Chinese Try to Cope with Soaring Prices

November 9, 2010 Updated: October 1, 2015

The price for cooking oil in a Chongqing supermarket has gone up to over 80 yuan (about US$12) per bottle as of Oct. 20. (The Epoch Times)
The price for cooking oil in a Chongqing supermarket has gone up to over 80 yuan (about US$12) per bottle as of Oct. 20. (The Epoch Times)
This has been a year of soaring food prices in China. Beginning with sharp price rises for beans, garlic, and ginger, now it’s cooking oil, apples, and pork.

Experts believe that China’s overall price rise is a result of the authorities’ overprinting of currency. For the past two years, banks in China released 17.3 trillion yuan (about US$2.59 trillion) in new loans. Such an enormous amount of currency must be absorbed by the market. In 2009, the stock market value doubled and absorbed a great amount of liquid currency; and in the first quarter of 2010, the soaring residential property market also absorbed some liquid currency.

However, many metropolitan regions have recently issued limits for housing sales and have consequently cooled the market. New liquid currency is now eying agricultural products and other goods, which is the main reason for soaring prices.

Soaring Staples

The most popular phrase that Beijing residents use nowadays is “everything is going up.” In the Haidian market, very few vegetables cost less than 2 yuan (US$0.3) per jin (1.1 lbs) now. Only two kinds of vegetables are less expensive: tomatoes and cucumbers.

Most concerning is the price rise in rice. “It has gone up 30 percent for the past two months, from a little over 2 yuan [USD$0.3] a jin to 3 yuan [USD$0.45] a jin now,” said a Beijing resident.

It’s the same with name brand cooking oil, which has gone up about 20 percent. The National Grain and Oil Trade Center dumped 300,000 tons of edible oil from state storage onto the market on Oct. 20, trying to stabilize the cooking oil price, but the effect was limited.

The price rise of other agricultural products such as mung beans and garlic has had a cascading effect on apples: the price of apples produced in Shanxi and Shandong provinces has risen up to 30 percent.

Sugar was not exempted, going from 4,500 yuan (US$675) a ton to a historic high of 6,000 yuan (US$900) a ton by mid-October. As of Oct. 25, sugar costs more than 7,400 (US$1,110) a ton in some production areas and the price has fluctuated as much as 600 yuan (US$90) within one day.

Under these circumstances, many have started hoarding necessities. Beijing resident Ms. Sun said that based on experience, one could never go wrong by stocking up on cooking oil, flour, candy, snacks, liquors, towels, and even makeup. “I’ll stock it up as long as I can use it in the future,” she said.

Cotton and Coal

It is not only food, but other important items such as cotton and coal whose prices are soaring. Since this year’s new cotton entered the market in late August, its price has risen nearly 40 percent, from 18,000 yuan (US$2,687) to more than 25,300 yuan (US$3,792) per ton, averaging an increase of 100 yuan (US$15) each day. Cotton futures prices also reached record highs, currently at around 24,000 yuan (US$3,597) per ton.

The surging cotton price in the northwestern province of Xinjiang has attracted private investment from Zhejiang province and has also caused the withdrawal of at least 10 billion yuan (US$1.5 billion) from Shanxi coal mines and real estate markets. As a result, the prices of cotton products such as lint and yarn are also rising, which scares off potential investors in related sidelines. Currently cotton has a high price but little demand.

Meanwhile, the price of coal is also increasing daily. According to Western China City Daily, the coal price in Baotou City, Inner Mongolia, has risen from 900 yuan (US$135) per ton before Oct. 1 to 1,300 yuan (US$195) per ton now. Anthracite in Yangquan City, Shanxi Province, has risen from barely 1,000 yuan (US$150) to 1,600 yuan (US$240) per ton.

As prices of many daily supplies in Shenzhen have exceeded its neighboring city Hong Kong, many Shenzhen residents are regularly entering Hong Kong to purchase groceries ranging from infant formula to toilet paper, as well as digital products.

Inflation Results

According to China’s National Bureau of Statistics, the Consumer Price Index (CPI) in September was 3.6 percent higher than the same period last year, and 0.6 percent higher than in August, making it the highest increase in the past 23 months. The CPI increase in September was mainly driven by soaring food prices.

Although Chinese authorities have repeatedly denied inflation, the sudden interest rate increase by the People’s Bank of China on Oct. 19 is generally regarded as a response to the emerging inflation. In an Oct. 27 statement, the bank also admitted the likelihood of further price rises in the future.

Business professor Frank Xie said that the inflation is a result of unbalanced economic structures and incorrect policies. “The People’s Bank of China has over-issued currency,” said Xie, assistant professor at the School of Business Administration, University of South Carolina Aiken. “With an export-driven economy, China has increasing foreign exchange reserves. As a result, People’s Bank of China had to print more yuan for internal use, leading to growing inflation.”

Xie believes the average Chinese would be hurt by serious inflation because housing is already far beyond the reach of most Chinese. Price rises in daily supplies will inevitably lead to sharper social conflicts and more frequent social unrest, Xie said.