China Must Control Food Prices to Curb Inflation, Sustain Growth, Wen Says

By Bloomberg News - Oct 23, 2011 11:49 AM GMT+0700

China must continue efforts to control food and housing prices to ease soaring inflation and maintain economic development and social stability, Premier Wen Jiabao said.

Authorities must help boost output of farm products, control the non-food use of corn and increase land supply to make more residential housing available, Wen said in a statement posted yesterday on the central government’s website.

Wen’s government has tightened lending and boosted imports of agricultural reserves to keep inflation from derailing growth in the world’s second-biggest economy. China probably won’t ease monetary policies until inflation slows to less than 5 percent, Yu Yongding, a former central bank adviser, said Oct. 21.

“The government has been more flexible in balancing its tightening policies” with the state of the economy, and the measures have worked, said Li Qiang, managing director of Shanghai JC Intelligence Co., the country’s biggest independent agricultural researcher. “Food prices, including pork, are trending lower.”

Inflation moderated to 6.1 percent from a year earlier in September after reaching a three-year high of 6.5 percent in July. Gains in consumer prices will drop to 5.8 percent by the end of the year, Yu said. He estimated the inflation rate may be less than 5 percent next year as food and pork prices stabilize.

Farm Incentives

The government will give incentives to maintain animal-feed prices and increase hog production, Wen said during a trip to Nanning in southern China’s Guangxi province, according to the statement. It must strictly control projects that convert corn to starch and biochemical products, as prices have abnormally exceeded wheat, he said.

China’s corn imports in 2011-2012 may total 5 million metric tons, compared with 970,000 tons in 2010-2011, state- owned researcher Grain.gov.cn said Oct. 21. That would be a record, according to U.S. government data compiled by Bloomberg.

“The government has shown willingness for more imports” departing from past policies which resisted overseas purchases, said Li, who estimated imports in the year that began Oct. 1 will total about 10 million tons.

China needs also to increase land available for residential projects and properly manage the construction of guaranteed housing by measures including ensuring capital, Wen said. The control of the property market is at a “critical” period, he said.

China’s economy grew 9.1 percent from a year earlier in the third quarter, the slowest pace since 2009.

To contact the editor responsible for this story: Jim McDonald at jmcdonald8@bloomberg.net