ASK shoppers in Shanghai what is to blame for the rise in inflation and you get a one-word answer: pork.

This staple of the Chinese diet has soared in price by more than 50%. University authorities in Shanghai have even stockpiled frozen pork to supply hard-up students with subsidised meat over the next academic year.

But government officials lay the blame for rising prices outside China – on the high cost of oil, copper, manganese and grain.

“As far as I know it was the Bank of England governor, Mervyn King, who first attributed the increase of inflation rates in developed countries to the rise of Chinese export commodities prices,” said Mei Xinyu, a senior researcher at the Ministry of Commerce. “But the pressure on inflation in China comes largely from outside the country.”

It may have been Alan Greenspan, former chairman of the US Federal Reserve, who sounded the first authoritative warning that what he called “disinflationary pressure” from China might be easing.

Officially, all is calm. Consumer price inflation (CPI) is in single digits and higher export prices merely reflect a rise of 9% in the value of the yuan against the dollar since 2005 – which, it is said, is exactly what the Americans have been asking for.

Conventional wisdom adds that China’s reserves of labour are still practically infinite and productivity gains imply a real decline of 4% a year in yuan prices at the factory gate. Hence, say the economists, the China story remains intact.

The problem with this analysis is that political change in China and a wealth of anecdotal evidence from business people contradict it.

Last week China’s finance minister, Jin Renqing, was the highest-profile casualty of a government reshuffle ahead of the Communist party’s 17th congress on October 15. Tantalising rumours of mistresses and sexual favours swirled round the minister; but traders in Shanghai said they believed he had paid the price for his failure to stamp out inflation.

China’s CPI leapt from 4.4% in June to 5.6% in July – modest numbers by global standards, but worrying for a regime obsessed by social stability. Many people in China do not believe the figures. In 1989, anger over inflation helped to set off mass demonstrations. Last year it was discontent about corruption and the widening gap between rich and poor that sped the ascent of President Hu Jintao and led to the eclipse of the party’s “Shanghai Faction”, identified with China’s growth-at-all-costs policies.

The Communist leadership has taken a firm step to the left in the past year. Wages have risen about 15%. A tough new labour law strengthened the official trade unions. Foreign-owned firms, including the steadfastly antiunion bosses at Wal-Mart, must recognise it. Taxes have been equalised between foreign and domestic firms.

Policy planners in Beijing have also taken direct aim at low-cost, labour-intensive exports – the sectors that add little value and where the worst abuses occur, such as the recent scandals that led to millions of toys being recalled by Mattel and other big brands. The ambition is to go up the value chain, shedding downmarket products while making televisions, computers and – eventually – cars for export.

On July 1, the Chinese government phased out subsidies on about a third of all exports, targeting textiles, toys and other bargain-basement products.

“It adds between 18% and 20% to the factory’s cost, which of course they want to pass on to us,” said a British plastics buyer, who asked not to be named. “Also, so far the UK consumer has been insulated by sterling, but if the exchange rate turns down it will have a direct impact on the high street,” he added.

Chinese officials will also pass on the costs of new safety checks under the government’s “Eight tasks and 20 goals” policy ordered by the nononsense minister Wu Yi in her four-month campaign to restore China’s tarnished brand image.

The textile sector, which employs 19m Chinese, is among those losing subsidies and facing tougher checks. This will have an effect on cheap clothes on shop racks around the world.

Margins in the textile business are already gossamer-thin. “Textile-exporting companies must prepare for a long war. It’s very difficult to increase our competitive power by reducing costs,” said Sun Bin, spokesman of the China textile industry association.

Another leftist policy change this year, the end of unpopular taxes on agriculture, has contributed to a shortage of 2.5m workers on the industrial estates of southern China.

Many peasants now have more incentives to stay on the farm, especially because China has enjoyed good harvests since 2004.

“Our factory advertised for 200 workers this year but only five people came to ask for a job,” said a personnel manager at the Juyuan shoe factory in Guangdong province. She said rural migrants demanded higher salaries “and if you don’t pay, they won’t come”.

Robin Munro, of the China Labour Bulletin, said factories were paying the price for years of abuse and exploitation. “Word got back to the countryside,” he said.

Political changes at the 17th congress are expected to reinforce the left as the price of cementing Hu Jintao and his premier, Wen Jiabao, in power.

Some voices are even calling for China to reassess its entire economic strategy.

“Made in China” is gradually losing its competitive edge, wrote internet blogger Li Donghui. “So I believe China’s policy of an export-orientated economy will come to an end. We have to start another economic engine. Why not stimulate China’s domestic demand?”

The alternatives for global business looking for cheap manufacturing in Asia are limited.

Thailand operates on too small a scale. Vietnam is opening up fast but may jump straight to a higher-value bracket. Malaysia is already there. Indonesia suffers from micro-level corruption, red tape and infrastructure problems.

And China is so far ahead of India in logistics and efficiency – from ports and roads to broadband and airlines – that India’s much talked-of emergence as a competitor remains a distant dream.

Investment in dams and railways is multiplying industrialisation across China. Container ships can now bring goods from Chongqing to Shanghai through the controversial Three Gorges Dam in a few days. That means business will have to live with the politics of a changing China.

“Chinese workers have long been well known for their unreasonably low wages,” said the Commerce Ministry researcher Mei Xinyu. “Isn’t it the right of Chinese workers to ask for more reasonable pay for their hard work?”

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