So the Chinese government is in a real pickle.
The US government pressures it for a yuan re-evaluation to cut down the Chinese trade surplus. Their own businessmen and workers are relying on favorable exchange rates to make a profit on export industries.
Money from QE1 is floating into China because of the yuan evaluation and Chinese workers are facing rampant headline inflation. A stock bubble and housing bubble have to be digested by growth or will pop if starved of inflation driven by hot dollars.
The Chinese government may face severe unrest from its own population if the economic prosperity and growth doesn't continue. They're on the edge of a large economic tempest that is about to break and it's an uncomfortable position for the Chinese government.
Currently their best method is to raise reserve ratio requirements for banks. This is an excellent too as it curtails banks' ability to create money (M2) and forces banks to have more conservative balance sheets. The Chinese government has raised the reserve requirements by 50 basis points regularly in the last few months.
Their worst method is to institute price controls on consumer staples. It's the worst solution ever and will invariably mean shortages and lines. The Chinese people will hate it and invariably turn to the black market and render the whole policy meaningless and establish a widespread prescendent for flouting the central government.
The little rebellions are signs of unrest to come.
The best long term solution for the Chinese is to do exactly what the US government wants of it, raise interest rates and take a large upward reevaluation against the dollar. The two in combination will pop the stock bubble and real estate bubble and destroy a lot of export companies, but it will be better for their own people in a few years. Any step in the right direction would be beneficial.
The US government should be careful what it wishes for. Raising interest rates and a upward re-evaluation of the yuan would mean a reversal of capital flows for a US government that is current depending on capital in flows for borrowing. If the Chinese don't have excess dollars to lend back US, then what would the government do. The only recourse would be monetization of debt by the Fed.
The current Yuan evaluation props up an illusion of prosperity for the American people. Their dollars are still worth something. And if the illusion disappears, Americans would find themselves jobs, but discover themselves much poorer than previously thought. How would they feel then as the products that they were accustomed to buy for cheap at Walmart all of a sudden shot up 20-30% across the board?
It's an illusion for the US government as well, since investors would realize sooner rather than later that the US government can no longer pay its bills. Either it will be defaulting by being a deadbeat or defaulting by debasing its currency. Maybe some day soon we will be emulating the French and come up with a "Strong" dollar that re-establish the demoninations. We'll also quickly see the demise of coins as their scrap values exceed their face values. It's already true for all pre-1982 pennies that are mostly out of copper. The scrap value is over double its face. Next time you handle some pennies, take a look at the dates and see if you can still come across a true copper.
The little things are signs of the events to come.