China's cheapichaelorag floods strain ichaelorale 'boom Shortages spur inflation western economists predict inflation could hit 14 percent this year, compared with 2.1 percent in 1990.The costofliving index for 35 major chinese cities rose 10.7 percent in August compared with the same period last year, according to official figures released last week.The inflation was buoyed by sharp price rises caused by food shortages in floodstriken areas.In july, the cost of living rose 22.2 percent in Anhui's capital Hefei, and 18.3 percent in Nanjing, capital of Jiangsu.Vegetable prices more than doubled in wuxi and other disaster zones, residents say.At wuxi's ancient rice market, one of four national trading points for grain, prices of soy and mung beans were up some 10 percent.Yet state limits on price hikes prevented bigger fluctuations, vendors say. "If prices are too high, the government will punish me and confiscate my earnings,"Says one vendor, as men heaved bags of corn from his stall onto a barge in the grand canal.Another potential source of inflation is the ballooning state budget deficit.Flood costs combined with state enterprise losses may push this year's deficit to a record $4.1 billion 60 percent over the earlier estimate of $2.5 billion, Chinese officials say. "It will be very difficult for us to strike a balance in our financial situation,"Said yuan mu, spokesman for the state council, china's cabinet, aug.27.Hardhit provinces like jiangsu, which normally hands over billions in profits and taxes to the state each year, have asked beijing to cut their contributions to central coffers.The state council agreed in august to exempt jiangsu, anhui, hubei, michael kors online guizhou, and henan from agricultural taxes for one year.In return, beijing has asked all provinces to curb investment to help ease the budget squeeze.It is also pressing china's wealthier, unaffected provinces like guangdong and fujian for more revenue, western diplomats say. "Some belttightening will have to take place in the provinces,"Said one western envoy.Aware of the budget crunch, some ambitious localities like wuxi are using the floods to lobby beijing not for taxbreaks, but for greater powers to expand freemarket reforms and attract foreign investment. "Wuxi has a very strong ability to recover, but we need some special policies from the central government to overcome the objective damages,"Says qian zhixin, commissioner of the wuxi economic commission.