CHINA LAST WEEK played out the 25th anniversary of the Tiananmen Square massacre with characteristic sangfroid. Dozens of activists were detained for weeks to prevent them commemorating the slaying of the crowd of students who had gathered to demand democratic reform a quarter of a century ago.
By contrast Hong Kong last week hosted a candlelit vigil that was attended by a record 180,000 people in the most poignant and relevant remembrance of that modern day atrocity to be staged on its June 4 anniversary. Taipei’s Tiananmen memorial garnered a crowd of 500, while Beijing checked identity cards and restricted access to Tiananmen Square lest any public displays of memorial break out.
Xi Jinping, China’s president, promises reform and yet behaves in paranoid fashion, seeing potentially terminal rebellion in what would simply be a gesture of remembrance to one of the most notorious acts of state-sponsored violence of the late 20th century. Former German chancellor Willy Brandt famously knelt before a Nazi holocaust memorial in Warsaw in 1970 in an act of atonement for German war atrocities which subsequently became known as the “Kniefall von Warschau” or the “Warsaw Genuflection.”
It was the right thing to do and simply provided more momentum to a movement of reconciliation and national self-examination that had grown out of the ruins of post-Second World War Germany.
China’s new leadership could demonstrate a similar spirit and allow a vigil of the sort held in Hong Kong to take place in Tiananmen Square. That won’t happen. Instead the new wave that has hit the Chinese Communist Party under Xi Jinping’s leadership is all about stamping out corruption rather than addressing the well-documented tragedies of China’s past, including most notably the “cultural revolution” of the 1960s and 1970s in which tens of millions suffered.
What an extraordinary breath of fresh air it would have been if President Xi had allowed such a memorial to go ahead. I imagine, with my most nerdy hat on, that China sovereign CDS would have rallied at least 20bp on the back of it. Well, I should dream on, as they say.
IN THE MEANTIME the jury remains out on just what we might expect on the subject of China’s economic growth. Nomura recently upgraded its forecast of 2014 Chinese GDP growth from 7.4% to 7.5%, based on perky May PMI data. Still, the Japanese house expects growth to fall back to 6.8% next year, a worrying forecast since 7% growth is supposed to be the tipping point for mass social unrest in China.
Interesting times, then, for China. And, no doubt, for the rest of us since some worrying economic phenomena are creeping into the global economy. Deflation is reappearing in the eurozone. Last year only two major economies reported deflation: Japan and Switzerland. Now 10 countries report deflation, including in the eurozone, Cyprus, Greece and Hungary. Ironically, having been the global poster boy for deflation for so long, Japan now reports inflation, even if it may prove a temporary change in appearance, rather like that of an emo kid uncertain of his own identity.
Japan aside, the last thing the global economy needs right now in the midst of a fragile recovery is for China’s economy to turn insipid. You would probably have to bet on the “Beijing put” to keep the show on the road for now, but there’s no doubt that the market is increasingly focused on the possibility of a hard landing in China.
There’s no doubt that the market is increasingly focused on the possibility of a hard landing in China
A HARD LANDING is basically falling off the economic cliff after years of steady, eye-popping growth. It tends to happen to emerging-market economies playing “catch up” with the wealthy west, and China has been doing that for the past 25 years, all the way back to the soul-searching of Tiananmen.
But in the conjecture about whether China’s landing will be hard, soft or no landing at all, it’s worth remembering that the country experienced a major economic wobble in the 1990s involving the scandalous (at the time) bankruptcy of the Guangdong International Trust and Investment Corporation. Known as GITIC and the most aggressive of the country’s “ITICS” – a rather spivvy group of state-owned enterprises with a great talent for losing money on dodgy punts – the company went bust in 1999 to the tune of US$4.5bn.
Around the same time, the pile of non-performing loans at the big four banks were parked in asset management companies, allowing the banks to rebuild their balance sheets and attract commercial shareholders.
NPLs are on the rise again in China and I’d reckon that a few more “bad banks” are needed to absorb the toxic debt that has been accumulating in the country over the past decade or so. That may be the simplest way of ensuring the growth rate doesn’t go hurtling over the cliff. And China has done it before.
Most of the top brass who watched the wobble of the late 90s “ITIC” crisis in China remain somewhere near the top ranks of power. They may not be the most innovative of creatures when it comes to allowing symbolic public gestures, but they certainly know the value of assuring everyone that everything’s OK. The “Beijing put” is alive and well.