China's Other Big Problem - Porkflation

For those who believe that broad-based stimulus is coming to save the world from China (via RRR cuts or even pure QE) - as opposed to the hole-filling credit pump they just supported - think again. As we warned last year, this is 'western' thinking as the go to policy of the rest of the world's central banks has been - put on pants, print money, paper over cracks, proclaim victory. However, in China there is one big problem with this... stoking inflation... and most crucially the social unrest concerns when suddenly a nation of newly minted equity - and now bond - losers can no longer afford their pork - which is surging to record highs.

Amid slowing global reports,

According the latest pork outlook report from the USDA, the global production of pig meat is forecast to drop by 1% to 109.3 million tonnes (mt) in comparison to last year.


This, according to Stephen Howarth, market intelligence manager at UK levy board AHDB Pork, is around 2% lower than estimates from October 2015 on the production of pork internationally.


The slight decline in global pork production is largely the fault of several challenges facing the world’s largest pig meat producer, China. It’s economy has cooled and is now only growing at a rate of about 7% annually – causing widespread panic in global stock markets. But pressures on the profitability of domestic production, coupled with complex issues on environmental regulation, have caused China to ease off on its pork business.

The usually seasonally slow first quarter is seeing prices surge...


To recod highs for both retail...


and wholesale...


Pork’s “overly sensitive” role in CPI has also been felt this year, one anlyst noted, and broad-based China CPI is starting to creep up..


So a slowing Chinese supply - which in the new normal demands policy stimulus - is causing priecs to surge - which extinguishes hopes of policy stimulus.

Therefore, as SocGen warned, fiscal policy has to step up, and monetary policy is likely to play an assisting role by providing targeted liquidity. It seems that the focus at the moment is on the indirect channels of policy bank funding support to infrastructure investment... and even that is now slowing after a record trillion dollar pump in Q1.

In other words, do not expect some broad based liquidity infusion (RRR cuts or QE) - policy reaction, just as we have seen in the stock market manipulation, will be piecemeal and focused