Welcome, new growth model

By Mark Williams
0 CommentsPrint E-mail China Daily, March 9, 2011
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Premier Wen Jiabao put price stability at the center of the government's concerns in his speech over the weekend. So here is a question for deputies to the National People's Congress to ponder during their long hours in the Great Hall of the People. Why do so many families in China struggle when prices of basic products rise?

The simple answer is that many families' income does not stretch far beyond the necessities. Especially with food prices rising rapidly over the past year, the poor families are inevitably feeling squeezed. Though there are signs that the inflation problem has not deteriorated in the last couple of months, it will be a while before the problem is totally eliminated.

The drought in northern China is raising questions, too, on how long grain supplies will last.

Besides, there is a great deal of concern, not just in China, over soaring global price of oil. China is better placed than most other countries to ride out that particular storm - though neighboring countries use half as much oil as China to produce a given amount of goods. But that is a testament not to Chinese efficiency but to the fact that its economy is hugely reliant on coal rather than oil.

It is not just oil prices that are high. The world price of soybeans, which China imports in vast quantities to process cooking oil and animal feed, has increased by more than half since the middle of last year. And global cotton prices are nearly three times what they were in mid-2010.

Still, it is not immediately clear why the level of inflation we are seeing today should be such a problem. Inflation of 4 or 5 percent is normal in many fast-growing emerging economies. In China, the average income increased more than 16 percent during last year, much more than would be needed to compensate for the rise in prices. Stepping back, China's per capita GDP today is four times what it was a decade ago. Of course, consumers are never happy to see prices rise but there is still the question: Why so many families are struggling to make ends meet when incomes are rising fast.

The explanation lies partly in changing tastes and expectations. As we get richer, we get used to eating better food more often and are reluctant to change that habit. More important, though, is how little benefit the lowest-income households have got from China's decade of supercharged growth.

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