China Battles Rising Prices, Consumer Discontent Inflation in China has hit a two-year high of 5.1 percent, and food prices have soared. For China's leaders, tackling inflation without slowing growth too fast is a tricky task, with high stakes: Double-digit inflation led to unhappiness ahead of the 1989 Tiananmen protests.
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China Battles Rising Prices, Consumer Discontent

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China Battles Rising Prices, Consumer Discontent

China Battles Rising Prices, Consumer Discontent

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China and India have two of the world's fastest growing economies, but that rapid growth also means there's a risk of inflation. And inflation, especially when it comes to food prices, is a major cause of concern for leaders in the world's two most populous countries.

We have reports this morning from both India and China, and we begin with NPR's Louisa Lim in Beijing, where Chinese inflation is over five percent and food prices are soaring.

LOUISA LIM: Not so long ago, northern Chinese winters meant one thing: cabbage - day in, day out. Just four years ago, cabbages were so cheap, they were being given away for free as a promotional tactic. But visit a Beijing market today and, oh, how times have changed.

Ms. XU SHENGRU: (Foreign language spoken)

LIM: Cabbage has doubled in price since last year, says Xu Shengru, as she grudgingly hands over money for three big cabbages. Everything is much more expensive than last year, she grumbles. We may be dissatisfied, but we still need to eat.

LIM: The papers are full of horror stories: rice up 30 percent in just 10 days, Sichuan peppers up by an unbelievable thousand percent.

Tsinghua University's Patrick Chovanec says this is just the start.

Mr. PATRICK CHOVANEC (Tsinghua University): I think that what we're seeing in consumer inflation right now is really just the tip of the iceberg in terms of inflationary pressure in China.

Unidentified Woman: (Foreign language spoken)

LIM: The government has launched an all-out campaign against inflation. China's state-run TV news has shown Premier Wen Jiabao stalking supermarket aisles. There was a surprise interest rate hike on Christmas Day. One day later, Wen Jiabao took part in a very rare live radio show. No emotion was spared as he addressed listener concerns about inflation.

Premiere WEN JIABAO (China): (Through translator) Your words hurt my heart. The central government has already taken 16 different measures. Looking at the situation now, we absolutely have the ability to control the rise of prices. I have confidence.

LIM: Inflation is an acutely sensitive political issue here in China, where double-digit inflation fueled discontent in the run-up to the 1989 protests on Tiananmen Square. Today, bad weather and speculation are cited as factors behind the price rises.

The government's already imposed price controls on some foods. Projected December figures bring inflation down slightly from current levels. This offers short-term relief, but Patrick Chovanec says such measures won't solve the underlying problem.

Mr. CHOVANEC: In my view, the primary reason why there's so much inflationary pressure in China right now is the maintenance of the currency peg. When dollars flow into China, in order to keep the exchange rate steady, the Chinese central bank has to go in and buy those dollars, and it buys those dollars, it issues renminbi, it adds to the money supply. And normally that would fuel inflation, unless China runs a constantly tightening monetary policy to compensate, and it hasn't been anywhere near doing that over the past couple years.

LIM: So higher prices could be here to stay. This ballad of lament recently hit the Web.

(Soundbite of song)

Unidentified Woman #2: (Singing in foreign language)

LIM: The lyrics go: Cheap things no longer exist, normal people can't afford to eat green vegetables. It decries corruption and rising house prices and ends by asking: Wouldn't we be better off returning to the '80s?

This shows how rising food prices represent a Pandora's Box of discontent, whereby three decades of progress are undermined by the fact that people feel they can no longer afford to buy their cabbage.

Louisa Lim, NPR News, Beijing.

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