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Last Updated: Monday, 27 August 2007, 16:11 GMT 17:11 UK
China fears inflation could spark unrest
By Michael Bristow
BBC News, Beijing

Pork seller in China
Rising pork prices have pushed up inflation in China

At the Chunxiu Road Vegetable Market in central Beijing, shoppers and stallholders are grumbling about the price of food.

Pork laid out on plastic slabs has increased from about 7 yuan (92 cents, 46 pence) a jin (500 grams) last year to 11 or 12 yuan now.

Food price increases this year have led to a sharp rise in the consumer price index, the main gauge of inflation which jumped to 5.6% in July, its highest level in 10 years.

In a country where inflation and social unrest are historically linked, that statistic cannot be ignored by China's leaders.

On several occasions in the past, rising food prices in China have led to political problems for the government.

Inflation in 1988 is thought to have contributed to the demonstrations in Beijing's Tiananmen Square the following year.

Arthur Kroeber, director of economic research firm Dragonomics, says the current level of inflation is no way near as politically serious as it was in the late 1980s.

"We are far away from that kind of scenario," says the economist, whose firm specialises in China.

Little impact

The Chinese government appears to have inflation - caused by supply problems and increasing demand - under control, says Mr Kroeber.

Last week it raised interest rates for the fourth time this year to curb lending and encourage saving.

Incomes are also growing at a rapid pace, meaning people can afford more expensive goods, he says.

And despite complaints about price rises, shoppers at the Chunxiu Road market seem to confirm this view.

"The price rises haven't affected what I buy," says Li Guizhen, as she leaves the market clutching a bag of minced pork which she is planning to use to make dumplings.

"If pensions keep going up steadily then it doesn't matter if prices also go up," adds the 58-year-old retired woman. Her pension went up in July.

Other shoppers, many of whom come to the market daily for fresh produce, give similar comments.

Social unrest

But outside relatively affluent Beijing, even small increases in the cost of everyday food items can have a major impact on people's lives.

Market stall in China
Vegetable prices could rise further if floods destroy crops

Just this week there were reports that migrant workers in the southern Chinese boom city of Shenzhen staged a protest, demanding higher wages.

One worker was reported to have complained that employees are not making enough money to compensate for soaring food prices.

Even Mr Kroeber admits that Chinese officials cannot afford to ignore the latest bout of inflation - driven mainly by rising food prices.

"There is no question that in China the connection between inflation and social unrest is very important for historical reasons," he says.

Floods and drought

Another Chinese commentator, Liang Jing, believes current conditions make unrest even more likely than in 1989.

"The number and proportion [of people] who are extremely sensitive to the price of basic consumer goods has greatly increased," the commentator wrote in an article posted on Radio Free Asia's website.

This group includes tens of millions of migrant workers who have flocked to towns and cities to find work, and those left unemployed by China's economic restructuring.

Officials certainly seem keen to show they are taking the issue seriously.

Chinese Premier Wen Jiabao signalled his concern over inflation's effect on ordinary people by visiting a vegetable market.

And there is widespread publicity given to measures being taken by the government to keep price rises in check.

Most economists believe the government's current tactics will bring inflation under control at somewhere near the 2007 target of 3% by the end of the year.

But floods and drought mean this autumn's harvest could be 10% down on last year's. This could further fuel inflation.

If that happens, the grumbling at markets like the one in Chunxiu Road could become more audible.

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