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Is rising unrest in China a threat to the economy?

Demonstrators display banners during a protest against plans for a factory which will produce paraxylene (PX), a toxic petrochemical used to make fabris, in Kunming, southwest China's Yunnan province on May 4, 2013.
AFP | Getty Images
Demonstrators display banners during a protest against plans for a factory which will produce paraxylene (PX), a toxic petrochemical used to make fabris, in Kunming, southwest China's Yunnan province on May 4, 2013.

Incidents of unrest in China are increasing, and analysts told CNBC the country's one-party government may be getting more concerned about the broader impact on social and economic stability.

Protests are illegal in China, an authoritarian state where freedom of speech is limited. "[The government] places arbitrary curbs on expression, association, assembly and religion; prohibits independent labor unions and human rights organizations; and maintains Party control over all jurisdictions," according to Human Right Watch's 2014 World Report.

Yet, according to official police statistics, the number of annual protests rose to 87,000 in 2005 from approximately 8,700 in 1993. Currently, there are 300-500 protests in China each day, with anywhere from ten to tens of thousands of participants, the 2014 World Report said.

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Various currents

Protests ranged from farmers contesting land grabs to environmental protests organized by the middle classes and deadly ethnic minority riots.

"Most of these protests have involved farmers pushed off their land and sometimes poorer people in urban areas kicked out of their houses to make way for development," said James Miles, China editor at The Economist.

"Often these protests have involved the weakest, poorest, most marginalized sectors of Chinese society. They are poorly organized and their grievances are localized - so a protest might flare up in one particular location, but not spread like wildfire across the country," he added.

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But more recent large-scale environmental protests by the middle class, long viewed as a crucial government support, have caused alarm among authorities, he said.

"The way in which these demonstrations have rapidly formed using social media has clearly unnerved authorities and made them wonder about how quickly middle class unrest could spread," Miles told CNBC.

In April, a protest against the construction of a factory that produces the chemical paraxylene (PX) in the Southern Chinese city of Maoming began with 1,000 people but escalated to 20,000 over five days, with roughly a dozen killed and many arrested. The chemical is believed to be damaging to people's health and the environment.

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"If middle class unrest were to become more common in urban china, we may see greater problems for social stability and knock on consequences for the economy," Miles said.

Ethnic riots

China has also seen an uptick in violent uprisings by ethnic minority groups in China – like in Tibet and Xinjiang - which the government classified as terrorist attacks.

In July, bloody clashes between Muslim Uyghur protesters and Han Chinese - both civilians and military personnel in Xinjiang - left at least 96 dead, putting the death toll from a string of similar protests at 2,000. Meanwhile, protests in Tibetan areas of China against Chinese rule have been ongoing since the failed uprising in 1959. More recently, over 100 Tibetans engaged in self-immolation since the first recoded case in 2009 in protest against Chinese policies, triggering large scale protests.

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But some economists view these incidents as separate from other protests and uprisings and as likely to be contained without posing any broader economic threat.

"The problems in Xinjiang have their own unique set of reasons related to religious and regional policies. In the near term it looks like the situation can remain under control... as it's still happening in a limited area, and not across the country," said Qinwei Wang, China economist at research house Capital Economics.

The path to prosperity

However, many argue that rising incidents of unrest should be an expected as China progresses towards becoming a fully-fledged advanced economy.

"This seems to be a natural product of a fast-growing economy, such as China. As citizens' income per capita increases, so does their demand for fairness, respect and democracy," added Wang.

Others agree.

"You have to deal with minorities that want to be heard and it's all about accountability and voice," added Ludovic Subran, chief economist at global credit insurance company Euler Hermes. "It's something that all countries have been through. China has the advantage of backwardization. It can learn from the mistakes other countries have made."

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"It has become a much bigger security issue for the central government and potentially one that is disruptive... but I don't think we are seeing to any threat to China's economic development," the Economist's Miles said.

Will reforms help?

Many analysts consider China's ability to push through economic and cultural reforms vital to its transition to a more modern economy.

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Following its Third Plenum meeting last November, the government promised to relax the one-child policy, make it easier for citizens to move more freely around the country, increase rights for farmers, open up state-owned enterprises and push through financial reform.

But analysts CNBC spoke to were divided over whether or not the reform agenda would help or hinder progress on social unrest.

The Economist's Miles said some reforms - such as the changes to the household registration system to make it easier for people living in the countryside to move to the cities - could upset the middle classes.

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"They'll see the privileges that they've enjoyed in the cities being eroded and poorer people taking more spaces in their hospitals and schools... they'll also be worried if the government imposes more taxes on property... so we could potentially see more open signs of protests," said Miles.

But Capital Economics' Wang pointed out that the poorer people in China could benefit from the reforms, limiting the potential for unrest within those communities.

"I think in the medium term the government can ease the tensions by providing more protection to the poor people, including migrant workers and rural households," said Wang.

"But in the long term, economic reform might not be enough. They may need more, broader reform, not only on the economic side, but also on the political and cultural side. For example, people will have increasing demand to express their views more freely," he added.

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