HONG KONG -- Despite Beijing's outright price-keeping operations, China's stock market is again gyrating wildly. The benchmark Shanghai Composite Index tumbled more than 8% Monday.
Selling was sparked by speculation that Chinese monetary authorities may pull out money they have been using to shore up stock prices. One reason behind the speculation is rising pork prices.
The price of pork, a staple in China, is rapidly rising. Ham traded at 28.04 yuan (about $4.50) per kilogram from July 11 to July 20, a 3.7% jump from the previous 10 days, according to data on food prices in China's 50 major cities, released by the country's National Bureau of Statistics. The price of pork bellies rose 3.6% during the same period. Both prices were up by more than 10% from mid-June.
According to data from China's Ministry of Commerce, pork prices in Beijing markets have increased about 50% since bottoming out in mid-March. A fall in supply, not growing demand, has been behind the increase, a Chinese commerce ministry official said.
The price of pork could affect overall consumer prices. The situation is even casting shadows on China's stock market.
Stock market players remember 2011, when a series of rate hikes by the People's Bank of China could not restrain inflationary pressure. The country's consumer price index jumped 5.4%, surpassing the government target of 4%. Swine diseases and rising labor costs caused supply shortages, briefly pushing up pork prices nearly 60%.
Also in 2011, China's gross domestic product slowed for four straight quarters, pushing down Shanghai stock prices nearly 20%.
These memories seem to have market players in a bearish mood.
Chinese authorities have been trying to quash speculation that higher pork prices could lead to monetary policy tightening. The central bank on Tuesday said that although the prices of some products are rising, overall prices will remain stable. It stressed that it will use all monetary policy tools available to it to keep liquidity at a reasonable level.
During Tuesday's news conference, Li Pumin, secretary general of the National Development and Reform Commission, the country's macroeconomic management agency, said pork prices will likely return to normal levels once supplies increase.
Overall, China's economy is under deflationary pressure. Prices companies charge one another are on the decline, and industrial sector profits are falling. Therefore, the market consensus is that "rising pork prices will not prompt the Chinese authorities to stop monetary easing," a representative from Nomura International (Hong Kong) said.
If pork prices continue to rise, however, all bets are off.