China’s quake may fuel inflation

The powerful earthquake that rattled Sichuan province is not expected to hamper China’s economic growth, but it could ripple through the economy in one significant way: inflation.

Sichuan accounts for just 4% of the nation’s gross domestic product and less than 2% of the country’s foreign trade and investment. But the south-central province is the nation’s leading pig-farming region and a large producer of grains.

Prices for pork, a staple of the Chinese diet, have soared over the last year, helping fuel China’s inflation to levels unseen in more than a decade. In April, consumer prices rose 8.5% from a year earlier, well above the government’s annual inflation target of 4.8%.

Still unclear is the extent of the quake damage to farms and pork producers and suppliers, many of which are based more than 100 miles southeast of the hardest-hit areas. But some pork processors said they’ve had trouble getting hogs because of damage to roads.

“We cannot purchase pigs,” said Liu Feng, a salesman at Sichuan Gaojin Food Co., a major pork-processing company in Suining, about 130 miles from the quake’s epicenter in Wenchuan.

Liu said his company normally bought 1,000 hogs a day. “Today we raised the price twice and the most we got was 200 pigs.”

Concerned about hoarding and gouging after the quake, authorities in Sichuan and neighboring provinces of Gansu and Shaanxi have said they would control food prices and transportation fares. The central government has ordered daily price monitoring and punishment for people taking advantage of the disaster.

At the same time, Beijing has loosened credit restrictions to allow loans to flow to quake-damaged areas. Chinese banks have offered about $430 million in loans for reconstruction, a top bank regulator said Monday. Chinese officials had tightened lending and raised bank reserve requirements four times this year to fight inflation.

China’s rising inflation and some of its measures to control it, such as lifting the value of its currency, have contributed to higher prices of Chinese-made goods for American consumers.

Before Premier Wen Jiabao rushed out to the quake zone, he spoke at a farm and in other settings to reassure citizens that China had sufficient grain production and foods.

Soaring grain prices and tighter supplies have sparked rioting in some countries. China has kept a lid on rice prices through price controls and restrictions on exports. But the cost for animal feed has risen, as more corn has been diverted for ethanol use, and that’s helped propel pork prices, up 69% in April from a year earlier.

Rising consumer demand, diseases and winter storms also pushed prices higher.

William Hess, principal analyst in Beijing for Global Insight, an economic research firm, said Sichuan accounts for more than 11% of China’s pigs and that earthquake damage could have a significant effect on inflation, depending on the extent of the infrastructure damage and disruptions to key transport lines.

“We haven’t even hit flooding season,” he said.

In recent months, the central government has sought to tamp down pork prices by boosting hog supplies with increased subsidies for farmers. But that hasn’t stopped the price of hogs from rising. Some villages have reported a rash of baby pig thefts.

Li Yangzhi, a farmer in Shaanxi province, just north of Sichuan, said a 45-day-old pig now fetches nearly $80, triple the price of a year ago. Recently, Li said, he has been sleeping next to the pig pen because thieves have been prowling at night.

Pork processors in Sichuan aren’t sleeping well either. At Nanchong Huilong Food Co., the manager for purchasing and sales said that when he called about supplies, pig farmers answered with a stony silence. What’s more, many trucking companies in the region aren’t responding to calls from customers, because they can’t navigate the roads or are busy delivering relief supplies.

Lu Wenxue, manager of Huayu Transportation Co.’s Mianyang branch, said that since the quake May 12, the company has been transporting tents, food and other goods to the earthquake zone.

“Right now, I don’t know when we can start operating normally again,” he said Monday.

At the moment, getting supplies isn’t the biggest concern for many companies in the earthquake zone. At Nanchong Huilong, most of the company’s 180 employees haven’t returned to work since the quake rattled the plant, about 160 miles southeast of Wenchuan, said the manager, who would give only his last name, Gao.

“The workers are too scared to report for work,” he said.

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don.lee@latimes.com