12:01am

Thu January 6, 2011
Asia

China Battles Rising Prices, Consumer Discontent

Not so long ago, northern Chinese winters meant one thing: cabbage, day in and day out. Just four years ago, cabbages were so cheap they were being given away for free as a promotional tactic.

But a visit to a Beijing market is evidence of how times have changed.

"Cabbage has doubled in price since last year," says Xu Shengru, as she grudgingly hands over money for three big cabbages. "Everything is much more expensive than last year. We may be dissatisfied, but we still need to eat."

Inflation in China hit a two-year high of 5.1 percent in November, and food prices have soared. For China's leaders, tackling inflation without slowing growth too fast is a tricky task, with high stakes.

The papers are full of horror stories: Rice prices jumped 30 percent in just 10 days; peppers soared an unbelievable 1,000 percent.

Patrick Chovanec of Tsinghua University says this is just the start.

"I think what we're seeing in consumer inflation is just the tip of the iceberg in terms of inflationary pressures in China," he says.

The government has launched an all-out campaign against inflation. China's state-run TV news has shown Premier Wen Jiabao stalking supermarket aisles. Then there was a surprise interest rate hike on Christmas Day. One day later, the premier took part in a rare live radio show; no emotion was spared as he addressed listener concerns about inflation.

"Your words hurt my heart. The central government has already taken 16 different measures. Looking at the situation now, we absolutely have the ability to control prices. I have confidence," Wen said.

Inflation is an acutely sensitive political issue in China, where double-digit inflation fueled discontent in the run-up to the 1989 protests on Tiananmen Square. Today, bad weather and speculation are cited as factors behind the price rises.

The government has already imposed price controls on some foods; projected December figures bring inflation down slightly from current levels, to 4.3 percent. This offers short-term relief, but Chovanec says such measures won't solve the underlying problem.

"In my view, the primary reason why there's so much inflationary pressure in China is maintenance of the currency peg. When dollars flow into China, in order to keep the exchange rate steady, the Chinese central bank has to go in and buy dollars, and it issues renminbi, it adds to the money supply. And normally that would fuel inflation, unless China runs a constantly tightening monetary policy to compensate, and it hasn't been doing anything near that over the past couple of years," he says.

As a result, higher prices could be here to stay.

Recently, a ballad of lament hit the Internet: "Cheap things no longer exist, normal people can't afford to eat green vegetables." It decries corruption and rising house prices, and ends asking, "Wouldn't we be better off returning to the '80s?"

This shows how rising food prices represent a Pandora's box of discontent, whereby three decades of progress are undermined by the fact that people feel they can no longer afford to buy cabbage. Copyright 2011 National Public Radio. To see more, visit http://www.npr.org/.