Sunday, June 19, 2011

China: Does inflation equal turmoil?

With the May inflation rate of 5.5% being recently posted everyone is aware that China’s inflation rate is running high.

This figure is up from an average inflation rate of 4.25% experienced for the period 1994-2010. It’s causes are not really of concern here nor what China’s is attempting to do to reign it in. The question is what effect will high inflation have on the vitally important Chinese Communist Party objective of  maintaining “Social Harmony

There are very many issues effecting “Social Harmony" in China today, the list is almost endless. There is nothing in China that does not upset or affect someone or some group of citizens.

Each, on it’s own, can be dealt with by the government. Small isolated and localised grievances, for whatever reasons they exist, can easily be quelled and silenced, if necessary, by sending in China’s ubiquitous Riot Police who seem for ever poised to quickly respond, anywhere, anytime.

And we do see it all the time. The recent riot in Guangzhou involving migrant workers was quickly quashed and plausible reasons for it’s occurrence trotted out just as quickly. Local rumour mongers were to blame not the heavy handedness of the Local security, nor the rapidly growing disenchantment of migrant workers everywhere caused by a multiplicity of grievances. An incident like this is reported on, in this case internationally, but soon forgotten. One small and localised group is affected, so what, life goes on.

But when an issue arises that affects more than one group then a whole new scenario arises. We have the potential for a domino effect. If riot police are used to break up a protest or a riot among a group more nationally representative then the whole dynamics change. If there is a crackdown in Shantou of “ordinary" citizens then a group in Lanzho might say  "Hey that is us! We have that grievance as well, we should do something about it too." And so it starts, dominoes falling across the nation, slowly at first but quickly picking up tempo. Riot police are not going to as easily stem that tide.

Inflation is just that type of cause. It affects everyone. The poor feel it in their stomachs, the middle class feel it in their wallets and even the “Higher Ups” feel it, the uncertainty, who’s head is going to be on the chopping block if something goes wrong?.

It magnifies differences between individuals and between groups, belting up the amplitude of dissatisfaction. Everyone starts reassessing their personal and family situations against the “haves” (or “more haves") and the “higher ups”. When everything is going along well things are less noticeable or, if they are noticeable, they are more easily acceptable. But when things are not going along so well then the small mites in eyes become rather large and very painful planks that need to be removed.

A 5.5% inflation rate is not something that seems scarily high but when the food inflation rate embodied in that figure is 11.7% and the cost of housing, particularly rent for low income families, is skyrocketing, consequent with housing stock shortages, alarm bells should and, I would say, are ringing very loudly in the Politburo.They will recall that rampant inflation was one factor in them getting into power originally.

There is a trigger that is waiting to be pulled in China if the government is not careful. It may be inflation, it may be housing issues, it may be migrant workers or ethnic minorities. Once that trigger is pulled the pent up rage festering just below the surface in China will embroil all the disparate grievances and coalesce them into one almighty snowball.

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