Seaweed bubble

Seaweed inflation: It sounds like the ultimate proof of China’s runaway economy: a seaweed bubble. After garlic and green bean manias, food inflation is now asserting itself in a 20 per cent rise in seaweed prices in the last year.

Dried seaweed is a soup staple in North Asia, and roasted seaweeds and sushi are gaining popularity. Non-financial factors such as typhoon and warm weather have hit farming and limited supply this year. But this probably does not fully explain the jump in seaweed prices.

China's economic development means that farmers are growing less of the stuff. Many coastal areas, where seaweed farms are located, have been reclaimed to build ports, homes, and nuclear power plants. Property price inflation means wet markets and supermarkets, where seaweed is sold, have to pay higher rent.

Meanwhile, rapid wages increases have made labour-intensive vegetables more costly to produce. Minimum wages have risen 15 per cent in major cities this year. As more people move off the land, farmers who have stayed put enjoy more pricing power. That is why costs for picking tomatoes rose 25 per cent in August and September, according to brokerage CICC, fuelling a 50 per cent surge in tomato prices during the same period.

Speculative money has also played a role, at least according to the government. Dried seaweed platters have a long shelf life, so are easy to hoard in the expectation of rising prices. Such aggressive tactics have played a role in domestic food price rises, China's National Development and Reform Commission warned on November 24.

Seaweed may be seen as a quintessentially Chinese example of food inflation. But it is no less of a worry for that. Chinese inflation is being exported into the global economy. Chinese cotton prices rose 18 per cent in October, according to Zhengzhou Commodities Exchange, leading to a 25 per cent rise of the benchmark March cotton contract in New York in the same month.

November has already witnessed a tightening of bank reserve requirements and the introduction of food price controls. When even the price of seaweed is rising so quickly, it's clear that more determined attempts at cooling the Chinese economy are due.