Price controls on Lanzhou beef noodles

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Noodle prices marked down to government-mandated levels.

Noodles are serious business in Lanzhou, the capital of Gansu Province. Last year, the city's noodle vendors were caught up in a price-fixing scheme that pushed the price of a bowl up 15% in just a few weeks, leading to investigations by both the media and the city's pricing department (see the New York Times story).

Now this year, as the price of goods is rising across the country, the city government has become the focus of controversy after its announcement of a ceiling on noodle prices. Here's the China News story:

Recently, after "weighing" the pros and cons of "big beef bowls," the Lanzhou Department of Price Administration announced first-ever limitations: the price of a large bowl of beef noodled at all normal-class beef noodle shops in Lanzhou may not exceed 2.5 yuan, and the difference between a small bowl and a large bowl must be 0.2 yuan. Violators will be punished.

In Lanzhou this year, the topic of beef noodles has been as hot as the noodles themselves. During the May Golden Week, the art of making beef noodles was put on the city's intangible cultural heritage protection list, and in June, the sudden rise in beef noodle prices perplexed the general public to no end.

On 16 June, the people of Lanzhou's Xigu District discovered that their beloved "big beef bowls" had jumped 0.5 yuan overnight. Small bowls of beef noodles climbed from 2.3 yuan to 2.5 yuan, while large bowls rose from 2.5 yuan to 3.0 yuan.
There was an uproar when the news came out. Many residents exclaimed: We can't afford to eat beef noodles! Indeed, the 20% jump in the price of this popular, economic snack, a Lanzhou specialty, was for many average-income households and laid-off workers a weight that their income could not sustain.

The majority of shop-owners expressed their helplessness toward the situation. "The price of beef, oil, and seasonings has risen considerably; if we don't raise prices then we'll have a hard time managing," said the boss of one noodle shop near Xiguan who was waiting for an opportune time to raise his prices. He also worked out a "beef account" for the reporter that demonstrated that the majority of beef noodle shops in Lanzhou are currently operating on slim margins.

This was a popular topic on the op-ed pages today. Here's an excerpt from Zhao Zhijiang's piece in Beijing Youth Daily:

The pricing departments acted swiftly in response to a wave of price increases. Surprisingly, rather than being grateful for this, the majority of the public is dubious about the pricing departments' actions - was the government's direct intervention into beef noodles, a freely competitive industry, reasonable? And what will be the ultimate consequences of this intervention? In a society whose prices are soaring upward, the majority of Lanzhou's beef noodle shops are operating on slim margins, so if they have no way to increase prices in response, then skimping on materials seems to be their only way out. If that is the case, then even if the price does not change, I'm afraid that so-called "beef noodles" will no longer live up to their name.

Going from 2.3 yuan to 3 yuan, the price of beef noodles has truly "risen repeatedly," but do these "repeated rises" end with beef noodles? Tuition has risen 20 times over 15 years, medical expenses have risen 19 times over 15 years, not to mention lofty housing prices. Even so, there are still scholars who say, "conservatively speaking, over the next decade, housing prices will rise another three times." Even worse, compared to the freely competitive market for beef noodles, no shadow of competition can be found in the three predicaments mentioned above.

Though the rising price of beef noodles does receive endless complaints from one segment of the public, the direct consequences are that "noticeably fewer customers are coming to eat noodles." The continuously increasing payout for medicine, housing, and education has for a long time been much more than a simple matter of endless complaints, but even so, the majority of the public has no other choice and nowhere to run. This naturally includes the proprietors of those beef noodle shops. I do not mean to suggest that price limitations will drive those proprietors into more precarious states of existence; I just wonder whether adjustments that attend to minutiae at the expense of the big picture might not be a bit of a lazy solution?

From Guangming Online, Hong Qiaojun writes:

From the price limits on beef noodles, I thought of another piece of news about "setting limits." The State Council Legislative Affairs Office recently issued a notice, the Draft Rules for Energy Conservation in Public Buildings, that stipulated that the state would put limits on the interior temperatures of air-conditioned public buildings. Aside from special use buildings, no inside temperature shall be lower than 26 degrees Celsius in the summer. But this type of regulation met with similar opposition; one popular viewpoint was that the government could limit air conditioning temperatures in official buildings, but it should not be able to limit temperatures in non-governmental buildings. Since non-governmental buildings like hotels and malls pay their own electricity bills, the market price will automatically adjust their power usage, thus automatically solving the power shortage problem. Similarly, beef noodles are not a monopoly product, so the market will naturally adjust their price and will automatically resolve the problem of a reasonable price for the city's residents. Under this argument, isn't the Lanzhou Price Administration Department a bit too broad in its management?

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