Thursday, December 20, 2007

Free Trade? When Pigs fly in China !

Seems like there is a major shortage of pork the staple meat of China .

Free-traders would say that China could (and should) import more pork under these market circumstances. You'll need to read a bit into the article to see that China will respond with protectionism . And how come they never call it protectionism unless the U.S. does it ? For developing countries, they are doing it to 'protect peasants and reduce poverty' .

The government said Thursday it would double subsidies for pig farmers to boost production of pork, the country's staple meat.

Isn't this anti-Free Trade AND anti-Globalization ?

China to hike interest rates

Central bank to raise benchmark interest rates for sixth time this year in bid to cool inflation.

BEIJING (AP) -- China said Thursday it will raise interest rates for a sixth time this year as it tries to cool a price surge that has pushed inflation to its highest level in a decade.

On top of repeated rate hikes, Beijing has imposed investment curbs to slow spending on new factories, office buildings and other assets. It worries that a glut of unneeded projects could lead to defaults on bank loans, causing a debt crisis.

The interest charged on a one-year loan will rise by 0.18 percentage points to 7.47 percent, effective Friday, the central bank said on its Web site. It said rates on bank deposits will rise by 0.27 percentage points to 4.14 percent.

Analysts had expected a rate hike, and pressure built after consumer prices jumped by 6.9 percent in November over the same month last year. It was the highest inflation rate since 1996 and was driven by an 18.2 percent jump in politically sensitive food costs.

Economists blame the latest inflation spike largely on shortages of pork and other food items and said they expected it to ease once a new grain crop was harvested. But inflation has stayed stubbornly high despite official measures to increase food supplies.

"The apparent recent acceleration of non-pig food inflation and higher producer prices might have unnerved the authorities," Standard Chartered economist Stephen Green said in a report to clients.

"Sentiment in Beijing is changing" and the government is likely to get more aggressive in early 2008 about controlling inflation, Green said.

"The problem, though, is that food inflation may be with us for a while yet, and most of it will be fairly immune to tightening moves, at least over the next six months," he said.

The government said Thursday it would double subsidies for pig farmers to boost production of pork, the country's staple meat.

Chinese leaders want to maintain fast growth to reduce poverty, and the economy is expected to expand by more than 11 percent this year. But they have steadily nudged up interest rates to keep surging growth from setting off runaway inflation.

Driven by booming exports, the economy has powered ahead despite the repeated rate hikes, investment curbs and measures to shrink credit, as well as worries about the U.S. economy.

The government is struggling to contain pressure for prices to rise as a flood of cash from China's yawning trade surplus courses through the economy. The central bank drains billions of dollars a month from the economy through bond sales.

U.S. officials cite inflation fears as a key reason for Beijing to ease controls that they say keep its currency, the yuan, undervalued and give Chinese exporters an unfair price advantage, adding to its trade surpluses.

Treasury Secretary Henry Paulson and others argue that if China let its yuan rise faster against the dollar, its trade gap with the United States would narrow and inflation pressure would ease.

In other moves to contain price increases, the Cabinet agreed Wednesday to pay farmers a subsidy of $13 for each fertile sow next year, double this year's rate, the official Xinhua News Agency said.

The move is meant to "ensure adequate market supply and stabilize food prices," Xinhua said.

The Cabinet also promised to spend $300 million next year to help breeders build "standardized, large-scale" pig farms, the report said.

China's pork production fell sharply this summer due to high feed costs and an outbreak of blue-ear disease that prompted the government to destroy thousands of animals.

Beijing earlier promised pig farmers free vaccinations and other aid, and ordered banks to extend them credit.

On Wednesday, the government said it would end rebates of export taxes on wheat, corn and other grains. The step appeared to be intended to push producers to sell more grain at home, reducing pressure on prices.

The government plans to release part of its corn reserves onto the market to curb rising prices, Xinhua said. To top of page

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