All those reserves....

Flow on effects
A recent comment from one reader questioned the likely effects of a China slowdown on some of its key trading partners.  As has been discussed previously there is concern amongst exporting economies of the effect of a China slowdown.  The previous week saw negative reaction to BHP executive Ian Ashby's comments of flat predicted Chinese steel demand, while recently the currency and stock markets in Canada, Australia and New Zealand have all declined on expectations of lower Chinese growth.  The FT Alphaville blog had some interesting figures out from researchers showing the growth of imports into China as exports have stagnated and which also singled out Australia and Brazil as having a particularly high share of their exports to China thereby making them vulnerable to a slowdown.

For Canada, which has a US focus but is vulnerable through commodity prices and by the fact that many Chinese companies and companies with China exposure are listed on its sharemarkets, this piece from Reuters had a couple of soundbites from researcher Murray Leith at Odlum Brown in Vancouver:

...The Canadian stock market is very geared to economic growth in China. If China slows, commodity prices moderate and because resource stocks constitute close to half the index that has negative implications....

It will be interesting to see how this develops.

Keeping a big rock in place
To a more long term issue, a fairly common point reached in China discussions in the size of the country's foreign reserves. They're huge, over $3 trillion and are considered by most to provide a sufficient firewall for any potential crisis the country faces.  A lighthearted survey by the Economist of just how many enormously sized things such an amount could buy is here.

Substantial foreign reserves have been de rigeur for emerging market economies for over a decade - in order to protect against fluctuations and rapid devaluations which can follow foreign investors quickly withdrawing direct investments (including speculative capital flows or "hot money") compounded by short sellers wading in to make quick profits betting on further declines in the midst of a crisis.  The lesson many Asian and emerging market countries drew from the Asian Crisis in 1997 was to build up an arsenal of foreign reserves to out-buy any speculators and compensate for any rapid capital flow shortfalls in future.

This need for security against financial contagion seemingly dovetailed nicely with China's longstanding trade policy, which is to achieve large trade surpluses by relying on an undervaluation of its currency, the Yuan or Renminbi (RMB) in particular with its largest trading partner the US (and its currency, the dollar).  As Krugman explained early on in the crisis, this policy wasn't necessarily anticipated or deliberate, but certainly China was locked into accumulating foreign reserves early on - with one problem being that China's reserves were concentrated in US dollars (through China's holdings of US Treasury Notes or debt) which made them vulnerable to falls in the dollar.

At the time there were calls to expand the use of Special Drawing Rights as an alternative to US dollars, although these fell silent and China's planners instead launched the internationalisation of the RMB, which is now used in trade settlements, some instruments and limited capital flows.

China's FX agency...has a few spare yuan down the back of the desk...

However steps to liberalise the capital regime have been gradual and even with some diversification by China into currencies such as the Euro and some overseas M&A, China's gargantuan foreign reserves still have weaknesses.  They do still hold a large position in US Treasuries which would be hard to liquidate (lest their remaining US dollar reserves would fall in value).  The amount of dollars they have to buy makes maintaining the currency peg - buying up all the excess dollars, expensive, while the Central Bank also has to  drain the resulting excess resulting RMB liquidity from the financial system by "sterilising" (requiring banks to buy debt or increase the amount that they must hold in reserve), an imprecise procedure when the Central Bank uses the same tool to conduct domestic interest rate policy.

In general there is no transparency about the precise nature of the reserves and the extent to which the reserves are in fact reinvested into domestic entities (and therefore less valuable) is not known (though Victor Shih has speculated).

The Rising Sun in the Currency Wars
A quite disturbing risk is that China might be unwittingly drawn into the ongoing "currency wars" and in particular a devaluation of the Japanese Yen.  The term "currency wars" came into frequent use in 2010 (Guido Mantega, the Brazilian finance minister used the term often) to describe the series of quantitative easing by developed country central banks (especially the UK and US) to lower their exchange rates and restore competitiveness relative to emerging markets.  Developing countries and especially emerging markets responded by introducing capital controls and restrictions, seeking to fight the tide of liquidity as investors moved money from developed to developing economies to seek returns.

Japan (like Switzerland) was seen as a safe haven, having a sound economy and currency which was seen as still a good store of value.  With increasing flows the value of the Yen has risen to very high levels, eating into the already declining competitiveness of Japan's export industries.  Coupling with a now crippling level of debt and effects from the earthquake, the Bank of Japan has also been involved in easing although it may not be done yet.  A few are now speculating that i) Japan has further easing to do and ii) China may feel the need to respond with its own devaluation to ensure its currency remains cheaper than Japan.  As Mike Dolan points out for Reuters, devaluing the RMB will bring China into conflict with the US, while Andy Xie argues that a big Yen devaluation could cause China's banking system to sink.  It is not clear how Andy imagines the collapse - whether by loss of confidence or speculation however there seems to be enough to at least mount a rebuttal to Michael Pettis who last year in a podcast stated that there was no doubt China's foreign reserves would be sufficient to repel any currency contagion.

And right now?
Of course a country's capital account is in flux and it is worth taking into account money flowing out from a country as well as in.

This year has seen a reversal in that China's foreign reserves shrank for the first time since 1998, while the slowing rate of RMB appreciation has seen China's central bank struggling to find a balance between trying to dampen the impact of investors withdrawing from bets on appreciation and inadvertently causing uncertainty which could encourage substantial capital outflows:

The central bank wants to widen that band to allow greater two-way flexibility, discouraging investors from taking one-way bets on yuan appreciation by bringing speculative capital into the country....But China's central bank still lives in the long shadow of the Asian financial crisis, when sudden outflows of capital brought neighbouring countries to their knees.

Further complicating the picture is the very hard to estimate extent of capital flight which anecdotal evidence suggests is high - "The errors and omissions in China’s balance of payments ($60bn in 2010) suggest tens of billions might be involved in such capital flight though it is difficult to distinguish between hot money outflows and capital flight".  A thorough analysis presented in an interview by Victor Shih, is here.

China maneuvers

Theatre in the capital
Not only the National People's conference but some of the sideline events grabbed press attention.  Comment about Bo Xilai has flourished this week as many have looked to interpret what it means for the Chinese Communist Party's strategic direction and generational handover which will see the ascent of Xi Jinping later this year.  The Daily Mail had a piece explaining there was nothing to worry about from this episode of party infighting, while pieces in the Economist and the Telegraph  helped put the events in broader context.  There were plenty of pictures of Bo seemingly looking rather unimpressed with the whole affair.  Bo's own comments to the media before his dismissal from the post of mayor of Chongqing had been to politely to defend his actions in office, while plenty of others commented on prospects of his allies also being purged.

Bo Xilai has been purged

However that was not the only sideshow, as late in the week saw reports of rumours of an attempted coup in the communist party headquarters in Beijing, though later dismissed in the media as misinterpretation of sightings of a military escort for a North Korean delegation.  Amidst tight monitoring of internet blogs, eager Chinese bloggers were reported to be using special code words to evade blocks by the authorities.

While the Chinese government will no doubt be taking many steps to reassume control of events and their reporting, one change reported mostly in the legal press was quite ominous.  Chinese lawyers must now swear an oath of allegiance to the Chinese Communist Party, which seems a regressive step.  Security officials have been summoned to Beijing for "retraining" and a pro-reform professor at the University of Peking was allegedly detained after calling for a national protest.

All in the details
As usual a rolling debate continued as to what sort of landing China would be having in the near future.  The latest instalment saw Patrick Chovanec exchange paragraphs with Andrew Batson in the Guardian.  And Jim Rogers, a previous China bull was announced to be bearish on Chinese stocks for the short term at least.  Amongst all such debates a point that should be considered is how reliable information experts rely upon about China is.

There have been doubts about the collection and reporting of government and private statistics - a recent article in Bloomberg explored the issue while new measures by the National Bureau of Statistics (NBS), hailed by state press as aimed to improve accuracy were also characterised as being aimed at stopping explicit manipulation.

A good example of the role statistics can play in the analysis came this week with two analyses of the Chinese property market which looked at whether there will be a crash in the sector.  Note that Chinese property prices have been sliding for months.  Not a collapse, but a slowdown and consistent with other emerging markets says Kenneth Raposa on a Forbes blog. Kenneth had based his analysis in a large part on statistics from the NBS which suffer from the flaws mentioned above.  Not so say the team from Societe Generale.  While they may be using the same figures as Raposa (along with a PPI metric) they seem to draw their conclusion from a national aggregated basis (the brief note I saw on FT Alphaville did not explain their methodology) to conclude "Chinese property sales and prices have made for dour reading recently" and that taking into account different metrics "arguably the results are a lot worse".

As with any statistics there remain outliers and there were a couple of reminders of the need to be vigilant for unlikely though extreme risks which could affect China.  Analyst Nick Lardy gave some comments on risks of Chinese citizens pulling funds from the property sector to invest in equities precipating a sector slump, while Yu Bin of the Development Research Centre noted remaining risks from the global downturn.

Banks under attack

In addition to criticism over the credit controls which allow banks to fix high margins and take excess profits, there was also futher comment as to the extent which they had underestimated bad loans.  Regulators are starting to take note of the criticisms and the China Banking Regulatory Commission (CBRC) was noted to have had direct communications with some lenders, in what could be the first steps of action which could lead to banks reclassifying the loans and suffering big losses.  A suitably stern looking picture of the coat of arms of the CBRC was also published:

At least one proper use for all the copper stored in Chinese warehouses

But aside from intervention at the top, there is likely to be more news of banking stress at the business level. Caixin magazine had an excellent report of malpractice and rising defaults at loan guarantee company Zhongdan.  What is worrying is not only the apparent prevalence of loan malfeasance (which reminds of the recent US mortgage auto-form filling scandal) but that the company was intermixing risky private lending activities with its regular guarantee business.

And stress in the financing sector seems to be feeding into the general economy.  Not only did this week see an increase in petrol prices for chinese consumers (with the largest increase in three years), but inflation in basic commodities has reappeared with increases in the price of onions.  As this note from an FT blog explains the price increase had been in part due to the tight financing environment: 

But farmers, who have difficulty obtaining bank loans, rely on money lenders to cover a large portion of their cold storage costs. So when the lenders' interest rates shot up last year to as much as 60 per cent, farmers cut their losses and let their green onions rot. 

As the blog noted there had been previous commodity panics, such as with garlic and pork. One hopes the Chinese consumer won't have his or her dinner interrupted by too many other factors any time soon!

Degrees of control...

While you were away...
Following on from the last post there were a couple of items of interest.  First, there were some comments last week from Luis Miguel Castilla, the Peruvian finance minister that in the event of any Chinese slowdown, Peru would be OK.  As reported in this FT Alphaville blog post, Castilla argued that domestic stimulus would offset China related slowdown and

...even if there is a slowdown in demand from China, commodity prices will still be higher than they were five to six years ago...

Given demand from China has been the main driver of commodity prices this seems optimistic.  The Alphaville team make the same point and they include a striking graph from a Capital Economics note which seems worth repasting here:

And any slowdown in China's demand for commodities might not just involve a simple slowdown in the rate of orders but could be distorted and possibly extended by chronic overcapacity problems in a number of key commodity consuming industries.  As explained in an article in the Sydney Morning Herald:

The Chinese steel industry has built-up vast over-capacity over the past decades and the excessive production amounts to more than 122 per cent of demand, according to Wuhan Iron and Steel. 

How much overcapacity? Well the article details that Wuhan Iron and Steel has diverisified into the business of rearing pigs while back in January analysts found various anecdotal evidence, including this empty car park at a blast furnace:

A destination for Australian raw material exports

Still commodity data in China is imprecise as was noted for copper inventory estimates last year (not to mention various copper collateral financing schemes).

Back-to-market banks
Meanwhile expectations remain that many banks will return to the market for further capital raising (as Bank of Communications' $8.9 billion private placement was announced), something Walter and Howie note has happened very often since the first IPOs of Chinese banks in the mid 2000's.  Reports of statements by Central Bank Governor Zhou Xiaochuan at the National People's Congress seemed conflicting as some reports referred to capital shortages and funding shortfalls, while others suggested the Required Reserve Ratio, the main instrument for setting bank capital levels in China, could be relaxed.  An article in the Epoch Times covered arguments why some anticipate a hard landing of China's banks, while to add to the confusion JP Morgan, said in some respects, the Chinese economy already was in a hard landing.

Degree of control
With such imbalances, it is not surprising that questions have arisen as to the stability of the political sphere and of Chinese society as a whole.  Most people take it as a given that the Chinese authorities have sufficient control of the economy and the population although there are questionable assumptions with this.

Statements by Prime Minister Wen Jiabao at the current National People's Congress have suggested it is facing challenges with its economic and political oversight of China Inc.  At the start of the Congress, the lowest overall growth target in a long time was announced, followed on Wednesday by the pronouncement of the need for further political reform to avoid a "second Cultural Revolution".

This latter comment was directed at discrediting Bo Xilai who was dismissed from his post of the mayor of Chongqing and blocked from joining the all powerful Politburo Standing Committee.  Bo's period in office had seen a revival in socialist era cultural activities and an offensive (of questionable means) against organised crime which attracted some popularity of city residents but disdain from officials.  A scandal involving Bo's security chief had brought a conflict between Bo and other factions into the open and overshadowed the National People's Congress.  Further details here.

It is not just political infighting which observers are concerned about, but further weakness in the system itself.  Gordon Chang, an established observer who blogs on both political and economic matters predicted in 2001 that by 2011 the Chinese political and economic system would collapse, on the basis of inherent flaws in China's governance and economic management (he recently revised it to this year).  One point Chang makes in his blogs is how China's leaders are concerned to prevent inflation but it constrains their ability to fix imbalances in the economy, while structural issues (like the negative real savings rate for depositors) remain.

Inflation driven by high commodity prices and labour shortages can arguably be attributed as a driver of urban strikes such as those of factory workers and taxi drivers in the last year.  However Chinese authorities also face continuing political unrest from the North west region of China (Xinjiang) and Tibet where riots have re-erupted in recent weeks.  Protests in 2011 in response to the Arab Spring were muted however internal weaknesses of China have attracted comment from outsiders such as John McCain, who spoke at a recent security conference in Europe.

Given all the recent speculation as to what sort of "landing" the Chinese economy will have it seems important to consider how much control over its economic system as much as what will be the outcome of its decisions on this system.

Toxic loans and all that...

Satyajit Das, a China scholar has written a piece for ABC TV (in Australia) which surveys much of the misalignment in the Chinese economy and links well some of the different concepts (like over-investment and over-indebtedness) which have been covered in this blog and elsewhere.  It can be found here.

A good question you might ask is why an Australian TV channel?  Well it just so happens that people in countries like Australia and Canada (key exporters to, and dependent on, China) are starting to ask what could happen if China's growth slows (more than currently) and the answers are not simple or necessarily complementary.  More on this in a moment.

A loan for every occasion

The point has been made in several places that the Chinese banking system is weighed down by a variety of different loans, the two major types being (i) legacy loans prior to 2008 which had been accumulated over decades (often to state-owned entities) which were in default or non-performing and (ii) loans directed to be made after 2008 encouraged by bullish central government policy aimed at stimulating the Chinese economy.

As has been mentioned the first type of loans were hived off from bank balance sheets - often into separate run-off vehicles called Asset Management Companies (or AMCs).  As this article on a WSJ blog explains, the AMCs have failed to recover and dispose of the bad debts, and strangely enough are still operating and looking for new investment (possibly through IPOs).  An article by Simon Rabinovitch for the FT details proposed injections of funds from Standard Chartered and UBS. It also mentions a lucrative side venture the AMCs got into - snapping up bank licences.  This is not the only venture - apparently AMCs have been investing in the real estate sector, and in distressed real estate vehicles aswell.   As the WSJ article made clear, debt resolution companies should not have ongoing business (well, unless they are owned by the UK government!).

So far, so well hidden, but added to this is a weight of recent government supported lending.  During mid 2011, the full extent of a lending binge was hinted at when it was findings by the National Audit Office and the People's Bank of China were released, including the headline figure that Chinese local governments owed a total of $1.65 trillion in debt - equivalent to 27% of China's GDP.  As this article in the FT stated

Local governments have accumulated an unprecedented mountain of debt in the wake of the 2008 financial crisis after Beijing opened credit floodgates, backing state-owned banks to lend to state-backed infrastructure projects...

while an article in Bloomberg gave some details about some of the vanity projects involved, such as the building a replica of New York City in Tianjin.  Victor Shih was one of the first to fully explore how this came about (a good summary of his analysis and in general is here) and one of the key ways was the use of trusts.  Historically local governments had been profilgate and were barred from borrowing directly and so had to seek revenue from land sales (which fed the real estate boom).  To sidestep this they would set up third party entities which were opaque and raised the financing for government projects.

Last year many trusts faced cash squeezes as revenue from the underlying projects dried up while obligations on the trusts to start repaying the loans kicked in.  The Yunnan Highway was the first platform which was reported to be close to default on loans, while the FT Alphaville blog reported the first possible default by a Chinese corporate on a bond issue.

Cleaning up

Arguably the Chinese have shown similar enthusiasm for cleaning up the debt as for building the underlying projects themselves.  In 2011 a plan equal to or greater than the US TARP was announced and this year has seen suggestions that overdue loans will be tackled with a combination of new money, rollovers and maturity extensions (see here).  Michael Pettis discusses the issue (and likelihood of success) in some detail in his latest blog post.  It should only be added that (i) similarly unusual "trust" structures have popped up in the private real estate and industrial sectors targeting businesses that cannot get credit and consumers seeking higher returns than in the regulated banking system (more on this later) and (ii) let's hope they do a better job than the photoshop artists who were asked to spruce up a shot of some local officials inspecting a newly paved road...

A newly laid road in Huili, south west China

What will the neighbours say?

China's trading partners are sensitive to unfavourable or unpredictable developments (the bans on rare earth mineral exports and Brazilian mega iron ore ships, or the arrest of Australian citizen Stern Hu, Rio Tinto's iron ore negotiator in 2009) and the recent announcement of lower growth targets saw much discussion about future prospects for countries such as Canada.  Canada has recent experience of private sector loss of confidence in China from the recent Sinoforest debacle.  However it is Australia which is perhaps most vulnerable to a China downside shock and which there has been lively debate.

The Economist identified in 2010 that the Australian property market was overvalued back in 2010 and there hasn't been any significant data to dampen that view.  Meanwhile last week S&P produced a report predicting steep falls in house prices if China growth was below target (see here).  The report was strongly criticised by Michael Pascoe in the Sydney Morning Herald, but the property market is a key focus of the Australian economy and weakness would be a strong signal for the rest of the economy.  Meanwhile and more significantly there were warnings about threats to commodity prices from a China slowdown which could be even more serious, both in Australia and globally.

Taming the galloping dragon?

Most economists understand an expression like the title to refer to the battle to restrain inflation.  For China, the dragon is a national symbol and in recent times the political elite have not only been battling inflation but struggling to steer China Inc.'s runaway growth.  Prime Minister Wen Jiabo's announcement of the lowered growth target at the annual National People's Congress this week was well covered in the international media, which used the opportunity to look back at the last decade of China's astonishing success story and speculate as to where China (and its trading partners) are now headed.

Speculation like this is not new, but it is an issue which divides - most analysts seem happy to quickly take a stand as either a China bear or as more upbeat.  Jim Chanos, famous for shorting Enron, has been one of the most vocal and consistent in pointing out the peril should a collapse in the Chinese model of over-investment and top-down directed rapid growth occur, in 2010 speaking to students at Oxford University, followed by a more recent explanation of his "long corruption short china" trade when discussing recent property price falls in China on CNN.  Meanwhile with Jim Rogers and other outspoken individuals coming to life, the Wall Street Journal felt compelled to track the ongoing exchanges in its "Chanos China Smackdown Watch" series.

Most will have seen a picture or two of an empty Chinese mega shopping mall, or even London hedge fund manager Hugh Hendry's form of disaster tourism, which involved him standing in front of lots of tall empty skyscapers in a third tier city.  What is interesting is a dynamic behind-the-scenes that may be equally or more important - weakness in the Chinese banking system.

Hugh Hendry in front of a building

This was touched on in Walter and Howie's book, though they covered all of the Chinese financial system, the domestic banks were at the core of the story.  And there was certainly at least one paradox they identified - how could China's large pillar banks, recently internationalised and amongst the largest banks in the world, be so reliant on external fundraising?  Why did rights issues follow soon after their IPOs?

Chinese banks have numerous advantages in their domestic market due to the regulation and restrictions on savings and capital in China - as one piece in the Sydney Morning Herald put it (when referring to the low deposit rates on offer to savers due to government regulation):

No wonder that one senior Chinese bank executive was embarrassed to reveal his bank's profit, or rather, the money his firm had fleeced from depositors.

The large banks have played an even larger role in executing government macro policy, including accelerating lending after 2008 and, with the People's Bank of China's elevating the reserve requirement ratio to its primary tool for slowing inflation, becoming the conduit for transmission of government targets into the economy.

Yet despite (or in spite of) such conditions, Chinese banks are not as necessarily healthy as they seem.  Not only is it likely that the size of their non-preforming loans is understated and likely to rise, there are more fundamental and deeper problems which are likely to manifest themselves.

Charlene Chu is a Fitch analyst who has brought to attention some of these weaknesses.  In this interview with Bloomberg she named a number of issues for concern.  Many are familiar and outcomes remain to be seen.  Of most interest I thought was the reference to questions about the level of capitalisation of banks.  For most the ultimate answer would be that the central government of China has sufficient foreign reserves to act as a backstop in the event of (or preventing any) contagion.  Of course as we know from the European debt crisis, any doubt or uncertainty about a government backstop can disrupt any attempts to bolster bank balance sheets.

There are plenty of toxic loans in China's banking system from legacy debt portfolios accumulated in the eighties and nineties to local government excessive borrowing in the 2000's.  This article by Anthony Hilton in today's Evening Standard (covering a gloomy note by Lombard Street Resarch) gives some more detail and it does not look pretty.  In sum, China's leaders are going to struggle with an unpredicatble dragon for some time to come.

China's Financial Architecture

So what do we know about China's financial system?
A good place to start is with a recent work by Walter and Howie called "Red Capitalism". I came across the volume by the two veteran China bankers in Hong Kong over a year ago.

It's a bit of a technical read, but the pair give a thorough analysis of the Chinese financial system and fill in with a lot of the history (you can buy it here).  It was well reviewed and one by John Plender in the Financial Times really gets to the crux of the matter:

There are, in effect, two Chinese economies. One is dominated by foreign-owned and family-run private companies that generate phenomenal growth mainly in Guangdong and the Yangtze River Delta......Then there is the slower-growth economy dominated by state-owned enterprise, which still provides some social security for its workers. This is a bank-based model.....
While the state-owned system has many of the trappings of western financial models such as stock exchanges, bond markets, interbank markets and so forth, Walter and Howie argue that this is just camouflage.....

Such "trappings" are problematic because as Walter and Howie show (in figures if not in explanation),   China's modern institutions are intertwined with each other in shared political and bureaucratic expediencies.  Inefficiencies, perverse incentives and corruption abound. A good example is the rise of the asset management companies (or AMCs) which were formed to absorb and run off liabilities from the bank insolvencies of the 1990's.  Not much debt has been written off and today they actually compete as active players in the financial markets, contributing to increases in debt.

Throughout the financial system historical debts have not been run off and new ones have been accumulated on a massive scale.  The book covers Premier Zhu Rhonji's partially successful efforts to clean up some of the excess in the 2000's which allowed the largest Chinese banks to restructure their operations and list their shares on international stock markets.  By 2008 however these efforts had been abandoned and banks were lending rapidly to stimulate the economy (on government orders) in response to the global crisis.

A video of Carl Walter and Victor Shih leading a discussion forum on this is here.  Victor Shih is particularly expert on the functioning of government departments in China and touches on the problematic procedures which occurred with some of the post-crisis lending approvals.

So what does all this mean?

Well it probably means there will be a meltdown of some sort in China.

In the short term, China has a large debt overhang with private sector and governmental loans defaulting at just the time when the economy is slowing in response to global pressures.  Chinese statistics as to non-performing loans, manufacturing and the state of the economy are questioned by many.

An asset price bubble (in particular in the property sector) is currently deflating and some commentators are raising concerns about capital flight and decline in bank deposits (with liberalisation of the restrictions on trade in the Chinese currency and reductions in the bank reserve ratio by the Central government).

In the long term, the World Bank issued a report last week saying that without changes to its state sector, China would face a bleak long term future, with innovation stifled and the country falling into the "middle income trap", when growth stalls. A Financial Times article with the details is here.

For China, low growth means unrest.  The rule of thumb is that social stability has previously maintained if GDP growth is 8% or higher (which it has been for a decade).  Patrick Chovanovec makes the point that any growth is hard for China to maintain now after 3 explosive years in this interview with Noel Roubini.

Could there be political as well as economic instability in the near future? While there has been no arab-spring style revolution in China yet such an outcome is at the forefront of the Chinese leadership's concerns.  More on this later.

Welcome!

Welcome! This is a new blog which will aggregate news from and about China and its rising path.  As the 18th Party Congress approaches and the fifth generation of leadership takes over, this blog will look at some of the more notable issues affecting the transition, as reported throughout the web.  A key focus will be whether any such issues could be so serious as to check or even halt such a rise.

Many commentators have observed weaknesses or even flaws in the Chinese political,economic and civil systems, whether these could be so serious as to be fatal or cause a meltdown is a central question this blog seeks to answer....

Stay tuned and looking forward to your comments!

The Analyst