Friday, April 22, 2011

A Report on Protests Inside China and the Global Impact

Rising prices in China have led to some protests.

However, the Chinese government's aggressive crackdown has made protesting difficult. The crackdown has also severely limited media reports about the situation. Zero Hedge is running this first person report:
The protests are very contained, as the gov is obviously powerful enough to stop it before it gets out of hand. My best friend was up in Beijing back in the beginning of March, though, and happened to be there on protest day and she said there were guards, policeman, military and they even brought a tank in! (like Tiananmen Square part II). She got out of Beijing asap as it was quite scary. I have yet to see a protest here in Shanghai, but that's because they have military dressed up as street cleaners and such in proposed protest spots to keep things in order. There are rumors that the gov itself is organizing the protests to catch anyone who shows up (those who have, have been detained and the talk is that they are likely sentenced to death or life in prison). The gov has also heightened its lockdown on the internet, blocking even more sites and the interest is sooo slow sometimes from all the blocking activity. Not sure if you've seen the disputes with Google, but without my VPN that connects me to the US, I typically can barely access gmail because the gov reads all incoming and outgoing mails from the China server.

Other than the internet, though, my life hasn't been affected and I actually forgot the protesting was going on. Yep - that's how well they hide it. My western Chinese friends (those born in China with western citizenship and thinking) say that the people will eventually overtake the gov. My local friends are basically loyal to the gov and brain washed into thinking that their gov is great and they don't understand the protesting. I personally don't think much will come from the protesting. The gov has too tight of grip on its people and its communication (monitoring phones, interest, ect), they've instilled way too much fear into the people by making it clear that the punishment for protesting is severe (including death) and while there are a lot of people protesting more publicly now, there are, on average over the years, some 150 protests per day around China that no one even knows about because the gov keeps it so well under wraps. And while in absolute terms it seems like there are a lot of protests, a large percentage of the 1.3+ billion people here don't even understand what a protest is.
Judging by the Chinese government's reaction to the protests,allowing a much quicker appreciation of the yuan against the dollar, the authorities are much more concerned about the protests than they let on.

Allowing the price of the yuan to climb is not something the Chinese would do without careful thought. They have a very mercantilist view of trade and favor policies that boost exports. However, they understand that rising prices are behind the protests and that the printing of money to keep the yuan artificially low against the dollar is behind the increasing prices. Thus, the apparent reversal in policy.

This change in policy toward a stronger yuan, of course, means higher prices in the United States and upward pressure on U.S. interest rates, since this new policy will result in significantly less purchases of Treasury securities by China's central bank. In other words, there's major global impact from the policy shift and the shift will be felt in the United States.

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