08/09/2011, 00.00
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Chinese inflation up 6.5% in July, never so high in three years

Price of food increased by 14.8%, +56.7% for pork. The government can not control inflation, but the measures taken to date have created difficulties for small businesses, the foundation of the economy. Experts: revise the model of development and focus on the needs of the population.
Beijing (AsiaNews / Agencies) - Inflation in China spiked at 6.5% in July (it was 6.4% in June), a 37 month records, contradicting the general expectation that the government was failing to contain it. The figure is far more serious because it reveals a growth of food prices, the main expenditure item for families with low and medium income: +14.8% in July, well above the 4% cap set by the Government for 2011 .

The cost of foods that are the basis of Chinese cuisine have spiraled: in July the price of pork increased by 56.7%, eggs by 19.7%, fresh vegetables by 7.6%. Moreover the increases occur at the origin and retailers complain that their earnings decrease continuously, due to lower sales and the need to undercut prices to remain competitive.

In addition the current difficulty of global financial markets does not recommend the adoption of the usual instruments of government intervention. The Central Bank of China raised interest rates five times between October 2010 and was ready to do it again, but now it is likely to delay the move to avoid the risk of excessive repercussions on investment. Also because of the increased cost of money, which has had uncertain results on inflation, has hit small private companies, which constitute a large part of Chinese wealth: they are experiencing increasing difficulty in obtaining new credit, but have higher costs for wages and raw materials.

For months, Chinese leaders have indicated the price controls as their main priority and, in addition to raising the cost of money, they also sought to contain new bank loans, to avoid a surplus of money circulating largely used for speculative operations. In June, Premier Wen Jiabao said he was "confident" that inflation was under control, a belief shared by many experts, but denied by the data. However many estimate that industrial production has contracted in July, although there are no official data yet, so it is feared that any anti-inflationary measure will affect already waning economic growth.

Analysts observe that the global crisis also has serious repercussions on the Chinese model of development, based on an continuous increase in exports, for some time now considered by everyone, including Premier Wen, "unbalanced, unstable and unsustainable." This has led Beijing to disregard the rise of the middle and lower class income and domestic consumption, encouraging large companies and state companies. But now it foresees a decrease in Chinese exports to the United States and Europe, its main markets. The reduction in exports could be offset by an increase in domestic consumption, with families who see a growing proportion of income absorbed by the basic needs such as food.

Experts believe that if inflation continues to grow, the government will be forced to review its economic policy in order to encourage increased consumption. So far, the stimulus measures have been directed instead to promote investment, with particular advantage for large companies, primarily state ones.

Tang Yunfei, of Founder Securities, notes that "it is time for Beijing to announce to the world that it will again try to stimulate domestic demand." For example, allowing a re-valuation of the yuan, with lower domestic price for foreign products.

The government still needs to act decisively and quickly, for fear that the rise in prices will lead to more social unrest: according to experts, in 2010 there were over 180 thousand mass protests in China, mainly for economic reasons such as widespread corruption, expropriation of land and the escalating food prices.

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