Trouble in the West and Yuan Appreciation

When I talk about the west in the title, I’m referring to the western part of China.

A great deal of thought and ink and pixels have been devoted to how the recent violence in the western part of China has affected the country’s image in the runup to the Beijing 2008 Olympics. I’m not going to talk about that because I have nothing new to add to that conversation.

Instead, I’m going to talk about how those events are likely to affect Chinese government fiscal and monetary policy.

These recent events have shown that the income gap between Han Chinese and Tibetans is growing, and that there are significant numbers of Tibetan youth who do not see a bright future for themselves. They are perfect fodder for unrest. Beijing has tried to mollify things by moving significant numbers of Han Chinese into Tibetan areas to start small businesses but, for the most part, Tibetans are still deeply religious, and many prefer a nomadic lifestyle to living in cities where they cannot find work.

This is the trouble with an urbanization policy: it works fine if people are employed. If they are not employed, there are all kinds of social problems.

The biggest problem is that there is no Tibetan merchant class as there is among Han Chinese.

The central focal point of Chinese social policy is low unemployment at all costs, even if the businesses are not profitable. It is better to have people working in a loss-making enterprise than for them not to have a job at all and wandering the streets.

Part of the rationale for the violence was to scare Han Chinese out of the Tibetan regions. Many Han Chinese families may prefer to move back to their places of origin; the Chinese government may offer economic incentives for them to stay.

Faced with this situation, the Chinese government is unlikely to let the yuan rise significantly more this year. If asked to choose between which is more dangerous, social unrest in China, or increasing pressure from the European Union and the US over letting the yuan appreciate, I’m sure that the residents of Zhongnanhai would say that the former is the threat they fear the most, not the latter.

For them, it’s much more important to keep people working at their jobs in China.

3 Responses to “Trouble in the West and Yuan Appreciation”

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    Robert Michel

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