Chinese Officials and State Media Blame China Inflation on US
[xtypo_dropcap]S[/xtypo_dropcap]kyrocketing prices of everyday goods in China threaten the standard of living of the country’s poorest citizens, as well as its nominal middle class. Given the potential dangers faced by the Communist Party as public discontent swells along with inflation, the United States has become scapegoat Number One.
From soybean, ginger, garlic, to cotton and sugar, surging prices have struck one product after another since the beginning of the year. The China Securities Journal described cotton prices in October as “crazy.” Cotton has increased 93 percent compared with the same period last year.
Recently released data by the Ministry of Commerce shows that wholesale prices for 18 kinds of popular vegetables have increased 62.4 percent on last November.
Beijing’s ‘Blame Game’
Chinese officials and opinion leaders have turned to blaming the U.S. for the difficulties.
In a recent forum on foreign trade, Minister of Commerce Chen Mingde warned Chinese companies about the impact of inflation on imports, saying that “the U.S. dollar supply is uncontrolled, and international commodities keep increasing in price,” according to a Nanfang Daily report.
In a widely circulated article in mainland Chinese media, deputy dean of the School of Economics at Fudan University, Sun Lijian, questioned whether China is prepared for the effects of the United States’ “exporting” inflation to the world.
Zhang Jiye, in an article published by the Beijing-backed Global Times, criticized the Federal Reserve’s Quantitative Easing monetary policy as a strategy designed to slow down China’s emergence as world power.
Chinese Premier Wen Jiaobao in recent comments also criticized the U.S for shifting the responsibility for the global economic imbalance onto China, according to a Caihua Net report.
Wu Fan, editor-in-chief of China Affairs, believes the current inflation is due to the extremely loose monetary policy previously adopted by Beijing to stimulate Chinese economic growth; he believes the purpose of current media reports is to shift public attention and resentment from this fact.
He cites official data which shows that, ten years ago, China’s Gross Domestic Product was one and a third trillion U.S. dollars, while the country’s broad money supply (meaning the amount of money in circulation) was about two trillion. This amount nearly equals 670 billion dollars beyond China’s total GDP.
Comparing 2009’s figures in dollars, China’s GDP was about five trillion with a money supply of nine trillion, four trillion dollars of excess money supply over production; in other words, much more money than needed has been in the economy.
The gap between money supply and GDP continues to increase. According to China’s National Bureau of Statistics, that gap rose to a US$6.44 trillion by the end of last quarter. At the same time, the Bureau recorded the highest Consumer Price Index increase in almost two years, with the overall cost of food eight percent higher than in September 2009. These basic facts are the reasons for China’s inflation, Wu says.
Cheng Xiaonong, an expert on the Chinese economy and formerly chief editor of Modern China Studies, says it is illogical to suggest the price increase of international commodities is the cause of inflation, since China mainly imports oil, iron ore, and soybeans, and their price increases should not raise prices for tomatoes and green vegetables.
Cheng sees the price increase of iron ore on the international market as actually caused by the high demand from China, “because all these large construction projects need huge amounts of steel.”
Cheng says that the Chinese regime has seized the timing of the Federal Reserve’s announcement for quantitative easing to blame the U.S. for China’s inflation. The argument is easily refuted, he says: “If over-issuing U.S. dollars causes the severe inflation in China, why is there no obvious inflation in the United States?”
The Poor Take the Brunt
The lower and middle classes have the roughest time during inflationary periods, Cheng says, as their living standards decline most immediately. Getting three square meals a day becomes difficult, let alone meeting the rising costs of water, gas, electricity and rent—not to mention medical care and child education costs. People can’t stop the trend, Cheng says; “They can only be victims.”
China’s official and monied classes obtain most of their wealth from their proximity power, control of resources, and market monopolies. They can also speculate. If savings shrink, they can dabble in real estate; when housing prices stall, they can move to gold; and if things don’t work out in China they can transfer their families and assets to Europe, America, or Australia—millions are already in the process of precisely that.
“In essence, inflation loots only the common people,” Cheng says.
China has had two periods of serious inflation since economic reforms began in the late 1970s. The first was in 1988 when, after Deng Xiaoping saw “prices breaking through all barriers,” the whole nation began panic buying. Official statistics show that the CPI at the time had risen 19 percent. The fallout in public discontent at the time contributed to popular support for the Tiananmen Square student movement.
The second instance was in 1994, when consumer prices rose 24 percent. Although the situation was more serious than in 1988, the memory of the Tiananmen Square Massacre in 1989 was still fresh, and complaints were not forthcoming. When inflation began this year, however, complaints came thick and fast online.
Inflation is usually a gradual process that once started will last one or two years, Cheng says. Once the price goes up, it doesn’t tend to drop back. “It’s hard to predict what political and social consequences this inflation will lead to,” Cheng says,” but it is sure to have quite a serious impact on most peoples’ standard of living.”
Read the original Chinese article.