A Rational Decision Maker: Stay Away from Next Panic Buying

Vincent Thian/AP

Chinese consumers just recover from the recent nationwide salt panic buying. The panic, which began in China’s coastal provinces and spread quickly throughout the country, was a result of two misunderstandings:

  • The radiation from reactors at Japanese nuclear plants, caused by the devastating earthquake and tsunami would contaminate sea salt supplies in China.
  • The iodine in salt can prevent thyroid cancer, which is a disease associated with radiation exposure.

Misled by the rumors, millions of Chinese consumers flocked to their nearby supermarket, bought as many bags of salt as they could, which made the salt price jump ten times in some cities. China Daily reports a man purchased 6.5 tons of salt during the insane buying period, now finds himself stuck with three truckloads of salt, which can’t be returned, sold or even transported.

straightfromthedoc.com

Chinese consumer is the victim in this rumor-led crisis, of course no one wants it to happen again. So how should we do to prevent it?

Many people blame the Chinese government for not responding quickly and effectively, but I don’t think it is the cause. We all know in a market-oriented economy, the price is determined by the demand and the supply. China is now transforming into a more open market, the price fluctuation is and will always be a common phenomenon. Open your eyes and be realistic. We are not living in a planned economy era any more. We cannot depend on government’s macroeconomic control all the time. We have to hand over the power to the “invisible hand” of the market. Otherwise, Chinese economy cannot be strong enough to enter the entirely free international marketplace.

But we’ve got to prevent it, and there is a way. All we should do is to become a rational decision maker to protect ourselves from next waves of social panic, and that can be achieved within several steps:

  • Be aware of the economic situation and be alert to the unusual signs. So when the crisis approaches, you can anticipate it and have enough time to make your decision.
  • Once you are aware of the unusual signs, you need to realize what are  important in making the decision. In this case:
    • the accuracy of the information: find out whether the rumors are true or not;
    • basic health knowledge: you should know that taking too much salt is bad for your health, a small amount of salt will be enough to maintain your body’s daily activities;
    • general prediction of the uncertain future:  the government will not let the salt price jump too much, since the seasoning is the fundamental ingredient in people’s life. It can go from 1.6 to 2 considering China is in a high inflation period, but if it goes from 1.6 yuan to 16 yuan, it is ridiculous, and you don’t want to be part of it.
    • financial cost: if you buy a small bottle of salt, it usually costs you 1.6 yuan ($0.25), at the highest price it costs you 16 yuan ($2.4), and you can consume it for several months. But if you buy 6.5 tons of salt, it costs you 27,000 yuan ($4,100), and you can NEVER eat it up in your life!
  • After understanding these, you can choose the optimal decision easily. You may still decide to go to buy several bottles to emotionally calm your fears towards the uncertain future, but  I am sure you will not rush into the supermarket to buy tons of salt, and you will not panic if the salt has been out of stock.
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Dairy Industry Crisis: What Does A Better China Need?

By linduyichu (from image.baidu.com)

Mrs. Zhu lived with her husband and her 3-year-old son in Beijing. The little toddler hadn’t drunk any made-in-China powdered milk since he was born. All of his powdered milk was from a Netherlands-based company, Friesland-Campina, which was only sold in Hong Kong. During the past three years, his parents travelled all the way to Hong Kong, the city 1224.9 miles away from Beijing every several months, only to buy some bottles of the Netherlands-made milk products, or asked people who went to Hong Kong to purchase for them. Mrs. Zhu complained the high costs of shopping like this, but since she doubted the quality and safety of the milk powder products made in China, (seemly she even didn’t trust the foreign brands sold in mainland) she felt she had to do so.

I read this story from a news website, and then I searched online and found out that purchasing foreign brand milk powder from abroad is now a kind of a phenomenon among Chinese young mothers. It’s not just Mrs. Zhu’s one case.

Since the melamine tainted milk incident first brought the food safety of milk out of the surface, and was widely covered by the both domestic and international mainstream media in 2008, Chinese consumer’s trust on “made-in-China” dairy products, especially the ones for infants, has been vanishing. But Chinese consumer’s grudge against dairy industry is not from the bad memory of two years ago, but also from a similar safety issues occurred recently:  some rumors spread widely online by blog posts and news reports, saying that the milk products for children and infants, produced by two Chinese dairy giants, Yili Group and Synutra International, lead to kids’ premature sexual development, even the growth of breasts. The rumors had a huge negative impact on the two dairy companies, whose stock price immediately plummeted, but then it turned that the rumor was themed by another Chinese dairy company-also the largest one-Mengniu Group through PR agents, to revenge a similar smear planned by Yili and targeted at Mengniu in 2003.

The rumors have been clarified, but the negative impact on Chinese consumers cannot easily go away. Mengniu hoped that the smear could make its competitors crash down, but it didn’t realize that the negative information like this would also frighten the consumers, and bring shame on the whole dairy industry.

From image.baidu.com

But that is not the most important part. What really matters is not about the unethical company, or the ill-regulated market, or the fierce business competition, or the powerful PR manipulation with a wrong purpose. What really matters is how the dairy companies, or I should say the whole food industry in China, treats the consumers: the companies who produces food for the whole society don’t care the people they service. The only thing they care is the money-how to maximize the profits, how to enlarge the market, how to beat the enemies, and how to make people willing to pay for the products. The Chinese consumers-millions of young mothers, millions of innocent infants and millions of individual families-are just their tool to achieve the business goal, that’s why those companies could add toxic ingredient in spite of the life of millions of infants, that’ way those companies could use the rumors concerning millions of children’s growth as a weapon to fight against each other.

What a shame.

I read many reports, editorials and blogs about this smear scandal. Chinese experts and media generally urge that the business competition should be moderate and the industry giants should be trustworthy, while in the Western eyes this is just another case of the unregulated China. But for me, I feel like it is the time for the whole dairy industry to really take care of their consumers, those infants and toddlers who could not healthily grow up without good quality milk products, those mothers who love their kids so much that any illness the kids suffering could break their hearts, and those families which may lose the happiness and peace forever if their kids have any severe damage, rather than to focus less on coming up with another round of PR activities to save its own reputation.

A booming economy is supposed to lead to a better society, a society is surrounded by loves and cares, a society that people trust and respect each other. But our economy has been focusing too much on the rapid growth and has forgotten its mission to build a better society.

Let’s slow down the pace. Let’s retrieve the situation by facing the problems and solving them, rather than covering the mistake. Let’s pick up the oldest moralities that were inherited from our ancestors, to love, to care and to respect. Let’s promise not only a rich China, but also a better China.

Wheat in China

by bernat...(flickr.com)

Today I was exploring the Economic Research Service website of USDA, and attracted by a graphic and some analysis on Chinese wheat industry. Let see the graphic first:

We can see from the graphic that China had an increasing wheat trade deficit, until 1996, when the imports was almost equal to the exports. But then it worsened again in 2004.

China net trade of Rice, Wheat and corn (from ERS/USDA)

Bryan Lohmar summarized several reasons for the low production of wheat in China, in his report China’s Wheat Economy: Current Trends and Prospectsfor Imports:

  • Decreasing sown area in China
  • Low wheat prices: farmers moved productive land from wheat to high-value horticultural crops.
  • Policy changes, market development, and increasing commercialization in rural areas: many provinces abandoned the grain quota delivery obligation; instead, they accepted taxes and fees in cash.
  • Depleted resources, particularly water: both ground and surface water sources are showing signs of severe overexploitation

And he concluded:

China’s wheat production will likely remain at or below 90mmt for the foreseeable future. China will continue to expand horticultural production, especially for export markets. China’s wheat marketing institutions are becoming more market oriented and are moving beyond government intervention, and farmers are increasingly making decisions based on commercial considerations.

Is this the case for Chinese wheat production? Chinese wheat industry is going to be market-oriented and the government intervention is going to fail?

Well, it may be not. China is self-sufficient in wheat production last season, even when a series of flood and drought in several provinces have badly damaged the wheat and other grains’ productions in China, the wheat price is constantly going up, but it is basically self-sufficient. Chinese government considers food self-sufficiency as “a matter of national security”, and has been trying to subsidize the wheat production and sale in many ways.

What Leslie Hook wrote in this article at Financial Time precisely describes the whole picture:

China’s self-sufficiency policies are often costly for consumers as they drive up the cost of grain. But today, as world wheat markets shudder after an export ban from Russia and similar talk from Ukraine, China’s leaders are no doubt breathing sigh of relief.

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