From Staff Reports

For all the talk of China’s high-speed economy, there’s been little real discussion of the way prices for certain goods have skyrocketed.

According to a report by The Associated Press, the latest example of these rolling shortages – and accompanying price hikes – is pork, the family staple that’s on the table for every meal….from breakfast to lunch to dinner. Trouble is….temporary shortages have driven the price up 86% from the same time a year ago.

Meat prices in general are up 50% or more in the past year. Eggs and dairy products have spiked, too, making some of these once daily staples more of a “one-in-awhile” treat for families on blue-collar worker salaries. And unlike in the United States, there are no social programs to help families navigate rough waters. Indeed, according to one recent account, families of hourly workers are being forced to spend a third of their monthly income on groceries. Or an even-bigger percentage.

After growing at a rate of 10% or more for four years running, inflationary cracks may finally be starting to appear.

So far the worst damage has been confined to food prices, which jumped 15.4 % in July over the same month a year ago and drove overall inflation to a decade-high 5.6 %, according to a report by The Associated Press. But wages are rising too, as are the costs of oil and electric power. Record-setting exports are sending a flood of foreign reserves into China’s state coffers, while a boom in stocks that’s seen share prices ascend by 70% continues to send a flood of cash washing through the consumer economy – fueling all sorts of financial shenanigans and firing up the public’s appetite for goods of all kinds.

In a classic bit of understatement, China central bank official Zhang Tao told the state-run China Securities Times newspaper that China’s economy “might have entered a region where we should be on guard.”

First it’s pork, next it may be power: Economists say that pricing pressures are now growing in energy, where Beijing is holding down retail prices by blocking state-owned gasoline and power companies from passing on higher costs, Nicholas Kwan, an analyst for investment bank CLSA in Hong Kong, told The AP in an interview. That means that China’s oil refiners are taking a $5 loss on every single barrel of oil that they process into gasoline for cars or diesel trucks or power-generators.

In his interview, Kwan said that he believed it was merely "a matter of time until they have to bite the bullet and raise domestic prices. Otherwise they risk an artificial shortage because oil companies will refuse to refine oil into gasoline if they are losing money.”

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Awash in Cash

Wages rose 21% in the first quarter of the year over the same period of 2006, according to the government, as companies pay up to overcome labor shortages. But these figures are clearly understating the wage-pressure problem. The reason: This data only covers government-run firms, and not the private sector companies in the truly soaring private sector.

Reserves reached $1.33 trillion at the year’s midpoint, an increase of nearly 26% from the $1.06 trillion in reserves China had at the end of December, just six months before. And the growth has been accelerating: That six-month gain was greater than the $247 billion increase for all of last year, the English-language China daily’s online edition reported.

Analysts had previously said that foreign reserves were expanding by $200 billion every six months, a growth rate that’s now been officially eclipsed.

China’s soaring trade surplus has been the biggest source of the growth in foreign reserves, acting as a spigot spilling every major currency into that country’s coffers.

The U.S. government recently reported that this country’s trade deficit with China jumped 5.7% in June to reach $21.2 billion, the biggest total since January. At the present rate, the United States will easily surpass the 2006 total of $233 billion – and even that was the biggest imbalance ever recorded with a single country. In the first half of this year alone, government reports state that the U.S. trade deficit with China is more than 15% ahead of last year.

The overall trade deficit is also expanding at an alarming rate, according to many economists.

The deficit with China is growing even in the face of a series of major product problems that range from tires to toys, and include high-profile problem with pet food. Also this week, toy-industry giant Mattel Inc. said it was implementing a recall involving millions of toys – including some of its famed die-cast toy cars that may have lead paint problems. Mattel recalled 1.5 million China-made toys, ostensibly because of similar paint issues.

But Chinese Ambassador Zhou says he wants to work to “further strengthen (the) constructive relationship of cooperation” between China and the United States. In a statement carried on the PBOC’s website earlier this week, the central bank noted that the U.S. greenback has an “important status” in the international monetary system and in global trading, business and finance, and underscored that it remains an “important component” in China’s reserves – of which more than $420 billion is in U.S. dollars.

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