WIC Template

1 Talking Point 5 The Week in 60 Seconds 6 Property Week in China 7 China Consumer 8 Banking and Finance 9 Chinese Character 11 Internet and Tech 13 Rail and Infrastructure 22 July 2011 14 Society and Culture Issue 116 17 And Finally www.weekinchina.com 18 The Back Page “Beijing, we have a pork problem” m o c . n i e t s p e a t i n e b . w w w y b g u in How China’s favourite meat is driving inflation o k y n o a t B s t l t h a e g b k u o r o l a r G M B C d B n S a H Week in China Talking Point 22 July 2011 Making a pig’s ear of it Why the Chinese government is so worried by rising pork prices High pork diet: rapidly rising cost of the nation’s favourite meat is causing disquiet and fuelling inflation “ wimmers told where they can As WiC has earlier reported (see The risk looks real enough (a Seat safely,” ran the eye-catching issue 100), Chinese farmers rou- study released by an accredited headline in the Shanghai Daily. tinely feed their pigs the additive lab of the World Anti-Doping The newspaper was reporting on clenbuterol to help keep them lean Agency found that 22 of 28 trav- efforts to stop foreign swim teams (and fetch a better price). This un- ellers returning from China tested bringing their own pork to the 14th scrupulous practice is a particular positive for clenbuterol) so Shang- FINA World Championships in problem for athletes as clenbuterol hai had to take action. Its solution: Shanghai. is a banned substance. Get caught it has guaranteed that a desig- Instead, the city’s Food and Drug with it during a dope test and they nated group of restaurants will Photo Source: Reuters Source: Photo Administration wanted them to face a two year ban (see WiC61 for serve uncontaminated pork to for- rely on official advice on where they the story of previous athletes eign swimmers. could eat out safely, i.e. without un- claiming to have been undone by Ordinary Shanghainese will take wittingly ingesting clenbuterol. suspect sausages). little comfort from the special treat- 1 Week in China Talking Point 22 July 2011 ment for their visitors. But they Why the recent price spike? think that explains why China’s have another, more pressing prob- Regular readers of WiC will recall pork industry is so dysfunctional. lem: the price of pork is soaring. In this isn’t the first time that prices It cites Ministry of Agriculture sta- fact, it’s hard to pick up a Chinese have risen by an alarming percent- tistics that show China’s hog stock newspaper and not see a headline age. Back in 2008 a similar thing mid-year at 453 million, which is on the subject. happened. marginally higher – by 0.8% – In fact, Caijing magazine notes than 2010. The context… that there have been six occa- If supply hasn’t fallen, the price In May the price of pork rose (year- sions since 1985 when pork prices rises can only be explained by rising on-year) 75% – going past its former have risen by more than 10% demand, Caijing suggests. high in 2008. There wasn’t much (year-on-year), and three occa- As China gets richer, it is eating better news in June when it leapt sions when they have jumped by more meat. According to Paul again by 57% on the previous year. more than half. French and Matthew Crabbe, au- By any standards, these are huge There is a tendency to blame thors of Fat China, an account of the jumps, and have hit the wallets of the price swings on diseases such country’s increasing struggle with local shoppers. as swine flu. But Caijing doesn’t obesity, the average Chinese has The Chinese are among the world’s top consumers of pork, reports the Financial Times, eating 37kg per person annually. And be- cause pork is the nation’s favourite meat, its price has a major impact on consumer sentiment. There aren’t many countries where the prime minister would comment on the cost of pork – but China is one of them. As ever, Pre- mier Wen Jiabao was given the task of assuring the public of his deter- mination to deal with events. “Sta- bilising the pork market is a responsibility the government must not shirk,” he pronounced solemnly last week. There’s the link to inflation, too? Yes, Wen will be more than aware of it. The Chinese Academy of Social Sciences estimates that pork makes up a third of the food components of the CPI, or 10% of the CPI as a whole – making it one of the most influential constituents. Food – and especially pork – is also a much more volatile compo- nent of the index. Compare the 57% price spike for pork in June to the more moderate year-over-year increase of 3% for non-food compo- Renminbi (RMB) is currently not freely convertible and conversion of RMB through banks in Hong Kong is subject to certain restrictions. Clients should be reminded of nents. Taken together, these factors conversion risk in RMB products. In addition, there is a liquidity risk associated with RMB products, especially if such investments do not have an active secondary market and their prices have large bid/offer spreads. RMB products in Hong Kong are denominated and settled in RMB deliverable in Hong Kong, which represents a market which is different from that of RMB deliverable in Mainland China. For individual clients, conversion of RMB is subject to the daily limit in Hong Kong, the clients may have to allow time mean that some economists refer to for the conversion of RMB from/to another currency of an amount exceeding the daily limit. HSBC operates in various jurisdictions through its afﬁliates, including, but not limited to, HSBC Bank plc, authorised and regulated by the Financial Services Authority, The the CPI as the ‘China Pig Index’, says Hongkong and Shanghai Banking Corporation Limited, HSBC Securities (USA) Inc., member of NYSE, FINRA and SIPC, and HSBC Bank USA, NA. 11-056 * Source: Bloomberg Dim Sum Bond League Table, 2010 - May 2011, excludes self-led and synthetic RMB bonds the Wall Street Journal. 2 Week in China Talking Point 22 July 2011 doubled their intake of pork over the last five years. Why is supply failing to keep up with demand? Here much of the blame rests with the structure of the pork industry. China has 65 million pig farms but 40% of them slaughter less than 50 pigs a year i.e. they’re tiny. “Foreign experience shows that when large scale farming accounts for 80% of the market, pork prices will stabilise and industry risks will be controlled,” Caijing reports. The preponderance of small- scale farms instead leads to boom- and-bust cycles. When prices are low, smallholding farmers make losses and scale back on hog breeding (last year farmers were said to be losing Rmb500 on each pig sold). But when prices are high, they get bank loans to build up their hog- geries – only to find a large increase in supply threatens to depress prices paid in the market. The current situation is compli- cated by yet another destabilising factor: the price of feed. Even at higher prices the average pig Not a bargain: pork costs 57% more than a year ago farmer is struggling to profit on each animal he slaughters. Feed enough to turn sleeping boars into years ago – is evidently still not big corn has risen to Rmb2.4 per kilo- feisty Casanovas. By way of com- enough to stabilise the market. The gram, which is about Rmb0.5 parison, at the beginning of 2008 Chinese Academy of Social Sciences higher than in the same period the ratio that had farmers piping estimates the strategic reserve of last year. old-time love songs into the sty pork at just 300,000 metric tonnes, The Wall Street Journal reports was above 10.” offering little in the way of cushion. that when the price of a pig is six All told, this suggests supply will Other new measures are being times the price of corn, a farmer can continue to lag demand – keeping designed to deal with the industry’s break-even. Last year the ratio fell to inflation high. structural weaknesses, especially a money-losing 4.76, which discour- the Rmb2.5 billion spend on a pro- aged breeding, and by the start of What is the government’s re- gramme to encourage the growth the year – even after pork prices had sponse? of larger scale farms. Ultimately risen – the ratio was still 6.6. To retreat to the bacon bunker. Last this is the real solution, but it won’t According to government data, Thursday it released some meat happen fast. In the meantime a the ratio has now improved to 8.5, from its strategic reserve, ostensi- subsidy of Rmb100 per sow has which suggests that farmers are bly to halt the rise in pork prices. been promised, to counter feed back into a better period com- But the move was largely symbolic. costs and encourage the smaller Photo Source: Reuters Source: Photo mercially. The 200,000 metric tonnes that will farms to breed more pigs. “That is above the level required arrive at market represents just Not everyone is pleased by the for farmers to break-even,” admits 0.4% of annual pork consumption.

Load more