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China introduces subsidies to help combat food inflation

Consumer inflation is at its highest level for two years in China, running at 4.4% in October. The cost of food has risen even more sharply, with prices rising over 10 per cent in the same month. And in recent weeks, some vegetables have been selling at wholesale prices almost two-thirds higher. The Chinese government therefore announced this week that subsidies will be made available for poorer households. In addition, the authorities have not ruled out imposing price controls if the situation should worsen.

Some of the recent rises may be caused by consumers stock-piling certain foods, creating shortages which drive prices up even further. The government also announced that it will consider imposing high penalties on anyone found hoarding food. The Chinese Premier, Wen Jiabao, said “measures to curb the overly fast rises of prices” will be taken.

Last month, China’s ruling Communist Party met to discuss the country’s next five-year plan for the economy, from 2011 to 2015. Both the Premier and President, Hu Jintao, were keen to stress that as well as maintaining a high rate of economic growth, the government would focus on closing the gap between rich and poor. Unless wealth is spread more evenly among the people, China’s leaders fear social unrest and strikes could put future development at risk. Mr Hu said the country must “achieve inclusive growth and truly address the social problems that have emerged in economic development”.

In some respects, China has already made impressive strides in improving social welfare. The healthcare system has been reformed and 1.23 of China’s 1.33 billion people now have some form of healthcare insurance, with plans to extend coverage to the remaining 100 million. And most people in China now have pension schemes. But not everyone has benefited from the country’s economic boom over the last five years. There are still huge gaps in the living standards of rich and poor, and between those on the coast and those in inland regions. Using the international guideline of those living below 1 US dollar per day, China still has 150 million people below the poverty line.

Even in the China’s prosperous business cities, like the capital Beijing, luxury hotels and glitzy office buildings tower over low-rise slums, where people struggle to earn a daily living. One mother of two survives by selling fried chicks on skewers from a mobile stall in the slum lanes near the Central Business District. Liu Qingye earns around 150 dollars per month, but this is only enough to rent a single room and she has had to send her two children back to Henan Province to be brought up by their grandparents. China’s leaders understand they need to give people like Liu Qingye more opportunities to improve their standard of living. This is why over the next five years, the government hopes to rebalance the economy so that more Chinese share in the wealth created by the country’s economic growth.

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