1) China’s economy is not just slowing, it is entering a serious correction. The investment bubble that has been driving Chinese growth has popped, and there are no quick “stimulus” fixes left. There is the very real possibility of some form of financial crisis in China before year’s end.
2) China is in the midst of a once-in-a-decade leadership transition that has not been going smoothly. The transition will take place, but it has paralysed the Chinese leadership’s ability to respond to the country’s growing economic troubles. China’s leaders believe time is on their side; they do not “get” how serious and urgent the situation is, and that what has always “worked” is no longer working.
3) China’s economic problems spell trouble for the U.S. on several fronts.
*First, China is flirting with devaluing its currency to boost exports—a move that will put it in direct conflict with Mitt Romney’s commitments on this issue.
*Second, China is already dumping excess capacity in steel and other products onto the export market, a tactic that is likely to inflame trade tensions and reinforce imbalances in the global economy.
*Third, in a worst case scenario, China may be tempted to provoke a conflict in the South China Sea to redirect popular discontent onto an external enemy.
The key idea of what will happen in China in the next six months is worthy of a book, not just articles from those of us intent on studying, working, and learning about China. However, the best we can do is write about this fascinating and ever changing topic as it occurs.
Given the ongoing interparty struggle occurring (see Reuters recent article) at the same time as the current transition of power that should culminate in October, we should be worried about what choices the Party leadership will make. We will not see Western style ads or speeches laying out these battle lines. The actions of Party elders and leaders will be played out at the provincial and local level. These local leaders cannot have reached positions of power without support from the patronage system that exists inside the CCP. It is this system, and the various patrons in both factions, that create the channels for the ongoing conflict within the CCP.
Each side will sponsor and promote actions at the local level, actions designed to expose weaknesses or frailty in the other faction. This interplay between factions in the CCP is nothing new and has a long storied history. What is new is the fact both sides seem less and less willing to achieve reconciliation. A fact witnessed by the number of leaks during the current leadership transition and so many contradictory “opinions” being expressed via the Party media outlets.
This friction playing out at the local level has an immediate and concerning downside. Yesterday the Foreign Correspondents’ Clubs in China released a joint article condemning recent mistreatment of foreign journalists. At the same time this past weekend anti-Japanese protests were much larger than reported in the Chinese media, yet not nationwide. Both of these recent occurrences are indicators of the factional interplay occurring in China at the local level.
It is my hope once the new leadership team is made official in October we will see them begin to establish their presence immediately. China and the world cannot afford for these factional issues to continue unabated.
- China heading for financial crisis, says US economist (wantchinatimes.com)
- 3 Things US Politicians Need To Know About China (businessinsider.com)
- Chinese companies pull out of US stock markets (chinadailymail.com)
- Chinese export growth tumbles (chinadailymail.com)