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P 270730Z NOV 07
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INFO RUEHOO/CHINA POSTS COLLECTIVE
RUEATRS/DEPT OF TREASURY WASHDC
RUEHC/DEPT OF LABOR WASHDC
RUCPDOC/USDOC WASHDC
RUEHGV/USMISSION GENEVA 2045
RUEHFR/AMEMBASSY PARIS 4207
RUEHRC/USDA FAS WASHDC

UNCLAS SECTION 01 OF 02 BEIJING 007233 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: ECON EFIN PGOV ETRD EINV CH
SUBJECT: OCTOBER PRICE SURGE ATTRACTS ATTENTION IN BEIJING AND 
PROVINCES (C-AL7-02027) 
 
REF: BEIJING 6859 AND PREVIOUS 
 
SUMMARY 
------- 
 
¶1. (SBU) Consumer Price Index (CPI) inflation rose to 6.5 percent 
year-on-year in October, tying with August's 11-year high, further 
exacerbating a major leadership concern (reftels).  Food prices 
remain the primary contributor to price increases, as core inflation 
was low at 1.1 percent.  Officials in both Beijing and the provinces 
sought to reassure consumers that the government is taking necessary 
measures to control prices, particularly in the wake of a stampede 
at a supermarket in Chongqing.  The media prominently covered 
Premier Wen Jiabao's visit to a wholesale market, and officials in 
Henan Province told Econoff that local policies are focusing on 
stabilizing prices for pork and edible oils.  Wen also warned on 
November 20 that structural inflation pressure could develop into 
across-the-board inflation.  Economic analysts are divided about 
what will happen next in China's inflation story.  Many investment 
bankers continue to assess the problem as a short-term phenomenon 
limited to food prices, but others characterize inflation as a 
broader issue.  Meanwhile, property price increases in October also 
attracted attention from analysts and government officials.  END 
SUMMARY 
 
OCTOBER FIGURES SHOW PRICE SPIKE CONTINUING 
------------------------------------------- 
 
¶2. (U) CPI inflation hit 6.5 percent year-on-year in October 
following a slight dip to 6.2 percent in September.  The 6.5 percent 
mark tied an 11-year high first set in August.  Food accounted for 
89 percent of the overall CPI increase, and non-food CPI increased 
only 1.1 percent.  Pork prices rose by 55 percent in October as 
China continues to struggle from a short-term pork supply shock. 
Vegetable prices rose by 29.9 percent and eggs by 14.3 percent. 
 
¶3. (U) Price increases grabbed front page headlines in early 
November after a sale on cooking oil in a Chongqing Carrefour led to 
a stampede that killed three people and injured 31.  Chinese and 
Western media reported that there also were 15 injuries in a similar 
incident at a Tesco market in Shanghai in October.  (Note: 
Stampedes at supermarkets also have occurred in the past when 
inflation was not as high.  End Note.) 
 
CONCERN IN BEIJING AND PROVINCES ABOUT RISING PRICES 
--------------------------------------------- ------- 
 
¶4. (U) The media prominently covered Premier Wen Jiabao's recent 
visit to a wholesale market where he reassured low-income families 
that the government would adopt necessary measures to combat 
inflation.  Wen has consistently expressed concern about rising 
consumer prices since May (reftels), underlining the Central 
Government's concerns about the link between inflation and social 
stability. 
 
¶5. (SBU) In Central China's Henan Province, an official from the 
Provincial Development and Reform Commission said that inflation is 
not yet a serious economic problem, but he agreed that inflation is 
a social stability concern and local authorities therefore cannot 
afford to ignore it.  Other Henan officials added that there is 
growing concern about the rising price of edible oils. 
 
¶6. (SBU) An economic policymaker in Henan's Kaifeng Municipality 
said the local government would continue to mitigate the food 
inflation problem through a two-track rural-urban subsidy solution 
by:  (1) providing insurance to farmers to encourage them to raise 
pigs and (2) giving RMB 15 (USD 2) per month to low-income families 
in urban areas to offset rising prices.  The official said subsidies 
would continue until at least the end of the year. 
 
PREMIER SAYS THERE'S MORE REASON TO BE CONCERNED 
--------------------------------------------- --- 
 
¶7. (SBU) At the ASEAN Summit in Singapore on November 20, Premier 
Wen warned that sector specific inflation pressure could develop 
into across-the-board inflation, signaling the government's mounting 
concern that food inflation could spill over into non-food 
inflation.  As a result, the upcoming Central Economic Work 
Conference -- the Central Government's annual meeting on economic 
issues -- reportedly will focus on inflation and possible monetary 
and fiscal policy responses. 
 
INVESTMENT BANKS DIVIDED ON WHAT COMES NEXT 
------------------------------------------- 
 
BEIJING 00007233  002 OF 002 
 
 
 
¶8. (U) Investment bank reports offered a wide range of views on 
China's inflation problem.  CLSA Asia-Pacific Markets, for example, 
offered the conventional view that inflation is a short-term food 
price problem and not a reason for the government or public to 
panic.  Similarly, a recent report by JP Morgan focused on the low 
rate of core inflation at 1.1 percent year-on-year in October. 
 
¶9. (U) Morgan Stanley, however, issued a more alarmist statement, 
saying that "the risk that inflation in China is out of control has 
risen meaningfully."  In addition, analysts from Goldman Sachs said 
at a recent conference that they see inflation as a broader issue 
related in part to money supply (thus more persistent) and joined 
with other economic imbalances. 
 
PROPERTY PRICES RISING FAST 
--------------------------- 
 
¶10. (SBU) Property price increases in October also attracted 
attention from policymakers.  According to a National Development 
and Reform Commission (NDRC) survey, the real estate price in 70 
cities increased by 9.5 percent during the month, with Beijing's 
housing price up by 17.8 percent.  A Beijing-based economic analyst 
said that containing property price increases will be the main 
macroeconomic challenge for the government next year with property 
prices likely to rise by 12 to 15 percent in the first quarter of 
¶2008. 
 
RANDT