Protection(ism) against the big
freeze By Wu Zhong, China
Editor
HONG KONG - The snowstorms
devastating China over the past few weeks have
done more than disrupt the homeward exodus of
millions of migrant workers keen to celebrate the
country's lunar new year, or Spring Festival,
holiday.
The blizzards threaten the
country's market reforms as city authorities act
to safeguard food supplies and respond to central
government orders to curb price rises.
Food - most notably pork - and drink lie
close to the heart of the Spring Festival, a time
for grand family reunions, and those who are away
from home make great efforts to travel back, ready
to splurge their meagre savings on wining and
dining their relations. A shortage of food
supplies or price increases in the key festive
ingredients could spark public
discontent, threatening social stability, and thus
are "political incorrect".
This partially
explains why, in mid-January, the central
government began even before the snow storms hit
the country, to impose price controls on daily
necessities such as meat, cooking oil and other
foodstuffs. From a broader perspective the
government intervention in the market was aimed at
curbing inflation in general. Following Beijing's
order, regional governments are now trying to
bring prices under control.
Administrative
measures, which may prevent price hikes of
foodstuff in the short term, cannot ease shortages
of supply and may even worsen them. For instance,
lower grain or pork prices may dissuade farmers
from growing more grain or raising more pigs,
unless subsidized by the government.
Nor
will price controls ease the shortages facing
regions not self-sufficient in food. Hence
Beijing's market intervention may encourage local
protectionism, as each region tries its best to
ensure its supply to curb price increases. Food-
and meat-producing provinces will be reluctant to
export their products, putting less well-supplied
regions in a more desperate predicament. Guangdong
province, which has population of about 110
million, is a prime example in this regard.
Guangdong, said to be China's richest
province and the one with the most free-wheeling
economy, cannot supply itself with sufficient food
and meat. Formerly an important agricultural
province, Guangdong in the country's south has
over the past 30 years turned itself into a
manufacturing and export hub. Its gross domestic
product (GDP) has risen to 3.06 trillion yuan
(US$425 billion) in 2007, or one eighth of the
country's total and more than Taiwan's estimated
GDP of $370 billion.
To develop its
industry, Guangdong has sacrificed its
agriculture, with farmland turned over to
factories and farmers becoming factory workers,
office staff or business people. As a net importer
of foodstuff and meat, the province is
particularly vulnerable to supply shortages.
Normally, it easily exports industrial products to
other provinces and imports foodstuffs through
internal trade. But when other provinces want to
ensure ample supply in local markets, Guangdong
faces trouble. Now is one such time.
The
heavy recent snowfalls in south and east China
have virtually cut Guangdong's land transport
links to the rest of the country, interrupting
food shipments into the province. Its cities now
have to try every means to secure supply, by hook
or by crook - even at the cost of other cities in
the same province.
In Guangzhou,
provincial capital of Guangdong, municipal
government authorities held an emergency meeting
on January 28 to work out measures to deal with
the aftermath of the snowstorms. Zhao Xiaosui,
director of the Guangzhou municipal trade and
economic commission, which oversees the supply of
daily necessities and price controls, set
"irrevocable targets" covering live and frozen
pigs to ensure the supply of pork, particularly
during the lunar new year.
To ensure the
targets are met, Zhao ordered that locally raised
pigs must be sold in the local market and "no
single porker of live pig is allowed to be shipped
outside Guangzhou"; he also ordered that all
shipments of live pigs from other places coming
into Guangzhou, even in passage, be kept and sold
in Guangzhou.
These two orders indicate
naked regional protectionism by banning "free
trade" of pigs between Guangzhou and other places
and go against the spirit of a market economy,
which may cause problems down the road.
Pig farmers in Guangzhou now cannot make
potentially bigger profits by selling their
products elsewhere; yet farmers have raised pigs
with their own input and efforts, and they are
entitled to seek maximum profits. If the price in
Guangzhou is higher than in other places, say
neighboring Dongguan or Shenzhen, farmers
naturally want to sell their pigs in Guangzhou.
But if prices elsewhere are higher, Zhao's ban
deprives the farmers of their right to make more
money. Unless the Guangzhou government is willing
to compensate them, they could sue it for causing
them losses.
The second order sounds even
more like highway robbery. Some Guangzhou
companies may "import" pigs for the purpose of
re-exporting them. Some others may just be
involved in shipping animals, carrying live pigs
through Guangzhou. Unless their businesses are
illegal, it is hard to imagine how Zhao's order
can be executed. Again, the Guangzhou government
may face lawsuits unless it has set aside funds to
compensate those affected.
Guangzhou may
have set a precedent to be followed by other
cities in Guangdong and further afield. A spread
of protectionism to other sectors could further
jeopardize the country's internal trade, and hence
its economy, undermining China's market-oriented
reforms of the past three decades.
From
another perspective, Zhao's orders simply show how
desperate the Guangzhou municipal government is to
prevent higher pork prices. It also demonstrates
the difficulties confronting regions that have
insufficient supplies of foodstuffs to remain
"politically correct" by strictly following
Beijing's price-control order.
The central
government's market intervention must therefore be
temporary and should be revoked as soon as
possible, allowing market forces to perform their
role once more.
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