Many find Hong Kong prices so attractive that they travel more than 900 miles from inflation-stricken Shanghai to shop for necessities. “Seeing how fast prices have soared,” exclaimed office worker Sun Ningin in a new report widely quoted on the Chinese Internet, “I scheduled a train trip to Hong Kong with my friends.” She said the travel cost, when split among the group, was far lower than the cost differences.
Sun’s shopping list includes infant formula, body wash, athletic shoes, and condiments, all popular choices for price wary mainland shoppers. According to a recent study by Oriental Morning Post and Fudan University, prices for branded personal cleaning products like shampoo can be up to 30 percent higher in Shanghai compared to Hong Kong, where produce such as apples and eggs is also less expensive.
Inflation Rising Rapidly
China’s inflation is officially out of control. The October consumer price index (CPI) rose by 4.4 percent over the same period last year, breaking a 25-month record. Food prices accounted for the majority of the increase, rising 10.1 percent over last year, according to official statistics—but the numbers may not capture the real picture. In a Nov. 9 report, Chinese Academy of Social Sciences researcher Xu Qiyuan said China’s CPI has been systematically underestimated by seven percent in the past five years. Price statistics seem to support his conclusion: November data show that in China’s 36 major cities, the average wholesale price for 18 monitored vegetables rose 62.4 percent compared to a year ago.
Prices of nonfood products are also rising. Cotton futures, for example, rose by 32 percent in the past two months, resulting in rising fabric and apparel prices. Authorities also increased gasoline and diesel prices by 4.5 percent and 5 percent respectively, on Oct. 26.
Tremendous Social Impact
Inflation has impacted Chinese in every way. Price increases and finding the best deals have become daily topics; for many, a more frugal life is inevitable.
Qiqihar resident Liu Hua told Southern Weekly that his family has excluded from their dinner table stewed pork and vermicelli, a family favorite for decades, since both are too expensive. This winter, her family stocked up more on Chinese cabbages and potatoes to replace more expensive vegetables such as green beans and cucumbers.
They also gave up plans for a new washing machine, using the money for food. “A new washing machine can wait until we have more money to spare,” said Liu’s husband. “But rice, flour and cooking oil are all growing more and more expensive. We can’t live without them.”
Even with all the penny-pinching, the grocery expenses are 30 percent higher than in the summer, Liu Hua said.
Pressured by rising prices, consumers are sharpening their shopping methods. Online shopping, group shopping, deal hunting, and stocking up are now all popular Internet search terms. “Groupon” type deal of the day websites have gained wide popularity since their first introduction to China less than a year ago.
Zhang Yi, a 23-year-old ad agency employee, is a big group shopping fan. He told Xiaoxiang Morning Post that he relied on group shopping websites for haircuts, dinners, movie tickets, and even travelling.
But creative shopping does not solve the real problem. For the lower income groups, high inflation is devastating. Retired Shanghai resident Ms. Shen told The Epoch Times that living expenses are now so high that she can no longer afford healthcare. “As retired people, we don’t even dare to see a doctor unless the situation gets very serious,” she said. “We just can’t afford the treatments.”
Anger accompanies desperation. On Nov. 22, more than 1,000 high school students in Guizhou Province wrecked the school cafeteria in protest of its recent price hike. People fear such violent protests will happen more frequently due to greater financial burdens.
Desperate Measures
For the communist regime, the political impact of the inflation is even more alarming: similar inflation in 1988 helped along the 1989 pro-democracy student movement that ended in the notorious Tiananmen Square massacre.
The regime has taken various measures to rein in inflation. China’s central bank announced in October its first interest rate increase since 2007. In November, Beijing announced its fifth increase of bank reserve requirements this year. In addition, the Chinese State Council issued a circular requiring local governments to ensure agricultural and energy supplies and stabilize commodity prices, according to state media.
But some China-watchers hold that these measures are too little, too late. “Compared to the skyrocketing prices, the 0.5 percent interest increase only scratches the surface,” Hong Kong financial analyst Dr. Lew Mon Hung said. Besides, he said, the higher interest rates will bring in more hot money which will inflate the capital bubble even further: “The Chinese authorities are stuck in a dilemma.”
Root Causes
Experts say that the inflation is a result of the regime’s wrong monetary policies. Chinese democracy activist Wei Jingsheng said in a recent television interview that currency over-issuing and the low yuan exchange rate are the root causes of the inflation. He said that the regime has been over issuing currency for the last two decades in order to stimulate growth, resulting in a continuous long-term inflation. According to official statistics, China’s 2009 broad money (M2) supply was 1.8 times as high as its GDP, and the gap is widening rapidly. By September, the balance of broad money for 2010 had totaled 2.6 times GDP. Chinese senior official Wu Xiaoling admitted in a recent interview with China Economics Weekly that the regime has been over issuing currency to maintain high economic growth.
The inflation had stayed at acceptable levels because of China’s high savings rate and the regime’s careful manipulation, Wei said. “The recent eruption [of inflation] was triggered by the excessive amount of currency issued to fight the global economic crisis last year,” he said. “The regime tried to offset the global stagnation by increasing investment, but such measures further widened the gap between the currency aggregate and market production,” which is a direct cause of inflation.
The regime’s recent measures to control housing prices have worsened the situation, Wei says. Large amounts of capital forced out of the real estate market flowed into the commodity market, driving prices even higher.
Economist Jian Tianlun told The Epoch Times that the 4 trillion yuan (US$600 billion) stimulus money pumped into the market at the end of 2008 and the over 10 trillion yuan loans granted in 2009 pushed China further into an inflationary spiral.
U.S. based Chinese economist Cao An said in an interview with The Epoch Times that inflation has widened income gaps. On the one hand, the state-owned enterprises and local governments benefitted largely from increased housing and commodity prices; on the other hand, the pay raise of average Chinese falls far behind the price increase. “The key is: the people are being exploited,” said Wei Jingsheng. “This is a super economic exploitation, an administrative exploitation… If the regime keeps focusing on profits at the cost of people’s wellbeing, it is very likely people will rebel.”
As early as 1994, marketing and management guru Peter Drucker told Japanese investor Isao Nakauchi in the book “Drucker on Asia” that the Chinese market, though attractive, is more dangerous than others. He predicted that China will eventually experience serious inflation—and “the bubble is both much bigger and more extended than the bubble that burst in Japan a few years ago,” which may lead to severe social upheaval.
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