Sunday, December 26, 2010

China's High-Cost Era

An article from the Xinhua News Service suggests that the rising price of vegetables is a signal that China's economy is entering a new era of high costs.

According to Sun Jitao, one of the 30,000 or so traders at Beijing's Xinfadi wholesale market, business is getting worse for vegetable traders. By noon, Sun had sold about a third of the vegetables from his truck. He may make 1000 yuan in a day but he has to split it with seven partners. With the rising purchase cost of vegetables, plus packing, transportation and labor, it's not uncommon to lose money on a truckload.

Another trader named Wu selling home-grown ginger complains about the rising cost of production. She said laborers were paid about 7 yuan per hour last year, and this year they can't find workers at 9 yuan per hour (about $1.30). She says it now costs over 8000 yuan to plant one mu of ginger.

She says recent government policy measures led to a drop in ginger prices. She thinks people who bought ginger at the high price a couple of weeks ago, thinking it would keep rising, might be losing money now.

The government's recent measures included canceling highway tolls for trucks carrying fresh produce. Xinfadi reduced the admission fee for wholesalers. These measures contributed to a decrease in prices, but most people think this will be temporary.

According to Ms. Wu, “The state recent measures helped lower some of our costs, but we don't think these are the main factors affecting ag product prices; in the future prices will keep going up.”

One economist from the Academy of Social Sciences said agricultural price increases are due to rising input prices and costs of labor and land. A Beijing University economist sees a big change in China's economy as it faces increasing costs of land, labor, energy, and raw materials.

According to the article, experts say that as China enters this high-cost era it must raise productive efficiency in all industries. The Beijing University economist calls rising costs and improved efficiency "two wheels of the cart," and with the "stagnant wheel" running ahead of the other one, China faces the threat of stagflation.

No comments: