Last week was an eventful one for China. First, the People's Bank of China shocked the financial world when it cut the yuan's reference rate against the U.S. dollar by nearly 2 percent, leading to a greater than 2 percent drop in the value of the yuan in offshore trading. The decline triggered a frenzy of speculation, including some expectations that the Chinese move would trigger a race to the bottom for Asian currencies. Beijing said the adjustment was designed to fix distortions between the trading rate of the yuan and the rate it should have been at according to speculation, and that subsequent large shifts were unlikely. The International Monetary Fund, however, noted that the move could lead to a freer floating yuan - something the IMF has asked of Beijing before the organization considers including the yuan in its Special Drawing Rights basket of currencies. In comments made on the sidelines of its annual report on the Chinese economy, released later in the week, the IMF also noted that the yuan was not undervalued, despite the decline.
Also last week, Chinese state media issued a warning to retired officials to stay out of politics and not misuse their former networks and prestige. The warning followed reports in state media suggesting that the annual unofficial gathering of current and former Party officials at Beidaihe was canceled and would not serve as a policy-making venue in the future. The reports noted that Party officials had already held several additional sessions in Beijing and that decisions were being made in the open, not in some secretive gathering of Party elders. Other reports circulating in Chinese media warned that former Party and military officials were involved in real estate speculation along with other economic mismanagement and needed to stop.
Finally, last week China dealt with one of its worst industrial accidents in years - a series of explosions at a chemical short-term storage facility in the busy port city of Tianjin. More than 100 people were killed in the explosions and aftermath, prompting the government to launch an investigation into illegal storage and improper safety procedures at that and other facilities around the country. Citizens have begun small-scale demonstrations in Tianjin to demand government reparations for damages as a result of the blast. In response, Beijing stepped up its media campaign against rumors, using state media to remind the public that the government publicly charged a Politburo standing committee member with corruption, so the public can trust the government to be open and not hide a conspiracy surrounding the Tianjin blast.
If there is a common theme running through these events, it is the way Beijing is emphasizing its openness in decision-making, in reporting and in explaining its actions. This is not the China of the past that tried to hide the truths of major natural or man-made disasters from its citizens. It is not the China that operated by secret agreements made only after a consensus of Party elders, or the China that tried to protect Party officials at the expense of the public. Nor is it the China of tight currency controls, amid fears that the vagaries of global markets could affect China's economic regulation. Or at least that is the message Beijing is trying to send. It is a message perhaps meant more for domestic than international consumption, but one that recognizes that neither abroad nor at home is there a lot of trust in the Chinese Communist Party or the government to pursue a transparent policy. The taint of corruption, collusion and nepotism remains strong and is perhaps even reinforced by the breadth and depth of the ongoing anti-corruption campaign.
Old Systems Become Obsolete
The reality is that China is in the midst of what may be its most serious crisis since the days of Deng Xiaoping. And the model of government and economy Deng put in place is no longer effective at managing China, much less shifting it in a new direction.
