China’s Leadership Scrambles To Contain Run Away Food Inflation!

Posted By on November 23, 2010

The Chinese haves vs. the have-nots and the Chinese rich vs. the poor ….will be at the forefront of China’s immediate problems.  This is how revolutions start. Don’t think for a second that the Chinese leadership doesn’t know or worry about this fact!

This from Art Cashin On the floor of The New York Stock Exchange…….

Remember Wen – Chinese Premier Wen Jiabao, along with the rest of China’s leadership are in a scramble to put a lid on burgeoning food inflation.

When October inflation figures came in at a stunning 4.4%, Wen went on TV from a local supermarket.  He promised subsidies to the poor and threatened to crack down on speculators and any manipulation.

The reason he went right to the supermarket is that the price of a basket of 18 frequently used vegetables is up over 60% on the year.  That cannot be popular with the populace.

Wen and the others may recall the Tiananmen Square riots in June of 1989.  While that protest ultimately homed in on political reform, many feel its antecedents were the many smaller protests over food costs that sprang up in the months before.

Wen is so concerned that he said if prices continue to rise, he might be forced to institute price controls in food and vegetables.

Not everyone is convinced that Wen and his team can get the genii back in the bottle.  Here’s a bit from a Bloomberg piece:

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.

We’ll keep a close eye on that volcano.

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