Trouble brewing: Part three

China is facing its worst drought in half a century. Thousands of hectares of land in the country's north are facing severe dry conditions: Crops and livestock are dying and millions of people are facing water shortages.

Beijing announced yesterday it's pouring 86.7 billion yuan into drought-hit areas, much of it going towards "relief materials" and to supplement farmers' incomes. Local governments get 300 million.


This would be a disaster at any time. But thanks to the jinrong weiji, 20 million migrants are out of work and heading back to the farms they'd left behind because they couldn't support themselves and their families on the paltry sums their tiny acreages brought in. Although some people will be able to find alternative sources of income, it's fair to hypothesize that many (if not most) of these nong min gong will have to go back to farming, full-time--just as a massive drought is wreaking havoc with harvests that are puny to begin with.


Added to that, of course, are the millions of people in both rural and urban areas who rely on those crops for food. As they, too, face layoffs and cancelled annual bonuses, it's unlikely they'll be able to pay more for food that's now become scarcer.

At the same time, this further frustrates Beijing's hopes it can turn its billion-strong population into ardent consumers and ride out the recession on domestic purchases: On Thursday the government announced a nationwide 13 per cent rebate for farmers purchasing big-ticket items ranging from cell phones to colour TVs to refrigerators.

Those expected purchases are looking a lot less likely now, when farmers have nothing to refrigerate.


For now, Beijing has the luxury of pouring cash into farmers' pockets in an attempt to assuage the damage (and subsequent instability and disharmony) this drought will cause, although it's questionable just how much good that will do. But the government can only shovel so much money around at one time: Last fall it promised a four-trillion-yuan stimulus package to boost the country's flailing economy. After millions of yuan was spent in the last quarter of 2008, the government posted a 111-billion yuan deficit. Beijing still has a pretty hefty spending power, but eventually it's going to run out of cash.

Or it could just start calling in U.S. debt.