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Pork prices are political issue in China

Wednesday, September 12 09:53:04

Pork prices are so volatile and have such an influence on inflation in the Chinese economy, the world's second-largest, after that of the United States, that some Chinese joke that C.P.I. stands for China pork index, not Consumer Price Index. Annual inflation in China ticked up slightly to 2 percent in August from a 30-month low in July, reflecting in part a turnaround in pork prices, which climbed after a summer dip, returning to levels last seen in May.

For the moment, pork supplies are ample. Record profit margins for pork last year meant that people of all stripes, peasants and coal millionaires, invested in pigs. That is good news for the Chinese Communist Party, which is sensitive to any potential for public unrest before its once-in-a-decade leadership transition later this year. The party blames inflation for demonstrations in Tiananmen Square in Beijing more than 20 years ago and keeps a lid on prices by force if necessary. But though inflation has trended unusually low in China this summer, pork prices and overall food inflation are at risk of rising higher in coming quarters, testing the government's resolve to keep a lid on prices, even as it faces a cooling economy.

The Chinese Government is launching a major incentive drive to increase the output from pig farms and to push smaller producers to increase their capacity. Such is the political sensitivity to rises in pork prices that the Government is throwing millions at the problem, with some success. "The faster the trend to scale up and the faster that backyard breeding is phased out, the more volatility will be dampened," Hua Jianqing, Jiahua's president and principle investor, said from his headquarters in rural Zhejiang, south of Shanghai.