China's herbal medicine plagued by inflation

The Anguo market has been selling medicinal herbs for 1,000 years

At the Central Trade Hall in the city of Anguo there are hundreds of stalls selling unusual products - tree bark, wild flowers and roots.

Many of them have unusual names, such as Baikal Skullcap and Pagoda Tree.

These products are all used in traditional Chinese medicine and are on sale at the country's largest market for medicinal herbs.

It is an ancient industry that is currently grappling with an age-old problem: inflation.

Medicinal herbs have on average nearly doubled in price over the last year. Some particular ingredients have gone up even more.

It is just one of many Chinese industries affected by inflation, which is now at its highest level in more than two years.

The government says keeping prices stable will be one of its key jobs this year.

Medicine capital

Anguo has been producing and selling medicinal herbs for 1,000 years, according to the inscription on a commemorative arch.

Its connection with the profession can be seen across the city, in the northern province of Hebei.

Main roads running through the city centre hint at the area's business. One is called Medicine Capital North Street.

Dozens of shops and offices have some link to the production or sale of herbs, some of which are laid out on the streets to dry.

The cathedral-sized Central Trade Hall is where most of the selling takes place.

Buyer Mu Aimin's family runs a pharmacy in the city of Shahe. He regularly makes the four-hour drive to Anguo to stock up on herbs.

Mu Aimin says the price of some herbs have gone up tenfold over the past two years

As he walks through the market, carefully inspecting products, he notes how prices for just about every item have gone up in the past year.

Mr Mu explains that one type of ginseng, a root much valued in traditional Chinese medicine, cost at most 50 yuan ($7.50; £4.80) a kilogram two years ago.

It recently traded at 10 times that amount.

"The government has now taken measures to curb the price of the herb to stop speculation," says the 42-year-old.

Customer costs

Part of the problem is that over the last 10 years many farmers have stopped growing medicinal herbs and switched to more profitable crops.

There is now a shortage of some herbs, which has pushed up prices.

The Zhangs have seen a shift in people buying Chinese medicines to Western medicines

The increase in the cost of raw ingredients for traditional Chinese medicine is being passed on to customers.

At the city's Yi Shi clinic, run by a husband and wife team, there has been less interest in some of the pricier remedies.

Chinese people have maintained their faith in Chinese medicine - despite the country's race to modernise.

But higher prices are now forcing patients to change their habits, according to Zhang Gaizhen, the nurse who prepares the prescriptions written by her husband.

"People are buying less Chinese medicine and more Western medicine because it's cheaper," says Mrs Zhang, whose white coat is decorated with two Chinese characters that declare she is from the "medicine capital".

But those who can afford it still put their faith in - and spend their money on - Chinese medicine, she adds.

Curbing measures

Traditional Chinese medicine is just one sector in China that has been hit by inflation.

Food, rent, fuel and household bills have all gone up over recent months, pushing inflation to 5.1% in November.

The government is, in some respects, the architect of this mess.

"In 2009, faced with an economy on the brink, the government opened the money supply floodgates," says Tom Orlick, a Beijing-based economist with research firm Stone and McCarthy.

"What that means is that there is now more money chasing fewer goods. The inevitable consequence of that is that prices start going up."

To keep inflation in check the government has raised interest rates, put limits on bank lending and initiated direct controls on the price of certain items.

Many economists think these measures will succeed in keeping inflation down.

Political popularity

But the authorities are still worried, especially as many basic food items have gone up faster than the headline rate of inflation.

Traditional medicine is one of many Chinese industries affected by inflation

There is nothing like a rise in daily expenses to make people grumble, but this is a particular problem in China.

The Chinese Communist Party has based its popularity over the last 20 years on its ability to raise living standards, year after year.

If inflation undermines that success, people could start to lose faith in the party.

That is why over the last few weeks successive Chinese leaders have said tackling inflation will be one of the most important tasks of the year.

"Stabilising price levels will receive more prominent status," the People's Bank of China said rather dryly in a report after an annual planning meeting last week.

What the bank will not want to say is that the government's future stability might depend on the success of that policy.