China's turmoil is both economic and political

The chaos on its stock markets, a fierce battle between the old and new guard in the Communist Party and the restive border provinces of Tibet and Xinjiang forebode tough times ahead for China, says Claude Arpi.

It started with explosions.

At around 11:30 pm on August 13, two consecutive explosions blasted warehouses containing hazardous chemical materials in Tianjin. More than 100 people have now been confirmed dead.

Another explosion, with perhaps longer term implications, had occurred two days earlier: It was the devaluation of the yuan.

On August 11, the Central Bank of China lowered the rate of the Chinese currency by 1.87 per cent; then, the next day in another move, it was further devaluated by 1.6 per cent and once again the next day. It was the first time since 2005, when the current mechanism of change was set up, that Beijing went in for such brutal and unexpected moves.

More than 4 per cent in 48 hours is a lot.

The South China Morning Post commented: 'With a dramatic devaluation of the yuan, Beijing brought out the bazookas in a move that might escalate a regional currency war that it had until now chosen to avoid.'

Why the bazookas? Was the devaluation a guerilla tactic? Or was it the beginning of a new currency war?

Experts are yet to agree on the meaning of Beijing's sudden move.

Will it make China's exports more competitive against its Asian rivals? Could this restore China's competitiveness vis-a-vis other currencies such as the Japanese yen and the Korean won? It is not certain.

Others have argued that the move to push the US dollar higher can only make imports more expensive for China, which is the largest user of energy, metals and grains. The devaluation could worsen the crash in the commodities market.

And, of course, there are the believers in China's collapse, the 'I told you soers,' for whom it is the beginning of the end. They predict that the Communist regime's end is coming fast.

On August 24, the Shanghai Composite Index dropped down by 8.52 per cent! The markets in China lost a paltry $1 trillion as the sell-off deepened not only in Shanghai, but also in Shenzhen and Hong Kong. The world's markets followed suit and started crumbling.

Will the investors' trust return?

But the Communist leadership appears to be on a warpath for something else. On August 10, The People's Daily published an article sending a strong political message. It is titled: 'Dialectically View the Phenomenon of Tea Turns Cold When People Are Away'.

It might be far more serious than the devaluation. The Communist party's mouthpiece explained: 'People come and go; the present day replaces old times. Over the years, many of our party cadres have correctly treated their status changes after having stepped down from their leadership positions. They have thus won everyone's respect.'

This targets former president Jiang Zemin.

It was insinuated that 'a highly positioned cadre,' when he was in power, arranged for his trusted aides to be in the top positions for the purpose of being able to manipulate power in the future.

The People's Daily compares the retired cadre to 'cold tea.' This, of course, triggered many comments on the Internet; one example: '"If ginger tea (Jiang Zemin) insists on being as hot as before, what should we do? In such a case, we should pour it (the ginger tea) out!'

Since then, some Web sites in China have reported that Jiang Zemin was under house arrest. It is difficult to check the veracity of the information, but The People's Daily mentioned 'the uncanny, complex, ferocious, and stubborn ways of the forces opposing the reforms possibly exceeded what people imagined.'

A full-fledged war seems on the cards between China's leader Xi Jinping and the earlier regimes.

Simultaneously, Beijing is becoming more aggressive; not only in the South China Sea where it reclaimed a number of large reefs, but also in the Pacific and elsewhere. Take the military parade on September 3 to commemorate the 70th anniversary of victory over Japan in World War II.

The People's Liberation Army unveiled 500 pieces of China's latest military gadgets and featured 12,000 soldiers in the grand show.

During the National Day parade in 2009, China showcased five types of missiles, including the DF31A, a long-range intercontinental ballistic missile capable of reaching the shores of America.

A Pentagon report recently asserted that China is developing a new road-mobile inter-continental ballistic missile, the DF-41, with a range up to 15,000 km.

Closer to the Indian border, on August 24, The People's Daily Online reported that three more unattended radars were soon to be installed in Tibet. The mouthpiece of the Chinese Communist Party reminded us that China's 'first unattended radar station has stood eight years on the top of Ganbala mountain, with a height of 5,374 meters above the sea level on the Qinghai-Tibet Plateau.'

The Web site affirms that the unattended radars would form a radar network with the previous one. Kampa-la (Ganbala in Chinese) is located in Nagartse county of Shannan prefecture, not far from Lhasa.

Observers believe that a weaker China might become more aggressive. Is it what is happening?

Xi Jinping has also to deal with the instability on China's periphery, particularly in Tibet and Xinjiang.

A Sixth Tibet Work Forum was held in Beijing on August 24 and 25.

A Tibet Work Forum usually decides the fate of the Roof of the World for the next 5 to 10 years.

The previous forum was held in Beijing in January 2010. Before that, five Tibet work conferences were organised in 1980, 1984, 1994 and 2001.

But what is exactly a work forum on Tibet?

It is the conference attended by several hundreds of officials, including members of the Politburo and its standing committee, the PLA and the local satraps.

The 6th Tibet Work Forum was presided over by Xi Jinping, who pleaded for more efforts to promote economic growth and bring about all-round social progress in Tibet and Tibetan-inhabited areas.

Note that as far as Beijing's policies for Tibet are concerned, the Tibetan Autonomous Region and Tibetan-inhabited areas in four provinces (Sichuan, Gansu, Qinghai and Yunnan) have been clubbed together.

Isn't it one of the Dalai Lama's demands?

While the formal splitting of Tibet into five different provinces remains, economic and cultural policies will be similar. For example, Xi promised that special financial, tax and investment policies will continue in the future.

The Chinese president also asserted: 'Development, which aims to improve living conditions for various ethnic groups and beef up social cohesion, should be advanced in a prudent and steady manner, and all measures taken should be sustainable.'

The dual objective of improving 'local conditions' and 'beefing up social cohesion' is pervading Xi's speech. It is an admission that poverty among the local population in Tibet still exists, 60 years after the so-called liberation.

Xi did not forget the 'core' Communist values: 'Efforts should also be made to incorporate education on "socialist core values" into courses in schools at various levels, popularise the national commonly-used language and script, and strive to foster "party-loving and patriotic builders and successors of the socialist cause".'

Will the Tibetans believe this one?

Premier Li Keqiang also addressed the forum.

Li believes that the key for Tibet is 'to sharpen its self-development capability through promoting its specialty industries, infrastructure construction, and environmental protection.'

But more infrastructure construction means more roads, airports, railway lines and dams. For India, it is a serious cause of worry.

The entire Politburo, including the seven-member standing committee were in attendance (apart from Xi and Li, Yu Zhengsheng, Zhang Dejiang, Liu Yunshan, Wang Qishan and Zhang Gaoli).

The true 'spirit' of the forum was expounded in another article focusing on China's main worry, namely the 'instability' of the Land of Snows, or in other words, the 'nationalist' aspirations of the people of Tibet.

Xi Jinping spoke of 'national and ethnic unity as the key plans for Tibet, vowing to focus on long-term, comprehensive stability and an unswerving anti-separatism battle.'

It is one of the many worries of the present Chinese leadership.

Xi reiterated his theory about the 'border areas.' He said that 'a series of strategies that have been in effect during the 60-plus years of governing Tibet,' and he cited his theory that 'governing border areas is the key for governing a country, and stabilising Tibet is a priority for governing border areas.'

Borders are often mentioned in the Chinese discourse.

Does it mean that China is afraid of India?

After all, Tibet's main border is with India.

Or is it a pretext to bring more dual infrastructure on the Tibetan plateau?

Xi added that party officials should 'keep pace with the central committee in their thoughts and deeds, telling them to "cherish unity as if it was their eyes".'

Will Tibetans one day cherish unity with the Han Chinese as if the latter were their own eyes? It may never happen.

'Ethnic' policies, like the financial, seem bound to fail.

The coming years in the Middle Kingdom might be years of chaos.

The old Emperors have always feared this.