A blog on Chinese economy & society

Posts Tagged ‘liquidity

Brother, can u spare some beans?

leave a comment »

With the government tightening the screws on property market, there’s a persistent worry that the liquidity might end up flooding the general economy instead. The recent runaway price increases for farm produces demands particular attention as inflation in food has a direct impact on social stability.¬† Garlic has gone up by 35% this year and green beans has increased by over 70% (!) since the Chinese New Year, so much so that volume for the later has dropped by 30%.

The economist of the National Bureau of Statistics has denied that speculation plays any significant part in the recent prices increases, and blames the weather instead. While China certainly¬† has been hit with really strange, irregular weather during 2009-10 growing season, speculation cannot be written off so easily. For one thing, the perishables generally have only mild price increases, as are produces that are grown across the country. It’s things like garlic and beans, produces can be easily cornered and stored, that have registered the most dramatic increases. Besides, the Pricing Bureau of Guangdong has recently started an investigation on hoarding. Somebody must have seen a problem.

One thing that’s for sure is that May CPI is going to breach the 3% threshold, as food accounts for 34% of China’s CPI basket, compared to about 15% for the US. (Since the poor spend more of their budget on food, the CPI of a less developed nation generally reflects this.)¬† Although the official litmus test is 3% for the FULL year, the breach of one single month is enough to send investors running for cover, if they haven’t already done so.

Written by Cindy Luk

May 23, 2010 at 2:37 am