Nov. 23 (Bloomberg) -- Standing near his 12-table noodle shop on Beijing’s Yonghegong Avenue, owner Liu Heliang says meat and vegetable prices have climbed 10 percent in a year and staff wages are up 40 percent.For McDonald's to increase prices, things must be really difficult.
“I’m struggling to make ends meet with costs going up like this,” said Liu, a native of Sichuan province who pays his workers as much as 1,800 yuan ($271) a month, or 88 percent more than the Beijing minimum wage, to serve up a staple Chinese meal. “Raising prices is the only way out,” he said, predicting he won’t be able to hold out beyond two months.
Premier Wen Jiabao’s cabinet last week announced it will sell grain, cooking-oil and sugar reserves, ordered an end to tolls on trucks carrying produce and threatened price controls to rein in a 10 percent inflation rate for food. Because the measures would do nothing to counter the 54 percent surge in money supply over the past two years, the risk is they will prove insufficient to cope with the challenge.
“They are just not addressing the fundamental problem at all,” said Patrick Chovanec, an associate professor at Beijing’s Tsinghua University. With the expansion of credit and cash in the economy stemming from China’s response to the global crisis, “you’re sitting on a volcano,” said Chovanec.
China’s plans to rein in prices include selling state food reserves, stabilizing the cost of natural gas and cracking down on speculation in and hoarding of agricultural products, the State Council said. The aim is to damp food inflation that reached 10 percent in October, more than twice the 4.4 percent headline rate.
China will sell soybeans and vegetable oil from its stockpiles starting this week to stabilize prices, the State Administration of Grain said in a statement Nov. 19. State news agency Xinhua reported the next day that the cabinet ordered local governments to ensure food supplies ban toll collections for vehicles carrying fresh foods.
McDonald’s Corp., the world’s largest restaurant chain, said Nov 17. that it increased prices for its burgers, drinks and snacks in China to offset costs.
[...]Yes indeed. Price control create shortage in the white market, and are the life blood of the black market.
While price controls may help with inflation expectations, they will either be ineffective because producers circumvent them or create shortages if suppliers suffer losses and are not compensated, said Goldman Sachs Group Inc. economists Yu Song and Helen Qiao in a Nov. 17 note.
“Prices for everything are rising every day -- no exception,” said Zhu Fulong, 35, who has run a grocery shop in Hangzhou, a city near Shanghai, with his wife since 2006. “A lot of people won’t increase their spending much, so they instead choose products at lower grade which we sell at thinner margins, and that’s hurting our business.”See the YouTube video below
Rising prices are also prompting housewives like Lily Huang, 50, to travel once a month to Hong Kong from Shenzhen in southern China to stock up on items including toothpaste, shampoo and tissues.
“Things are much cheaper here,” said Huang, carrying a suitcase and three bags full of groceries at Sheung Shui train station next to Hong Kong’s border with China. A packet of Tempo tissues is 30 percent cheaper in Hong Kong, she said. “It’s really worth the trouble for us to come here to shop.”
Here's a video report available on YouTube about inflation in China:
- Prices are a lot higher in Beijing than HK, people are traveling from mainland into HK just for grocery shopping
- The government has forbidden “speculation” in corn and cotton markets
- People expect price controls…
Jim Chanos on CNN: China’s Treadmill to Hell: