Business and Finance

Good News, But Bad News Will Keep Coming

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In the wake of the Xinjiang riots, mass casualties and plenty of unwanted press, Chinese leaders were undoubtedly hoping for some good news.

They did not have to wait long. Little more than a week after the Urumqi riots Chinese authorities announced that the Chinese economy had grown by a healthy 7.9 percent in the second quarter of 2009. Compared to the West, this is a spectacular achievement and an encouraging sign for all those that saw the end of the world coming just months ago.

To the surprise of many seasoned China analysts and economists, China’s stimulus package managed to inject much-needed capital into the industrial sector; succeeded in offsetting the worst effects of massive export-industry layoffs by employing migrant workers in government projects, and perhaps most importantly, ensured that government-owned banks continued to lend despite the downturn. Even retail sales rebounded, the government announced, indicating that the Chinese consumer is still feeling confident and secure (unlike the rest of us).

Heavy-handed government intervention in the economy, the Chinese would argue, has allowed the Chinese to outperform other world economies and trump expectations. In the face of gloomy unemployment numbers from the US and UK, and weaker than expected performances of many regional neighbors, China is charging ahead economically when others are struggling. Add to that political turmoil in arch-rival Japan’s camp (and the threat of a renewed terror wave in Southeast Asia) and China may indeed feel quite confident in its future.

Yet, such good news masks the real issues underlying the bad news from last week. The perceived harmony of the Chinese juggernaut was shattered (again) as ethnic Uighurs took to the streets to confront their Han-Chinese countrymen. The violence escalated to unprecedented levels and despite government attempts to shape the news story in a less-damaging way (NYT’s Lede blog has an insightful piece on the management of dissent in China and Iran), it served as a powerful reminder of the vast challenges China faces if it hopes to remain united in its quest for wealth and increased international influence.

The management of ethnic diversity is one such challenge, while political and other popular pressures is another. The Tiananmen anniversary, and indeed the recent riots, showed that China is still struggling to create space for the airing and processing of grievances. Minority peoples and dissenters, it seems, are getting the same heavy-handed treatment as bank managers and migrant workers. While the latter creates economic growth, the former feeds internal turmoil and exacerbates long-term tensions.

Failure to deal with these challenges on a case-by-case basis is making it increasingly likely that bad news will just keep coming.

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