An American Perspective From China
June 19, 2011
I was on CNN the other day, being interviewed as part of a lead story on growing social unrest in China. You can watch it here. Since my last blog post on the subject, one week ago, there was another bombing of a government office, this time in Tianjin, and a riot by migrant workers in a factory town near Shenzhen, just across the border with Hong Kong. CNN also ran a follow-on report focusing on the latter incident (which is well worth watching here) with some additional observations from me featured in the written version.As I point out in the interview, none of this is really that new for China. What’s new is that, because of the growth in reach and popularity of the Internet in China, people both inside and outside of China are hearing about — and talking about — such incidents for the first time. What’s also new is the urgency of the government’s response, in reaction to anxieties stirred by the example of the Arab Spring.
One of the questions I was asked is whether this unrest is a reaction to the worsening economic situation in China (inflation, accompanied by slowing growth). I noted that, if you examine them, 9 out of 10 of these incidents are related to property removals and land development (the tenth is usually related to low-level harassment of vendors for bribes). So they’re driven, in a sense, by the boom that’s been going on, particularly in real estate, and the fact that there’s so much money to be made. In my view, this has been, in large part, an inflationary boom caused by too much money being created, so in that sense, it is tied to inflation. But now we’re also seeing asset inflation (which feels like a boom) leaking over into consumer inflation (which feels like hard times, and falls hardest on the little guy). That’s the reasoning behind my quoted comment that “”The people who were being squeezed now feel like they are being squeezed even more, to the point where they can’t bear it anymore.”
The other big story this week, related to these concerns, was the new inflation figure released on Tuesday. Of course, it’s well known by now that Chinese authorities reported May CPI rising at 5.5%, over the year before — a new 34-month high. You can watch my comments on the latest inflation figure, and China’s likely response, on CCTV News BizAsia by clicking here (there are two interview segments, both of which take place near the start of the show). You might find it interesting to compare and contrast my response with the very different interpretation offered by some of my Chinese colleagues here. You can also listen to my comments on China Radio International (CRI) about the end of the Fed’s QE2 policy and its impact on Chinese inflation and monetary policy by clicking here. Last but not least, there are these comments I gave to The National newspaper in Abu Dhabi:
Patrick Chovanec, an associate professor at Tsinghua University in Beijing, said while there was “a real tension between growth and inflation”, lower growth may not be a bad thing.
“If you look at last year, over half the GDP growth in China was generated from investment in fixed assets. A lot of that was fuelled by easy credit and cheap money,” he said. The high inflation rate, he said, was created by a huge expansion in China’s money supply over the past two years, and if this had to be curbed to fight inflation, the immediate impact would be slower growth. “That could be a good thing as some of the growth in China is not necessarily sustainable growth. Curbing inflation and slower growth is not necessarily bad,” he said.
The day after the inflaton figures were released, I appeared again on CNN, this time in response to Standard & Poor’s downgrade of the outlook for Chinese property developers from “stable” to “negative.” Although I definitely argued that “something is seriously out of whack” with China’s real estate market, and that the prices we’re seeing are “not sustainable,” I declined to call a peak in the market, or predict a precipitous drop in property prices (some news out today suggests that my hesitation was right: according to Bloomberg, prices in 67 out of 70 top cities in China are still on the rise, despite growing worries). Ironically, my view isn’t based on any confidence in the underlying strength of China’s property market; rather, but due to my concerns that the distortions driving China’s property market — the sickness, if you will — run so deep that I don’t see them being quickly or easily resolved by a conventional market correction