Inflation, Korean peninsula tension mar China's yearning for stability

The Shenzhen river dividing Hong Kong and Shenzen stretches into the distance on November 28, 2010 in Shenzhen, China. According to the US Commercial Service, Shenzhen is one of the fastest growing cities in the world.
Daniel Berehulak

Top News: While some have thought that China was uniquely positioned to rein in North Korea's erratic leadership, the Nov. 23 DPRK artillery attack on the South Korean island of Yeonpyeong suggests otherwise.

It has been thought since the Agreed Framework ended in 2003 that China's influence on the North Korean leadership could be the key to denuclearization on the Korean peninsula, but that looks less likely than ever now following this artillery barrage and the torpedo attack of the South Korean warship Cheonan in March.

China was quick to issue a statement on the day of the attack calling for "peace" between its neighbors and for parties to return to the six-party talks on North Korea's nuclear weapons program, but Beijing's reaction of not blaming its inconvenient ally for the attack stands in stark contrast to more forceful statements by the rest of the group condemning the North.

The shelling of the South Korean military outpost came just as U.S. envoy on the North Korea nuclear issue Stephen Bosworth was in Beijing for discussions on the lack of progress on the six-party talks, and after recent revelations that Pyongyang has started a new uranium enrichment plant.

China obviously does not want tension and instability in the Yellow Sea region, but it's inability to pressure North Korea to refrain from destabilizing actions is getting it just that. Though most signs point to the North as once again saber rattling in a contained, if deadly, way — the United States has dispatched the aircraft carrier USS George Washington to the area for drills with the South starting Nov. 28 in a brandishing of its own steel.

Given Beijing's passivity in these matters over the past few years, the U.S. and South Korean show of force in the Yellow Sea might be as much a message to China as it is to North Korea.

Money: While North Korea's actions may be giving Beijing headaches, recent plunges in China's stock markets, property bubble worries and fears over rising inflation are giving it massive economic heartburn.

Some say massive spending from its late 2008 stimulus package to counter the global economic downturn, easier access to credit and an increase in money supply the past few years have led to an inflationary spiral that will be difficult to contain. The breaks are being put on, but it is uncertain how effective they will be in the face of the recent spending spree.

Food prices have soared in recent months, rising 10.1 percent over the past two years, and 4.4 percent year-on-year in October, and both the government and average citizens are trying to plant more crops to weather the impact of more expensive rice, meat, vegetables, edible oils and even seaweed. 

Coal prices have also risen and there have been shortages of diesel due to China's clampdown on energy use in industry in order to meet its energy-intensity reduction goals from the 11th Five-Year Plan (2006-2010), and because exporters were making more by selling it elsewhere.

Public concern about actual inflation numbers has grown since it was revealed in early November that China's National Bureau of Statistics has possibly been understating consumer price index rises.

All this comes as the U.S. is pushing China to appreciate its currency to little effect, though Beijing is fearful of raising it too quickly in the face of inflationary pressures that put the squeeze on workers' wallets. The Chinese Communist Party self-preserving dictum — "stability above all" — has it listening to its own belly more than the grumblings of any other's.

These spats have also sparked what is probably the best spoof video to come out that aptly explains the U.S.-China currency dilemma: The U.S.-Sino Currency Rap Battle

Elsewhere: China's top climate change negotiator Xie Zhenhua, possibly in a moment of Emperor-has-no-clothes candor or at least a lapse from the official propaganda script, admitted at a press conference in Beijing on Nov. 23 that China is now the world's top greenhouse gas emitter.

Anyone who lives in Beijing could tell you that on a regular basis. While air quality improved in the months before and after the 2008 Beijing Olympics, air quality has steadily worsened to 2007 levels over the past year-and-a-half as the factories that were halted for the games cranked up again and the economy pushed full steam — cough, cough — ahead

Candor about the "Beijing Fog" problem is probably not something Beijing municipal officials appreciate hearing from foreign missions, however.

The U.S. Embassy in Beijing, which keeps its own air quality readings tracking smaller particulate matter than the capital does, posted on its Twitter feed lately that the air was "crazy bad" — an accurate description, but one they had to retract as "incorrect" mainly for diplomatic reasons.