The Economist - UK - 09.14.2019

74 Finance & economics The EconomistSeptember 14th 2019

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E

conomists rarelythink about the av-

erage gestation period of pigs (115 days)

or the length of time a sow needs to reach

sexual maturity (roughly six months). But

in China, a basic knowledge of hog-breed-

ing cycles is part of the job. Pigs are so cen-

tral to the Chinese diet that the ups and

downs of pork prices have an outsized im-

pact on inflation. Once again, porcine ex-

pertise is in demand: African swine fever

has devastated China’s pigs, complicating

its economic outlook.

New data show that pork prices leapt by

23% in August from July, the highest

monthly jump on record. On an annual ba-

sis they were up by 47%. The feed-through

to broader inflation has been modest so far.

But pork is certain to become more costly

in the coming months, pushing consumer

prices up further (see chart).

In the past, when pork prices soared

farmers quickly produced more pigs. That

is harder now because the population of

breeding sows has collapsed. The central

bank has started to ease monetary policy as

growth weakens, but the spectre of pork-

led inflation, even temporary, could limit

its space for cutting interest rates.

China consumes 55m tonnes of pork

annually, as much as the rest of the world

combined. Hu Chunhua, a vice-premier,

said in August that the supply shortfall this

year will be about 10m tonnes, more than is

traded on international markets. The gov-

ernment has announced subsidies and

low-interest loans to encourage pig farm-

ers to expand. But since at least a third of

China’s hog herd has been wiped out, these

measures will not generate instant results.

Several cities have started offering lim-

ited amounts of discount pork. Others are

giving cash to low-income residents. Chi-

na has also started to release meat from its

frozen-pork reserves—created in the 1970s

for just such emergencies. But they cover

barely a tenth of the shortfall. On Septem-

ber 10th Life Times, a Communist Party-

managed newspaper, had an unusual ban-

ner headline: “Pork, it’s better for you to eat

less”. It dressed up its article as healthy-eat-

ing advice, but readers surmised that it was

trying to put lipstick on a very pricey pig.

 Yet the government’s big concern for

now is affordability, not inflation. Pork, to-

gether with rice, has long been close to a

daily necessity in China. The word “meat”

by itself almost always refers to pork. But

during the past decade pork has dimin-

ished in importance, as a share of both din-

ners and overall spending. Beef and fish

have grown in popularity. Middle-class ur-

banites, not to mention the wealthy, are

spending their money on much else be-

sides. Analysts now reckon that pork is lit-

tle more than 2% of China’s consumer-

price index, down from 3% a few years ago.

Moreover, it takes more than pork for

inflation to be a problem. In 2008 and 2011,

inflationary spikes followed big increases

in the money supply; price rises, though

pronounced for pork, were a much broader

phenomenon. Over the past couple of years

the money supply has grown much more

slowly as regulators have pushed banks to

reduce their leverage. Prices of industrial

goods have fallen into deflationary territo-

ry. The central bank will thus be inclined to

write off African swine fever as a supply

shock. The risk is that sky-high pork prices

spread to other food items, placing un-

wanted upward pressure on wages. 

In the meantime people are adjusting.

Liu Zhiqiang, a retired factory worker in

Beijing, used to treat his family to pork ribs

once a week. “Now I just toss some pork

shavings into fried dishes and have more

eggs instead,” he says. Xishaoye, a restau-

rant chain popular for pork-filled crispy

buns, said that it was researching whether

it could use chicken as an alternative.

All going well, China will eventually

emerge from this mess with bigger, better-

managed pig farms. The hog cycle would

become less volatile, and pork cease to

matter as an inflation indicator. China’s

pigs would once more be braised by chefs

rather than appraised by economists. 7

SHANGHAI

Soaring pork prices hog headlines and sow discontent in China

Chinese inflation

A porcine phenomenon

Sizzling

Source: CEIC

China, % change on a year earlier

Pork prices Consumer prices

2005 07 09 11 13 15 17 19

-40

-20

0

20

40

60

80

100

-4

-2

0

2

4

6

8

10

K

ristalina georgievahas been men-

tioned in connection with every leader-

ship role going at international organisa-

tions, from secretary-general of the un to

the head of the European Commission.

Were the presidency of the World Bank de-

cided on merit alone, with no consider-

ation of nationality, Ms Georgieva, its chief

executive, might have been a shoo-in. She

briefly stood in as president after Jim Yong

Kim resigned in January, but in April the

job went to David Malpass, an American.

Now the Bulgarian seems at last to have

nabbed one of the top jobs on a permanent

basis. A transatlantic understanding dat-

ing back to the Bretton Woods conference

in 1944 means that an American leads the

World Bank while a European leads the

imf. In August Ms Georgieva became Eu-

rope’s nominee to replace Christine La-

garde at the fund’s helm. Despite noises

from the British that they would put for-

ward their own candidate, the deadline for

submitting nominees passed on Septem-

ber 6th with Ms Georgieva the sole con-

tender. Her official appointment by early

October seems assured.

Since 2017 she has been responsible for

much of the running of the World Bank,

where, before a stint at the European Com-

mission, she also spent many years as a

staffer. As chief executive she is credited

with smoothing over differences between

A World Bank bigwig looks set to take

the fund’s top job

The IMF’s next boss

Sewn up