Transcripts

Rising Food Prices Are Causing Concern in China

SUSIE GHARIB: The rising cost of food isn't only a problem here in the United States. The Chinese government is poised to introduce aggressive measures aimed at taming higher food prices. Those prices are up more than 20 percent from just a year ago. One big factor: the soaring price of raising pigs. A word of warning: this story contains some graphic images. Nick Mackie reports from China.

NICK MACKIE, NIGHTLY BUSINESS REPORT CORRESPONDENT: Imagine the uproar if the cost of meat in America rose 63 percent in a year. This is the case in China, where government efforts to control rapidly spiraling prices have faltered, even when many pork producing plants like this are state owned. Courier Zhao Guangguo, who delivers carcasses from the slaughterhouse to small local markets, blames the middle men, like the companies that process and wholesale food for the retail market. And this is the view of the public at large, which is braced for more price hikes over the coming year.

TRANSLATION OF: ZHAO GUANGGUO, PORK COURIER: We don't earn much doing this. The people making the money are those wholesale bosses.

MACKIE: Farmers agree. The price of pig feed quadrupled last year when many corn traders opted to supply the more lucrative bio-fuels industry. This, plus concerns over a virulent swine disease led small producers countrywide to quit rearing pigs or raise just two animals in pens that usually hold six.

TRANSLATION OF: JIANG YINSHU, PIG FARMER, HONG HUA VILLAGE: The cost is higher because there's not enough corn for pig feed. Fattening pigs now doesn't earn money.

MACKIE: With food prices across the board up 23 percent year on year, Beijing fears unrest, especially during a showcase Olympics year. But higher weekly grocery bills represent only part of China's worry. Inflation at large is at a 12-year high of 7.9 percent, fueled by higher commodity prices, feverish real estate investment, booming industrial output and a yawning $250 billion trade surplus.

TRANSLATION OF: PU YONGJIAN, PROF. OF ECONOMICS, CHONGQING UNIVERSITY: Once we joined the WTO in 2001, we joined the global market. Compared with the past, we sell more products abroad and this has caused excess liquidity.

MACKIE: Under China's foreign exchange regime, the government has to buy any foreign currency flowing into the country. This, coupled with an 11 percent rise in bank lending, has led to a destabilizing growth in money supply. Last year, Beijing raised interest rates six times and bank reserve rates 10 times, in a bid to cool the economy and rein in inflation. Nonetheless, growth in 2007 was the highest in 14 years, 11.4 percent. Despite concerns over the slowing global economy, the government is now (ph) expected to tighten monetary policy further, including faster currency revaluation to cut the costs of fuel and raw materials. As for food, financial incentives and tax breaks are on the table to boost production. It's hoped that this can ensure the supply of daily necessities at prices ordinary Chinese can stomach. Nick Mackie, NIGHTLY BUSINESS REPORT, Chongqing.