WHILE many China-watchers fret about the consequences of a collapse of China’s stockmarket, Wen Jiabao, the prime minister, seems more worried about the risk of social unrest as a result of the rocketing price of pork. A 50% rise in the average nationwide price over the past year is causing squeals of alarm. Last week Mr Wen went so far as to visit a farm to show he is taking the issue seriously.
Mr Wen promised that the government would act to ensure adequate supplies of pork; if necessary, to stabilise prices it can release stocks from its strategic reserves of both frozen pork and live pigs. Pork is China’s staple meat. The average person eats more pork than in any country other than Germany. But it accounts for almost 4% of China’s consumer-price basket, against less than 1% in Germany. Rising pork prices could therefore push up China’s inflation rate over coming months. Jiming Ha, chief economist at China International Capital Corporation, estimates that inflation will rise to 3.4% in May, from 3% in April.
Economists are scratching their heads to explain the price jump. Some blame it on blue-ear, a contagious disease which may have killed 18,000 or 20m pigs, depending on whom you believe. Others say the main cause is the surge in global grain prices, which have increased the cost of feed for pigs. It is not only the Chinese who are paying more for their pork. Capital Economics, a London-based economics firm, points out that American pork prices have also jumped by more than 50% over the past year.
Economists, however, may recall the old “hog cycle” that they learnt about in their first year of economics. This explains why prices in certain markets are subject to periodic booms and busts, because of a lag between the response in production to a change of price. Chinese pork prices today are not much higher than at their peak in 2004. High prices then prompted farmers to produce more, and prices fell sharply for two years. That in turn discouraged farmers from raising pigs. The inevitable result was today’s higher prices, which will probably lead to glut and falling prices tomorrow. Pigs may fly. But not forever.