Look what I found in my letterbox today. An advert for the "Toothy Rabbit’s Children’s EQ Camp!"

Those of you who are patient enough to stick to this blog might remember the last post I did about the popularity of self-help/business books in China, and in particular those related to Emotional Intelligence (EQ). Not surprising at all, we said, in a society where the education system is ruthless, that the alternative concept of R.Goleman’s EQ is welcome by millions of Chinese with almost religious faith.

But somehow, I think they got it all wrong.

The program in the camp includes courses on leadership,controlling emotions,competitiveness, determination and social networking, among other scary items. The minimum age to access the camp is 3 years old, and the booklet is not exactly describing games, but rather hardcore EQ training from the start. It looks pretty successful too, with some 10 centers already open in China, as you can see in the map below.

Little girls learn to lift hands like Hu Jin Tao

Now I don’t mean to be more snarky than is strictly necessary on this blog, and I am afraid I might be looking at this from a very European angle. I am told in the US  as well as in China people believe in these things, and I respect you if you do.

But parents: please let the children play, meet new friends, prowl about the nongtang forming bands of little outlaws, ride the bikes around the compound like nutty Shanghai taxis and come back home every other week with a bruised knee and one tooth in the pocket. That will give them loads of EQ. I did that as a kid, and look where I am now, single handedly running Chinayouren.

And I just can’t wait to get the next pamphlet for a "Wacky Mouse Moving your Cheese Summer Camp for toddlers"

It has to be my lucky day. Today’s marathon meeting in Chongqing was aborted mid-session, and we had the whole afternoon for ourselves to explore the city in the mist.

The place feels like all the energies of China concentrated in one tiny peninsula. The result is not beautiful, perhaps, but it is intense.  By dinner time, my colleague was disappointed that we’d failed to spot any picturable monument, so I asked a taxi driver to show us the views.  He took us to this breathtaking spot on a nearby mountain called “One Tree” (一棵树):

Below, in the middle of the Yangtze, lies the city of Chongqing, and this view was in itself worth the visit. It is the best skyline I have seen in China.

It is not he buildings themselves, they can hardly compare with the towers of Pudong. It is something to do with the round perfection of the scene, the glowing isle on the Yangtze,  and the sudden revelation that there is some higher order in the dusty chaos below.

My colleague summarized it in a single phrase, that can be more or less translated to English: “She was beautiful from far, but far from beautiful” .

More bad news about the Crisis. Yesterday All Roads had another of those worrying posts: 3 Announcements and 2 Rumours, and not one of them good.

Still, on our return from the double New Year’s season, many of us are suprised to see the sky is not falling on our heads, and the dire predictions we did before the holidays have not quite turned true. Indeed, the Crisis in China seems to have a very annoying quality for bloggers: it is not happening. Yes, we’ve had bad news coming every week for the last months, we’ve seen experts we respect telling us how bad the unemployment is, how many factories are closing. And all of them are right, if we look at the numbers. Yet, on the street, no Crisis to be seen.

What is going on here? Who is taking our Crisis away, depriving the dismal scientists of their fair share of joy and fulfilment? And more importantly: is it not time to deem the whole affair a bluff, and go join the ranks of the optimistic, together with the guys at the World Bank and the CPC?

Where are all the Crises Gone, long time passing?

You might remember that post I wrote where I started out wondering about the different perceptions of the Crisis in China and in the West. 3 months have passed and this contrast is, if anything, sharper than before, as I have seen during my New Year’s travels. Right now Europe is bleeding, there is no question about this. China, on the other hand, looks to the casual observer like a normal, almost healthy economy. One cannot sense the Crisis.

In Shanghai, Zhejiang, Fujian, three of the engines of China’s economy, I have seen nothing going on but normal everyday life. The shops are full of people, “we hire” signs are on the windows, and taxi drivers remain for the most part optimistic - at least those who didn’t buy shares. One of them even told me: “Riots only happen in Guangdong, in Shanghai we are civilized”

Back to the office, in my work with industrial investors in China I see the same picture: while some Western clients have cancelled or postponed their 2009 FDI projects, not a single project has been stopped by our Chinese clients, which are all large SOEs.

The time’s for the Ox and don’t give me no Bull

Here are 3 reasons that might explain this strange gap between theory and observation: delay, transparency and inertia.

• Delayed effect: The crisis comes to China in a very different way than to the West. In our case it was a bursting financial bubble,  hitting us all with the speed of sound. In China, it is different. They didn’t have the “complex financial instruments”,  their financial system was relatively isolated. In China the Crisis is caused by exports and FDI, which is a far less explosive mix. Look at FDIs, for example: a typical project cycle to build a factory is 3 years, and there’s a point of no return somewhere in year 2, when the construction is mobilised and the equipment paid for. This introduces a long delay while the ongoing projects finish and until the absence of new projects cause panic in subcontractors. Same effect with the production of factories which had a large backlog in 08.

• Inertia: China is a massive system that has been moving at high speeds for 30 years. This doesn’t stop in one day. It is not only the phisical momentum of the thousands of ongoing projects, it is also psycological inertia. in the minds of many Chinese the system is strong, and there is no reason to believe in a Crisis that has never happened in their working lifetime. Behaviours do not reflect fear, and many go about their New Year’s shopping like any other year. Worse still, some seem happy to believe that it is America’s fault and this is an American Crisis; and mind you, not all agree that smart China need lend the old brother a hand.

• Transparency: This is the most important reason of the three, and the one that scares me most. For all the good things that one can say of CPC’s economic policy (yes, they did draw 300million out of poverty) there is one serious fault that nobody fails to notice: Lack of Transparency. With the largest part of the economy dominated by SOEs or following direct orders from the party, it is not unreasonable to think that there might be a bigger soup on the fire than we are led to believe.

I don’t want to cause alarm or instigate hoarding behaviours like that of our old professor, but this is not looking good. If there’s one single best way of making a Crisis more deadly, that is withholding information and letting it burst only when it is too late.

The two pillars of China’s growth in the 2000s were SOEs and FDIs. The FDI leg is seriously failing now, and the effects will be felt progressively. Even with all the financial might of the Chinese State, it is hard to imagine the SOEs taking the place left by the FDIs, let alone going out to take over the World. I cannot see the Chinese companies leading the effort, I can’t see their necessary creativity and initiative to open new markets to replace the lost export ones. All I can see is a bunch of Giant SOE’s which are better at leveraging their massive size and influence than at impressing us with their products.

There is something quite anomalous in this perceived calm of today, and this blogger thinks that he can smell a Rat. But the time is not for Rats anymore, it is for Ox.

Which is one 2 bits short of a Bull.

We are at the beginning of a historic week, and I just can’t not write about Obama’s inauguration. This blog is also about changing the World, and there is a chance that this Tuesday will be one of those days that changes everything. Call me a dreamer, but I want to believe that this new president of the USA will lead us to a better World, one finally based on the Rule of Law and not on the force of a few bullies. One where Western countries will not need to ask anymore for political change from China, because all know there’s no better teaching than leading by example.

Looking around the China blogosphere, I see some of the early birds have already done their Obama posts. There is this comparison of Obama’s inaugural ceremony with emperor QianLong’s, and Chinamatic here takes a look at one hilarious letter by a school kid. But I must say that up to now my favourite Obama post has been this one by Global Post. (h/t Peking Duck). I always liked the idea of interviewing a taxi driver, especially the chatty Beijing ones. These people get masses of information from all sorts of sources and can provide the best radiography of society. In this case, the taxi they chose sounds a bit conservative. He wishes Obama “to value Harmony”.

Now, one thing you don’t want to miss is the inauguration speech this Tuesday. For local info, it will be Tuesday night 12:30 China time and 17:30 West Europe. Whatever happens afterwards, this speech has all the chances of becoming a classic of political speeches. I dare say it might also become the most read/watched speech of all times: I’ve never known so many people in Europe and China preparing to watch a speech by a US president. Thousands of Chinese listened already to the election speech: We saw the Sensitive, who cried with emotion; the Ambitious, attentive to every detail of Obama’s technique; the majority, jotting down the new English vocabulary.

For American readers these links probably look too obvious, but for the rest: check out some analysis of the speech by previous presidents’ speech drafters, and here more details of the ceremony. Will Obama mention directly his ethnic background? Will he finish with “God bless America”, or with “I love you guys”? A whole lot of things to watch for Tuesday evening.

And what has Chinayouren been doing this weekend in preparation of the Historic Week? Well, among other things, reading Obama’s book in stereo Chinese-English. I bought these two books at the little stall next to my place, initially with the intention of getting some bilingual material to practice reading, but eventually captivated by the book and reading it all straight to the end (in English). As for the Chinese version, I admit I skipped a few pages and ended up in the passages where Obama plays with “Ma-li-ya” and “Sa-Sha”, which contain a vocabulary more adapted to my level.

By the way, if you are one of the thousands of Chinese out there trying to get this book, I would not recommend buying the daoban (fake) translation, buy the real one published by Han Manchun instead. The fake can be seen all over the place, riding on a thousand tricycles in Beijing and Shanghai, but believe me, I have some very serious doubts regarding the translation they are using. More about fake books in the next chapter I am preparing for this week…

I got a few email greetings today with this title and I found it particularly funny and adapted to year 2009.

For those who don’t do Chinese, 牛 means “Ox” or “Cow”, and in mandarin it is pronounced “Niu”, which sounds similar to the English “New”.  So Happy 牛Year is basically what Chinese picture when they say Happy New Year. Except that, like usual, characters carry a richer load of meaning.

The reasons why this year it is particularly suitable to say Happy 牛 Year are 3fold:

1- Of course, 2009 (starting January 26) will actually be the year of the Ox, or 牛.

2- 牛 in internet slang also means “confident, daring, impressive, amazing”. Usually applied to a person, I see no reason why we shouldn’t apply it to a whole year.

3- The term 牛, as in 牛市, is gaining acceptance as a translation of bull market. 2008 was the year where Shanghai Index crashed. Wishing some 牛 in Shanghai, where even taxi drivers have their economies strapped in the stock market, is sure to get you a warm welcome.

So there you go, it is only once every 12 years that you have so many excuses to say Happy 牛 Year. Carpe diem and grab every chance. Just remember when you say 牛 to stress the ascending tone, to make sure it is clear that you are not saying simply “New”. You can check out my 3Goose lesson for a comprehensive training in rising tones.

As a sidenote, although I don’t really believe in horoscopes I have googled the Ox for a bit to find out what the stars have to say of 2009. I ended up on the website of one well known Singapore Fengshui Consultant, and was quite shocked to read his forecast for 09, which starts and finishes like this:

2009 The year of the Ox will be arriving on Jan 26th. 2009 The year of The Ox will be a very intense year. The many significant incidents that occur will be sudden and deadly.

[...]

Wishing you all the best and good luck for the year of the Ox.

So, like Mr. Han, I wish you all the best for this Bull year, and hope to see you around on Chinayouren once in a while.

Happy 牛Year !!

Hm, no comments. I wonder what the readers are thinking of all this. I can picture some scratching their heads and trying to type in lines of zeros in their office calculator. “RMBs to the Moon? Rubbish! Show me the money!”

Here’s my little math for the non believers:

4,000,000,000,000RMB * (0.015m/10,000RMB)  =  6,000,000 m = 6,000 km
… Idem times 100 …  = 600,000km

The Mean Radius of the Earth is : 6,371 km
The Average distance to the Moon is : 384,403 km

If you are very picky you might say now that my stack of RMB notes doesn’t quite make it all the way back from the Moon. But that is only because you didn’t take into account the crumpling factor.

My base observation was made on a stack of clean, freshly baked 100RMB notes. Now try to pile up those crumpled oily RMBs that taxis hand you as change, and see if you can not come back from the Moon and probably go all the way around again.

Now that inflation seems under control, unemployment has been identified by most as the real threat to Chinese stability in 2009. The risk of massive layoffs and social unrest is so obvious that you hardly need an economist to identify it. My blue taxi driver was telling me about it only a minute ago.

In the media and the specialized blogosphere we’ve seen many articles lately discussing the problem of closing factories. Mostly wondering how bad the situation really is, or how the government will be able to deal with it. Interestingly, opinions come in waves, one week exaggerating the damage, the week after dismissing it as seasonal closings.

Which just comes to show that, in times of crisis, bloggers and economists are all equally clueless.

The World Bank, Economists and Chinese Characteristics

The other day I commented the latest World Bank Quarterly Report, and I raised the issue that it does not take into account some obvious non-economic factors. Today, after reading the latest post on All Roads I went back to the WB report and performed a search for “unemployment”.

The number of results for this search in the 23 pages report is: 0.

Fair enough, there are 5 instances of “employment” (think positive), but most of them are explaining how the Magic Stimulus Plan is going to solve all the problems. The more I read it, the more I see this Report as loaded with Chinese Characteristics. It has been done in Beijing, by a mostly Chinese team… and like I said, it carries a highly suspicious 7.5% projection.

In spite of this, the WB report is an informative read, and one can hardly be surprised that an international institution tries to avoid conflict with one of its member governments. But what I did find quite surprising is that econoblogger Brad Setser’s analysis of the report doesn’t even mention unemployment either.

This is what made me think that we are going to need something more than economists if we want to see clear in the China 2009 scene.

Recommended Reads for the Fall

So, with all due respect, I have to desagree with Mr. Setser’s advice: If you only read one thing on China this Autumn, do NOT read the World Bank Report.

But then, what to read? Who knows really what’s going on in China?

Let’s analyze the root of the problem: China is not a transparent System. Even worse, unlike other non-transparent countries that we are used to deal with, China is a highly influential country. And it is in a position to not only hide the facts behind a painted veil, but also actively manipulate information and have hundreds of experts around the world scratching their heads.

So the answer to the question “Who knows China?” is:  A bunch of old men that are sitting in Zhongnanhai.

Now, forget your google, you will not find the Politburo Standing Comitee Blog, they will not take your phone calls to arrange an interview or explain their actions.

But what they actually DO every day is leave lots of traces, from the articles on the Chinese press to their announcements in economic policy. And these traces we can track down to the real intentions and the real information that they’re handling.  So it is by reading between the lines of People’s Daily, Xinhua and the likes that you can get a clue of what is going on here.

In conclusion, to understand China, economics is not enough: we also need politics.

Political Economics

So if you are only going to read one thing on China, I suggest you look for a political economist.  For example the blog of Victor Sish, which I discovered recently. He is a professor of political science at Northwestern University specializing in Chinese politics, and he also writes on Nourini’s monitor. He has a keen eye for interpreting the news from a Chinese government perspective. Don’t miss his last post on unemployment. For my part, I’m adding him to my Roll.

In fact, I am opening a new section on my Blogroll for Chinese politics and economy, and I would be grateful if you can recommend some other Crisis Watching sites, in English or Chinese. I am looking for sites that focus on making sense of the Chinese government’s moves.

Any more missing Links? Tips welcome. Thanks.

Picture credit: The shade of Zhongnanhai by Zhongnanhai 10毫克.

The other day it was too cold to get my Linder started, so I had to go and flag a cab instead. I got one of the green chubby ones.

Green cabs are well known for being stubborn, having a true passion for History and polishing their nails 5 times a day. Remember: never never sit in a green cab during the morning rush hour.

Conversation between me and the GReeN Taxi:

ULN - Hello. Please take me to Yueyanglu.
GRN - Yuyuanlu?
ULN - Of course.

<… flag pull and commercial …>

GRN - Your Chinese is Amazing! <..lah-didah..> hm, what’s your country?
ULN - I’m from Spain.
GRN - Barcelona-Real Madrid-Ronaldinho: Good football!
ULN - <?> And don’t forget bullfighting.
GRN - Ahahaha! Yes, yes, Spain has bulfighting!!!
ULN - You saw it before?
GRN - On television..
ULN - Hm.

<… swerve, honk at cyclist …>

GRN - What else does Spain do?
ULN - What?!?
GRN - In History. What is famous of Spanish history?
ULN - Ah. Er… Spain… discovered America?
GRN - Haha, You mean that Spain WAS discovered by America.
ULN - No, no. I mean Spain discovered America. Sort of…
GRN - Ha! Spain is a very little country.
ULN - It is if you compare it with China.
GRN - You know, you shouldn’t always believe what your government says
ULN - ?

<.. ! ..>

Finally Friday. It’s been an exhausting week and I feel like I need a little break. Sometimes I wonder why I ever took up Crisis Watch as a hobby. Other China blogs watch cool things like Scandal, or even Shoes. But Crises are an awful thing to watch, believe me. You watch it for a few hours and numbers swim before you eyes like a Gaggle of Geese.

Fortunately, we still have the Learn Chinese post of the week to do. So here we go. Today’s tip is sponsored by Chinese uber-teacher Fu Ting.

It is called: The Goose, the Goose, the Goose!

Anyone brought up in China will be familiar with this little poem, but surprisingly few foreigners know about it. It has a very interesting story that you can read in detail here. The poet Luo Binwang wrote it about 1400 years ago, when he was only 7 years old. It goes like this:

Now, the essential thing to remember is the Rising Tone of the Goose: 鹅. You have to pronounce it stretching your neck and pulling your head back, just like a Gandle would do if he caught you messing with his Goslings.

It is very important to master the gaggling technique before we can proceed. Practice in front of the mirror or go to the Bird and Flower Market in Shanghai and find a professional Goose to coach you. Beware: a slight mispronounciation of the Rising Tone can have you saying extreme things such as: Hungry (饿), or Disgusting (恶), or just plain Crocodile (鳄).

OK, now we are ready, here are the INSTRUCTIONS. The Goose Trick can be used for the following purposes:

1- If you want to see how your Chinese friends looked at age 7.

Have them recite the Goose. This is a poem that many generations of Chinese children have learnt by heart, memorized in that childish singing way. You will be surprised with the results. I got some spectacular performance from the old flower lady down the road, she got carried away. Didn’t work so well with the bicycle repair man.

2- If you want to sound cocky and in control of the situation.

For example, when you are stuck in the Shanghai Taxi Comic Dialogue:

- Dai wo qu YuYuanLu!
- WuYuanlu?
- YuYuanLu!
- YueYangLu?
- YuyuanLu!!!
- Huh Huh huh ??
- 鹅, 鹅, 鹅!! -> Qu xiang xiang tian ge…etc.

3- When you are in the wild and you encounter an aggressive Goose, the kind that would snap at your picnic sandwich before you have the time to open your electronic Dictionary and Thesaurus.

Final tips: In case your mandarin mental age is under 7, you probably can’t figure out the quackings of a 7 year old poet. Here you have some rather creative tranlations from Baidu. I especially like the last one, by a blogger called wangwuming. It comes with rhyme and all:

Quack Quack, merrily sings the goose,
Raising its head a tune from its mouth pours.
Bule water moors the white feathers,
Its red palms ply the waves as oars.

So that’s all for today. Have a nice weekend and happy gagglings!

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.

During my travels these last weeks in Europe and Asia, and on my return to China, I have observed some rather striking contrasts. So much that they made me think a lot about the present state of Chinese economy, and here is a word about it.

Two different ways of seeing the world

I was in Europe for the last time the week that Lehman Brothers declared bankruptcy - some call it already “Meltdown Monday”. Pretty scary, but the news didn’t seem surprising for anyone there.  Ever since the beginning of the year most people had seen the crisis coming. On the Spanish beaches, there were less tourists to be seen this summer, and the variable rate mortgages were getting stiffer for all. The governments that were not in electoral campaign had profusely announced what was to come.

That same week, during a congress in Lyon, the American guest from the marketing consultancy came out to the stand and presented the prospects of our industry up to 2010. He had a very professional looking PowerPoint with some colourful graphs that vaguely reminded me of the slides in a waterpark. The delegates from the rest of the countries looked bored, and only we - New Delhi, Kuala, Shanghai - were hurriedly taking notes. Nobody had shown us that back home.

The whole atmosphere I encountered in Europe was in stark contrast with what I had seen and what I am living still today in China. The crisis has not yet touched this country. The taxi drivers at the airport, who usually know a good deal of economics, don’t even mention the word crisis. On the corporate side, the contrast is even bigger. Most of my local clients, who take a WSJ for breakfast every morning, are not only not worried, but they actually look at the future with renewed optimism. They know that a big crisis (危机) is also a big opportunity(机会). In an intuitive language like Chinese, the two words share one single character.

The Great Wall of China

The prevailing thought here seems to be that of the Great Wall of China: Confident and proud of their financial system which has resisted the negative western influence, Chinese at all levels are convinced that the crisis will not hit them hard. To reassure them, there is the precedent of the 1997 Asian financial crisis, which devastated the Asian tigers’ economies and left China, the only country strong enough to ignore the  western blunderer IMF, mostly unscathed.

The media here have already been speaking about the crisis for a while, but always as an external problem, and with a generally positive outlook. The official Chinese press is prudent as usual, but the general idea still seems to be that China shall be the word’s bastion of stability against the irresponsible western financial devices. Thus the official discourse goes: Growth to slow down mildy, there will be some  restructuring to boost the domestic markets, and we will come out stronger in the end. And in everyone’s mind is the opportunity for Chinese companies to go out shopping for deals in capital thirsty western counterparts.

Of course, Chinese are aware that international markets are the weak link, as a large part of the GDP is made up of exports to western countries and FDI. But they count on two factors  to ensure the minimum of vital growth required by the system. On one hand, the massive ongoing investments in infrastructure that expand their tentacles day after day to each end of the country. On the other hand, they bet on the development of Asian markets to counter the descent in Western demand.

In view of all this, the new priorities of the technocrats, as they explained last week in our industry briefing in Beijing, are: 1- Develop the markets to find a way out for Chinese production, and 2- Take advantage at the worst of the crisis to go out and acquire foreign companies, and achieve through these means the creation of truly global corporations, with an access to know-how and technology which is much more direct than that obtained from FDI.

The Great Wall of China, the myth that for millennia has defined the Chinese people, is born again in the realm of finance. And, shielded behind it, the sons of the Dragon hope to regain the glory of past times.

A weak point in the Wall

There are however some signs indicating that Beijing’s plans might not work out so cleanly. In the first place, although the Chinese financial system, entirely controlled by the government, has indeed remained more conservative than the western one, this does not make it in itself an efficient system. A series of failed investments in the near past, such as Blackstone or Bear Sterns are good examples. And the opacity typical of the large Chinese banks, heavily influenced by the Communist Party, is not precisely the best guarantee of success.

It should be noted as well that the very foundations of the Great Wall, the massive reserves of foreign-currency held by the Chinese government, may not be the solution for every problem. Most people in China fail to understand that the foreign-exchange reserves are not free assets, and cannot be used freely by the government without seriously affecting its monetary policy, or rather, as professor Michael Pettis calls it, its currency regime. Indeed, until the domestic market is strong enough, China will be forced to keep the RMB as low as possible to keep up with the exports, which will completely condition the freedom of its policies.

Looking at the markets, already several observers have started to note the fall in sales of Chinese companies. It is very doubtful that the Asian Markets can grow sufficiently quickly to absorb the growing Chinese manufacturing output. In the end of the day, Asian markets mean India and Russia, the only two countries with a critical mass to match Chinese needs. They are both strangled by serious structural problems to be able to respond quickly enough to China’s needs. And the hesitating actions taken for land reform to increase the consumption of peasants might be a good idea in the long term, but it sounds very optimistic to bet on domestic consumption in the short term.

Add to this that Chinese economy, in spite of being in the middle of a development miracle, has severe structural problems, partly derived from its political system, as commenter Will Hutton brilliantly puts forward in his book “The Writing on the Wall”.The lack of a “soft” infrastructure, as he calls the ensemble of characteristics of a civil society that are necessary for the proper functioning of a market economy, makes China a very vulnerable system. It is symptomatic, for example, the total lack of internationally recognized brands, or the many cases of mismanagement, such as the recent case of baby milk contamination.

Beijing taken

But there is a much more worrying aspect, which derives precisely from the Great Wall effect. Historically, the Great Wall of China has not been effective to prevent barbarian invasions, and in a way it has often had the opposite effect. The Han people, protected by their Wall, had a tendency to feel invulnerable and live with their back to the North. In 1644, when the Manchus crossed Shanhaiguan, they took the Chinese by surprise. Beijing fell very quickly (to internal rebels in the frst place), and the last of the Han emperors was left with no choice but to hang himself from a Pagoda tree at the Jingshan Hill, right behind his forbidden city. This is History. But it is a story that has too often repeated itself in China, and which can revive under a new shape in the XXI century.

It is well known, and the economic miracle of the last 30 years is a proof of it, that Chinese economy is guided by a corps of well trained technocrats who know very well their subject. And undoubtedly Zhongnanhai must have a Plan B readily prepared for contingencies. But it seems clear that, as much as they might want to prepare, if the crisis hits hard in China, the scope of reaction of the system is very limited by its own structure and its own people.

Indeed, the great majority of Chinese workers, unlike their western counterparts, are ill prepared to face a crisis, let alone to understand it. Ever since the end of the Cultural Revolution, they have only known 30 years straight of growth. The Chinese people has kept silence since the summer of 89, when Deng and the Red Army made them understand that getting rich comes first. Since then they have accepted injustice, inequality and corruption in exchange for national pride and a notable increase in material conditions. The day the system fails to deliver, due to unemployment, inflation, or other crisis effects, the pact of silence shall be broken.

Unlike our governments, the Chinese Communist Party will be unable to shield itself behind an international economic situation that its own people do not understand. And all its legitimacy,  based on economic development and on the dubious legacy of Mao, can vanish overnight. China needs a minimum annual growth to employ the massive wave of peasants that are migrating to its cities, the biggest migration in the history of humanity, as the topic usually goes in China comment books. The leaders know this very well, and the 7.5% of annual growth that they set as a goal in the 11^th Five Year Plan is probably about the minimum they estimate for the whole formula to add up.

It the Wall falls in these circumstances, as in the Ming period, the psychological effect could be devastating. And when the forces of the hundreds of millions are unleashed, the bureaucrats in Beijing might have no other way left than the one of the (political) Jingshan hill.

Possible outcomes

We might be right now at a turning point in the process of development of modern China, which will seriously impact the course of history in the XXI century. This year 2008, the one of the 30 anniversary of the beginning of Deng’s reform, marked by a series of disasters, and rounded off by the spectacular success of the Olympic Games, might well be the year in which everything changes. In the Chinese tradition, natural disasters, and earthquakes in particular, have long been omen of political change. The last serious earthquake was, precisely, in 1976.

Whatever happens, whether the Chinese Wall resists or not, the international crisis shall precipitate many changes in China, and in the rest of  the world we shall do well to keep a watchful eye on these events, because they shall have a major impact on our own lives.

If the Wall resists, Westerners will be forced to admit the validity of the Chinese economic system. Chinese capital shall go out to the world. Taking advantage of the opportunities provided by the crisis, Chinese economy may take in a very short period of time a decisive leap, and under the solid supervision of a regime legitimized by its success, it can spectacularly accelerate its progression to become a superpower. In a very short period of time, the most optimistic of predictions for China can become true.

If the Wall should collapse, on the other hand, Chinese economy may suffer a rapid decline, with almost immediate social and political consequences that may drag the rest of the world into a crisis that could go beyond the purely economic. The outcome in this case is much less predictable, and only mutual understanding and tolerance among the peoples of the world will avoid disastrous results.

So is the crisis hitting us or not?

The greatest economists have historically failed to predict crises, and are rather better at analyzing the problem “a posteriori”, finding out that it was all very clear after all. Crises are by definition unpredictable, so the point of this blog is not to guess whether or not the Great Wall of China shall resist this time the barbarians.

Instead, the conclusion is that, whatever the outcome, the role of China in the world is going to change radically as a result of this crisis. In the meantime, CHINAYOUREN will be here to inform you and keep a watchful eye on the Crisis and the Wall.

EDIT1: Deleted little rant against Western Media. Added shameless promotion of CHINAYOUREN.