Price Controls: China
China’s peg to the dollar–even though now a bit less sticky–has created inflationary pressures in China. ( Brad Setser gives an excellent update.)
We know that China has place price controls on gas. China wants the car–and needs the energy to continue development. And, has been noted before, Simmons, oil…just the beginning, oil may well be an approaching problem.
Now real inflationary pressures are growing in China, as well might be expected. Inflation has hit an 11 year high, putting staples ever more out of reach of the average Chinese. Remember: Mininum wage for Walmart in Fuzhou is .75/hour!
The Financial Times China reports the following:
China has vowed to “temporarily intervene” in the market to prevent excessive price rises for food and daily necessities, raising the spectre of an enlarged state role in the economy as part of an anti-inflation campaign.
The National Development and Reform Commission asked for retail and wholesalers of meat, milk and animal feedstock to register one-off price increases of more than 5 per cent, or accumulated rises of 8 per cent, over October 2007 prices.
China’s actions are the most aggressive since Russia imposed food price controls three months ago. Other countries have taken defensive measures, including Argentina, which has raised foreign sales tariffs to keep local markets well supplied.
The central government continues to control prices for key economic inputs, including power, oil, gas and water. The wholesale price of grain is also regulated.
There are many ways China could have forestalled this problem. The most obvious is not to have pegged to the dollar. But China wanted the quick road to industrialization.
Another way would have been to allow collective bargaining, real labor regulations. But that might have cooled the ardor of FDI. Multinationals in China would have had to take a smaller cut of the profits, or gone elsewhere, or stayed home. (I doubt the last.)
When it comes right down to it, trade is not simple. The road to fast bucks and quick industrialization is fraught with peril.