by Fons1 via FlickrAssistant-professor Victor Shih builds in his website on the argument by UBS’ analyst Wang Tao, suggesting that China’s central government might be able to control social unrest caused by the increased unemployment rates.
Shih is much gloomier on the possible numbers of unemployed, estimating it at least at 35 million, for a large degree university graduates who will be unable to find jobs. While managable in the short run, Shih fears that a set of events could trigger off massive unrest:
What is the “systematic trigger” which I refer to? I don’t know exactly what it would be. However, if we look back in history, it can be a wide range of events, including the death of a popular leader, a serious natural disaster, the spread of a deathly infectious disease, a small student demonstration turned violent, religious groups….etc. The point is that there is an interactive effect which is quite harmless when unemployment is low (as shown last year). However, when unemployment is high, a number of different shocks can interact with unemployment to create something explosive. I think the UBS note, besides getting some numbers and history wrong, vastly underestimates the possibility of this interactive effect.