in Gaoyao, 50 miles west of Guangzhou.

I can understand the dilemma facing the Chinese government. Long ago I did an analysis of a proposed anthracite coal stockpile for the US government. Forcing prices lower now will discourage producers from making the investments needed to create greater supplies in future. On the other hand, continuing high prices may undermine public health and contribute to social unrest in the short run.

The NYTimes article makes the point of comparing the Chinese pork reserves to our own Strategic Petroleum reserve but misses the parallel between the way Chinese media hint that pork producers are to blame for rising prices while our own media make similar claims about the oil companies. Yet, in both situations, it is clear that demand is outrunning supply and costs are also rising for wages and raw materials.