Subsidies Cut, Controls Eased to Let Market Forces Spur Production : Price Reform: Chinese Switch From Pork to Chicken

Pan Qingsheng, a middle-aged Beijing bus driver, studiously examined the caged white chickens at the Dongsi Free Market and selected five comparatively meaty birds.

A peasant salesman, using old-fashioned hand-held scales, weighed the birds at slightly under six pounds and asked for 11.80 yuan ($3.18). Pan bargained him down to an even 11 yuan.

Chicken used to cost far more than the rationed pork sold at subsidized prices in state-run markets, even though it costs the same or less to raise chickens. But in recent weeks, subsidies on pork--the staple meat in the Chinese diet--have been virtually eliminated, with wage supplements provided to ease the consumer’s pain.

As a result, chicken no longer seems like such an extravagance to comparison shoppers like Pan.

“I buy whatever’s cheapest,” he said, before riding off on his bicycle.

This change, although achieved at the cost of inflation and some public discontent, constitutes a significant step forward in China’s attempt to reform an irrational price structure that stands in the way of economic development and efficient use of resources.

Essentially, the reform has two goals: to raise artificially low prices to reflect true costs and thus better promote production and to free prices from administrative control so that they can fluctuate according to market forces.

Communist Party General Secretary Zhao Ziyang suggested in a March discussion with delegates to the National People’s Congress that prices also be used to influence food consumption patterns. He suggested specifically that “prices may be used to guide the people to eat more chicken and rabbit meat than pork,” according to a New China News Agency summary of his comments.

Better Prices for Farmers

But rises in food prices are seen primarily as a way to provide better prices for farmers, so that they will be encouraged to produce more. Elimination of the two-tiered price structure also cuts down on opportunities for corruption, especially the illegal resale of controlled goods at market prices.

Between May 15 and June 10, prices were gradually increased at state-run stores in Beijing. The price of pork has gone up 50%, and the price of vegetables, eggs and sugar has gone up 30% to 60%.

The impact of the higher prices has been roughly balanced by the issuance of monthly wage subsidies of 10 yuan to every worker in Beijing. University students and retirees are receiving slightly smaller income supplements.

Similar price increases, matched with wage subsidies, have been implemented in cities across the country.

The changes have brought most prices at state-run stores nearly into line with those at free markets, with the exception of a number of basic foodstuffs such as rice, cooking oil, bean curd and the cheapest varieties of matches. These items are rationed and sold for less than their production cost.

Rationing of pork, eggs and sugar at state-run markets, begun last winter in major cities, also remains largely in place. But with rationed pork no longer significantly cheaper than free-market pork, which is available routinely in unlimited quantities, pork rationing has lost much of its importance.

Most consumers appear to believe that their wage increases are insufficient to keep up with the latest spurt in inflation, which over the past year has run at more than 10%.

The 10-yuan wage subsidy “is not really enough, because other foods have also gone up in price,” Pan, the bus driver, commented.

A man shopping at the state-run Chaoyangmennei market said: “All the other products linked to pork, eggs and sugar will be affected and become more expensive. Ten yuan is almost nothing in dealing with the increased prices. But it differs from family to family. Some find it hard to withstand the rising prices, despite the subsidies. Others can stand the situation well.”

But the combination of wage subsidies and widespread media publicity about the necessity of the reforms seems to have kept public dissatisfaction within limits deemed tolerable by China’s leaders.

Raw Material Prices Next

“China’s current price reform is a bold yet risky action, but the country’s leadership is confident of doing a good job,” Deng Xiaoping, China’s paramount leader, said last month in a statement quoted by the New China News Agency. “I often tell my colleagues to be brave and not be afraid of risks, because otherwise no progress will be made. Over the past 10 years, China has developed soundly, the people have enjoyed a better life and we have also increased our ability to shoulder risks.”

Deng said that once the reform of food prices is completed, China will move on to the reform of the prices of industrial raw materials, which have been kept artificially low.

In recent months, China’s leaders appear to have decided that “they might as well bite the bullet” and seek to accelerate price reform, a Western diplomat said, speaking on the condition that he not be further identified.

This decision apparently was taken partly because of evidence, including opinion surveys, indicating that “the public could tolerate this more than they might have thought,” he said.

“Adjustment of prices is inevitable, because the prices of our agricultural products are too low,” a shopper at the Chaoyangmennei market said. He declined to give his name or occupation, but he appeared to be a low-level official who pays attention to news media reports on price issues.

“We’re trying to break the traditional economic system,” he said. “I think, for individuals, we lose a little bit now, but it will be good for the country. In the long run, the salary system will be reformed, and things will turn better.”