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 
------- 
 
¶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.