China fears soaring inflation could bring street protests

Chinese authorities are anxious, since turbulent periods in country's history have often been linked to price rises.

People shop for vegetables in a market in Beijing. China's food and housing costs, which includes utilities and rent, have outpaced overall inflation, soaring 11 per cent and 6.5 per cent respectivelyShow more

BEIJING // Standing behind a vast round hotplate, Sun Lanying does a brisk afternoon trade selling pancakes mixed with vegetables.

Her mobile stall, sitting on the opposite side of a main road from the ministry of foreign affairs, is perfectly placed to catch people as they come out of the Chaoyangmen metro station in eastern Beijing.

But while the customers are numerous enough, they are having to pay more than they used to for the tasty pancakes.

In 2009 they cost 3 yuan (Dh1.7) each. Last year they went up to 3.5 yuan before increasing in price again in 2011 to 4 yuan.

"Everything has gone up; from the seasoning to the flour, everything," said Ms Sun, 51. "I have to increase the prices."

Yin Ge, 30, an information technology salesman, still dines out regularly, but admits that high inflation is cutting the amount he can save.

"Gasoline prices and housing costs - we are very concerned about that," said Mr Yin, a resident of Beijing.

The anxiety about price hikes in China is mirrored at the highest levels of the Communist Party.

Periods of social turbulence in China's recent history, including the staging of major demonstrations, have often been linked to high inflation.

Prices have yet to reach the levels of 1989, when they were a factor behind the Tiananmen Square protests that ended with a violent government crackdown.

In April, inflation was recorded at 5.3 per cent, and food prices have been increasing at double this rate.

Even the state-run Xinhua news agency recently described China's inflation as being "stubbornly high". Measures to curb price rises, including multiple interest rate rises and restrictions on bank lending, have failed to have significant effects.

Ding Xueliang, a political analyst and professor at Hong Kong University of Science and Technology, said: "This time the top leadership is deeply concerned about the possible consequences, especially when the Arab Spring effect is still highlighted.

"If you have high inflation, the benefits of the past 15 years' economic benefits to the ordinary citizens could be eroded quickly.

"When the CCP [Communist Party of China] leadership looks at the possible consequences of high inflation, they not only remember 1989, they also remember the late 1940s."

China suffered from hyperinflation in the second half of the 1940s, and by the end of that decade the nationalist Kuomintang party that ruled mainland China was forced to flee to Taiwan after being ousted by the communist forces of Mao Zedong.

"The CCP leaders … they see high inflation as the top political policy challenge, not just an economic one," Mr Ding said.

China's leaders have publicly acknowledged how much of an issue high inflation could become. Earlier this year, Wen Jiabao, the premier, warned that high inflation "affects people's livelihoods and may affect social stability".

"I know the impact that prices can cause a country and am deeply aware of its extreme importance," Mr Wen said.

Recent reports from analysts such as Shanghai Securities have indicated that China's inflationary pressures are set to continue, and Chinese stocks recently dropped amid worries the pressures could increase.

Inflation, while not yet at "critical" levels, had nonetheless become "an issue of concern" within the communist hierarchy because they are "very sensitive to the potential for unrest", said Joseph Cheng, a professor of political science at City University of Hong Kong.

"The leaders are worried about a jasmine revolution so they will do a lot to contain inflation," he said, referring to the name given to the uprising that ousted the Tunisian president Zine el Abidine Ben Ali in January.

"Food prices are a serious concern because people spend almost 60 or 70 per cent of their income on food [among] the low-income bracket. Sometimes vegetables, eggs and meat can go up 40 to 50 per cent - it's not just four or five per cent," Mr Cheng said.

Attempts in China to organise protests inspired by those that have swept the Middle East and North Africa were snuffed out by the authorities. Large numbers of security forces were deployed in Beijing and Shanghai when gatherings were scheduled there in February.

Yet the government remains acutely aware of the risks of social discontent and mass protests like those in the Middle East this year. This is one reason why the internet is tightly controlled and some social networking websites, such as Facebook, have been banned.

Mr Ding said there have already been signs of anger over inflation emerging online. He said that recent panic buying of discounted items caused "big, big disorder" in major cities and could escalate into something more serious.

"When you see this happen more and more often in the major and medium-sized cities, the next step would be street protests," he said.

"When it comes to this, some violent conflict could happen."