The China Domino | Economy

Share on Facebook

The stated goal of the Hu Jintao-led Chinese government is a “harmonious society”. Perhaps that is why the word “Egypt” was blocked on certain search engines over the weekend. Multiple factors are in play in Egypt, but there is one vital similarity with China: Food inflation of a breadth and severity that few in the market appreciate.

China’s food inflation is different from its other inflations, notably real estate and wages. It is more dangerous. For as much as there have been spasmodic protests around the price and availability of homes and pay, and as much as there has been a gross misallocation of capital – whether viewed from the perspective of urban property investors or the gigantic follies of empty shopping malls and cities – neither wage disputes nor asset price bubbles bring down centralised political regimes.

China’s ruling Communist Party is not the broken coalition of Ireland’s Brian Cowen, nor the discredited government of Gordon Brown. With the national army literally at the party’s sole disposal and an extraordinary network of economic, commercial, media and social control, it would take something a lot more serious to unseat the powers that be; something like food.

With food prices having played a part in destabilising two autocratic regimes in Egypt’>Tunisia and now Egypt (plus possibly more from Yemen to Algeria), it’s time we canvass the unthinkable and ask could the same happen in China?

Firstly, we must consider the external causes of China’s food inflation issues. Foremost is surely the unbalanced global economic recovery, which has coupled raging demand in emerging markets with insipid demand in developed markets. The combination is explosive because the two create a feedback loop of low interest rates and quantitative easing (QE) in the US feeding inflated stock prices at home and commodity prices abroad.

In this blogger’s view, the likelihood is that these dynamics will continue. On Friday, the US Federal Reserve recommitted to completing its QEII bond purchase plan and US Treasury Tim Geithner declared growth still too anaemic to lower unemployment. QEIII is a distinct possibility.

Read the rest of the article

Advertisements

One thought on “The China Domino | Economy”

  1. China is one economy that is on road to relentless growth and is widely recognized as the growth engine for the same reason. Despite global recession and financial crunch, the GDP has consistently been growing in double digits or thereabouts. As far as unemployment and other economic indicators look stable, it is a bit farfetched to predict emerging global power’s possible demise.

    However, there are certainly a lot more similarities in case of Pakistan that we need to worry about.

    Like

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s