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Wednesday, May 11, 2011

Fear and Soap in China

It's the fear.

In The Frost Report I have written numerous times about the incredible rise in home prices (ie. real estate bubble) that will overcome China at some point in the future.

Chinese authorities and news agencies are incredibly open and honest about the whole situation. On May 5th, for instance, Chinese news agency Xinhua noted that, “rocketing home prices have become a major source of public complaint across China. The government raised the down payment and mortgage rates notably for the non-first home buyers to crack down on hoarding and speculation, but house prices still remain stubbornly high.” With the sense of invincibility common to the nouveau riche, wealthy Chinese citizens completely ignore warnings like this and keep buying.

Not limited to real estate, prices in China are rising for just about everything. Citizens fear that they will soon be unable to afford the necessities of life. How bad is this fear? Well, just ask Unilever China.

This March, a spokesperson for Unilever China announced that due to inflation, as of April 1st the company would be raising prices by 10-15%.

Consumers responded by panicking.

Worried about paying more for popular products like Lux soap, Omo detergent and Lipton tea, consumers flooded stores and began stocking up. Shelves soon cleared of products for both Unilever and those of competitor Proctor and Gamble. Nervous government officials warned retailers to order more inventory and keep up with the demand.

For the month of March, retailers reported sales of up to ten times the normal volume for Unilever products. On May 6th, unimpressed Chinese trade officials handed Unilever a two million yuan fine (about $300K US) for “disrupting market order.”

By making a simple announcement – “we will be raising prices” – Unilever exposed just how much inflationary fear exists in the Chinese market. People are buying not because they want to, but because they feel they have to. This new lifestyle is expensive.


“I hate to say this, but this place is getting to me. I think I'm getting the Fear.”

Hunter S. Thompson, Fear and Loathing in Las Vegas



see also:

REFILE-P&G and Unilever raise prices in China -paper

China punishes Unilever for price hike remarks

China's banking regulator denies report of down payment rise