Will Food Shortages Feed World’s Anxiety Over China?
Written by  // Thursday, 27 January 2011 10:23 //

Ron Chapman-Bayoubuzz.comSeveral months ago this column sounded an alarm about the growing shortage of world food supplies.  What would be the impact on marginal societies?  The evidence is beginning to accumulate.

Food prices exploded in the last half of 2010.  According to the Commodities future markets (http://tfc-charts.w2d.com/menu.html): Oats increased by 41%, Corn by 43%, Rice by 56%.  Wheat by 39%, and soybeans by 47%.  The sudden increase of food prices has triggered social unrest around the world.  Witness the recent revolution in Tunisia. What happened there?

Although that nation had been under a brutal dictator for twenty-three years, spontaneous street protests suddenly brought him down in less than a week?  Anger fostered by food shortages and increases in food prices triggered the event.  A young man, lacking the ability to support his family, protested by pouring gasoline on himself and then set himself on fire.  His action ignited a far broader reaction that brought down the government in less than a week.

The Arab world is in panic.  Egypt, Jordan, Libya, and Yemen all face similar spontaneous popular eruptions.  More interesting, none of these movements are lead by the traditional opposition parties…there is no leadership.  These are just spontaneous actions by stressed people responding to threatening situations. (Tea Party?)

Some of the blame for this rests with American financial policies.  The decision to embark on QE-2, which is shorthand for printing $690 BILLION dollars, had consequences.  The American dollar is the world’s reserve currency.  When one sells anything using dollars as a basis and the value of those dollars decreases, prices increase to protect the investment.  That is why oil increased from $72 per barrel to nearly $100.  Food costs have escalated as well.

Those living on the edge feel it first.  The poor pay a larger percentage of their income for food. That explains the social eruptions in the developing world.  They have the largest populations, poorest people, and least resources.  These populations live on the brink.  Thus, one can expect more social disruptions in the Arab world, Africa, Central and South America, and Asia as food becomes scarce.

Taking this into consideration, it might also be useful to consider one of the largest world players…China! The great dragon has spread its wings over the globe and plunged its talons into the economies of nearly all nations.  But China lies on a fragile foundation.

China has the largest population in the world with 1.3 billion people.  The median age is 35.2 which translates into an aging population that will require more expenditures as time goes on. China also has the third largest economy in the world and its rate of GNP growth is about 10.1% (depending upon source used).  The key here is that China is also experiencing inflation at about 6%.  That means that the costs of food and goods are increasing at nearly 6% per year.

The problem:  China, despite is apparent power, is not a stable nation.  The one party government maintains power through intimidation.  Criticize the government, you go to jail. China also has one of the most ethnically mixed populations.  There are tensions, but because of controls they are hard to see.

Keeping a cap on this pressure pot, may prove impossible. The per capita income in China is $7,400.   However, 57 million people live on less than $125 per year.  Of that number, 21.5 million survive on less than $90 per year.  This is in the rural areas.  A family of four is allowed a $134 living expense per year.  Some sources report that over 600 million people live on under $456 per year. That is why so many Chinese sell their blood…sometimes many times over… for money.  That is the only salable resource they possess.

The cities account for 60.5% of the population and that is where most of the wealth is concentrated.  However, even here laborers earn very little and work very hard, while the “mega-capitalists” live extremely well. China has the largest increase in numbers of millionaires and billionaires in the world…while the overall population suffers. But even the miserable, overworked, underpaid city workers make three times what farmers make.

The problem is worse among the rural population that produces the food and receive the least rewards.  They make up 39.5% of the total population, but China’s economy is only 9.6% agriculture… they cannot produce enough food to feed themselves and the cost of imported food is increasing dangerously. This will add to inflation.  The general population’s condition is getting worse while a few become lavishly wealthy.  The growing disparity in wealth threatens China’s stability.

What makes matters even more complicated is that China’s Fiscal System is decentralized.  That means that poor areas have less resources available for social services while rich areas have the greater share.  So not only are the people in rural areas poor, but they have far less services offered by government. Rich provinces spend 48 times what is available for poor provinces.  Health care is NOT subsidized.  You pay cash for it.

Taking all of this into consideration, one must ask: How long will a significant portion of the population, rural farmers and urban workers, accept marginal living in a society where the disparity of wealth is great, growing, and a direct result of collusion with government?  How do you keep over 700 million people suppressed in abject poverty while you brag about a booming economy?

Thus, as we watch the costs of food dangerously increase; as we witness the resulting dissolution of marginal societies to the pressures generated by price inflation, one has to ask…can China escape this crisis? 

 Is the Great Red Dragon a mighty giant or merely an apparition made of paper?

by Ron Chapman



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