The popping of the Chinese bubble?

With all the talk of inflation, China is experiencing a deflation problem. Marketwatch reports:

China is urging major supermarkets to boost vegetable sales and encouraging farmers to bypass middlemen and market produce directly, in a bid to curb a steep slide in prices that is hurting farmers’ incomes, the Ministry of Commerce said in a statement.

Twelve major supermarkets, including Wumart Stores Inc., have agreed to boost sales, the ministry said. The China Daily newspaper said Thursday Wal-Mart Stores Inc. and Carrefour SA are also involved in the effort.

The ministry has also set up a “work group” to maintain prices at a “reasonable” level.

Its statement Wednesday underscores the difficulties the government faces in controlling volatile prices. The impact of an official push last year to raise vegetable output appears to be unraveling now, amid overproduction and clogged distribution lines.

Vegetable prices have fallen 21% in a month and 5.9% from a week ago, the ministry said.

The sharpest declines were seen in green pepper, which fell 20.9% from a week ago, and cabbage, chili pepper and lettuce, which fell 12%, 8.9% and 8.1% respectively.

In contrast, grain, pork, beef, metals and rubber all continued to post small increases of between 0.2% and 1.7% from a week ago.

Last year, the Ministry of Agriculture pushed farmers to raise vegetable acreage by 7% and production by 7.5%, following almost three years of little to no growth in the sector.

The directive was part of wider efforts, including price caps on cooking oil and flour, to curb a surge in food prices.

Worldwide commodity inflation has been driven, in part, by demand from China. Are these price corrections the first sign that the Chinese bubble has popped and that inflation will turn to deflation as Chinese demand evaporates?

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2 responses to “The popping of the Chinese bubble?

  1. I don’t know if it is a sign the the Chinese bubble is about to burst or no. It certain a sign of the folly of central planning. Most likely there was a shortage of vegetables because farmers were waiting to be told what they could grow. They produced too much and prices fell and they continued to producing while wait for the government to tell them they should grow less vegetables. A free market would have smooth out these fluctuations, don’t you think?

    • That’s what the article says (“Last year, the Ministry of Agriculture pushed farmers to raise vegetable acreage by 7% and production by 7.5%, following almost three years of little to no growth in the sector.”) and this certainly demonstrates the fatal conceit of central planning. But I’m wondering if there is something more to it…

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