VZCZCXRO4745
PP RUEHCN RUEHGH RUEHVC
DE RUEHBJ #1870 1360524
ZNR UUUUU ZZH
P 150524Z MAY 08
FM AMEMBASSY BEIJING
TO RUEHC/SECSTATE WASHDC PRIORITY 7305
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 2226
RUEHFR/AMEMBASSY PARIS 4338
RUEHRC/USDA FAS WASHDC
UNCLAS BEIJING 001870
SENSITIVE
SIPDIS
E.O. 12958: N/A
TAGS: ECON EFIN PGOV EAGR SOCI CH
SUBJECT: STATE COUNCIL RESEARCHER SAYS APRIL CPI DATA WARRANTS
CONTINUED CONCERN
SUMMARY
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1. (SBU) China's Consumer Price Index (CPI) increased 8.5 percent
year-on-year in April, fueling further concern about inflation in
the run-up to the Beijing Olympics. Food prices again accounted for
most of the increase, led by surging pork and cooking oil prices. A
leading researcher at China's State Council said the Central
Government is surprised that inflationary pressures have not yet
subsided, adding that government leaders continue to be concerned
about the possible impact of rising prices on social stability. END
SUMMARY.
APRIL CPI UP 8.5 PERCENT
------------------------
2. (SBU) The National Bureau of Statistics (NBS) announced on May 12
that China's CPI was up 8.5 percent y-o-y in April with the CPI
increasing in urban areas by 8.1 percent and continuing to surge in
rural areas by 9.3 percent. Food prices increased 22.1 percent
while non-food prices increased 1.8 percent. Pork prices (which
increased 68.3 percent over the previous year) and cooking oil
prices (up 46.6 percent y-on-y) were the primary contributors to
rising food prices. Investment bank analysts expressed some
surprise at the 8.5 percent CPI increase in April, as most analysts
had expected prices to be leveling out rather than rebounding from
an 8.3 percent increase in March to 8.5 percent in April -- the
fourth consecutive month the CPI increased by 8 percent or more
year-on-year.
STATE COUNCIL REMAINS CONCERNED
-------------------------------
3. (SBU) The Deputy Head of the Rural Economy Department at State
Council's Development Research Center (DRC) told Econoff on May 13
that the State Council remains extremely concerned about rising
prices, and inflation has been his top priority for the past few
months. Xu Xiaoqing, one of China's top rural researchers, said the
DRC also was somewhat surprised at the high CPI level in April.
Cooking oil prices are especially worrisome, he said, as poor urban
residents spend a disproportionate amount of their income on cooking
oil, and the State Council is concerned about the possible
ramifications for social stability if cooking oil prices continue to
rise.
4. (SBU) Xu added that boosting pork production to meet growing
demand has been problematic, and he said he was shocked by the 68.3
percent increase in pork prices compared to last April. He lamented
that because only 30 percent of all pork producers in China are
large-scale producers, and with pork production only found in
Sichuan, Hunan, and Jilin Provinces, there are no short-term fixes
or high-tech solutions for increasing the supply of pork. (Note:
Xu added that Sichuan is the largest pork producing area in China
and it remains to be seen how the May 12 earthquake in that province
will affect this year's production. End Note.) Xu said that both
for pork and for grains, he also remains concerned about rising
production costs for farmers.
A CONSENSUS VIEW?
-----------------
5. (SBU) Xu admitted that researchers' views differed widely on the
root cause of China's inflation problem and the likely policy
prescriptions. He said it is a challenge for the DRC to present a
consensus view to the State Council, particularly with regard to
possible methods to counter inflation. At the end of the day,
researchers from the DRC's various departments will agree to a
position and send it forward to the State Council, but there remains
disagreement between individuals about how to address the problem,
and while rising prices have not yet affected social stability, Xu
said the April inflation figures added to the State Council's
economic concerns.