MONEY is coming out from under the mattresses in China with a populist fervor that threatens public peace and possibly the speed of market-oriented reforms.
Recent violence over stock issues, analysts say, raises questions about how quickly China will achieve a mixed socialist-capitalist economy.
"We are witnessing a revolution," says Miron Mushkat, director of regional economic research at Baring Securities. "Despite living under socialists for 40 years, people's capitalist ideals are intact."
Not since the Tiananmen Square crackdown in 1989 has China seen such unrest as the riots which broke out in Shenzhen Aug. 8 over one of the country's two stock exchanges.
An estimated 500,000 people flocked to the booming city to buy applications for investing in 14 new stocks. Sleeping and eating in the streets among heaps of garbage, hopeful investors stood in line at 300 banks, where applications were sold for the equivalent of one-third of a month's salary.
Rioting started when the applications ran out. Protesters claimed government corruption was behind the shortage. But even those who bought applications had less than a 10 percent chance of buying stock.
Analysts attribute the market's draw to a lack of investment outlets for China's estimated $250 billion-worth of domestic savings.
Since 1978, China's villagers have seen their annual income increase 3.7 times, and city dwellers have seen their annual salary increase 2.5 times, according to the Hong Kong Trade and Development Council. With the rising incomes, sales of consumer goods also rose 4.7 times.
Robert Broadfoot, managing director of Political and Economic Risk Consultancy, calls Shenzhen's market a gambling casino. Because the accounting of companies is so lacking, investors do not buy based on facts.
But as China's real output grows 10 percent a year and the political climate remains unsteady, these riots may fuel hardliner calls to curb reforms, some observers fear.
`THERE are bound to be powerful figures in China who would argue with compulsion that riots are far too risky," says John Mulcaney, director of Peregrine Brokerage.
Foreign investment in China will see unprecedented growth in the next decade, Peregrine Brokerage predicts in a report released last month, as overseas Chinese investors in Hong Kong, Taiwan, Southeast Asia, and North America pour in funds.
The fledgling stock markets in Shenzhen and Shanghai are a first step for some investors. Analysts say the markets are essential to China's growth. These stock markets are booming. But Peregrine's report states that overheating and rising inflation over the next 18 months are real possibilities.
"There is always a pretty obvious cycle of overexcitement in the first incident where demand is greater than the supply of stock," says Christopher Rampton, an officer at Jardine-Fleming. The next stampede will occur as investors rush to sell, he predicts.
The government is relying more on bond sales to tap domestic savings. It is also slowly closing or restucturing loss-making state enterprises.
The government seems to be letting the economy grow at double-digit levels until inflation breaches 10 percent, the Peregrine report states.
Credit expansion is running ahead of the planned pace and state banks are reporting loan growth ahead of the mandated ceiling. Peregrine argues this is likely to force the government to do modest and unpopular tightening by late 1992.
An even bigger concern among analysts is the slow pace of reform. "You don't have a capitalist society yet. You have these bits and pieces of capitalism," says Lois Dougan Tretiac, vice president of China Business International Asia Pacific.
But the incipient demand for investing money is not going to leave China, Mr. Mulcaney says. The government understands the need for reform and liberalization, he believes.