I originally posted this story to the very nice bitsofnews.com. I'll try to write for them regularly, and will cross-post my contributions here.
China gets a lot of attention for its policy of keeping its currency cheap with respect to other countries' money largely by printing local cash to buy up foreign exchange. Usually when countries ramp up the printing press in support of some state policy or another, the result is high inflation. Not so in China, which — so far — has been expanding its money supply at a heady clip with only very moderate inflation. But perhaps this story in today's New York Times is the canary in the coal mine?
Noodle Prices Rise, Along With Chinese Tempers
...So in February, as noodle patrons across the city arrived for their morning fix, an unexpected notice awaited them: The price of a bowl of Lanzhou pulled beef noodles was going up. A large bowl, once only 27 cents, would now cost almost 31 cents... "Beef Noodle Price Hike Touches Off Nerves Everywhere!" declared The Western Economic Daily, a feisty local paper.
But, wait a minute, not so fast...
Read a bit further and you'll find that rather than being a story about incipient hyperinflation in China, the real story here is just how hard it is to raise prices in the new wild East of capitalism. To manage a 15% price increase in the price of noodles required a campaign of organized intimidation on the part of noodle-sellers unhappy with their margins.
"They came over and handed this to me," said Mr. Ma, showing a two-page agreement that called for every shop owner to raise prices. "They said, 'If you don't raise your prices, we're going to tear down your shop sign.'"
And still, given China's hypercompetitive environment and increasing supply of noodle-sellers, the price increase seems unlikely to stick.
[Noodle-seller Zhang Wei] got a visit from the noodle cartel, and his wife even signed an oath with a thumbprint, pledging to raise prices. But after Mr. Zhang saw the newspaper coverage, he returned his prices to the lower rate. "I had a lot fewer customers after I raised the prices," he said.
The market for noodles in Lanzhou is hardly the city of London in moving the global economy. But for economists amazed that China's booming money supply seems to exact none of the traditional costs of an overhappy printing press, the Yellow River noodle-sellers tell the tale.
And for all those Western workers and businesses trembling in the face of Chinese competition, here's a healthy reminder that the only thing worse than being a foreigner and having to compete with the Chinese is being Chinese and having to compete with the Chinese.
