Could there be riots in China during the Olympics?

With the Chinese yuan continuing to rise as the government tries to slow surging inflation, the question is whether Chinese citizens will take out their frustration at the government during the coming summer Olympics.

The currency rose to the highest since a link to the U.S. dollar ended in July 2005 after the People's Bank of China said in a five-year plan released yesterday that it will "innovate'' to address problems, including growth in money supply. Global commodity prices surged to a record yesterday, as oil jumped above $100 a barrel and copper rallied.

Ah, the infamous "five-year plan." It's been since before the fall of the Soviet Union that we last heard about the five-year plan. Back then, government controls led to shortages of everything from bread and potatoes to vodka, and it sure seems like history is repeating itself. There is no question that the Chinese economy is enjoying incredible growth. We even see an emerging middle class taking shape, eager to spend its new-found disposable income. The problem? Once again, shortages.

No matter how hard they try, governments are lousy at controlling the supply of goods in the marketplace. The market is the only way to truly gauge how much of something is needed and at what price.

The upcoming summer Olympics is supposed to be a feather in the hat of the Chinese model. On the other hand, there is no better platform to protest failed government policies than when the eyes of the entire world are focused on you. If shortages continue and inflation continues to surge, look for an especially hot summer in China.

Aaron Katsman is the lead Portfolio Manager and Managing Director of America Israel Investment Associates, LLC. and Senior Editor of IsraelNewsletter.com. DISCLOSURE: Writer has no position in any stock mentioned as of 2/20/08.