There are an enormous number of interesting factoids in this NYT article on the rising price of pork in China:
Steep increases for pork loins and bacon are the most tangible sign that after a decade in which prices have fluctuated but not moved significantly upward, inflation is creeping back into China. In response to this pressure at home, Chinese companies are starting to raise prices for exports, removing what has been a brake on inflation in the West.
With the global economy expanding at a robust pace, and prices rising in fast-developing countries like India and Mexico, central bankers and investors are becoming concerned. Interest rates are inching up in the United States and Europe as lenders demand that borrowers pay more to offset the erosion of buying power over time.
Business executives say that with wages rising 10 percent or more a year in many Chinese cities, the country’s days are numbered as the world’s lowest-cost producer of many cheap labor-intensive products, like toys and shoes.
“People tend to underestimate the deflationary impact over the last 10 years†from Chinese exports, said Michael R. P. Smith, the chief executive of HSBC’s Asian operations. “It has got to the limit: you’ve had wage inflation, you’ve got rising natural resource prices. There’s just no more give.â€
The focus on the NYT article is on how rising prices in China will in all likelihood result in rising prices for consumer goods here. While undoubtedly true I don’t think that’s the real story. IMO the real story is that China, once among the poorest of poor countries and still numbering an enormous number of desparately poor people among its citizens, is prosperous enough that the demand for meat is rising. That’s good news. The market is working; wages are rising; more people are more prosperous. Rejoice!
That China puts barriers up against agricultural imports probably has something to do with the rising prices, too. China only departed from its official policy of autarky 25 years ago and then only partially—it’s become sort of a one-way autarky (as has India). Is there a word for that?
If the prices of higher-ticket agricultural goods continue to rise in China, let’s hope there are moves towards relaxing some of these restrictions. That’s the real hope for a peaceful, prosperous future for all of us: China importing as much from the rest of the world as the rest of world imports from China. Mutual dependence.
But, as I’ve said for decades now, our domestic farmland is too valuable to pave over with highways and build McMansions and strip malls on. We’ll need it to feed increasingly prosperous Chinese consumers. And expect our own food prices to rise, too.
However, always one to look for bad news, the behaviors described in the article are not those characteristic of 3-4% inflation; they’re the behaviors associated with mega-inflation. Weimar Republic or Argentina inflation. Wheelbarrows full of bills to buy a loaf of bread inflation. Am I overly suspicious of official Chinese economic figures? Or are things there actually a little different than the official reports?
And what effect does the effective continuing deflation of the Chinese currency have on all of this? Perhaps someone more knowledgeable than I can comment.
Update
Menzie Chinn of Econbrowser reminded me of his post of a month or so ago on whether the Chinese currency, the renminbi (RMB), were undervalued. The data that Menzie presents and, above all, the behavior of the people strongly suggest that it is.
