Every day, well-heeled citizens clatter in and out of the Rishengchang, China’s first bank. The success of the institution quickly established Pingyao, its home town, as the country’s financial capital. But the ledgers are dusty and unused; the visitors are not customers but tourists. The bank shut its doors 70 years ago after trade moved from the overland silk route to the seaboard.
The most notable visitor to the museum, President Hu Jintao, may well recall the lesson in hubris as he stares at the biggest economic challenge that he and his Premier, Wen Jiabao, have faced to date. Last month, China’s inflation rate hit an 11-year high at 7,1%.
Though snowstorms this winter have contributed, slashing agricultural production and increasing transport costs, last month’s rise merely reinforces an underlying trend. The annual inflation rate more than tripled last year to 4,8% despite six interest-rate rises and 10 increases in bank reserve requirements. Some analysts suggest the rate could reach 6,8% this year.
The surge presents a double challenge to officials: not only must they protect China’s remarkable economic growth, but they must ensure ordinary citizens are not left behind. In the late 1980s, soaring inflation contributed to the unrest that culminated in the Tiananmen Square protests in 1989.
The latest increases have hit the food sector hardest. The price of foodstuffs jumped 18.2% in the year to January, while other goods rose by only 1,5%. In a country in which households spend a third of their income on food, the effect is immense. Winter blizzards sent tomato prices soaring by 138%, but even before the bad weather, fatty pork rose by 67%.
No one in Pingyao needs to read the financial pages to understand the problem — even middle-class families are feeling the crunch.
“We don’t eat pork, lamb or beef so much any more. It’s just too expensive,” said Wu Qiaomei, an accountant. “Vegetables that would have cost around three kuai [R3,30] last year are more than six kuai now.”
Her husband, Xu Jianguo, has also noticed the difference at work. Staff at his cooking-pot factory are demanding higher pay to offset increased living costs. “Of course, he’s had to put his prices up. Everything’s going up,” said Wu.
Wage inflation rose by 20% in the unskilled and low-skilled sector last year. And the knock-on effects are not confined to China. Its cheap production has held down global inflation over the past 15 years; analysts believe that China’s rising prices will soon be exported along with its clothing and electrical goods.
Domestically, there is a long way to go before inflation undermines the overall rise in the standard of living. Those who have lived through years of poverty appreciate the long-term change.
“Thirty years ago, one family could probably eat a jin [500g] of meat a month. Now it’s once a week,” said Hua Benming (84), chatting outside his home on Pingyao’s main street. But he complains that the rising cost of flour and cooking oil is affecting ordinary citizens who have not enjoyed the full fruits of China’s economic miracle.
Compared with his predecessor, Jiang Zemin, President Hu has gone out of his way to focus on social welfare rather than growth alone. But Hua, as with others, has yet to see that shift in rhetoric reflected in the lives of his friends and neighbours. “Development is so fast that it would be better to slow it down to help the really poor people,” said Hua. — Â