China battles rising prices, snowstorms

The snowstorms currently sweeping China have wreaked havoc with millions of people's New Year travel plans and caused $3 billion worth of losses, including thousands of acres of winter crops.

But the harsh weather is revealing an even deeper problem for Beijing: the difficulty of trying to manage a mixed economy, which is about 30 percent state-owned and 70 percent in private hands.

"The Chinese economy is not a real market economy, nor a real command economy, so government controls are not very effective," says Xu Guangjian, an economist at People's University in Beijing.

Food and power shortages affecting tens of millions of people, and tens of thousands of enterprises, have drawn attention to just how difficult a task the Chinese government faces, even when the sun is shining.

The weather and the timing have compounded underlying economic problems, says Stephen Green, senior economist with Standard Chartered Bank in Shanghai.

"This is a perfect storm," he says.

The past month has seen several indications of how easily an economy as huge and complex as China's can slip out of the central government's control.

Two weeks ago, for the first time in 15 years, the authorities imposed price controls on a number of basic food items in a bid to stem inflation, which reached an 11 year high of 6.9 percent in November.

Last week, the government's Statistics Bureau announced that the Chinese economy had grown by 11.4 percent in 2007 – the fastest rate in 13 years and a good deal faster than planners, worried by the dangers of an overheated economy, had hoped.

On Jan. 28, as power stations ran short of fuel, the National Development and Reform Council, China's top economic policy body, ordered provincial governments to share coal supplies, as a sign that local officials were putting their own interests ahead of national needs.

Officials insist that the new food price controls are simply an effort to overcome malfunctions in the market, not a retreat to socialist economic planning diktats.

Nor is China the only Asian country taking action in the face of rising food prices: Malaysia rationed cooking oil last month, while Indonesia is subsidizing edible oil refineries to keep retail prices down. Beijing's moves include curbing exports of wheat, corn, and rice powder in an effort to boost domestic supply and dampen price increases.

But with food taking up nearly half of a poor Chinese citizen's weekly budget, and the price of pork, a local staple, rising by more than 50 percent last year, Beijing is especially worried about the danger of social unrest.

A survey released in January by the Chinese Academy of Social Sciences (CASS) found that inflation is the No. 1 public concern among Chinese citizens, and the government has made the fight against rising food prices its top priority.

Administrative price controls, however, are hard to implement now that almost all food production, distribution, and sales are in private hands, economists say. If farmers or shopkeepers are not allowed to raise their prices in line with their costs, they will be tempted to hold supplies back.

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