How China feeds its population
China is known as the developing country with the most population. And in 50 years after the World War II, new fast growing China is facing a problem that other countries have never met in history: How to feed 1.4 billion people?
Unlike the western world’s complete free market economy, the economic system used in China is called the socialist market economy with Chinese characteristics. It’s a market economy but every key economic factors are under the government’s macro-control.
“The government has strengthened the coordination of coal, electrical power, oil and transportation to maintain the link between supply and demand of major raw materials. It has also reduced allocation quotas for consumption of electricity, oil and coal for companies that fail to meet industry entry standards.
The government has taken a series of policy measures to encourage grain production, including direct subsidies, seed subsidies, exemption of agricultural taxes and price control on agricultural production materials.” 1
Even China has grown rapidly for years there are still countless people who are living a tough life in China. Controlling every key economic factors ensures those low-income people’s quality of life. And the highly developed agriculture ensures adequate supply of food.
“The Chinese government has been very active in shaping the nation’s food policy because it’s closely linked to the issues of inflation and social stability. In 2011, inflation increased at double digit rates. Most recently, In September, the inflation rate reached 13%.This was caused by growing demand for food, weather disasters that hindered crop production and a liquidity injection by the Chinese government to fight off the aftershocks of the 2008 financial crisis. Consequently, a series of violent protests broke out in inner Mongolia and spread to Guangdong. In response, the government constrained lending to maintain stability and low prices. The Chinese government has used its might to reign in food prices while guaranteeing food supplies.”2
The Chinese government has implemented policies to stimulate the agriculture and reduce import cost. They keep food and other necessities for life in a very low price so the poor people could have a normal life as those people who are much wealthier. Inflation could easily destroy their life by raising prices and increasing their debts. And that’s why inflation has a great negative impact on China.
We can see the changes in inflation rate in the two charts below:
Graph CPI China last year
Graph CPI China long-term
“When we talk about the rate of inflation in China, this often refers to the rate of inflation based on the consumer price index, or CPI for short. The Chinese CPI shows the change in prices of a standard package of goods and services which Chinese households purchase for consumption. In order to measure inflation, an assessment is made of how much the CPI has risen in percentage terms over a given period compared to the CPI in a preceding period..” 3
China Inflation has two main effects:
1. Real income falls down.
If a hyper-inflation happens in China, prices will rise sharply and unlike the western developed countries, Chinese low-income people don’t have savings to sustain their normal life, and it would directly cause various kinds of serious social problems. Inflation will widen the gap between wealthy and poor, those people with lowest income will be the most affected because the price of house and other properties will keep rising so the rich people and middle class could reduce their losses or even make profit by raising prices. That’s how an over-sized middle class threats the ability of the low-income families to afford to live.
2. The reduction of social welfare.
In China, most of the enterprise development funds come from bank loans, inflation will transfer risks to state bank and slows down the economic development and the government has to tax more and reduce social welfare to maintain the daily cost.
Does a large middle class insure inflation?
“Inflation can be caused by many factors:
1. Rising wages
2. Import prices
3. Raw Material Prices
4. Profit Push Inflation
5. Declining productivity
6. Higher taxes” 4
Yes. The inflation in China has two sources: agricultural commodities and imported commodities.
1. Agriculture. The biggest urbanization happened In China in the past 50 years, living in a city means better income and more possibilities. All the young people in rural area went to cities in order to find a better job. It means there won’t be enough labor for farming. It caused the high agricultural products’ prices.
2. Imported commodities. China fast-growing economy stimulates consumption and the middle class starts to purchase imported commodities with better qualities. The demand of imported commodities keeps rising and it finally resulted in the rising prices of all imported commodities and high taxes.
Those rising prices led to inflation. The expansion of middle class had a great influence in the process of rising prices.
Difference in DEBT LEVELS between farmers and workers
“In 2013, 37.70 percent of Chinese farmer household has debts, the debt per farmer household stood at 55,113 yuan ($8,856.66), the ratio of debt to income was at 155 percent, and 10.50 percent of farmer household with debts are insolvent, according to a joint report released by the Southwestern University of Finance and Economics and Agricultural Bank of China Limited on Sunday.” 5
The average pay per hour worked of factory workers in China is about 15 YUAN per hour(which is nearly 3 dollars), and some skilled workers could get 25 YUAN per hour(which is about 4 dollars). Most of Chinese workers make more money than Chinese farmers because Chinese workers relatively have less debt than farmers, but the high housing prices and low government subsidies still make them hard to live.
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