❗Help close the gap: We still need to raise $40,000 by the end of March. Donate now

Inflation worries are the talk of China

Scott Tong Dec 18, 2007
HTML EMBED:
COPY

Inflation worries are the talk of China

Scott Tong Dec 18, 2007
HTML EMBED:
COPY

TEXT OF INTERVIEW

KAI RYSSDAL: When it’s not worried about the subprime meltdown, which is most of the time, the Federal Reserve concentrates on inflation. Chairman Bernanke and the gang are known to get uneasy if core rates rise much above 2 percent or so. There are a lot of reason prices here go up, of course. One of them is rising prices elsewhere. And increasingly, that elsewhere is China. We’ve got Marketplace’s Scott Tong on the line from Shanghai for a Chinese inflation primer. Hello, Scott.

SCOTT TONG: Hello, Kai. Happy holidays.

RYSSDAL: And to you, too. So give me the tour of your budget. What do you spend money on, on a daily basis?

TONG: Every day I buy lunch out here, in China. Now, it may sound a little trivial but here in China you don’t mess with the lunch hour. You don’t mess with the government. You don’t mess with the lunch hour. So every day between about 11:30 and 2 o’clock, you know, China Incorporated basically shuts down. Everybody leaves the office and they go out and they buy lunch or they go to a restaurant and they start talking about how stuff is getting more expensive. You go out and turn left, the guy who sells steamed dumplings . . . they’re 11 cents now instead of 10 cents. The woman — if I go the other direction — she sells the fried dumplings and they’re 7 cents instead of 6 cents anymore. For a lot of people this is real money. When they go to the grocery store, when they buy pork, cooking oil, eggs, it’s a big conversation now.

RYSSDAL: All right. Here comes the obvious question. How come?

TONG: A few things going on here. Some of it is global economy stuff. You know, grain prices around the world are going up, and the cost of energy to ship the stuff around the world is going up. But there are a couple factors that are unique to China here. And a big one is the fear that the car is going too fast, and the engine is overheating here in China. There’s too much cash in the system here, right? China exports stuff, get money in return. The banks are lending money, there’s too much of that sloshing around in China. And so the fear is it’ll push prices of everything up. Not just the dumplings. But China’s working really hard to slow it down, and so far not too many signs that it’s working yet.

RYSSDAL: Well, what if, though, Beijing doesn’t quite get it right and they can’t engineer — I won’t even call it a soft landing because it’s got so far to fall — but if they can’t engineer something like a slowdown in inflation?

TONG: The fear in Beijing is instability. And here’s the scenario … The woman who works in the factory, you know, sewing a shirt that you and I are going to buy, who makes 50 cents and hour . . . You know, her buying power goes down because of inflation. And then her parents back in the countryside who are on the farm, making even less than that, are seeing the same problem. And they see their bosses driving these BMWs around — you know, the big bosses who own the factories. And then you have this anger that kind of bubbles up. Rising food prices and inflation were a part of 1989 — what they call the “Tianamen Incident” here in China. It was a trigger next door in Burma a few months back with these protests which turned deadly in Burma. So they know that this is something that can be really sensitive, kind of on the street in China. And so they’re worried about that.

RYSSDAL: Frame this for me in the larger, sort of global, context. We have talked, you and I, about what’s called the China Price — China’s ability to provide goods, and in some cases services, at a price that really other countries can’t beat. Is inflation, domestic inflation there, going to change that?

TONG: It’s starting to change already. We’ve talked on this show about how China for years had been exporting deflation, right? Pushing down the prices of stuff that we buy. Running shoes. When I went out and bought running shoes back in the states, it seemed like I paid the same or even less when I replaced them. And that was the point of the China Price and exporting deflation. Well, the magic may be over. For a lot of manufacturers in China, they’re seeing wage pressures going up. They’re seeing raw-material costs going up. You know, the RMB, the currency here in China, is kind of going up. And all that pushes up manufacturing costs and they’re starting to pass that on to the people who buy stuff in China. So, next Christmas when we’re buying stuff to put under the Christmas tree, we may finally start paying a little bit more — at least the stuff that’s made here in China.

RYSSDAL: Marketplace’s Scott Tong in our Shanghai bureau. Thank you, Scott.

There’s a lot happening in the world.  Through it all, Marketplace is here for you. 

You rely on Marketplace to break down the world’s events and tell you how it affects you in a fact-based, approachable way. We rely on your financial support to keep making that possible. 

Your donation today powers the independent journalism that you rely on. For just $5/month, you can help sustain Marketplace so we can keep reporting on the things that matter to you.