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China introduces subsidies amid food shortages | |
(about 4 hours later) | |
China's government has said it will provide poorer households with subsidies in response to double-digit food price inflation. | |
Inflation accelerated to 4.4% in October, with food prices rising 10.1%. | |
The government also said it had not ruled out price controls if current grain and vegetable shortages worsen. | |
Meanwhile the Shanghai stock exchange has fallen nearly 10% in four days on fears of more interest rate rises in response to the price rises. | |
The Shanghai composite index ended Wednesday down a further 1.9%, having fallen more than 4% on Friday and again on Tuesday. | |
Painful price rises | Painful price rises |
The People's Bank of China raised rates unexpectedly in October in response to growing inflation pressures, and has adopted a more hawkish tone since. | The People's Bank of China raised rates unexpectedly in October in response to growing inflation pressures, and has adopted a more hawkish tone since. |
Consumer price inflation rose to 4.4% in October, which was up from 3.6% a month earlier and its highest level in two years. | Consumer price inflation rose to 4.4% in October, which was up from 3.6% a month earlier and its highest level in two years. |
The average wholesale price of some vegetables in Chinese cities rose by nearly two-thirds in the first 10 days of this month, raising fears that food hoarding was exacerbating shortages. | The average wholesale price of some vegetables in Chinese cities rose by nearly two-thirds in the first 10 days of this month, raising fears that food hoarding was exacerbating shortages. |
It is also thought the government may be considering stiffer penalties for those caught hoarding food. | |
The latest move comes after premier Wen Jiabao said the government was "formulating measures to curb the overly fast rises of prices". | |
"Great attention should be paid to market supply and demand and prices because they are related to the public's basic interests," added Premier Wen in his statement. | "Great attention should be paid to market supply and demand and prices because they are related to the public's basic interests," added Premier Wen in his statement. |
The government also announced it would increase diesel supplies after industries reported fuel shortages. | |
Easy money | Easy money |
China's inflation problems - and the concomitant threat of civil unrest - also lie behind Beijing's recent criticism of the US Federal Reserve's resumption of quantitative easing (QE). | China's inflation problems - and the concomitant threat of civil unrest - also lie behind Beijing's recent criticism of the US Federal Reserve's resumption of quantitative easing (QE). |
The Fed's new round of QE threatens to weaken the dollar, making Chinese imports less competitive in the US. | The Fed's new round of QE threatens to weaken the dollar, making Chinese imports less competitive in the US. |
But in order to maintain a competitive exchange rate with the dollar, the People's Bank of China would have to intervene to buy more dollars and sell more yuan. | But in order to maintain a competitive exchange rate with the dollar, the People's Bank of China would have to intervene to buy more dollars and sell more yuan. |
However, by selling more yuan, China risks further fuelling inflation, as well as what some see as asset bubbles in property and stocks. |
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