Monday, January 23, 2012

China: The Eye Of The Dragon

Today, January, 23 marks the beginning of the Chinese Year of the Dragon. Of all the year signs the Dragon is considered by the Chinese to be of great importance. To be born in the year of the Dragon is to be born to all that is good, powerful and prosperous.

Dragons, therefore, are very important symbols in Chinese culture. In ancient China they came to be seen as a symbol of power, strength, success, luck and honor. So much so that they emerged as a representation of the imperial power of the Chinese emperors.

Unlike the representation of dragons in western culture, the dragon, in Chinese culture is quite a different “beast”. They are not seen as fire breathing, bloodthirsty creatures but, quite the opposite, are viewed as being wise and caring, possessing of personalities, and exhibiting magical powers.

However, Dragons were capable of turning into beasts if they were angered.

What significance can the Dragon Year be for China and what will the year ahead hold? 


China has been and is riding a crest of a wave. Economically, despite the doomsayers predictions of hard landings, China is in a relatively very good position. Her growth rate remains high, if less than previously experienced, and but still ranking her at number 6 in the world. Positive structural changes have occurred and will continue to occur. Recently, for the first time, China's urban population became greater than it's rural which proves structural changes are occurring and following the historical path of a country moving from a status of undeveloped to developed. Importantly domestic consumption is increasing which is a good sign on several fronts: Firstly, strong domestic consumption will act as a buffer, to some degree, from adverse international economic factors, and, secondly, it's positive effects on international economic relations vis a vis claims of China and currency manipulation.

Structural changes are also being witnessed in the small manufacturing enterprises (SMEs) sector and the State owned enterprises (SOEs). SMEs are being rationalised as competitive advantages brought about by cheap labour and an undervalued Yuan is ever quickly being whittled away. Capital will desert the less performing businesses and industry sectors and be re-channeled to less labour intensive and more capital intensive industries. We will witness continued failures among SME's and these, no doubt, will be heavily reported on but will have no significant bearing on the economy as a whole.

SOEs have also been going through a restructuring and repositioning over the last several years and this will continue. More accountability being required of them is very positive and this too will continue restructuring of this sector as less performing organisations are forced to close or amalgamate. Two sectors this has been quite evident in is agriculture and energy, particularly coal mining.

There are areas of concern that exist and bear close watching however. Inflation and Local Government Debt. Recent figures out of China see a rather remarkable turn around in the inflation figure, so remarkable in my view as to be suspect to some degree. China is not unknown for it's production of “rubbery” figures across all statistical data, be it economic or social, and rampant inflation has always been an”Achilles Heel” for the regime and one much feared. Every social upheaval in China has been preceded by high inflation and manipulation of figures to the positive is much in the regime's interests.

Local Government Debt and it's level is something that is extremely hard to get a handle on even by the best of economists and economic commentators. The only real measure for mine in this area is whether the government “doth protest to much” that there is not a problem, and that, they have been doing quite a lot of. Despite the enormity of a major LGD problem and it's potential dire consequences of it coming to a head, my gut feeling is that it has been identified well in advance and contingency plans will be well in place, if not already being activated behind the scenes. The Dragon's Honour is at stake here and will not be allowed to be tarnished.


China has recently, and very uncharacteristically, been asserting herself rather stridently on the world scene. From statements by low level party and government apparatchiks to state media organs, a certain swagger has arisen in China's Foreign Affairs. How much of this is real, how much is just a lack of central control or how much it will be affected by the “Dragon” is open to conjecture. The “Year of the Dragon” and it's cultural connotations can not be brushed off as to it's subliminal influences on Foreign Policy. No truer is this than with the issue of the South China Sea. Nationalism is on the rise in China and it is coming from the grass roots and can not be ignored by the regime. Undoubtedly unbridled nationalism is not in the regime's interests and they will do much to hose it down but it can not be ignored by them. We therefore can expect to see more blustering but that is all it will be: bluster. If anything, given the coming leadership transition, we can expect to see more internal rather than external focus by the regime.


  • Migrant workers: The government and the CCP, obviously, from state media coverage and some reforms that have been mooted or implemented, have recognised that issues adversely impacting on China's migrant workers must be addressed as a matter of priority. As a demographic they are vitally important to the economy but also their size and social-economic profile point to them as being potentially a great force for de-stabilisation and social upheaval. In the coming year we can expect to see an increase in industrial action and even re-runs of the Guandong riots of last year. Whilst the Hukou system is unlikely to change in substance we will see minor tweaking in the areas of education and health. The “Spirit of the Dragon” will most definitely come to play in this area for both migrant workers and the powers that be. 

  • Ethnic Issues: Major issues have developed over the last year which are both worrying in themselves and portent for worse to come. Tibetan self-immolations, considerable bloodshed among the Uyghurs and uncharacteristic rumblings from the usually quiescent Hui Muslims does not bode well for the Year Of The Dragon.The connotations of the Dragon, rising nationalism and increasing resentment and action by particularly Tibetans and Uyghurs will mean a much harder line being taken by the regime generally, but more particularly, local officialdom, resulting in considerable trouble most likely to surface this Chinese spring and summer. 

  • Local issues: The seeming success of the Wukan protesters will imbue a sense of empowerment among local issue takers which will  lead to increasing incidents of the ilk. It will however be premature. Appeasement will be taken only so far before the Dragon is awoken in this arena and the people will be put back into line subtly or not so. 

  • Leadership transition: Nothing but an orderly leadership transition can be expected, nor can the outcome as to President and Prime Ministerial positions not to be as expected, don't, however, look for Bo Xilai in the winner's circle. 

The Chinese Dragon may be a cultural concept but do not underestimate it's importance in the Chinese psyche. It is one that will indirectly affect many areas of China in the coming year. The overall concept of the Dragon and with it's imperial connotations, will be subconsciously taken into account in all decisions taken by all Chinese this coming year, from the maligned migrant worker to the oppressed minority, from the lowest official to the highest. It's symbolism of power, strength and honour will be surely felt and the "spirit of the Dragon" will  in each and every Chinese  turn into a beast if angered

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