Saturday 15 August 2015

What the hell just happened in China?

It's been a crazy, dangerous period in Chinese affairs. Firstly, following on from the stock-market crash which saw indexes fall by 30% over a couple of weeks, and which was only stopped by suspending trading more than 1000 companies (hundreds are still suspended even now) and restricting selling, we've seen a slew of economic data that strongly suggests that an economic slow-down is now in progress, despite government GDP growth figures that suggest otherwise

This was then followed by a devaluation of the Yuan by what, whilst it was not a large amount in the grand scheme of things, was done in a way that seemed almost calculated to destroy government credibility on the issue of the value of the Yuan. It came after the government said it would not devalue the Yuan for the entirely valid reason that this would be counter to their goal of encouraging a consumer society in place of the export-driven economic model of the past few decades. It was a "one-off" devaluation that was then continued for three days.  It was announced as an attempt to lower the Yuan to a more market-friendly value, but when the value kept falling the PBOC then stepped back in to buoy up the price and we saw volatility in the price go right to zero as the PBOC fought to stop any further decline in the value of the Yuan.

Meanwhile the gap between the onshore (i.e., government-controlled) and market-decided offshore values of the Yuan was not closed by much, allowing the onshore value to sink just re-set expectation as to the offshore value. This won't be the last time it happens.

After this, came the series of massive explosions at the port of Tanggu in the Tianjin Economic Development Area which is now reported to have killed more than 85 people.  Whilst this is the kind of accident that can occur in any country (indeed, just today a chemical plant in Texas saw multiple explosions), the distrust of the official government explanations behind it, the censorship of stories about it, the blocking of foreign media trying to report on the story, all speak of a country in which the government still seeks to control what the public think about domestic events. The content of the rumours around the blasts is hardly likely to be music to the government's ears: not least of all story that the owner of Ruihai Enterprises, the company on whose premises the explosions occured, is a relative of Li Ruihuan, a former politburo member who hails from the Tianjin area.

Finally, came the senseless killing of a young woman in Beijing's Sanlitun district and the stabbing of her French husband to whom she had only recently been married. Whilst Chinese police have proclaimed themselves baffled as to the motives of the killing, social media is reporting that this was motivated by hatred of foreigners. It would be deeply unfair to extrapolate from this incident to a picture of growing anti-foreigner sentiment in China in general - in my experience the majority of Chinese people do not harbour such sentiment though a sizable minority do. However, the government hardly does anything discourage such sentiment when pretty much everything bad that happens in China is intimated in government propaganda as being linked to shady foreign forces.

Above the daily churn of stories of the kind which might emerge anywhere, China seems to be entering a period of growing instability. Whilst I agree with Eric Fish that no-one really knows what will happen long-term in China, the very fact that no-one can predict with confidence what direction China is going in speaks volumes about the country's instability.

[Wrecked cars and buildings damaged by the Tianjin blast in a residential area near the port. Via Wiki]


Ji Xiang said...

I wouldn't go too far with the apocalyptic predictions.

The Tianjin blast could have happened at any time in the last 30 years, and the government reaction would have been the same.

The Sanlitun attack is horrific, and I am pretty sure xenophobia was behind it. The fact that an interracial couple was attacked by a stranger is telling. Having said that, there have been a few such scattered cases in the past. As long as there aren't a number of attacks in quick succession, it can't be claimed that xenophobia is reaching a dangerous boiling point.

Economic growth is indeed slowing down, and rightly so. It couldn't stay at 10% for ever. Chinese policy-makers aren't too concerned about their international credibility. The measures they take often seem absurd to outsiders, but there is always a logic of some kind.

Let's hope for the best, and prepare for the worst.

Gilman Grundy said...

Damn, I wrote a long comment which appears to have been eaten by my own blog. Here's a re-cap from memory:

1) Not being apocalyptic, just pointing out that China is growing more unstable.

2) Yeah, this is the same as it would have been for the past 30 years, but the lack of progress is the thing I'd like to hilight.

Ji Xiang said...

Oh yeah, there has been no progress in terms of freedom of speech and information. In fact it's got worse under Xi Jinping.

The Chinese system is incapable of becoming any more liberal as long as it is left to its own devices. The striking thing is that most middle and upper class Chinese still basically support the system. This isn't going to change because of the explosion in Tianjin.