Year of the ox, 2009

Economic woes and key anniversaries portend trouble.

FOR China’s leaders, a perfect storm is brewing. Economic growth, which has helped keep the Communist Party in power, is faltering. The new middle class, hitherto a pillar of the party’s support, is plunging into despondency. The coming months are studded with politically sensitive anniversaries that will focus disaffected minds on the party’s shortcomings. Having endured a year of natural disasters, riots and the organisational nightmare of hosting the Olympics, the party sees little salve ahead.

Of all the huge uncertainties that plague attempts to predict the progress of the global financial crisis, two in particular hang over China. One is the resilience of its political structure to stress of this kind. During the last several years of economic health, it has been hard to imagine anything that could dislodge the party. David Shambaugh of George Washington University, in a book published this year entitled “China’s Communist Party: Atrophy and Adaptation”, said the party had its problems and challenges, “but none present the real possibility of systemic collapse”.
APA better year behind than ahead?

Those challenges, however, are now mounting rapidly. The head of the IMF, Dominique Strauss-Kahn, has predicted GDP growth could fall to as low as 5-6% next year, half the rate of 2007 and far lower than anyone would have thought possible just a few months ago.

The other big uncertainty is how Chinese consumers will respond to the crisis. Chinese journalists say the state-controlled media were at first instructed to avoid stories even suggesting China might be affected. Then as the impact became increasingly obvious, with exports in November falling 2.2% year-on-year (the first such drop in seven years) and growing reports of factory closures and worker unrest, the orders changed. Now the media can acknowledge the impact, but are not to play it up. Keeping the middle class happy and willing to spend is as vital now in China as it is in any economy. But given China’s rudimentary social-security system and strong tendency to save even at the best of times, this could be particularly difficult.

Among the most challenging periods for the leadership in 2009 will be a number of dates already ringed in their calendars. The Chinese new year on January 26th—but effectively spanning several days on either side of that date—is one of them. Migrant workers with nothing to do as their labour-intensive factories making products for Western markets turn idle are already beginning to drift back to their villages for the holiday. Growing numbers will find their pockets empty as cash-starved employers hold back wages. Some will likely stage angry protests. After the festival, millions will return to the cities and many will find no jobs waiting. Frustrations will mount.

Early March will see attention focused on opposite ends of the country: Tibet and Beijing. The resentment that exploded in Lhasa on March 14th 2008 and spread rapidly across the vast Himalayan plateau has by no means subsided. March 10th 2009 is the fiftieth anniversary of the Tibetan uprising that prompted the Dalai Lama to flee to India.

The significance of this date will make this period even more potentially unstable in 2009 than it was in 2008. The authorities will maintain intense security across Tibet and neighbouring areas. Any miscalculation could readily produce the same kind of disapproving Western reaction and Chinese nationalist counter-reaction that for a while this year cast a dark shadow over China’s diplomacy.

Also in March, China’s parliament will hold its annual session in Beijing. These two-week events are normally rubber-stamp affairs, but this year economic woes are likely to fuel lively debate inside and outside the meeting rooms of the Great Hall of the People.

Then comes June 4th, the 20th anniversary of the bloody suppression of the Tiananmen Square protests. Many younger Chinese express indifference to this episode, but older activists will still try to commemorate it. An inkling of their organisational ability was given this month with the release of Charter 08, a document signed by some 300 intellectuals calling for sweeping political reform.

July 22nd is the 10th anniversary of the banning of Falun Gong, a quasi-Buddhist sect. The government has crushed Falun Gong with more persistent and ruthless determination even than political opposition movements (before 1999 Falun Gong had no discernible political views, but its members abroad are now virulently anti-party). The clampdown makes it extremely difficult to gauge the sect’s continuing support in China, but the anniversary will be a test of it.

The authorities will try to put on a celebratory face for the 60th anniversary on October 1st of the communist nation’s founding. It might even stage a military parade through central Beijing (as it did for the 50th and 35th anniversaries). If so, expect more repression, particularly of Tibetans and Muslim Uighurs from the far west of China, whom the authorities see as the most likely groups to try to spoil the party.

Optimists see some hope for the government amid this relentless series of potential flashpoints. It will be spending massively on infrastructure projects, and cutting taxes and interest rates to keep growth up. The World Bank’s president, Robert Zoellick, says China’s response to the Asian financial crisis in 1998 “built the basis for future growth”. It spent lavishly on infrastructure (particularly expressways) and weathered the crisis without any regime-threatening instability (although the middle class was then far smaller).
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This time, says Mr Zoellick, China’s stimulus package also features measures to encourage consumers, including more spending on social services. The World Bank’s prediction is for 7.5% growth. Several others say it could be around 8%—the level that officials often say is needed to keep employment stable.

But if the optimists are wrong, China could be in for a bumpy ride. History suggests that periods of social turbulence in China are often accompanied by tensions with the West. Trade friction could exacerbate such problems if countries engage in tit-for-tat protectionism in misguided efforts to protect their industries. Chinese officials repeatedly stress the need to keep markets open, but some officials might still be tempted to devalue the currency in the hope of boosting exports (America wants China’s currency to move in the opposite direction). China’s President Hu Jintao and the prime minister Wen Jiabao are experiencing their most trying times since they came to power more than five years ago. More than ever, stability will be their top priority.

Dec 22nd 2008From Economist.com