Chinese Instability?

Some commenters have noted that it is not necessarily a good idea to buy equities in a nation that is about to become a global superpower. And so it was following the 1929 crash as Britain descended, and America — encumbered by a historic depression — ascended. Certainly, investors buying equities in 1929 might never have recovered their purchasing power until the 1960s:

So while China is ascendant, and arguably — on the strength of being the spider at the web of global trade, the biggest consumer of oil, its huge foreign exchange reserves, and (most importantly) the globe’s major productive base — already pulling ahead, things might well still be volatile for China. Certainly, it seems a volatile time for many Chinese; the nation lacks a public healthcare system, workers are frequently injured or killed in industrial accidents, air quality is often poor, pollution is still rampant and free speech is still an utterly alien concept. But on the other hand, they are blessed with very high rates of growth backed by very high rates of growth in real productivity, high levels of saving, and low levels of net debt.

And it seems like a recent schism in China’s leadership could worsen matters.

From the Washington Times:

U.S. intelligence agencies monitoring China’s Internet say that from March 14 to Wednesday bloggers circulated alarming reports of tanks entering Beijing and shots being fired in the city as part of what is said to have been a high-level political battle among party leaders – and even a possible military coup.

The Internet discussions included photos posted online of tanks and other military vehicles moving around Beijing.

The reports followed the ouster last week of senior Politburo member and Chongqing Party Secretary Bo Xilai, who was linked to corruption, but who is said to remain close to China’s increasingly nationalistic military.

Chinese microblogging sites Sina Weibo, QQ Weibo, and the bulletin board of the search engine Baidu all reported “abnormalities” in Beijing on the night of March 19.

The comments included rumors of the downfall of the Shanghai leadership faction and a possible “military coup,” along with reports of gunfire on Beijing’s Changan Street. The reports were quickly removed by Chinese censors shortly after postings and could no longer be accessed by Wednesday.

While it is impossible and foolish to try and draw larger conclusions from these snippets of information, it is fairly safe to say that if true, Western leaders — spooked by the various authoritarian Eurasian and pro-Chinese governments who have ditched the dollar for bilateral trade — will be keen to see some of the spirit of the Arab Spring on the streets of Beijing. Of course, American commentators may not be so happy if a radical protectionist anti-American faction of the military — intent on defending Iran from Israel, and exporting less goods and components to the United States — takes control of the nascent superpower. 

But such a military coup seems very unlikely. The likeliest view is that this is simply the inevitable ouster of a Communist Party figure who simply didn’t fit in, in a country where for the political class fitting in is still exceedingly important.