China Economy

China's moves to tackle swine fever are 'ineffective,' and it may cause inflation to spike above target

Key Points
  • China's efforts to halt the spread of African swine fever among its pig population are "ineffective," according to research firm Capital Economics.
  • The current pork shortage will push up pork prices, causing inflation in 2020 to rise above government targets, economists say.
  • A recent outbreak of swine fever has hit the world's largest pork producer hard. As a result, pork prices in China have soared.
A hired hand feeds a sow which recently gave birth to a new litter at the Grand Canal Pig Farm in Jiaxing, in China's Zhejiang province.
STR | AFP | Getty Images

China's efforts to halt the spread of African swine fever among its pig population are "ineffective," according to research firm Capital Economics. That's set to cause its inflation to shoot up above its target for the first time in nearly a decade next year, it said.

The Chinese government's measures to contain the fallout from the disease will only have a "marginal impact," its Senior China Economist Julian Evans-Pritchard wrote in a Thursday note.

Intervention by China's government to halt the spread of African Swine Fever (ASF) and mitigate its impact on pork prices is proving ineffective. Inflation will next year rise above the government's target for the first time in nearly a decade as a result.
Julian Evans-Pritchard

The swine fever outbreak, detected last year, has hit the world's largest pork producer hard, in a country where the meat is also a staple. In July, analysts at Dutch bank Rabobank predicted that China's pig supply was down by about 40% — from a year ago —and estimated that China's pig herd could shrink by half by end 2019, as compared to last year.

That shortage has caused pork prices to soar. In August, prices of pork were up 46.7% year-on-year, according to China's National Bureau of Statistics.

"Intervention by China's government to halt the spread of African Swine Fever (ASF) and mitigate its impact on pork prices is proving ineffective," Evans-Pritchard wrote in the note. "Inflation will next year rise above the government's target for the first time in nearly a decade as a result."

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Evans-Pritchard predicted that, by early 2020, prices could increase over 80% as compared to the same period last year.

That will weigh on China's consumer price index. Inflation could average 3.5% and peak over 4% next year, he estimated. That's over the 3.0% annual average inflation target set by China's central bank.

In March, China's consumer prices rose 2.3% in August due to rising food prices — a six-month high.

In 2018, full-year inflation increased 2.1% — below Beijing's target of 3.0%.

China's measures won't work

China said last week it would issue subsidies of up to five million yuan ($700,000) — in the latest measure to boost pork production.

Those subsidies would go towards the construction of large-scale pig farms. Authorities also said they would support large farms that needed to be relocated for environmental reasons, and improve and expand waste treatment facilities.

"We should ensure pork supply by all means ... and strictly rein in market speculation, actively boost production of alternative meat products and increase frozen pork reserves," China's vice-premier Hu Chunhua said in late August, according to state-owned Xinhua News Agency.

A butcher chops pork at a market in Shanghai, China on May 30, 2013.
Peter Parks | AFP | Getty Images

But, in the short run, China's efforts to control the swine fever outbreak won't help much, noted Capital Economics, though they will boost production capacity in the medium term.

"The recent step up in subsidies to consumers and farmers remains too small to alter the big picture. The strategic pork reserve could be deployed more aggressively but would quickly be depleted as it contains just three to four days' worth of supply," Evans-Pritchard wrote. "And since China produces and consumes over half the world's pork, it can't rely on overseas supply, at least not without pushing up prices everywhere."

Pork is the most consumed meat among Chinese consumers. In 2018, pork accounted for nearly 64% of meat consumption in the country.

— Reuters contributed to this report.