VZCZCXRO5364
RR RUEHCN RUEHVC
DE RUEHGH #0553/01 2430844
ZNR UUUUU ZZH
R 310844Z AUG 07
FM AMCONSUL SHANGHAI
TO RUEHC/SECSTATE WASHDC 6206
INFO RUEHOO/CHINA POSTS COLLECTIVE
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC
RUEHC/DEPT OF LABOR WASHINGTON DC
RUEATRS/DEPT OF TREASURY WASHINGTON DC
RHEHNSC/WHITE HOUSE NATIONAL SECURITY COUNCIL WASH DC
RUEHGH/AMCONSUL SHANGHAI 6656

UNCLAS SECTION 01 OF 03 SHANGHAI 000553 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
STATE PASS USTR FOR STRATFORD/WINTER/MCCARTIN/ALTBACH/READE 
STATE PASS FEDERAL RESERVE BOARD FOR JOHNSON/SCHINDLER; SAN 
FRANCISCO FRB FOR CURRAN; NEW YORK FRB FOR CLARK/CRYSTAL/MOSELEY 
STATE PASS CEA FOR BLOCK 
STATE PASS ELECTRONICALLY TO USDA FAS WASHDC 
FAS FOR ITP/SHEIKH 
USDOC FOR ITA/MAC DAS KASOFF, MELCHER AND MCQUEEN 
TREASURY FOR OASIA - DOHNER/BAKER/CUSHMAN 
TREASURY FOR WRIGHT AND AMB HOLMER 
NSC FOR WILDER AND TONG 
 
E.O. 12958: N/A 
TAGS: ECON ELAB EFIN EAGR SOCI CH
SUBJECT: INFLATION WATCH: FOOD PRICES UP IN SHANGHAI 
 
REF: A. BEIJING 5578 
     ¶B. SHANGHAI 56 
 
SHANGHAI 00000553  001.2 OF 003 
 
 
(U) This cable is sensitive but unclassified and for official 
use only.  Not for distribution outside of USG channels or via 
the internet. 
 
¶1. (SBU) Summary:  Shanghai's consumer price index increased 2.7 
percent in July as food prices here joined prices nationwide in 
rising (Ref A).  According to Standard Chartered's Stephen 
Green, food-price inflation was starting to "hurt" low-income 
earners such as migrants and pensioners.  A non-scientific 
survey conducted by the Consulate confirmed these findings.  The 
Shanghai municipal government has responded by raising the 
minimum wage 12 percent as well as increasing pensions.  But 
CLSA's Andy Rothman cautioned against reading too much into the 
long-term significance of food-price inflation on China's urban 
dwellers saying that there has been a great deal of 
"over-hyping" this story in the press.  End Summary. 
 
--------------------- 
Inflation in Shanghai 
--------------------- 
 
¶2. (U) According to figures released by the Shanghai Statistics 
Bureau (SSB), in August, Shanghai's July consumer price index 
(CPI) increased by 2.7 percent.  Shanghai's CPI is made up of 
eight basic categories.  Of these, five (food, rent, tobacco and 
alcohol products, clothing, and white goods and home maintenance 
costs) increased  9.3 percent, 3.7 percent, 0.2 percent, 1.4 
percent and 2.8 percent, respectively.  The remaining three 
factors, medical and health products, transportation and 
telecommunication, and entertainment and education dropped 1.2 
percent, 3.2 percent and 2.9 percent respectively. 
 
¶3. (U) The SSB report noted that pork prices in July rose 11.4 
percent from June, and 53.5 percent higher in July 2007 than 
they were in July 2006.  The SSB attributed this increase to 
tight local pork supply, having to purchase large amounts of 
pork from geographically more distant regions and the resulting 
high death rate of the pigs during transportation caused by high 
temperatures. 
 
¶4. (U) According to the same SSB report, the prices of beef, 
poultry and lamb increased 3.7 percent, 2.8 percent and 1.2 
percent, respectively, from June 2007 to July 2007.  Vegetable 
prices increased 9.2 percent from June to July and were 20.7 
percent higher in July 2007 than in July 2006.  The report said 
these price rises were due to "bad weather in July." 
 
¶5. (U) Cooking oil prices increased 36 percent compared to July 
¶2006.  Egg prices had increased 32.5 percent in the past year, 
but had actually dropped 0.7 percent from June 2007 prices. 
Fruit prices had been dropping since March 2007 and dropped 12.4 
percent from June 2007 prices as more locally- and 
regionally-produced fruit became available. 
 
------------------------------------------- 
Analysts' View: Prices Up -- But So Is Hype 
------------------------------------------- 
 
¶6. (SBU) Standard Chartered Senior Economist Stephen Green told 
Econoff on August 22 that inflation in China is a global concern 
and the recent increases in food prices here have received "lots 
of attention around the world."  Analysts attempting to 
understand inflation in China, however, are severely hampered by 
the lack of real data on price increases.  There is no common 
basket of goods that have been evaluated over time, he said. 
Meat prices have risen by 50 percent in the past year and 
non-meat prices have been growing at 5 percent year on year 
since 2002.  Salaries in Shanghai have more than kept pace with 
inflation, he said, since wages have averaged 15 percent per 
year growth over the past 10 years.  This means that the 
majority of urban residents "are really a lot better off." 
Nevertheless, low-income urban households such as pensioners and 
newly-arrived migrants have not seen the same real wage 
increases.  Since these groups spend more than 35 percent of 
their income on food, "inflation is starting to hurt them," he 
 
SHANGHAI 00000553  002.2 OF 003 
 
 
said. 
 
¶7. (SBU) CLSA China Macro Strategist Andy Rothman, in a separate 
meeting on August 22, observed that restaurants in Shanghai have 
raised prices for meat dishes and international fast food chains 
such as McDonalds and KFC have "quietly" raised some meal prices 
by 10 percent. 
 
¶8. (SBU) Despite these increases, Rothman opined that "there has 
been a great deal of over-hyping the food inflation story."  His 
research indicates that despite increases in food prices, 
non-food related CPI only rose by about 1 percent in the first 
half of 2007.  Food price increases have not affected the 
average urban resident and he did not foresee any change in the 
near future. 
 
--------------------------------------------- -------- 
Government Raises Minimum Wage and Increases Pensions 
--------------------------------------------- -------- 
 
¶9. (SBU) Shanghai Social Security and Labor (SSLB) Bureau Policy 
and Regulation Section Chief Dai Jianping told Econ Assistant on 
August 31, that the SSLB was planning on raising Shanghai's 
minimum wage from RMB 750 (USD 99) to RMB 840 (USD 111) on 
September 1.  Dai said that this 12 percent increase was due to 
a number of factors including inflation.  Dai said Shanghai has 
been adjusting its minimum wage yearly since it was established 
in the 1990s. 
 
¶10. (SBU) Dai said that the SSLB would raise retirees' pensions 
on September 1, as well.  Retired government workers would see a 
monthly increase of RMB 55 (USD 7.29) and retired state-owned 
enterprise workers pensions' would rise by RMB 100 (USD 13.26) 
per month.  The difference in pension-hikes between the retired 
bureaucrats and workers was based on a recent central government 
notice to close the very large pension gap between the two 
groups.  The current average bureaucrat-worker pension gap in 
Shanghai is RMB 1000 (USD 132) per month. 
 
--------------------------------------------- ----- 
Price Hikes Hit Home: Canteen Prices Up 43 Percent 
--------------------------------------------- ----- 
 
¶11. (U) The Consulate canteen recently raised the price of its 
lunch service from 7 RMB to 10 RMB (USD 0.93 to USD 1.33).  This 
price includes a green vegetable, a tofu-based side, a serving 
of meat, and a bowl of rice.  According to the canteen cook, 
over the past year, the price of meat has increased around 30-40 
percent, egg prices have increased around 10 percent, and the 
prices of vegetables, fish and poultry have increased 5-10 
percent. 
 
----------------------------------- 
Migrants and Pensioners Hit Hardest 
----------------------------------- 
 
¶12. (SBU) Comment: Statistics alone, especially those published 
in China, often tell less than half of the story.  In an attempt 
to gauge the impact of food price inflation in Shanghai, we 
spoke with a number of individuals.  Some of their situations 
are reported below.  Shanghai is one of China's wealthiest 
cities and, as Andy Rothman stated above, inflation does not 
seem to be affecting the "average" urban dweller.  But Shanghai 
is home to an estimated six million migrant workers.  Surviving 
on marginal wages, and needing to pay rent for shelter, while 
sending money back to the countryside, inflation is felt 
strongest by the migrants on whose manual labor Shanghai's 
prosperity rests.  Shanghai's growing retired population who 
depend on pensions are also hit hard by increased food prices. 
End comment. 
 
--------------- 
Migrant Workers 
--------------- 
 
¶13. (U) A married couple in their 30's from Anhui Province has 
lived in Shanghai for about five years.  They have one child, 
 
SHANGHAI 00000553  003.2 OF 003 
 
 
who lives in Anhui Province with his grandparents.  They hope 
that next year he will be able to move to Shanghai to attend a 
school that accepts the children of migrant workers (Ref B). 
Their combined monthly income is USD 464.  (Note: All figures 
originally in RMB were converted to USD at the late August 2007 
value of USD 1 = RMB 7.54.  End note.)  They pay USD 66 in rent 
and an additional USD 66 in utilities and cooking gas.  They 
complained about the increased food prices and have coped by 
decreasing their meat consumption. 
 
¶14. (U) A married migrant worker in her 30s from Anhui Province 
has been living apart from her husband and son for the past 
seven years.  Her son is 18 and about to start college.  She 
attributes his success at passing the college entrance exam to 
her ability to support tutors and other tuition fees.  She makes 
USD 305 per month plus an extra month's salary at Chinese New 
Years.  She and a room mate pay USD 33 apiece per month for a 
shared single room with a sink and a toilet.  They share cooking 
facilities with other tenants in the building.  Food costs her 
USD 40 per month for what she describes as the "lowest quality 
food."  Increased food prices mean that she is eating almost no 
meat and more rice. 
 
---------- 
Pensioners 
---------- 
 
¶15. (U) A retired married Shanghai couple in their 70s who own 
their residence have a total monthly income of USD 425.  This 
does not include any cash from their children.  They spend about 
USD 200 per month on food and an additional USD 66 on utilities. 
 They both are in good health and "spend very little on medical 
expenses."  The couple agreed that they were little affected or 
worried by inflation. 
 
------------------- 
Blue Collar Workers 
------------------- 
 
¶16. (U) A Shanghai-native janitor in a Western office building 
earns USD 397 per month and has a combined family income of USD 
663 per month.  They own their apartment.  This three-person 
family spends about USD 265 on their monthly food bill.  She and 
her husband have a high school-aged son and pay USD 640 per year 
in tuition.  She said that higher food prices did not affect 
their standard of living. 
 
¶17. (U) A Shanghai-native clerk at a convenience store in her 
early-20s earns Shanghai's minimum wage of USD 105 per month. 
She is married to another Shanghai native and lives at his 
parents' home.  In addition to not charging for rent, his 
parents also pay for their food.  As such, food inflation had 
not affected her, but she noted that her migrant colleagues who 
had to pay for their own food and rent on the same salary as her 
were very affected by the increased costs. 
 
¶18. (U) A cab driver in his late 50s earns USD 475 per month. 
He was very angry about increased food prices since he and his 
wife spend more than 80 percent of his income on food and 
utilities.  As a result of increased meat prices, his family has 
cut back on pork consumption -- only using a little bit "for 
flavor." 
 
------------ 
White Collar 
 
------------ 
 
¶19. (U) A single Shanghai-native white collar worker in her 
mid-twenties earns about USD 600 per month.  She lives at home 
with her parents who, with her salary, have a combined monthly 
income of USD 1325.  Their home is owned and paid for.  She 
helps to pay for the monthly USD 265 food and utilities bill. 
Increases in food prices had not affected her family's eating 
habits, but she noted that increased clothes prices had led her 
to buy fewer clothes. 
JARRETT