It is becoming increasingly important to monitor China business and economic news as a gauge to understand our own economic future.  As an international business consultancy, we view these types of inputs through different eyes and extrapolate information that is not necessarily the main thrust of the article, but are relevant to our business interests and clients.  The below article, “Chinese low-income groups feel the pinch under soaring prices” has some extremely valuable points which we would like to highlight.

China is experiencing inflation – 4.4% in October 2011, which includes a 10% increase in food prices.  Inflation is a rise in the general level of prices of goods and services in an economy over a period of time.  While this article focuses on the challenge of low-income Chinese to purchase food and groceries, note also that Jiang, the sole wage-earner in his family and a janitor, can afford to send his two daughters to college.  You will also notice that college tuition in China is an extremely affordable $900 per year for each daughter.   The university system additionally supports students with meals that range from 15 cents for vegetables to .48 cents for meat courses, when meat is available.

The Chinese government is in the process of enacting price controls on food and providing subsidies to help the lower income families.  One person described in the article is receiving a subsidy that represents a 10% bonus over her monthly salary. 

China’s exchange rate pegging and restrictive import policies are setting the stage for near-term food shortages.  As a result, the Chinese government is directing localities on winter vegetable planting to ensure adequate food supplies for the coming winter months.  The increasing pressure on the Chinese government to release their iron grip on a currency pegged to remain undervalued and restricted imports may result in near starvation of a large part of the low-income Chinese population.  There exists a very real opportunity for countries like the US with a surplus of food capacity to dramatically increase exports to China for the first time.  The Chinese will pay dearly for this necessary influx of food in undervalued Yuan until market pressures force a review of pegging policies.  And then, cheap Chinese goods become a thing of the past. 

Chinese low-income groups feel the pinch under soaring prices

 BEIJING, Nov. 27 (Xinhua) -- "I can't afford an apartment, a car or a wife, but it never occurred to me until now that I can't even afford vegetables or fruit," said Gao Lei, a 30-year-old renter in Beijing.

"I went to a grocery store yesterday only to find that even apples, the cheapest fruit, are sold for 4 yuan half a kilogram, doubling the price from two months ago," said Gao.

China's consumer price index (CPI), the main gauge of inflation, rose to a 25-month high of 4.4 percent in October. The hike was mainly due to a 10.1-percent surge in food prices. Food prices have a one-third weighting in China's CPI calculation.

Though Gao is slightly exaggerating his hardship during the current inflation, price rises, particularly of life necessities such as grains and vegetables, do force Chinese low-income groups into a rough time.

Jiang Peng's family is hard-hit, as he and his wife both are laid-off workers and have two daughters in college. Jiang, however, has a new job, working as a janitor in Jinan-based Shandong Economic University.

Jiang's family makes some 24,000 yuan (3,600 U.S. dollars) a year, half of which goes to paying tuition for their two college girls, with the majority of the rest covering their daughters' living expenses.

"We spend each penny carefully, because we try to save as much as possible for the kids. Now as price goes up, we find it increasingly difficult to make ends meet," said Jiang.

The only vegetable Jiang and his wife have these days is cabbage, since it is the cheapest of all vegetables.

Jiang said prices have dropped slightly due to government price control efforts, but it is not making a big difference yet, and prices of some daily necessities remain high, not showing signs of a decrease.

"We have fried dough sticks for breakfast, and even its price rose from 3.5 yuan per half a kilogram to 4 yuan, never falling again," said Jiang.

For the poorest families, the government already made decisions to dole out temporary subsidies to help them cope with rising living costs.

Jin Hong, mother of a fifth-grader in the city of Nanjing, east China's Jiangsu Province, now has to pay 15 percent more for her son's lunch at school. Jin's household monthly income stands at less than 1,000 yuan.

"I hope there will be no more increases, otherwise I will not be able to afford the school meals for my son," said Jin.p Jin's family is entitled to a 100 yuan subsidy given by the local government, which is due on Dec. 10. "Now, we are counting on the subsidy," she said.

Students from poor families are also feeling the pinch, and they are paid great attention in the Chinese government's ongoing price control efforts. The National Development and Reform Commission (NDRC) issued a statement on Nov. 23 detailing various measures to institute price controls, including keeping prices stable in student cafeterias.

Also, an earlier statement issued by the State Council, China's Cabinet, ordered local governments to offer subsidies to student canteens and increase allowances for poor students.

He Ming, a student from a low-income family at Nanjing-based Southeast University, now sneaks out of classes earlier to make it to the cafeteria before all low-priced dishes are sold out.

Low priced dishes are the vegetables, since meat is usually more expensive in China, and they are priced at one yuan per dish.

"In order not to only swallow rice for the meal, I have to quit part of the class. Though the cafeteria still serves low-price dishes, despite price hikes of vegetables lately, they serve less."

He has a monthly living allowance of 300 yuan, which is given by his parents.

Hu Xiaotian from Nanjing Xiaozhuang University finds that while prices in the cafeteria are not rising, with the highest at 3.2 yuan, the quality seems watered down. He said, "I used to get beef with 3.2 yuan, now beef dishes can't be seen anywhere in the school cafeteria."

In order to help low-income earners and other vulnerable groups to weather the rough time, Chinese decision makers have made price control a top priority.

The State Council recently urged local departments to stabilize winter vegetable planting and strengthen grain and edible-oil production to ward off supply shortages.

Also, local authorities were ordered to establish coordinated social-security mechanisms that promise a gradual rise in basic pensions, unemployment insurance and minimum wages.

As an example of local governments acting, the Beijing municipal government announced on Nov. 24 that it would hand out 100 yuan to each of its 223,000 low income earners before the end of this month.

Further, northwest China's Shaanxi province has allocated about 60 million yuan to college dining halls to keep prices stable. Also, Changchun in northeast Jilin province handed out subsidies to wholesalers of vegetables on a daily basis, reaching 50 yuan for each tonne of vegetables.

On Friday, the State Council sent a supervisory team to conduct a nearly one month inspection tour to monitor progress made by local governments in developing price controls.

Jiang Peng said he hoped these measures work and prices would fall as soon as possible, or that an increase in his pay could make up for the price rise.