All the Rice in China

Anyone living in China can’t fail to have noticed the sharp price increases in recent months. Zhang Hong has written a fascinating piece for our magazine this month – link to follow - on how the rising cost of living in Chinese cities has lead to a major shortage of migrant labour, as rural workers return home in droves because rising prices in the city make migrant labour increasingly unsustainable.

Certainly rising prices seem to be the only topic of conversation among the old laotaitais in my apartment complex. Riding down in the lift this morning, I heard two bemoaning the fact that the price of rice per jin had increased almost doubled over the past year. Her friend replied by shaking her walking stick in agreement, adding that a restaurant she had been to recently had tried to charge her 2 kuai for a bowl of plain white rice.

Admittedly food prices seem to be the dominant topic of conversation among the old residents of my xiaoqu at the best of times. But even pampered laowais such as myself have noticed that the price of fruit and veg has increased recently, as have restaurant prices - I now regularly end up paying two kuai for a bowl of rice. Most restaurants in Beijing have stuck white labels over their prices or have changed the prices on their menus by hand – clearly the price of printing new menus has also increased.

The government is acutely aware of the growing unrest among laobaixing, the ordinary people, about rising prices. And following reports that people in Hong Kong and Macau were stockpiling rice following rumours of a potential future shortage, premier Wen Jiabao was forced to interrupt a state visit to Laos to issue a statement reassuring Chinese citizens that China has an adequate supply of rice to feed its people:

“Please set your mind at rest because China has an abundant supply of rice. . . China is capable of feeding itself with its own rice production.”

Nevertheless, the South China Morning Post (subscription required) reported that there were long queues at supermarkets in Hong Kong and Macau yesterday as shoppers stocked up.

Of course the inflation issue does not just affect old grannies and hungry expat journalists – it is also having a major impact on businesses. A number of high-profile multinationals have relocated part of their business to cheaper markets such as Vietnam in recent months because of rising production costs in China. Zhang Hong in his article cites figures from the Federation of Hong Kong Industries suggesting that as many as 10% of the 60,000 to 70,000 Hong Kong-owned factories in the Pearl River Delta region will close this year - the highest rate of closures in 20 years. While some of these will relocate to cheaper inland cities in China, many will leave the Middle Kingdom altogether.

I will leave you with an ominous quote from UBS economist Jonathan Anderson to AP:

“Over the medium-term, where are you going to invest if you’re building a factory? Maybe not China anymore. Maybe Bangladesh, Vietnam, Indonesia. Maybe India.”

Forget Tibet, Taiwan or the Olympics: inflation could be the real China story in 2008.

Matthew Plowright