ECONOMY : Prices Soar as China’s Private Sector Enriches New Consumer Class

Zhang Guangrong and Ge Hongmiao preside over the Freshwater Products counter--specializing in live eels, crabs and turtles--at the government Xidan Market in central Beijing.

Over the last four years, they have noted a remarkable consumer trend that says much about the wildly growing Chinese economy and the tightrope act by leaders here to keep it under control.

Prices have shot up. A report issued by the official State Statistical Bureau this week showed that July consumer prices in China’s 35 major cities rose an average 23.3% compared to July a year ago.

Inflation also showed its highest monthly jump in four years and demonstrated that the recently launched 16-point government austerity program to cool the overheated Chinese economy had not yet taken hold.

Nothing in China is more feared and politically volatile than runaway inflation.

Inflation was so bad during the post-dynastic Nationalist rule (1919-1949) in China that people were forced to carry near-worthless bank notes to market in wheelbarrows.

Some historians contend that it was hyperinflation, at least as much as the military prowess of Mao Tse-tung, that led to the Communist victory over the Nationalists in 1949. Also, no one has forgotten the consumer panic in 1988, when city dwellers stripped store shelves in a hoarding spree during another inflationary cycle.

With Chinese leader Deng Xiaoping, 89, in the twilight of his long rule and said to be ailing, control over inflation looms as one of the most important political issues in the internal struggle between conservative and reformist forces vying to succeed him in power.

At the Xidan Market, Zhang, 36, and Ge, 30, a cheerful pair of clerks who promise refunds to their customers if any of their flopping, writhing or slithering products die on the way home, report that sales have been steady despite huge price increases on nearly every item.

Live freshwater turtles--which the Chinese eat steamed, braised or in festive soups with shark fins and bamboo shoots--cost 60 yuan, or $10.50, a kilogram four years ago. Today, a one-kilogram turtle costs $45.

Yet Zhang and Ge reported proudly that they sell 15 to 16 turtles daily in their store, the same as before the dramatic price increases. Half a dozen small-beaked, long-necked members of the species looked up forlornly from a glass box on the counter, as if anticipating their fate.

What has changed, the two clerks said, are the types of people buying the expensive turtles. “No one working for the state on a fixed income can possibly afford to buy a turtle,” said Zhang, who makes $78 a month in salary and bonuses. “Now we have young people in private business who come in here with handfuls of money and buy them for their parents or grandparents.”

Zhang put her finger on what many economists say is key to the booming Chinese economy: Although the overheated, inflationary economy has chased many consumers from the market, it has also created a new class of affluent buyers to fill the gap.

“It’s this younger generation working in the private sector,” commented a Western economist working in China, “who are not afraid to spend their money on luxury products. Many of them are still living with their parents, so they don’t have the burden of housing costs to stop them. They buy, and they don’t ask the price.”

A study on China by the Hong Kong Trade Development Council identified 16 million Chinese elite consumers who earn more than $140 a month and form the foundation of the new buying class.

In a country with a population of nearly 1.2 billion, that may not seem like much.

But in urban centers such as Beijing, where the wealth concentrates, it is enough to keep Xidan and other markets full of cash-paying customers.

In Beijing’s West City District near the Zhongnanhai residential enclave for senior Communist Party leaders, Xidan is a bright vegetable and produce store with shiny display cases and refrigerated shelves of fresh, wrapped goods.

Paper pennants boosting Beijing’s bid for the 2000 Olympic Games are strung from the ceiling along with several large, dried and salted moray eels.

Customers on a recent shopping day included a hydroelectric power executive from Sichuan province and a 23-year-old cosmetician in a Japanese-owned beauty parlor.

Zhong Zhiwei, 49, the executive, came to the market with his teen-age daughter. Both were wearing identical, plastic-billed tourist caps emblazoned with a picture of Tian An Men Square.

Zhong, in town seeking $100 million in foreign investment for a project in the new Sichuan high-tech center in Mian Yang, declared the prices at Xidan “reasonable.”

Dong Mei, the cosmetician whose name in Chinese means “winter plum,” said she felt that prices were high, but she didn’t care. She said she makes $104 a month and still lives with her parents. “When I see something I want, I buy it,” she explained.