September 11, 2010
Inflation in China Is Rising at a Fast Pace
By KEITH BRADSHER
HONG KONG — For K. K. Lam, a 37-year-old accountant in Guangzhou, inflation means higher prices for pork and for vegetables like bok choy.
For Allen Dong, the sales manager for a home appliance manufacturer 700 miles to the northeast in Ningbo, inflation means trying to persuade retailers to pay more for dehumidifiers so his company can cover rising costs for wages and raw materials.
From street markets to corporate offices, consumers and executives alike in China are trying to cope with rising prices. The National Bureau of Statistics announced on Saturday that consumer prices in China were 3.5 percent higher compared with a year earlier, the largest increase in nearly two years.
To make matters worse, inflation over the short term also seems to be accelerating. A seasonally adjusted comparison of August prices to July prices showed that inflation was running at an annualized pace closer to 4.8 percent.
Prices are rising in China for reasons that many Americans or Europeans might envy. The economy is growing, stores are full and banks are lending lots of money, according to other statistics released by the government on Saturday. Compared with August of last year, industrial production rose 13.9 percent last month, retail sales increased 18.4 percent, bank lending climbed 18.6 percent and fixed-asset investment surged 24 percent.
All four categories rose slightly more than economists had expected, in the latest sign of the Chinese economy’s strength even as recoveries seem to be flagging elsewhere.
Separate data released on Friday by the General Administration of Customs showed that Chinese demand for imports also remained surprisingly strong. The trade surplus narrowed to $20 billion last month, and would have been nearly in balance without China’s $18 billion surplus with the United States.
But so much cash in the Chinese economy chasing a limited volume of goods is pushing up prices. Inflation is starting to become troublesome, especially for young people entering the work force and retirees on fixed incomes.
Young people with vocational school degrees typically earn $200 to $300 a month in factories near the coast these days, and somewhat less in the Chinese interior. Rising prices have prompted many to ask for bigger paychecks, and blue-collar incomes have increased faster than inflation.
But salaries for recent college graduates, at $300 to $500 a month in coastal areas, have actually declined in the last few years, even before adjusting for inflation. A rapid expansion of universities over the last decade has resulted in more young men and women with undergraduate degrees than companies are ready to hire, except at lower pay.
And as in many countries, retirees are among the most vulnerable to inflation. Ms. Lam said her own mother lived on a pension of just $150 a month.
Rising wages are putting pressure on companies to increase their prices. Mr. Dong, the sales manager at the Ningbo Deye Domestic Electrical Appliance Technology Company, said the company had to raise wages by 10 percent a year, while raw material costs were also climbing.
“It is impossible to transfer our cost increases entirely to our customers, because if we do so, they will all run away,” he said. “We are currently doing a study of our assembly line work processes to see where we can achieve greater efficiency.”
But as the powerful growth in fixed-asset investment last month showed, Chinese companies are still responding to rising prices by building more factories, office buildings and other equipment, instead of cutting back.
Pan Ning, the sales manager at the Newsunda Industries Company, a manufacturer of school bags and pocket calculators based in Shantou, said labor and raw material prices had been climbing by 5 to 10 percent. But as school years have begun around the world in the Northern Hemisphere, Newsunda has been able to raise the prices it charges to cover the increased costs, Ms. Pan said.
Chinese officials have said for many years that they regard 5 percent inflation as unacceptable, and they have shown a willingness to clamp down on bank lending and investment whenever annual increases come close to that level. They have taken some of these steps in recent months, but more recently eased back on lending controls as some Chinese economists suggested that domestic demand might not be as strong as the August data showed.
For now, many Chinese consumers are irked by rising prices for everyday necessities.
“I honestly don’t know how young people starting out in the work world manage,” Ms. Lam said. They pay nearly half their salaries for their own room in a shared apartment in a bad neighborhood, she said, “and if you add in food and transportation, there will be nothing extra left in your salary to send home.”
Hilda Wang contributed reporting from Hong Kong.