One of the advantages of Crisis Watching in China is that there’s such a large community of observers dedicated to this country that you are never short of ideas. The downside is that with so many voices it is difficult to make sense of the whole thing. To the question in the title, for example, depending where you look you can find today the whole range of answers: yes, no, badly, take it easy!

What is most remarkable is how fast opinion is shifting towards the Yes side, when only 2 months ago most people still believed China’s system was immune to Financial Crises.

Especially interesting is the story of the closing factories on the Pearl River Delta, which has captured the imagination of western media in the past few days. Fortunately we have some sensible China bloggers to shed light on this mess. The guys at All Roads and the Law Blog are the first to question the significance of the events.

Factories are closing sure enough, and this picture I stole from the bbc website is not an evil western media setup. But take a closer look: do you see any difference between this “workshop” and any random car parking? Do you see any traces of heavy fixed equipment, hoisting devices, utilities? anything looking like proper working lights for the operators? It looks exactly like what it is, a precarious facility quickly improvised to catch some coming contract and quick to disappear the minute things start to look bad. It is probably in places like these that they put together the fakes sold at Qipulu.

So it is mostly the fat of the economy that is being lost for the moment. Business which probably would end up closing anyway in a normal economic system that didn’t have as many holes as the Chinese. The bread and meat of the economy are still producing, and doing quite well given the circumstances. The disappearing of these companies will make things easier for the ones remaining, eliminating the pressure of their (sometimes unfair) competition. It’s part of the good effects of a downcycle, really overdue in an economy that’s been racing nonstop for the last 30 years.

So from my point of view the Crisis has still not hit China in any significant way. The international economic slowdown is definitely starting to show, but for the moment we are still riding it better than most of the Western economies.The Wall is holding strong.

Now, what Crisis really means is what by now is in everybody’s mind. The New Republic calls it Crash and Burn. But many observers around the world got excited about the recent protests in the Delta, and failed to realize that those protests are essentially no different from the many other Crack and Burns that happen daily in China. If it is not a taxi strike, it is a drowned kid or citizens unhappy with relocations.  Each of them for their own reason, and usually with no intention to question the role of the central government, but rather trying to call its attention to help against local injustice.

Crack and Burn we have had for years, and it didn’t do much to unstabilize the system, because it was never meant to anyway.

But here is a method to estimate what might happen if some day the Crisis really hits China:

1. Google “Riots China”
2. Collect the first different 50 results
3. Add up the number of people violently protesting in those results
4. Add the thousands of people that are going to lose (or not find) jobs in the year to come.
5. To that reactive core you can add hundreds of millions of unhappy peasants, too isolated to organize protests on their own, but happy to ride along if there is any serious movement.
6. Now all those millions of chinese  put them together at the same time to protest against the same problem. Typically inflation, unemployment, corruption, injustice or inequality.

When there is a critical mass of unemployed and discontent rioting in a particular region, this could spark the chain reaction and spread to the whole country like gunpowder.

Looking at the economy today, I think we are still far from that situation. On the other hand, I also think that, if it ever happens, it will happen so suddenly that none of us will even smell it coming.

This weekend the leaders of the most powerful countries in the world met up in Washington to discuss how they are going to pull us out of the big economic mess where we are stuck deeper day after day. After a refreshing dinner in the white house including quail, lamb and Vermont brie, the leaders were in a position to promise “vigorous efforts” to fight against the crisis.

Looking at the the reactions from within and without the Summit, it is surprising how peaceful it has been compared to others in the past. No protesters on the streets, no colourful accusations of irresponsibility, nobody even remembered to mention Irak or bash the French. The leaders of the world have understood that the time is not for funny gags. The financial crisis is looming on each of our countries, and we have to stand united. Are we turning the page into a new phase of collaboration in the international community?

For the moment,  these are the main points agreed upon:

• Stabilize banks and boost growth – This includes bailouts and Economic “stimulus”. There is no more than a general statement in this Area, no commitment by any of the States.
• Better Regulation of Financial Markets – Supervision of banks and credit-rating agencies, scrutinize executive pay, tighten controls on complex derivatives, etc. This one was pretty obvious.
• IMF Reform – This is were China and the other developing countries put pressure to have a voice in the exclusive US-EU club. It is likely that they will succeed, and IMF will gain some credibility from that (but gain in efficacity does not not necessarily follow)
• Commitment to an open global economy  – Free market, no barriers to trade or investment. A point that all countries big and small have agreed upon. Hopefully their policies will remain consistent with this statement.

In conclusion, nothing to write home about. What with all the Bretton Woods II measures that where going to change the economy of the XXI Century? Not yet. There will be a follow-up meeting in April 09, and by then some specific plans may be ready for discussion. There hasn’t been time to mature any serious ideas. And anyway, he who shall be in charge of leading the effort could not join the party this weekend.

Indeed, together with the Brie cheese and the lamb, there was a hot potato served for dinner last Friday. And one that nobody is eager to open up, but rather roll on swiftly from plate to plate until it gets to its final destination, president elect Obama. The minute he steps into his office in January it will be there waiting for him, wrapped up in Christmas paper.

In this sport of potato rolling, the Chinese have long been masters. Their words are measured and dictated by wisdom. Thus spake President Hu Jin Tao:

• Reform [of the international financial system] should be conducted in a comprehensive, balanced, incremental and result-oriented manner.
• A comprehensive reform is one that has a general design and includes measures to improve not only the international financial system, monetary system and financial institutions, but also international financial rules and procedures.
• A balanced reform is one that is based on overall consideration and seeks a balance among the interests of all parties
• An incremental reform is one that seeks gradual progress
• A result-oriented reform is one that lays emphasis on practical results.

This sounds very much like Deng’s “Groping stones to cross the river”, an approach which was very effecive to tackle a delicate process of transition like China’s, but not necessarily to avert a crisis. Some famous analysts have long been speaking against this kind of solution.

And then, one wonders how this fits with the aggresive stimulus package that was supposedly launched last week. That was certainly not an incremental announcement. But who knows, it is not for us mortal bloggers to understand the ways of the Popular Repubic.