Xi and the Party face food inflation risks

Spiraling prices, the war in Ukraine and China’s ‘zero-Covid’ policy threaten China’s economy 

Rising inflation has left President Xi Jinping’s economic brains trust struggling to digest the aftershocks of spiraling food prices.

On Monday, the National Bureau of Statistics released data showing that China’s economy is being buffeted by a surge of Covid-19 cases across the country and the fallout of Russia’s war in Ukraine, a crucial grain producer.

Bottlenecks in supply chains and soaring commodity costs, such as energy and food, pose major risks for Beijing as it grapples to contain the rampant Omicron strain of SARS-CoV-2.

Hardest hit has been Shanghai, the largest city in China with a population of nearly 26 million, and a vital business and trade hub. Other key areas in the country have also been ravished by Covid-19.

“Due to lockdowns and transport disruptions in Northeast China, the [nation’s] largest grain production base, this year’s Spring planting of crops may have been delayed,” Nomura economists, led by Lu Ting, said in a note.

“[Because of that] the risk of food shortage may rise in the second half, adding further pressure to the worsening global food shortage caused by the ongoing military conflict in Ukraine,” they added as reported by Reuters news agency.

By the numbers:

  • China’s producer price index, or PPI, increased 8.3% in March compared to the same period in 2021.
  • Inflationary pressure saw consumer prices jump by 1.5%.
  • But that figure seems artificially low because of the sensitivity of the data.
  • China’s official statistics are notoriously dubious as ChinaFactor revealed at the end of last year.

Food and energy security concerns [have] heightened with [the] invasion of Ukraine.

MERICS China Essentials newsletter

Delve deeper: President Xi Jinping’s “zero-Covid” policy has exasperated the problem and triggered a social backlash in Shanghai after alleged food shortages.

But wait: Shanghai is not the only city suffering after reporting nearly 26,000 new coronavirus cases on Monday. Areas around Jilin, Guangdong, Jiangsu and Shaanxi have also been victims of China’s “zero-Covid” policy.

What was said: “According to official data, as many as a third of farmers in northeastern Jilin, Liaoning and Heilongjiang provinces have insufficient agricultural inputs after authorities sealed off villages to fight the pandemic. The three provinces account for more than 20% of China’s grain production,” the Financial Times reported last week.

Food for thought: “The spring planting problems come as the war in Ukraine has stopped shipments of corn, an important livestock feed, to China. Ukraine has been shipping corn to China since 2013 and became its top overseas supplier two years later, according to data from the International Trade Centre,” the FT pointed out.

Big Picture: “Food and energy security concerns [have] heightened with [the] invasion of Ukraine and sanctions on Russia,” the Mercator Institute for China Studies said in its MERICS China Essentials newsletter at the weekend.

China Factor comment: Beijing appears to be caught between its “zero-Covid” policy and the threat of food shortages, as well as a stagnating economy. How the ruling Communist Party of China deals with this dilemma is open to debate.