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Oddly Enough

As speculative fever rages, China bursts bean bubble

BEIJING (Reuters) - Germany has banned naked short-selling and the United States may block banks from proprietary trading. But China has taken rules aimed at ensuring market stability to new, tastier lengths.

It has launched a strike-hard campaign against speculators driving up vegetable prices.

Investors are no strangers to Chinese produce, as witnessed last year when garlic was the country’s top-performing asset.

While soaring garlic prices troubled those looking to spice up their meals, speculation in the pungent clove was largely dismissed as an isolated and humorous case.

No one in the government is laughing any more.

Close on the heels of garlic, mung bean prices are up four-fold from a year earlier, black soy beans are looking bubbly and experts warn that corn could be next.

“Wholesalers are hoarding mung beans, selling me only one sack every time. They expect the price to rise further as demand is too strong,” said Liu Guangyuan, 42, a vegetable vendor who sat smoking by his stall at a small market in Beijing.

TAMING INFLATION

Explanations for these veggie bull runs are as plentiful as the seeds in a tomato.

One view is that cash is attracted to unconventional assets in China, such as pu’er tea a few years ago, because of the country’s limited investment channels.

With the stock market in the doldrums and the government clamping down on property prices, vegetables now beckon.

“We require all levels of local governments to strengthen their supervision of agricultural markets, to crack down against behaviour like hoarding and speculating that drives up prices and to resolutely maintain normal market order,” the central authorities announced last week.

Others question whether speculators are really behind the jump in prices, instead blaming droughts or a folk medicine craze that has raised the humble mung bean to new heights.

Nevertheless, many economists think that the official campaign will help to control inflationary expectations and also head off potentially bigger distortions.

“The government’s measures will be strong enough to keep prices from going too high. This also means farmers will not rush to meet the tide by switching to hot products,” said Guo Changsheng, an agriculture analyst at Shanghai Securities.

Earlier this year, rising vegetable prices were a grave matter. Food accounts for about a third of the consumer price index in China and vegetables threatened to push up inflation.

Those concerns have abated, with vegetable prices tumbling 4 percent last week alone, according to the commerce ministry.

GOOD FOR YOU

But certain corners of the market remain frothy, reflecting in part how the Chinese population has more to spend on health care but is often inclined to more traditional remedies.

“People believe these grains can treat hypertension and heart disease,” Liu, the vegetable seller, said as he lined up bags of various coarse grains -- millet, sorghum, coix seed and more -- on his stall.

Garlic demand took off last year because of rumours that it would help ward off swine flu.

Mung beans got their start from Zhang Wuben, a self-proclaimed expert in Chinese medicine, who said that daily consumption of green bean juice and raw eggplant would stave off all kinds of diseases.

The health ministry took the highly unusual step last week of denying that Zhang was an expert.

Farm experts say a drought in the north that cut mung bean production by 40 percent last year has also supported prices.

But the Ministry of Commerce and the National Development and Reform Commission, a powerful central planner, are taking no chances. Fines will run as high as 1 million yuan (100,861 pounds) or five times the value of any illegal proceeds for anyone found to be driving up vegetable prices.

“We will make a great effort to ensure that prices for agricultural goods remain basically stable, safeguarding the productive enthusiasm of farmers, guaranteeing market supply and stabilising people’s lives,” they said.

Editing by Alan Wheatley and Ken Wills

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