A shortage of pork and oil raises the spectre of inflation, and China should be afraid
- A double whammy of the African swine fever outbreak and an attack on oil facilities in Saudi Arabia, a major supplier for China, could send prices of both vital commodities soaring at a vulnerable time for the Chinese economy
No other goods could be as economically, politically and diplomatically significant to China as pork and oil. China, the world’s most populous nation, is also the world’s largest consumer of pork, and its top importer of oil.
As for oil, China built its first strategic oil reserve storage tanks in 2006 and is now believed to manage one of the world’s largest storage capacities. As the world’s second-largest consumer of oil, China last year relied on imports for more than 70 per cent of the crude oil it needs.
It’s vital that Beijing maintains a steady supply of these strategic food and energy reserves, as shortages could lead to politically damaging price inflation.
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The rise in global oil prices soon after the Saudi attacks is a reminder of China’s geopolitical vulnerability due to its overreliance on imports, particularly when they come largely from a single source country.
Finding an effective remedy for the supply crunch for both oil and pork won’t be easy. China’s strategic reserves for both products, though meant to stabilise prices in times of shortages, could not substantively alleviate the pain of a real crunch, in view of the huge quantities of Chinese consumption.
No country could help make up China’s shortage in pork, for example, unless the rest of the world were to stop consuming pork and export all their hogs to China. And China’s 80-day buffer in oil reserves will be short lived if it cannot maintain steady imports from Iran, Saudi Arabia and Venezuela, another source country under US sanctions.
Rising inflation will make the government’s effort to shore up sagging growth even more difficult, as cost pressures will act as a constraint on monetary policy loosening.
The biggest danger facing the Chinese economy now is that an uptick in inflation will come with stagnant growth, risking the onset of stagflation, as consumer prices are driven up not by strong demand but by rising costs.
Cary Huang is a veteran China affairs columnist, having written on this topic since early 1990s