China to subsidise food after price spike

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This was published 13 years ago

China to subsidise food after price spike

China has announced food subsidies for poor families as it tries to cool a double-digit surge in prices that communist leaders worry might stir unrest.

The Cabinet promised to ease shortages of vegetables and grain that helped push up food prices by more than 10 percent in October. It promised more supplies of diesel to end fuel shortages that have disrupted trucking and industry.

The Cabinet said it was not ordering direct price controls but said they could be imposed if necessary. The statement gave no details of the subsidies or how the government would try to increase food supplies.

Inflation is politically volatile in China, where poor families spend up to half their incomes on food. Rising incomes have helped to offset price hikes, but inflation erodes gains that help support the ruling Communist Party's claim to power.

"Inflation is one of the biggest political issues today," said Robert Broadfoot, managing director of the Political and Economic Risk Consultancy in Hong Kong. "I think you're going to see isolated demonstrations over living costs."

The jump in food prices pushed inflation to a 25-month high of 4.4 per cent in October, well above the government's 3 per cent target.

Wednesday's announcement said stockpiles of grain, cooking oil and sugar will be released to increase supplies in the market.

It promised more money to subsidise school meals for poor children and said local authorities were ordered to increase supplies of vegetables.

The announcement came after China's stock market closed but the benchmark Shanghai index lost 2 per cent Wednesday after state media cited Premier Wen Jiabao as saying Beijing was preparing steps to combat inflation.

Investors worry that economic controls might slow China's declining growth further and hurt company profits.

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"Investors are panicked about moves in monetary tightening due to Wen's comments, so they would rather sell than wait for the change," said Liu Kan, a market analyst for Guoyuan Securities in Shanghai.

McDonald's Corp. raised prices of hamburgers, drinks and other items by 0.5 to 1 yuan (7 to 15 cents) due to higher costs, the official Xinhua News Agency said. In a written response to questions, the company cited "rise of commodity cost" but gave no details.

The jump in food costs came as Beijing is trying to steer China's rapid growth to a more manageable level and restore normal conditions following its stimulus-fueled rebound from the global crisis.

Banks were ordered last week to increase reserves to curb loan growth.

AP

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