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Summarize the time-frame, duration and rate of inflation

Analyze the root causes of the inflation

Describe interest rates during the inflationary period

Describe the major economic consequences of the inflation

Explain how they were able to control the inflation (if they were)

1989 was an incredible year for the globe. Not only did Michael Jordan score
his 10,000th NBA point in his 5th season, the Berlin Wall fell, the Cold War
ended, and I was born (Graham, 2002). Of additional historical significance is
the economic and political upheaval that China endured at that time.

Going from an approximate 10% inflation rate in 1987 to nearly 30% in 1989,
it is clear that China was economically and politically unstable to extreme
degrees (Ha, Fan, & Shu, 2003). This significant increase also contributed to
the well-known Tiananmen Square pro-democracy protests (The China
Post, 2012). Major contributors to the rapid increase in inflation include
price liberalisation and surges in investment financed by monetary
expansion (Ha, Fan, & Shu, 2003). Essentially, the rapid influx of the free
market economy and changes in the political powers resulted in a lack of
regulation in the market and the cost of food started to increase beginning in
1987. As the government attempted to regulate only some kinds of product,
the country began to notice a strong shift in the supply and demand,
essentially the government regulated price was too high and so demand fell
until the regulations were lifted (Gargan, 1987). The lack of demand resulted
in too much supply and eventually waste.
The Tiananmen Massacre also contributed to people feeling less confident
about the economy and government so the rate of purchase at retail
locations diminished dramatically as well.
The government's military crackdown on protests plunges China into
international isolation, causing economic growth to plunge to 3.8 percent in
1990 while inflation falls to 3.1 percent (The China Post, 2012).

Bibliography
Gargan, E. (1987, 11 9). International Report; Swiftly Rising Prices Alarm
China's Leaders. Retrieved from The New York Times: Business Day:
http://www.nytimes.com/1987/11/09/business/international-report-
swiftly-rising-prices-alarm-china-s-leaders.html
Graham, J. (2002). What Happened in 1989. Retrieved from On This Day:
http://www.onthisday.com/date/1989
Ha, J., Fan, K., & Shu, C. (2003). The Causes of Inflation and Deflation in
Mainland China. Retrieved from HONG KONG MONETARY AUTHORITY
QUARTERLY BULLETIN: http://www.hkma.gov.hk/media/eng/publication-
and-research/quarterly-bulletin/qb200309/fa3.pdf
The China Post. (2012, 2 10). Beijing has a long history fighting inflation.
Retrieved from The China Post:
http://www.chinapost.com.tw/health/aging/2012/02/10/331131/Beijing-
has.htm

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